< Back to H.R. 3419 (103rd Congress, 1993–1994)

Text of the Tax Simplification and Technical Corrections Act of 1993

This bill was introduced in a previous session of Congress and was passed by the House on May 17, 1994 but was never passed by the Senate. The text of the bill below is as of May 23, 1994 (Referred to Senate Committee).

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HR 3419 RFS

103d CONGRESS

2d Session

H. R. 3419

IN THE SENATE OF THE UNITED STATES

May 23 (legislative day, MAY 6), 1994

Received; read twice and referred to the Committee on Finance


AN ACT

To simplify certain provisions of the Internal Revenue Code of 1986, and for other purposes.

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

SECTION 1. SHORT TITLE, ETC.

    (a) SHORT TITLE- This Act may be cited as the ‘Tax Simplification and Technical Corrections Act of 1993’.

    (b) AMENDMENT OF 1986 CODE- Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.

    (c) TABLE OF CONTENTS-

      Sec. 1. Short title, etc.

TITLE I--PROVISIONS RELATING TO INDIVIDUALS

Subtitle A--Provisions Relating to Rollover of Gain on Sale of Principal Residence

      Sec. 101. Multiple sales within rollover period.

      Sec. 102. Special rules in case of divorce.

Subtitle B--Other Provisions

      Sec. 111. De minimis exception to passive loss rules.

      Sec. 112. Payment of tax by credit card.

      Sec. 113. Modifications to election to include child’s income on parent’s return.

      Sec. 114. Simplified foreign tax credit limitation for individuals.

      Sec. 115. Treatment of personal transactions by individuals under foreign currency rules.

      Sec. 116. Expanded access to simplified income tax returns.

      Sec. 117. Treatment of certain reimbursed expenses of rural mail carriers.

      Sec. 118. Exclusion of combat pay from withholding limited to amount excludable from gross income.

TITLE II--PENSION SIMPLIFICATION

Subtitle A--Simplified Distribution Rules

      Sec. 201. Repeal of 5-year income averaging for lump-sum distributions.

      Sec. 202. Repeal of $5,000 exclusion of employees’ death benefits.

      Sec. 203. Simplified method for taxing annuity distributions under certain employer plans.

      Sec. 204. Required distributions.

Subtitle B--Increased Access to Pension Plans

      Sec. 211. Modifications of simplified employee pensions.

      Sec. 212. Tax exempt organizations eligible under section 401(k).

      Sec. 213. Duties of sponsors of certain prototype plans.

Subtitle C--Nondiscrimination Provisions

      Sec. 221. Definition of highly compensated employees.

      Sec. 222. Modification of additional participation requirements.

      Sec. 223. Nondiscrimination rules for qualified cash or deferred arrangements and matching contributions.

Subtitle D--Miscellaneous Simplification

      Sec. 231. Treatment of leased employees.

      Sec. 232. Modifications of cost-of-living adjustments.

      Sec. 233. Plans covering self-employed individuals.

      Sec. 234. Elimination of special vesting rule for multiemployer plans.

      Sec. 235. Full-funding limitation of multiemployer plans.

      Sec. 236. Alternative full-funding limitation.

      Sec. 237. Distributions under rural cooperative plans.

      Sec. 238. Treatment of governmental plans under section 415.

      Sec. 239. Uniform retirement age.

      Sec. 240. Uniform penalty provisions to apply to certain pension reporting requirements.

      Sec. 241. Contributions on behalf of disabled employees.

      Sec. 242. Special rules for plans covering pilots.

      Sec. 243. Treatment of deferred compensation plans of State and local governments and tax-exempt organizations.

      Sec. 244. Treatment of employer reversions required by contract to be paid to the United States.

      Sec. 245. Continuation health coverage for employees of failed financial institutions.

      Sec. 246. Date for adoption of plan amendments.

TITLE III--TREATMENT OF LARGE PARTNERSHIPS

Subtitle A--General Provisions

      Sec. 301. Simplified flow-through for large partnerships.

      Sec. 302. Simplified audit procedures for large partnerships.

      Sec. 303. Due date for furnishing information to partners of large partnerships.

      Sec. 304. Returns may be required on magnetic media.

      Sec. 305. Treatment of partnership items of individual retirement accounts.

      Sec. 306. Effective date.

Subtitle B--Provisions Related to TEFRA Partnership Proceedings

      Sec. 311. Treatment of partnership items in deficiency proceedings.

      Sec. 312. Partnership return to be determinative of audit procedures to be followed.

      Sec. 313. Provisions relating to statute of limitations.

      Sec. 314. Expansion of small partnership exception.

      Sec. 315. Exclusion of partial settlements from 1 year limitation on assessment.

      Sec. 316. Extension of time for filing a request for administrative adjustment.

      Sec. 317. Availability of innocent spouse relief in context of partnership proceedings.

      Sec. 318. Determination of penalties at partnership level.

      Sec. 319. Provisions relating to court jurisdiction, etc.

      Sec. 320. Treatment of premature petitions filed by notice partners or 5-percent groups.

      Sec. 321. Bonds in case of appeals from TEFRA proceeding.

      Sec. 322. Suspension of interest where delay in computational adjustment resulting from TEFRA settlements.

      Sec. 323. Special rules for administrative adjustment requests with respect to bad debts or worthless securities.

TITLE IV--FOREIGN PROVISIONS

Subtitle A--Simplification of Treatment of Passive Foreign Corporations

      Sec. 401. Repeal of foreign personal holding company rules and foreign investment company rules.

      Sec. 402. Replacement for passive foreign investment company rules.

      Sec. 403. Technical and conforming amendments.

      Sec. 404. Effective date.

Subtitle B--Treatment of Controlled Foreign Corporations

      Sec. 411. Gain on certain stock sales by controlled foreign corporations treated as dividends.

      Sec. 412. Miscellaneous modifications to subpart F.

      Sec. 413. Indirect foreign tax credit allowed for certain lower tier companies.

Subtitle C--Other Provisions

      Sec. 421. Exchange rate used in translating foreign taxes.

      Sec. 422. Election to use simplified section 904 limitation for alternative minimum tax.

      Sec. 423. Modification of section 1491.

      Sec. 424. Modification of section 367(b).

TITLE V--OTHER INCOME TAX PROVISIONS

Subtitle A--Provisions Relating to Subchapter S Corporations

      Sec. 501. Authority to validate certain invalid elections.

      Sec. 502. Treatment of distributions during loss years.

      Sec. 503. Electing small business trusts.

      Sec. 504. Other modifications.

Subtitle B--Accounting Provision

      Sec. 511. Modifications to look-back method for long-term contracts.

Subtitle C--Provisions Relating to Regulated Investment Companies

      Sec. 521. Repeal of 30-percent gross income limitation.

      Sec. 522. Basis rules for shares in open-end regulated investment companies.

      Sec. 523. Nonrecognition treatment for certain transfers by common trust funds to regulated investment companies.

Subtitle D--Tax-Exempt Bond Provisions

      Sec. 531. Repeal of $100,000 limitation on unspent proceeds under 1-year exception from rebate.

      Sec. 532. Exception from rebate for earnings on bona fide debt service fund under construction bond rules.

      Sec. 533. Repeal of debt service-based limitation on investment in certain nonpurpose investments.

      Sec. 534. Repeal of expired provisions.

      Sec. 535. Clarification of investment-type property.

      Sec. 536. Effective dates.

Subtitle E--Insurance Provisions

      Sec. 541. Treatment of certain insurance contracts on retired lives.

      Sec. 542. Treatment of modified guaranteed contracts.

Subtitle F--Other Provisions

      Sec. 551. Closing of partnership taxable year with respect to deceased partner, etc.

      Sec. 552. Modification of credit for producing fuel from a nonconventional source.

TITLE VI--ESTATE AND GIFT TAX PROVISIONS

      Sec. 601. Clarification of waiver of certain rights of recovery.

      Sec. 602. Adjustments for gifts within 3 years of decedent’s death.

      Sec. 603. Clarification of qualified terminable interest rules.

      Sec. 604. Transitional rule under section 2056A.

      Sec. 605. Opportunity to correct certain failures under section 2032A.

TITLE VII--EXCISE TAX SIMPLIFICATION

Subtitle A--Provisions Related to Distilled Spirits, Wines, and Beer

      Sec. 701. Credit or refund for imported bottled distilled spirits returned to distilled spirits plant.

      Sec. 702. Authority to cancel or credit export bonds without submission of records.

      Sec. 703. Repeal of required maintenance of records on premises of distilled spirits plant.

      Sec. 704. Fermented material from any brewery may be received at a distilled spirits plant.

      Sec. 705. Repeal of requirement for wholesale dealers in liquors to post sign.

      Sec. 706. Refund of tax to wine returned to bond not limited to unmerchantable wine.

      Sec. 707. Use of additional ameliorating material in certain wines.

      Sec. 708. Domestically produced beer may be withdrawn free of tax for use of foreign embassies, legations, etc.

      Sec. 709. Beer may be withdrawn free of tax for destruction.

      Sec. 710. Authority to allow drawback on exported beer without submission of records.

      Sec. 711. Transfer to brewery of beer imported in bulk without payment of tax.

Subtitle B--Other Excise Tax Provisions

      Sec. 721. Authority to grant exemptions from registration requirements.

      Sec. 722. Repeal of expired provisions.

TITLE VIII--ADMINISTRATIVE PROVISIONS

Subtitle A--General Provisions

      Sec. 801. Use of reproductions of returns stored in digital image format.

      Sec. 802. Repeal of authority to disclose whether prospective juror has been audited.

      Sec. 803. Repeal of special audit provisions for subchapter S items.

      Sec. 804. Clarification of statute of limitations.

      Sec. 805. Certain notices disregarded under provision increasing interest rate on large corporate underpayments.

Subtitle B--Tax Court Procedures

      Sec. 811. Overpayment determinations of Tax Court.

      Sec. 812. Awarding of administrative costs.

      Sec. 813. Redetermination of interest pursuant to motion.

      Sec. 814. Application of net worth requirement for awards of litigation costs.

Subtitle C--Authority for Certain Cooperative Agreements

      Sec. 821. Cooperative agreements with State tax authorities.

Subtitle D--Administrative Practice and Procedural Simplification

      Sec. 831. Notification of reasons for termination or denial of installment agreements.

      Sec. 832. Joint return may be made after separate returns without full payment of tax.

      Sec. 833. Offers-in-compromise.

      Sec. 834. Preliminary notice requirement.

      Sec. 835. Penalties under section 6672.

      Sec. 836. Required content of certain notices.

      Sec. 837. Required notice of certain payments.

      Sec. 838. Improved procedures for notifying Service of change of address or name.

      Sec. 839. Rights and responsibilities of divorced individuals.

TITLE IX--FINANCING PROVISIONS

      Sec. 901. Certain amounts derived from foreign corporations treated as unrelated business taxable income.

      Sec. 902. Special rules for rental use of dwelling for less than 15 days per year.

      Sec. 903. Loss carryovers and carrybacks not excluded in applying taxable income limitation on certain reserve deductions.

      Sec. 904. Extension of withholding to certain gambling winnings.

TITLE X--TECHNICAL CORRECTIONS

Subtitle A--Revenue Provisions

      Sec. 1001. Amendments related to Revenue Reconciliation Act of 1990.

      Sec. 1002. Amendments related to Revenue Reconciliation Act of 1993.

      Sec. 1003. Miscellaneous provisions.

Subtitle B--Income Security and Human Resource Amendments

Part I--Amendments Relating to Old-age, Survivors, and Disability Insurance Program

      Sec. 1011. Technical corrections related to OASDI in the Omnibus Budget Reconciliation Act of 1990.

      Sec. 1012. Elimination of rounding distortion in the calculation of the old-age, survivors, and disability insurance contribution and benefit base and the earnings test exempt amounts.

Part II--Human Resources Provisions

      Sec. 1016. Corrections related to the income security and human resources provisions of the Omnibus Budget Reconciliation Act of 1990.

      Sec. 1017. Technical corrections related to the human resource and income security provisions of Omnibus Budget Reconciliation Act of 1989.

      Sec. 1018. Elimination of obsolete provisions relating to treatment of the earned income tax credit.

      Sec. 1019. Redesignation of certain provisions.

Subtitle C--Tariff and Customs

      Sec. 1021. Technical amendments to the Harmonized Tariff Schedule of the United States.

      Sec. 1022. Clarification regarding the application of customs user fees.

      Sec. 1023. Technical amendments to the Omnibus Trade and Competitiveness Act of 1988.

      Sec. 1024. Technical amendment to the Customs and Trade Act of 1990.

      Sec. 1025. Technical amendments regarding certain beneficiary countries.

      Sec. 1026. Clarification of fees for certain customs services.

      Sec. 1027. Conforming amendment to section 337 of the Tariff Act of 1930.

TITLE I--PROVISIONS RELATING TO INDIVIDUALS

Subtitle A--Provisions Relating to Rollover of Gain on Sale of Principal Residence

SEC. 101. MULTIPLE SALES WITHIN ROLLOVER PERIOD.

    (a) GENERAL RULE-

      (1) Section 1034 (relating to rollover of gain on sale of principal residence) is amended by striking subsection (d).

      (2) Paragraph (4) of section 1034(c) is amended to read as follows:

      ‘(4) If the taxpayer, during the period described in subsection (a), purchases more than 1 residence which is used by him as his principal residence at some time within 2 years after the date of the sale of the old residence, only the first of such residences so used by him after the date of such sale shall constitute the new residence.’

      (3) Subsections (h)(1) and (k) of section 1034 are each amended by striking ‘(other than the 2 years referred to in subsection (c)(4))’.

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to sales of old residences (within the meaning of section 1034 of the Internal Revenue Code of 1986) after the date of the enactment of this Act.

SEC. 102. SPECIAL RULES IN CASE OF DIVORCE.

    (a) IN GENERAL- Subsection (c) of section 1034 is amended by adding at the end thereof the following new paragraph:

      ‘(5) If--

        ‘(A) a residence is sold by an individual pursuant to a divorce or marital separation, and

        ‘(B) the taxpayer used such residence as his principal residence at any time during the 2-year period ending on the date of such sale,

      for purposes of this section, such residence shall be treated as the taxpayer’s principal residence at the time of such sale.’

    (b) EFFECTIVE DATES- The amendment made by subsection (a) shall apply to sales of old residences (within the meaning of section 1034 of the Internal Revenue Code of 1986) after the date of the enactment of this Act.

Subtitle B--Other Provisions

SEC. 111. DE MINIMIS EXCEPTION TO PASSIVE LOSS RULES.

    (a) GENERAL RULE- Section 469 (relating to passive activity losses and credits limited) is amended--

      (1) by striking subsection (m),

      (2) by redesignating subsection (l) as subsection (m), and

      (3) by inserting after subsection (k) the following new subsection:

    ‘(l) DE MINIMIS EXCEPTION-

      ‘(1) IN GENERAL- In the case of a natural person, subsection (a) shall not apply to the passive activity loss for any taxable year if the amount of such loss does not exceed $200.

      ‘(2) EXCEPTION FOR ITEMS ATTRIBUTABLE TO PUBLICLY TRADED PARTNERSHIPS- This subsection shall not apply to items treated separately under subsection (k) (and such items shall not be taken into account in determining whether paragraph (1) applies to the taxpayer for the taxable year with respect to other items).

      ‘(3) ESTATES ELIGIBLE- For purposes of this subsection, an estate shall be treated as a natural person with respect to any taxable year ending less than 2 years after the death of the decedent.

      ‘(4) Married individuals filing separately-

        ‘(A) IN GENERAL- This subsection shall not apply to a taxpayer who--

          ‘(i) is a married individual filing a separate return for the taxable year, and

          ‘(ii) does not live apart from his spouse at all times during such taxable year.

        ‘(B) LIMITATION- Paragraph (1) shall be applied by substituting ‘$100’ for ‘$200’ in the case of a married individual who files a separate return for the taxable year and to whom this subsection applies after the application of subparagraph (A).’

    (b) CONFORMING AMENDMENTS-

      (1) Subparagraph (C) of section 56(b)(1) is amended by striking clause (ii) and redesignating the following clauses accordingly.

      (2) Subsection (b) of section 58 is amended by inserting ‘and’ at the end of paragraph (1), by striking paragraph (2), and by redesignating paragraph (3) as paragraph (2).

      (3) Paragraph (4) of section 163(d) is amended by striking subparagraph (E).

      (4) Subsection (d) of section 163 is amended by striking paragraph (6).

      (5) Subsection (h) of section 163 is amended by striking paragraph (5).

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1993.

SEC. 112. PAYMENT OF TAX BY CREDIT CARD.

    (a) GENERAL RULE- Section 6311 is amended to read as follows:

‘SEC. 6311. PAYMENT BY CHECK, MONEY ORDER, OR OTHER MEANS.

    ‘(a) AUTHORITY TO RECEIVE- It shall be lawful for the Secretary to receive for internal revenue taxes (or in payment for internal revenue stamps) checks, money orders, or any other commercially acceptable means that the Secretary deems appropriate, including payment by use of credit cards or debit cards, to the extent and under the conditions provided in regulations prescribed by the Secretary.

    ‘(b) ULTIMATE LIABILITY- If a check, money order, or other method of payment, including payment by credit card or debit card, so received is not duly paid, or is paid and subsequently charged back to the Secretary, the person by whom such check, or money order, or other method of payment has been tendered shall remain liable for the payment of the tax or for the stamps, and for all legal penalties and additions, to the same extent as if such check, money order, or other method of payment had not been tendered.

    ‘(c) LIABILITY OF BANKS AND OTHERS- If any certified, treasurer’s, or cashier’s check (or other guaranteed draft), or any money order, or any other means of payment that has been guaranteed by a financial institution (such as a credit card or debit card transaction which has been guaranteed expressly by a financial institution) so received is not duly paid, the United States shall, in addition to its right to exact payment from the party originally indebted therefor, have a lien for--

      ‘(1) the amount of such check (or draft) upon all assets of the financial institution on which drawn,

      ‘(2) the amount of such money order upon all the assets of the issuer thereof, or

      ‘(3) the guaranteed amount of any other transaction upon all the assets of the institution making such guarantee,

    and such amount shall be paid out of such assets in preference to any other claims whatsoever against such financial institution, issuer, or guaranteeing institution, except the necessary costs and expenses of administration and the reimbursement of the United States for the amount expended in the redemption of the circulating notes of such financial institution.

    ‘(d) PAYMENT BY OTHER MEANS-

      ‘(1) AUTHORITY TO PRESCRIBE REGULATIONS- The Secretary shall prescribe such regulations as the Secretary deems necessary to receive payment by commercially acceptable means, including regulations that--

        ‘(A) specify which methods of payment by commercially acceptable means will be acceptable,

        ‘(B) specify when payment by such means will be considered received,

        ‘(C) identify types of nontax matters related to payment by such means that are to be resolved by persons ultimately liable for payment and financial intermediaries, without the involvement of the Secretary, and

        ‘(D) ensure that tax matters will be resolved by the Secretary, without the involvement of financial intermediaries.

      ‘(2) AUTHORITY TO ENTER INTO CONTRACTS- Notwithstanding section 3718(f) of title 31, United States Code, the Secretary is authorized to enter into contracts to obtain services related to receiving payment by other means where cost beneficial to the Government and is further authorized to pay any fees required by such contracts.

      ‘(3) SPECIAL PROVISIONS FOR USE OF CREDIT CARDS- If use of credit cards is accepted as a method of payment of taxes pursuant to subsection (a)--

        ‘(A) a payment of internal revenue taxes (or a payment for internal revenue stamps) by a person by use of a credit card shall not be subject to section 161 of the Truth-in-Lending Act (15 U.S.C. 1666), or to any similar provisions of State law, if the error alleged by the person is an error relating to the underlying tax liability, rather than an error relating to the credit card account such as a computational error or numerical transposition in the credit card transaction or an issue as to whether the person authorized payment by use of the credit card,

        ‘(B) a payment of internal revenue taxes (or a payment for internal revenue stamps) shall not be subject to section 170 of the Truth-in-Lending Act (15 U.S.C. 1666i), or to any similar provisions of State law,

        ‘(C) a payment of internal revenue taxes (or a payment for internal revenue stamps) by a person by use of a debit card shall not be subject to section 908 of the Electronic Fund Transfer Act (15 U.S.C. 1693f), or to any similar provisions of State law, if the error alleged by the person is an error relating to the underlying tax liability, rather than an error relating to the debit card account such as a computational error or numerical transposition in the debit card transaction or an issue as to whether the person authorized payment by use of the debit card,

        ‘(D) the term ‘creditor’ under section 103(f) of the Truth-in-Lending Act (15 U.S.C. 1602(f)) shall not include the Secretary with respect to credit card transactions in payment of internal revenue taxes (or payment for internal revenue stamps), and

        ‘(E) notwithstanding any other provision of law to the contrary, in the case of payment made by credit card or debit card transaction of an amount owed to a person as the result of the correction of an error under section 161 of the Truth-in-Lending Act (15 U.S.C. 1666) or section 908 of the Electronic Fund Transfer Act (15 U.S.C. 1693f), the Secretary is authorized to provide such amount to such person as a credit to that person’s credit card or debit card account through the applicable credit card or debit card system.

    ‘(e) CONFIDENTIALITY OF INFORMATION-

      ‘(1) IN GENERAL- Except as otherwise authorized by this subsection, no person may use or disclose any information relating to credit or debit card transactions obtained pursuant to section 6103(k)(8) other than for purposes directly related to the processing of such transactions, or the billing or collection of amounts charged or debited pursuant thereto.

      ‘(2) EXCEPTIONS-

        ‘(A) Debit or credit card issuers or others acting on behalf of such issuers may also use and disclose such information for purposes directly related to servicing an issuer’s accounts.

        ‘(B) Debit or credit card issuers or others directly involved in the processing of credit or debit card transactions or the billing or collection of amounts charged or debited thereto may also use and disclose such information for purposes directly related to--

          ‘(i) statistical risk and profitability assessment;

          ‘(ii) transferring receivables, accounts, or interest therein;

          ‘(iii) auditing the account information;

          ‘(iv) complying with Federal, State, or local law; and

          ‘(v) properly authorized civil, criminal, or regulatory investigation by Federal, State, or local authorities.

      ‘(3) PROCEDURES- Use and disclosure of information under this paragraph shall be made only to the extent authorized by written procedures promulgated by the Secretary.

      ‘(4) Cross reference-

‘For provision providing for civil damages for violation of paragraph (1), see section 7431.’

    (b) CLERICAL AMENDMENT- The table of sections for subchapter B of chapter 64 is amended by striking the item relating to section 6311 and inserting the following:

‘Sec. 6311. Payment by check, money order, or other means.’

    (c) AMENDMENTS TO SECTIONS 6103 AND 7431 WITH RESPECT TO DISCLOSURE AUTHORIZATION-

      (1) Subsection (k) of section 6103 (relating to confidentiality and disclosure of returns and return information) is amended by adding at the end thereof the following new paragraph:

      ‘(8) DISCLOSURE OF INFORMATION TO ADMINISTER SECTION 6311- The Secretary may disclose returns or return information to financial institutions and others to the extent the Secretary deems necessary for the administration of section 6311. Disclosures of information for purposes other than to accept payments by checks or money orders shall be made only to the extent authorized by written procedures promulgated by the Secretary.’

      (2) Section 7431 (relating to civil damages for unauthorized disclosure of returns and return information) is amended by adding at the end thereof the following new subsection:

    ‘(g) SPECIAL RULE FOR INFORMATION OBTAINED UNDER SECTION 6103(k)(8)- For purposes of this section, any reference to section 6103 shall be treated as including a reference to section 6311(e).’

      (3) Section 6103(p)(3)(A) is amended by striking ‘or (6)’ and inserting in lieu thereof ‘(6), or (8)’.

    (d) EFFECTIVE DATE- The amendments made by this section shall take effect on the day 9 months after the date of the enactment of this Act.

SEC. 113. MODIFICATIONS TO ELECTION TO INCLUDE CHILD’S INCOME ON PARENT’S RETURN.

    (a) ELIGIBILITY FOR ELECTION- Clause (ii) of section 1(g)(7)(A) (relating to election to include certain unearned income of child on parent’s return) is amended to read as follows:

          ‘(ii) such gross income is more than the amount described in paragraph (4)(A)(ii)(I) and less than 10 times the amount so described,’.

    (b) COMPUTATION OF TAX- Subparagraph (B) of section 1(g)(7) (relating to income included on parent’s return) is amended--

      (1) by striking ‘$1,000’ in clause (i) and inserting ‘twice the amount described in paragraph (4)(A)(ii)(I)’, and

      (2) by amending subclause (II) of clause (ii) to read as follows:

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

    (c) MINIMUM TAX- Subparagraph (B) of section 59(j)(1) is amended by striking ‘$1,000’ and inserting ‘twice the amount in effect for the taxable year under section 63(c)(5)(A)’.

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1993.

SEC. 114. SIMPLIFIED FOREIGN TAX CREDIT LIMITATION FOR INDIVIDUALS.

    (a) GENERAL RULE- Section 904 (relating to limitations on foreign tax credit) is amended by redesignating subsection (j) as subsection (k) and by inserting after subsection (i) the following new subsection:

    ‘(j) SIMPLIFIED LIMITATION FOR CERTAIN INDIVIDUALS-

      ‘(1) IN GENERAL- In the case of an individual to whom this subsection applies for any taxable year, the limitation of subsection (a) shall be the lesser of--

        ‘(A) 25 percent of such individual’s gross income for the taxable year from sources without the United States, or

        ‘(B) the amount of the creditable foreign taxes paid or accrued by the individual during the taxable year (determined without regard to subsection (c)).

      No taxes paid or accrued by the individual during such taxable year may be deemed paid or accrued in any other taxable year under subsection (c).

      ‘(2) INDIVIDUALS TO WHOM SUBSECTION APPLIES- This subsection shall apply to an individual for any taxable year if--

        ‘(A) the entire amount of such individual’s gross income for the taxable year from sources without the United States consists of qualified passive income,

        ‘(B) the amount of the creditable foreign taxes paid or accrued by the individual during the taxable year does not exceed $200 ($400 in the case of a joint return), and

        ‘(C) such individual elects to have this subsection apply for the taxable year.

      ‘(3) DEFINITIONS- For purposes of this subsection--

        ‘(A) QUALIFIED PASSIVE INCOME- The term ‘qualified passive income’ means any item of gross income if--

          ‘(i) such item of income is passive income (as defined in subsection (d)(2)(A) without regard to clause (iii) thereof), and

          ‘(ii) such item of income is shown on a payee statement furnished to the individual.

        ‘(B) CREDITABLE FOREIGN TAXES- The term ‘creditable foreign taxes’ means any taxes for which a credit is allowable under section 901; except that such term shall not include any tax unless such tax is shown on a payee statement furnished to such individual.

        ‘(C) PAYEE STATEMENT- The term ‘payee statement’ has the meaning given to such term by section 6724(d)(2).

        ‘(D) ESTATES AND TRUSTS NOT ELIGIBLE- This subsection shall not apply to any estate or trust.’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1993.

SEC. 115. TREATMENT OF PERSONAL TRANSACTIONS BY INDIVIDUALS UNDER FOREIGN CURRENCY RULES.

    (a) GENERAL RULE- Subsection (e) of section 988 (relating to application to individuals) is amended to read as follows:

    ‘(e) APPLICATION TO INDIVIDUALS-

      ‘(1) IN GENERAL- The preceding provisions of this section shall not apply to any section 988 transaction entered into by an individual which is a personal transaction.

      ‘(2) EXCLUSION FOR CERTAIN PERSONAL TRANSACTIONS- If--

        ‘(A) nonfunctional currency is disposed of by an individual in any transaction, and

        ‘(B) such transaction is a personal transaction,

      no gain shall be recognized for purposes of this subtitle by reason of changes in exchange rates after such currency was acquired by such individual and before such disposition. The preceding sentence shall not apply if the gain which would otherwise be recognized exceeds $200.

      ‘(3) PERSONAL TRANSACTIONS- For purposes of this subsection, the term ‘personal transaction’ means any transaction entered into by an individual, except that such term shall not include any transaction to the extent that expenses properly allocable to such transaction meet the requirements of section 162 or 212 (other than that part of section 212 dealing with expenses incurred in connection with taxes).’

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1992.

SEC. 116. EXPANDED ACCESS TO SIMPLIFIED INCOME TAX RETURNS.

    (a) GENERAL RULE- The Secretary of the Treasury or his delegate shall take such actions as may be appropriate to expand access to simplified individual income tax returns and to otherwise simplify the individual income tax returns, including--

      (1) (if appropriate) allowing taxpayers who itemize deductions to file their return on Form 1040A, and

      (2) removing or raising the taxable income limitations on taxpayers who may file Form 1040A.

    (b) REPORT- Not later than the date 1 year after the date of the enactment of this Act, the Secretary of the Treasury or his delegate shall submit a report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate, a report on his actions under subsection (a), together with such recommendations as he may deem advisable.

SEC. 117. TREATMENT OF CERTAIN REIMBURSED EXPENSES OF RURAL MAIL CARRIERS.

    (a) IN GENERAL- Section 162 (relating to trade or business expenses) is amended by redesignating subsection (o) as subsection (p) and by inserting after subsection (n) the following new subsection:

    ‘(o) TREATMENT OF CERTAIN REIMBURSED EXPENSES OF RURAL MAIL CARRIERS-

      ‘(1) GENERAL RULE- In the case of any employee of the United States Postal Service who performs services involving the collection and delivery of mail on a rural route and who receives qualified reimbursements for the expenses incurred by such employee for the use of a vehicle in performing such services--

        ‘(A) the amount allowable as a deduction under this chapter for the use of a vehicle in performing such services shall be equal to the amount of such qualified reimbursements; and

        ‘(B) such qualified reimbursements shall be treated as paid under a reimbursement or other expense allowance arrangement for purposes of section 62(a)(2)(A) (and section 62(c) shall not apply to such qualified reimbursements).

      ‘(2) DEFINITION OF QUALIFIED REIMBURSEMENTS- For purposes of this subsection, the term ‘qualified reimbursements’ means the amounts paid by the United States Postal Service to employees as an equipment maintenance allowance under the 1991 collective bargaining agreement between the United States Postal Service and the National Rural Letter Carriers’ Association. Amounts paid as an equipment maintenance allowance by such Postal Service under later collective bargaining agreements that supersede the 1991 agreement shall be considered qualified reimbursements if such amounts do not exceed the amounts that would have been paid under the 1991 agreement, adjusted for changes in the Consumer Price Index (as defined in section 1(f)(5)) since 1991.’

    (b) TECHNICAL AMENDMENT- Section 6008 of the Technical and Miscellaneous Revenue Act of 1988 is hereby repealed.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1992.

SEC. 118. EXCLUSION OF COMBAT PAY FROM WITHHOLDING LIMITED TO AMOUNT EXCLUDABLE FROM GROSS INCOME.

    (a) IN GENERAL- Paragraph (1) of section 3401(a) (defining wages) is amended by inserting before the semicolon the following: ‘to the extent remuneration for such service is excludable from gross income under such section’.

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to remuneration paid after December 31, 1994.

TITLE II--PENSION SIMPLIFICATION

Subtitle A--Simplified Distribution Rules

SEC. 201. REPEAL OF 5-YEAR INCOME AVERAGING FOR LUMP-SUM DISTRIBUTIONS.

    (a) IN GENERAL- Subsection (d) of section 402 (relating to taxability of beneficiary of employees’ trust) is amended to read as follows:

    ‘(d) TAXABILITY OF BENEFICIARY OF CERTAIN FOREIGN SITUS TRUSTS- For purposes of subsections (a), (b), and (c), a stock bonus, pension, or profit-sharing trust which would qualify for exemption from tax under section 501(a) except for the fact that it is a trust created or organized outside the United States shall be treated as if it were a trust exempt from tax under section 501(a).’

    (b) CONFORMING AMENDMENTS-

      (1) Subparagraph (D) of section 402(e)(4) (relating to other rules applicable to exempt trusts) is amended to read as follows:

        ‘(D) LUMP-SUM DISTRIBUTION- For purposes of this paragraph--

          ‘(i) IN GENERAL- The term ‘lump sum distribution’ means the distribution or payment within one taxable year of the recipient of the balance to the credit of an employee which becomes payable to the recipient--

            ‘(I) on account of the employee’s death,

            ‘(II) after the employee attains age 59 1/2 ,

            ‘(III) on account of the employee’s separation from service, or

            ‘(IV) after the employee has become disabled (within the meaning of section 72(m)(7)),

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

          ‘(ii) AGGREGATION OF CERTAIN TRUSTS AND PLANS- For purposes of determining the balance to the credit of an employee under clause (i)--

            ‘(I) all trusts which are part of a plan shall be treated as a single trust, all pension plans maintained by the employer shall be treated as a single plan, all profit-sharing plans maintained by the employer shall be treated as a single plan, and all stock bonus plans maintained by the employer shall be treated as a single plan, and

            ‘(II) trusts which are not qualified trusts under section 401(a) and annuity contracts which do not satisfy the requirements of section 404(a)(2) shall not be taken into account.

          ‘(iii) COMMUNITY PROPERTY LAWS- The provisions of this paragraph shall be applied without regard to community property laws.

          ‘(iv) AMOUNTS SUBJECT TO PENALTY- This paragraph shall not apply to amounts described in subparagraph (A) of section 72(m)(5) to the extent that section 72(m)(5) applies to such amounts.

          ‘(v) BALANCE TO CREDIT OF EMPLOYEE NOT TO INCLUDE AMOUNTS PAYABLE UNDER QUALIFIED DOMESTIC RELATIONS ORDER- For purposes of this paragraph, the balance to the credit of an employee shall not include any amount payable to an alternate payee under a qualified domestic relations order (within the meaning of section 414(p)).

          ‘(vi) TRANSFERS TO COST-OF-LIVING ARRANGEMENT NOT TREATED AS DISTRIBUTION- For purposes of this paragraph, the balance to the credit of an employee under a defined contribution plan shall not include any amount transferred from such defined contribution plan to a qualified cost-of-living arrangement (within the meaning of section 415(k)(2)) under a defined benefit plan.

          ‘(vii) LUMP-SUM DISTRIBUTIONS OF ALTERNATE PAYEES- If any distribution or payment of the balance to the credit of an employee would be treated as a lump-sum distribution, then, for purposes of this paragraph, the payment under a qualified domestic relations order (within the meaning of section 414(p)) of the balance to the credit of an alternate payee who is the spouse or former spouse of the employee shall be treated as a lump-sum distribution. For purposes of this clause, the balance to the credit of the alternate payee shall not include any amount payable to the employee.’

      (2) Section 402(c) (relating to rules applicable to rollovers from exempt trusts) is amended by striking paragraph (10).

      (3) Paragraph (1) of section 55(c) (defining regular tax) is amended by striking ‘shall not include any tax imposed by section 402(d) and’.

      (4) Paragraph (8) of section 62(a) (relating to certain portion of lump-sum distributions from pension plans taxed under section 402(d)) is hereby repealed.

      (5) Section 401(a)(28)(B) (relating to coordination with distribution rules) is amended by striking clause (v).

      (6) Subparagraph (B)(ii) of section 401(k)(10) (relating to distributions that must be lump-sum distributions) is amended to read as follows:

          ‘(ii) LUMP-SUM DISTRIBUTION- For purposes of this subparagraph, the term ‘lump-sum distribution’ means any distribution of the balance to the credit of an employee immediately before the distribution.’

      (7) Section 406(c) (relating to termination of status as deemed employee not to be treated as separation from service for purposes of limitation of tax) is hereby repealed.

      (8) Section 407(c) (relating to termination of status as deemed employee not to be treated as separation from service for purposes of limitation of tax) is hereby repealed.

      (9) Section 691(c) (relating to deduction for estate tax) is amended by striking paragraph (5).

      (10) Paragraph (1) of section 871(b) (relating to imposition of tax) is amended by striking ‘section 1, 55, or 402(d)(1)’ and inserting ‘section 1 or 55’.

      (11) Subsection (b) of section 877 (relating to alternative tax) is amended by striking ‘section 1, 55, or 402(d)(1)’ and inserting ‘section 1 or 55’.

      (12) Section 4980A(c)(4) is amended--

        (A) by striking ‘to which an election under section 402(d)(4)(B) applies’ and inserting ‘(as defined in section 402(e)(4)(D)) with respect to which the individual elects to have this paragraph apply’,

        (B) by adding at the end the following new flush sentence:

      ‘An individual may elect to have this paragraph apply to only one lump-sum distribution.’, and

        (C) by striking the heading and inserting:

      ‘(4) SPECIAL ONE-TIME ELECTION- ’.

      (13) Section 402(e) is amended by striking paragraph (5).

    (c) EFFECTIVE DATES-

      (1) IN GENERAL- The amendments made by this section shall apply to taxable years beginning after December 31, 1993.

      (2) RETENTION OF CERTAIN TRANSITION RULES- Notwithstanding any other provision of this section, the amendments made by this section shall not apply to any distribution for which the taxpayer elects the benefits of section 1122 (h)(3) or (h)(5) of the Tax Reform Act of 1986. For purposes of the preceding sentence, the rules of sections 402(c)(10) and 402(d) of the Internal Revenue Code of 1986 (as in effect before the amendments made by this Act) shall apply.

SEC. 202. REPEAL OF $5,000 EXCLUSION OF EMPLOYEES’ DEATH BENEFITS.

    (a) IN GENERAL- Subsection (b) of section 101 is hereby repealed.

    (b) CONFORMING AMENDMENT- Subsection (c) of section 101 is amended by striking ‘subsection (a) or (b)’ and inserting ‘subsection (a)’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1993.

SEC. 203. SIMPLIFIED METHOD FOR TAXING ANNUITY DISTRIBUTIONS UNDER CERTAIN EMPLOYER PLANS.

    (a) GENERAL RULE- Subsection (d) of section 72 (relating to annuities; certain proceeds of endowment and life insurance contracts) is amended to read as follows:

    ‘(d) SPECIAL RULES FOR QUALIFIED EMPLOYER RETIREMENT PLANS-

      ‘(1) SIMPLIFIED METHOD OF TAXING ANNUITY PAYMENTS-

        ‘(A) IN GENERAL- In the case of any amount received as an annuity under a qualified employer retirement plan--

          ‘(i) subsection (b) shall not apply, and

          ‘(ii) the investment in the contract shall be recovered as provided in this paragraph.

        ‘(B) METHOD OF RECOVERING INVESTMENT IN CONTRACT-

          ‘(i) IN GENERAL- Gross income shall not include so much of any monthly annuity payment under a qualified employer retirement plan as does not exceed the amount obtained by dividing--

            ‘(I) the investment in the contract (as of the annuity starting date), by

            ‘(II) the number of anticipated payments determined under the table contained in clause (iii) (or, in the case of a contract to which subsection (c)(3)(B) applies, the number of monthly annuity payments under such contract).

          ‘(ii) CERTAIN RULES MADE APPLICABLE- Rules similar to the rules of paragraphs (2) and (3) of subsection (b) shall apply for purposes of this paragraph.

          ‘(iii) NUMBER OF ANTICIPATED PAYMENTS-

‘If the age of the

--

primary annuitant on

--The number

the annuity starting

--of anticipated

date is:

--payments is:

Not more than 55

--300

More than 55 but not more than 60

--260

More than 60 but not more than 65

--240

More than 65 but not more than 70

--170

More than 70

--120

        ‘(C) ADJUSTMENT FOR REFUND FEATURE NOT APPLICABLE- For purposes of this paragraph, investment in the contract shall be determined under subsection (c)(1) without regard to subsection (c)(2).

        ‘(D) SPECIAL RULE WHERE LUMP SUM PAID IN CONNECTION WITH COMMENCEMENT OF ANNUITY PAYMENTS- If, in connection with the commencement of annuity payments under any qualified employer retirement plan, the taxpayer receives a lump sum payment--

          ‘(i) such payment shall be taxable under subsection (e) as if received before the annuity starting date, and

          ‘(ii) the investment in the contract for purposes of this paragraph shall be determined as if such payment had been so received.

        ‘(E) EXCEPTION- This paragraph shall not apply in any case where the primary annuitant has attained age 75 on the annuity starting date unless there are fewer than 5 years of guaranteed payments under the annuity.

        ‘(F) ADJUSTMENT WHERE ANNUITY PAYMENTS NOT ON MONTHLY BASIS- In any case where the annuity payments are not made on a monthly basis, appropriate adjustments in the application of this paragraph shall be made to take into account the period on the basis of which such payments are made.

        ‘(G) QUALIFIED EMPLOYER RETIREMENT PLAN- For purposes of this paragraph, the term ‘qualified employer retirement plan’ means any plan or contract described in paragraph (1), (2), or (3) of section 4974(c).

      ‘(2) TREATMENT OF EMPLOYEE CONTRIBUTIONS UNDER DEFINED CONTRIBUTION PLANS- For purposes of this section, employee contributions (and any income allocable thereto) under a defined contribution plan may be treated as a separate contract.’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply in cases where the annuity starting date is after December 31, 1993.

SEC. 204. REQUIRED DISTRIBUTIONS.

    (a) IN GENERAL- Section 401(a)(9)(C) (defining required beginning date) is amended to read as follows:

        ‘(C) REQUIRED BEGINNING DATE- For purposes of this paragraph--

          ‘(i) IN GENERAL- The term ‘required beginning date’ means April 1 of the calendar year following the later of--

            ‘(I) the calendar year in which the employee attains age 70 1/2 , or

            ‘(II) the calendar year in which the employee retires.

          ‘(ii) EXCEPTION- Subclause (II) of clause (i) shall not apply--

            ‘(I) except as provided in section 409(d), in the case of an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains age 70 1/2 , or

            ‘(II) for purposes of section 408 (a)(6) or (b)(3).

          ‘(iii) ACTUARIAL ADJUSTMENT- In the case of an employee to whom clause (i)(II) applies who retires in a calendar year after the calendar year in which the employee attains age 70 1/2 , the employee’s accrued benefit shall be actuarially increased to take into account the period after age 70 1/2 in which the employee was not receiving any benefits under the plan.

          ‘(iv) EXCEPTION FOR GOVERNMENTAL AND CHURCH PLANS- Clauses (ii) and (iii) shall not apply in the case of a governmental plan or church plan. For purposes of this clause, the term ‘church plan’ means a plan maintained by a church for church employees, and the term ‘church’ means any church (as defined in section 3121(w)(3)(A)) or qualified church-controlled organization (as defined in section 3121(w)(3)(B)).’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to years beginning after December 31, 1993.

Subtitle B--Increased Access to Pension Plans

SEC. 211. MODIFICATIONS OF SIMPLIFIED EMPLOYEE PENSIONS.

    (a) INCREASE IN NUMBER OF ALLOWABLE PARTICIPANTS FOR SALARY REDUCTION ARRANGEMENTS- Section 408(k)(6)(B) is amended by striking ‘25’ each place it appears in the text and heading thereof and inserting ‘100’.

    (b) REPEAL OF PARTICIPATION REQUIREMENT- Section 408(k)(6)(A) is amended by striking clause (ii) and by redesignating clauses (iii) and (iv) as clauses (ii) and (iii), respectively.

    (c) CONFORMING AMENDMENTS- Clause (ii) of section 408(k)(6)(C) and clause (ii) of section 408(k)(6)(F) are each amended by striking ‘subparagraph (A)(iii)’ and inserting ‘subparagraph (A)(ii)’.

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 1993.

SEC. 212. TAX EXEMPT ORGANIZATIONS ELIGIBLE UNDER SECTION 401(k).

    (a) GENERAL RULE- Subparagraph (B) of section 401(k)(4) is amended to read as follows:

        ‘(B) STATE AND LOCAL GOVERNMENTS NOT ELIGIBLE- A cash or deferred arrangement shall not be treated as a qualified cash or deferred arrangement if it is part of a plan maintained by a State or local government or political subdivision thereof, or any agency or instrumentality thereof. This subparagraph shall not apply to a rural cooperative plan.’

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to plan years beginning after December 31, 1993, but shall not apply to any cash or deferred arrangement to which clause (i) of section 1116(f)(2)(B) of the Tax Reform Act of 1986 applies.

SEC. 213. DUTIES OF SPONSORS OF CERTAIN PROTOTYPE PLANS.

    (a) IN GENERAL- The Secretary of the Treasury may, as a condition of sponsorship, prescribe rules defining the duties and responsibilities of sponsors of master and prototype plans, regional prototype plans, and other Internal Revenue Service preapproved plans.

    (b) DUTIES RELATING TO PLAN AMENDMENT, NOTIFICATION OF ADOPTERS, AND PLAN ADMINISTRATION- The duties and responsibilities referred to in subsection (a) may include--

      (1) the maintenance of lists of persons adopting the sponsor’s plans, including the updating of such lists not less frequently than annually,

      (2) the furnishing of notices at least annually to such persons and to the Secretary or his delegate, in such form and at such time as the Secretary shall prescribe,

      (3) duties relating to administrative services to such persons in the operation of their plans, and

      (4) other duties that the Secretary considers necessary to ensure that--

        (A) the master and prototype, regional prototype, and other preapproved plans of adopting employers are timely amended to meet the requirements of the Internal Revenue Code of 1986 or of any rule or regulation of the Secretary, and

        (B) adopting employers receive timely notification of amendments and other actions taken by sponsors with respect to their plans.

Subtitle C--Nondiscrimination Provisions

SEC. 221. DEFINITION OF HIGHLY COMPENSATED EMPLOYEES.

    (a) IN GENERAL- Paragraph (1) of section 414(q) (defining highly compensated employee) is amended to read as follows:

      ‘(1) IN GENERAL- The term ‘highly compensated employee’ means any employee who--

        ‘(A) was a 5-percent owner at any time during the year or the preceding year, or

        ‘(B) had compensation for the preceding year from the employer in excess of $50,000.

      The Secretary shall adjust the $50,000 amount under subparagraph (B) at the same time and in the same manner as under section 415(d).’

    (b) SPECIAL RULE WHERE NO EMPLOYEES TREATED AS HIGHLY COMPENSATED- Paragraph (2) of section 414(q) is amended to read as follows:

      ‘(2) SPECIAL RULE IF NO EMPLOYEE DESCRIBED IN PARAGRAPH (1)- If no employee is treated as a highly compensated employee under paragraph (1), the highest paid officer for the year shall be treated as a highly compensated employee.’

    (c) TREATMENT OF FAMILY MEMBERS- Paragraph (6) of section 414(q) is hereby repealed.

    (d) Conforming Amendments-

      (1) Paragraphs (4), (5), (8), and (12) of section 414(q) are hereby repealed.

      (2)(A) Section 414(r) is amended by adding at the end thereof the following new paragraph:

      ‘(9) EXCLUDED EMPLOYEES- For purposes of this subsection, the following employees shall be excluded:

        ‘(A) Employees who have not completed 6 months of service.

        ‘(B) Employees who normally work less than 17 1/2 hours per week.

        ‘(C) Employees who normally work not more than 6 months during any year.

        ‘(D) Employees who have not attained the age of 21.

        ‘(E) Except to the extent provided in regulations, employees who are included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and the employer.

      Except as provided by the Secretary, the employer may elect to apply subparagraph (A), (B), (C), or (D) by substituting a shorter period of service, smaller number of hours or months, or lower age for the period of service, number of hours or months, or age (as the case may be) specified in such subparagraph.’

      (B) Subparagraph (A) of section 414(r)(2) is amended by striking ‘subsection (q)(8)’ and inserting ‘paragraph (9)’.

      (3) Subparagraph (A) of section 401(a)(17) is amended by striking the last sentence.

      (4) Subsection (l) of section 404 is amended by striking the last sentence.

      (5) Section 1114(c)(4) of the Tax Reform Act of 1986 is amended by adding at the end the following new sentence: ‘Any reference in this paragraph to section 414(q) shall be treated as a reference to such section as in effect before the Tax Simplification and Technical Corrections Act of 1993.’

    (e) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 1993.

SEC. 222. MODIFICATION OF ADDITIONAL PARTICIPATION REQUIREMENTS.

    (a) GENERAL RULE- Section 401(a)(26)(A) (relating to additional participation requirements) is amended to read as follows:

        ‘(A) IN GENERAL- In the case of a trust which is a part of a defined benefit plan, such trust shall not constitute a qualified trust under this subsection unless on each day of the plan year such trust benefits at least the lesser of--

          ‘(i) 50 employees of the employer, or

          ‘(ii) the greater of--

            ‘(I) 40 percent of all employees of the employer, or

            ‘(II) 2 employees (or if there is only 1 employee, such employee).’

    (b) SEPARATE LINE OF BUSINESS TEST- Section 401(a)(26)(G) (relating to separate line of business) is amended by striking ‘paragraph (7)’ and inserting ‘paragraph (2)(A) or (7)’.

    (c) EFFECTIVE DATE- The amendment made by this section shall apply to years beginning after December 31, 1993.

SEC. 223. NONDISCRIMINATION RULES FOR QUALIFIED CASH OR DEFERRED ARRANGEMENTS AND MATCHING CONTRIBUTIONS.

    (a) ALTERNATIVE METHODS OF SATISFYING SECTION 401(k) NONDISCRIMINATION TESTS- Section 401(k) (relating to cash or deferred arrangements) is amended by adding at the end thereof the following new paragraph:

      ‘(11) Alternative methods of meeting nondiscrimination requirements-

        ‘(A) IN GENERAL- A cash or deferred arrangement shall be treated as meeting the requirements of paragraph (3)(A)(ii) if such arrangement--

          ‘(i) meets the contribution requirements of subparagraph (B) or (C), and

          ‘(ii) meets the notice requirements of subparagraph (D).

        ‘(B) Matching contributions-

          ‘(i) IN GENERAL- The requirements of this subparagraph are met if, under the arrangement, the employer makes matching contributions on behalf of each employee who is not a highly compensated employee in an amount equal to--

            ‘(I) 100 percent of the elective contributions of the employee to the extent such elective contributions do not exceed 3 percent of the employee’s compensation, and

            ‘(II) 50 percent of the elective contributions of the employee to the extent that such elective contributions exceed 3 percent but do not exceed 5 percent of the employee’s compensation.

          ‘(ii) RATE FOR HIGHLY COMPENSATED EMPLOYEES- The requirements of this subparagraph are not met if, under the arrangement, the matching contribution with respect to any elective contribution of a highly compensated employee at any level of compensation is greater than that with respect to an employee who is not a highly compensated employee.

          ‘(iii) ALTERNATIVE PLAN DESIGNS- If the matching contribution with respect to any elective contribution at any specific level of compensation is not equal to the percentage required under clause (i), an arrangement shall not be treated as failing to meet the requirements of clause (i) if--

            ‘(I) the level of an employer’s matching contribution does not increase as an employee’s elective contributions increase, and

            ‘(II) the aggregate amount of matching contributions with respect to elective contributions not in excess of such level of compensation is at least equal to the amount of matching contributions which would be made if matching contributions were made on the basis of the percentages described in clause (i).

        ‘(C) NONELECTIVE CONTRIBUTIONS- The requirements of this subparagraph are met if, under the arrangement, the employer is required, without regard to whether the employee makes an elective contribution or employee contribution, to make a contribution to a defined contribution plan on behalf of each employee who is not a highly compensated employee and who is eligible to participate in the arrangement in an amount equal to at least 3 percent of the employee’s compensation.

        ‘(D) NOTICE REQUIREMENT- An arrangement meets the requirements of this paragraph if, under the arrangement, each employee eligible to participate is, within a reasonable period before any year, given written notice of the employee’s rights and obligations under the arrangement which--

          ‘(i) is sufficiently accurate and comprehensive to appraise the employee of such rights and obligations, and

          ‘(ii) is written in a manner calculated to be understood by the average employee eligible to participate.

        ‘(E) Other requirements-

          ‘(i) WITHDRAWAL AND VESTING RESTRICTIONS- An arrangement shall not be treated as meeting the requirements of subparagraph (B) or (C) unless the requirements of subparagraphs (B) and (C) of paragraph (2) are met with respect to all employer contributions (including matching contributions).

          ‘(ii) SOCIAL SECURITY AND SIMILAR CONTRIBUTIONS NOT TAKEN INTO ACCOUNT- An arrangement shall not be treated as meeting the requirements of subparagraph (B) or (C) unless such requirements are met without regard to subsection (l), and, for purposes of subsection (l), employer contributions under subparagraph (B) or (C) shall not be taken into account.

        ‘(F) OTHER PLANS- An arrangement shall be treated as meeting the requirements under subparagraph (A)(i) if any other plan maintained by the employer meets such requirements with respect to employees eligible under the arrangement.’

    (b) ALTERNATIVE METHODS OF SATISFYING SECTION 401(m) NONDISCRIMINATION TESTS- Section 401(m) (relating to nondiscrimination test for matching contributions and employee contributions) is amended by redesignating paragraph (10) as paragraph (11) and by adding after paragraph (9) the following new paragraph:

      ‘(10) Alternative method of satisfying tests-

        ‘(A) IN GENERAL- A defined contribution plan shall be treated as meeting the requirements of paragraph (2) with respect to matching contributions if the plan--

          ‘(i) meets the contribution requirements of subparagraph (B) or (C) of subsection (k)(11),

          ‘(ii) meets the notice requirements of subsection (k)(11)(D), and

          ‘(iii) meets the requirements of subparagraph (B).

        ‘(B) LIMITATION ON MATCHING CONTRIBUTIONS- The requirements of this subparagraph are met if--

          ‘(i) matching contributions on behalf of any employee may not be made with respect to an employee’s contributions or elective deferrals in excess of 6 percent of the employee’s compensation,

          ‘(ii) the level of an employer’s matching contribution does not increase as an employee’s contributions or elective deferrals increase, and

          ‘(iii) the matching contribution with respect to any highly compensated employee at a specific level of compensation is not greater than that with respect to an employee who is not a highly compensated employee.’

    (c) YEAR FOR COMPUTING NONHIGHLY COMPENSATED EMPLOYEE PERCENTAGE-

      (1) CASH OR DEFERRED ARRANGEMENTS- Clause (ii) of section 401(k)(3)(A) is amended--

        (A) by striking ‘such year’ and inserting ‘the plan year’, and

        (B) by striking ‘for such plan year’ and inserting ‘the preceding plan year’.

      (2) MATCHING AND EMPLOYEE CONTRIBUTIONS- Section 401(m)(2)(A) is amended--

        (A) by inserting ‘for such plan year’ after ‘highly compensated employees’, and

        (B) by inserting ‘for the preceding plan year’ after ‘eligible employees’ each place it appears in clause (i) and clause (ii).

    (d) SPECIAL RULE FOR DETERMINING AVERAGE DEFERRAL PERCENTAGE FOR FIRST PLAN YEAR, ETC-

      (1) Paragraph (3) of section 401(k) is amended by adding at the end thereof the following new subparagraph:

        ‘(E) For purposes of this paragraph, in the case of the first plan year of any plan, the amount taken into account as the actual deferral percentage of nonhighly compensated employees for the preceding plan year shall be--

          ‘(i) 3 percent, or

          ‘(ii) if the employer makes an election under this subclause, the actual deferral percentage of nonhighly compensated employees determined for such first plan year.’

      (2) Paragraph (3) of section 401(m) is amended by adding at the end thereof the following: ‘Rules similar to the rules of subsection (k)(3)(E) shall apply for purposes of this subsection.’

    (e) Distribution of Excess Contributions-

      (1) Subparagraph (C) of section 401(k)(8) (relating to arrangement not disqualified if excess contributions distributed) is amended by striking ‘on the basis of the respective portions of the excess contributions attributable to each of such employees’ and inserting ‘on the basis of the amount of contributions by, or on behalf of, each of such employees’.

      (2) Subparagraph (C) of section 401(m)(6) (relating to method of distributing excess aggregate contributions) is amended by striking ‘on the basis of the respective portions of such amounts attributable to each of such employees’ and inserting ‘on the basis of the amount of contributions on behalf of, or by, each such employee’.

    (f) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 1993.

Subtitle D--Miscellaneous Simplification

SEC. 231. TREATMENT OF LEASED EMPLOYEES.

    (a) GENERAL RULE- Subparagraph (C) of section 414(n)(2) (defining leased employee) is amended to read as follows:

        ‘(C) such services are performed under significant direction or control by the recipient.’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to years beginning after December 31, 1993, but shall not apply to any relationship determined under an Internal Revenue Service ruling issued before the date of the enactment of this Act pursuant to section 414(n)(2)(C) of the Internal Revenue Code of 1986 (as in effect on the day before such date) not to involve a leased employee.

SEC. 232. MODIFICATIONS OF COST-OF-LIVING ADJUSTMENTS.

    (a) IN GENERAL- Section 415(d) (relating to cost-of-living adjustments) is amended to read as follows:

    ‘(d) COST-OF-LIVING ADJUSTMENTS-

      ‘(1) IN GENERAL- The Secretary shall adjust annually--

        ‘(A) the $90,000 amount in subsection (b)(1)(A), and

        ‘(B) in the case of a participant who separated from service, the amount taken into account under subsection (b)(1)(B),

      for increases in the cost-of-living in accordance with regulations prescribed by the Secretary.

      ‘(2) Method-

        ‘(A) IN GENERAL- The regulations prescribed under paragraph (1) shall provide for adjustment procedures which are similar to the procedures used to adjust benefit amounts under section 215(i)(2)(A) of the Social Security Act.

        ‘(B) PERIODS FOR ADJUSTMENT OF DOLLAR AMOUNT- For purposes of paragraph (1)(A)--

          ‘(i) IN GENERAL- The adjustment with respect to any calendar year shall be based on the increase in the applicable index as of the close of the calendar quarter ending September 30 of the preceding calendar year over such index as of the close of the base period.

          ‘(ii) BASE PERIOD- For purposes of clause (i), the base period is the calendar quarter beginning October 1, 1986.

        ‘(C) BASE PERIOD FOR SEPARATIONS- For purposes of paragraph (1)(B), the base period is the last calendar quarter of the calendar year preceding the calendar year in which the participant separated from service.

      ‘(3) ROUNDING- Any amount determined under paragraph (1) (or by reference to this subsection) shall be rounded to the nearest $1,000, except that the amounts under sections 402(g)(1), 408(k)(2)(C), and 457(e)(14) shall be rounded to the nearest $100 and the amount under section 401(a)(17) shall be rounded, to the next lowest multiple of $10,000.’

    (b) EFFECTIVE DATE- The amendments made by this section apply to adjustments with respect to calendar years beginning after December 31, 1993.

SEC. 233. PLANS COVERING SELF-EMPLOYED INDIVIDUALS.

    (a) AGGREGATION RULES- Section 401(d) (relating to additional requirements for qualification of trusts and plans benefiting owner-employees) is amended to read as follows:

    ‘(d) CONTRIBUTION LIMIT ON OWNER-EMPLOYEES- A trust forming part of a pension or profit-sharing plan which provides contributions or benefits for employees some or all of whom are owner-employees shall constitute a qualified trust under this section only if, in addition to meeting the requirements of subsection (a), the plan provides that contributions on behalf of any owner-employee may be made only with respect to the earned income of such owner-employee which is derived from the trade or business with respect to which such plan is established.’

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 1993.

SEC. 234. ELIMINATION OF SPECIAL VESTING RULE FOR MULTIEMPLOYER PLANS.

    (a) IN GENERAL- Paragraph (2) of section 411(a) (relating to minimum vesting standards) is amended--

      (1) by striking ‘subparagraph (A), (B), or (C)’ and inserting ‘subparagraph (A) or (B)’; and

      (2) by striking subparagraph (C).

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to plan years beginning on or after the earlier of--

      (1) the later of--

        (A) January 1, 1994, or

        (B) the date on which the last of the collective bargaining agreements pursuant to which the plan is maintained terminates (determined without regard to any extension thereof after the date of the enactment of this Act), or

      (2) January 1, 1996.

    Such amendments shall not apply to any individual who does not have more than 1 hour of service under the plan on or after the 1st day of the 1st plan year to which such amendments apply.

SEC. 235. FULL-FUNDING LIMITATION OF MULTIEMPLOYER PLANS.

    (a) FULL-FUNDING LIMITATION- Section 412(c)(7)(C) (relating to full-funding limitation) is amended--

      (1) by inserting ‘or in the case of a multiemployer plan,’ after ‘paragraph (6)(B),’, and

      (2) by inserting ‘AND MULTIEMPLOYER PLANS’ after ‘PARAGRAPH (6)(B)’ in the heading thereof.

    (b) VALUATION- Section 412(c)(9) is amended--

      (1) by inserting ‘(3 years in the case of a multiemployer plan)’ after ‘year’, and

      (2) by striking ‘ANNUAL VALUATION’ in the heading and inserting ‘VALUATION’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 1993.

SEC. 236. ALTERNATIVE FULL-FUNDING LIMITATION.

    (a) IN GENERAL- Subsection (c) of section 412 (relating to minimum funding standards) is amended by redesignating paragraphs (8) through (11) as paragraphs (9) through (12), respectively, and by adding after paragraph (7) the following new paragraph:

      ‘(8) ALTERNATIVE FULL-FUNDING LIMITATION-

        ‘(A) GENERAL RULE- An employer may elect the full-funding limitation under this paragraph with respect to any defined benefit plan of the employer in lieu of the full-funding limitation determined under paragraph (7) if the requirements of subparagraphs (C) and (D) are met.

        ‘(B) ALTERNATIVE FULL-FUNDING LIMITATION- The full-funding limitation under this paragraph is the full-funding limitation determined under paragraph (7) without regard to subparagraph (A)(i)(I) thereof.

        ‘(C) REQUIREMENTS RELATING TO PLAN ELIGIBILITY-

          ‘(i) IN GENERAL- The requirements of this subparagraph are met with respect to a defined benefit plan if--

            ‘(I) as of the 1st day of the election period, the average accrued liability of participants accruing benefits under the plan for the 5 immediately preceding plan years is at least 80 percent of the plan’s total accrued liability,

            ‘(II) the plan is not a top-heavy plan (as defined in section 416(g)) for the 1st plan year of the election period or either of the 2 preceding plan years, and

            ‘(III) each defined benefit plan of the employer (and each defined benefit plan of each employer who is a member of any controlled group which includes such employer) meets the requirements of subclauses (I) and (II).

          ‘(ii) FAILURE TO CONTINUE TO MEET REQUIREMENTS-

            ‘(I) If any plan fails to meet the requirement of clause (i)(I) for any plan year during an election period, the benefits of the election under this paragraph shall be phased out under regulations prescribed by the Secretary.

            ‘(II) If any plan fails to meet the requirement of clause (i)(II) for any plan year during an election period, such plan shall be treated as not meeting the requirements of clause (i) for the remainder of the election period.

          If there is a failure described in subclause (I) or (II) with respect to any plan, such plan (and each plan described in clause (i)(III) with respect to such plan) shall be treated as not meeting the requirements of clause (i) for any of the 10 plan years beginning after the election period.

        ‘(D) REQUIREMENTS RELATING TO ELECTION-

          ‘(i) IN GENERAL- The requirements of this subparagraph are met with respect to an election if--

            ‘(I) FILING DATE- Notice of such election is filed with the Secretary (in such form and manner and containing such information as the Secretary may provide) by January 1 of any calendar year, and is effective as of the 1st day of the election period beginning on or after January 1 of the following calendar year.

            ‘(II) CONSISTENT ELECTION- Such an election is made for all defined benefit plans maintained by the employer or by any member of a controlled group which includes the employer.

          ‘(ii) TRANSITION PERIOD- In the case of any election period beginning on or after July 1, 1994, and before January 1, 1995, the requirements of clause (i) shall not apply and the requirements of this subparagraph are met with respect to such election period if--

            ‘(I) FILING DATE- Notice of election is filed with the Secretary by October 1, 1994.

            ‘(II) INFORMATION- The notice sets forth the name and tax identification number of the plan sponsor, the names and tax identification numbers of the plans to which the election applies, the limitation under paragraph (7) (determined with and without regard to this paragraph), and a signed certification by an officer of the employer stating that the requirements of this paragraph have been met.

          ‘(iii) REVENUE OFFSET PROCEDURES- The Secretary shall, by January 1, 1995, notify defined benefit plans that have not made an election under this paragraph for the transition period described in clause (ii) of the adjustment required by subparagraph (H). The revenue offset for the transition period shall apply to plan years beginning on or after July 1, 1994, and before January 1, 1995.

          ‘(iv) EXCESS CONTRIBUTIONS MADE BY NON-ELECTING PLANS- To the extent a defined benefit plan sponsor makes a contribution to a defined benefit plan with respect to the transition period described in clause (ii) which exceeds the limitation of paragraph (7), as adjusted by the Secretary for the transition period, the sponsor shall offset the excess contribution against allowable contributions to the plan in subsequent quarters in the taxable year of the sponsor. If no subsequent contributions may be made for the taxable year, the trustee of the defined benefit plan shall return the excess contribution to the sponsor in that taxable year or the following taxable year. Notwithstanding any other provision of this title, no deduction shall be allowed for any contribution made in excess of the limitation of paragraph (7), as adjusted by the Secretary for the transition period, and no penalty shall apply with respect to contributions made in excess of such limitation to the extent such excess contributions are either used to offset subsequent contributions, or returned to the plan sponsor, as provided in this clause.

        ‘(E) TERM OF ELECTION- Any election made under this paragraph shall apply for the election period.

        ‘(F) OTHER CONSEQUENCES OF ELECTION-

          ‘(i) NO FUNDING WAIVERS- In the case of a plan with respect to which an election is made under this paragraph, no waiver may be granted under subsection (d) for any plan year beginning after the date the election was made and ending at the close of the election period with respect thereto.

          ‘(ii) FAILURE TO MAKE SUCCESSIVE ELECTIONS- If an election is made under this paragraph with respect to any plan and such an election does not apply for each successive plan year of such plan, such plan shall be treated as not meeting the requirements of subparagraph (C) for the period of 10 plan years beginning after the close of the last election period for such plan.

        ‘(G) DEFINITIONS- For purposes of this paragraph--

          ‘(i) ELECTION PERIOD- The term ‘election period’ means the period of 5 consecutive plan years beginning with the 1st plan year for which the election is made.

          ‘(ii) CONTROLLED GROUP- The term ‘controlled group’ means all persons who are treated as a single employer under subsection (b), (c), (m), or (o) of section 414.

        ‘(H) PROCEDURES IF ALTERNATIVE FUNDING LIMITATION REDUCES NET FEDERAL REVENUES-

          ‘(i) IN GENERAL- At least once with respect to each fiscal year, the Secretary shall estimate whether the application of this paragraph will result in a net reduction in Federal revenues for such fiscal year.

          ‘(ii) ADJUSTMENT OF FULL-FUNDING LIMITATION IF REVENUE SHORTFALL- If the Secretary estimates that the application of this paragraph will result in a more than insubstantial net reduction in Federal revenues for any fiscal year, the Secretary--

            ‘(I) shall make the adjustment described in clause (iii), and

            ‘(II) to the extent such adjustment is not sufficient to reduce such reduction to an insubstantial amount, shall make the adjustment described in clause (iv).

          Such adjustments shall apply only to defined benefit plans with respect to which an election under this paragraph is not in effect.

          ‘(iii) REDUCTION IN LIMITATION BASED ON 150 PERCENT OF CURRENT LIABILITY- The adjustment described in this clause is an adjustment which substitutes a percentage (not lower than 140 percent) for the percentage described in paragraph (7)(A)(i)(I) determined by reducing the percentage of current liability taken into account with respect to participants who are not accruing benefits under the plan.

          ‘(iv) REDUCTION IN LIMITATION BASED ON ACCRUED LIABILITY- The adjustment described in this clause is an adjustment which reduces the percentage of accrued liability taken into account under paragraph (7)(A)(i)(II). In no event may the amount of accrued liability taken into account under such paragraph after the adjustment be less than 140 percent of current liability.’

    (b) ALTERATION OF DISCRETIONARY REGULATORY AUTHORITY- Subparagraph (D) of section 412(c)(7) is amended by striking ‘provide--’ and all that follows through ‘(iii) for’ and inserting ‘provide for’.

    (c) EFFECTIVE DATE- The amendments made by this section shall take effect on January 1, 1995, except that, in the case of an election under subparagraph (D)(ii) of paragraph (8) of section 412(c) of the Internal Revenue Code of 1986, as added by this section, such amendments shall take effect on July 1, 1994.

SEC. 237. DISTRIBUTIONS UNDER RURAL COOPERATIVE PLANS.

    (a) DISTRIBUTIONS AFTER CERTAIN AGE- Section 401(k)(7) is amended by adding at the end thereof the following new subparagraph:

        ‘(C) SPECIAL RULE FOR CERTAIN DISTRIBUTIONS- A rural cooperative plan which includes a qualified cash or deferred arrangement shall not be treated as violating the requirements of section 401(a) merely by reason of a distribution to a participant after attainment of age 59 1/2 .’

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to distributions after the date of the enactment of this Act.

SEC. 238. TREATMENT OF GOVERNMENTAL PLANS UNDER SECTION 415.

    (a) DEFINITION OF COMPENSATION- Subsection (k) of section 415 (regarding limitations on benefits and contributions under qualified plans) is amended by adding immediately after paragraph (2) thereof the following new paragraph:

      ‘(3) DEFINITION OF COMPENSATION FOR GOVERNMENTAL PLANS- For purposes of this section, in the case of a governmental plan (as defined in section 414(d)), the term ‘compensation’ includes, in addition to the amounts described in subsection (c)(3)--

        ‘(A) any elective deferral (as defined in section 402(g)(3)), and

        ‘(B) any amount which is contributed by the employer at the election of the employee and which is not includible in the gross income of an employee under section 125 or 457.’

    (b) COMPENSATION LIMIT- Subsection (b) of section 415 is amended by adding immediately after paragraph (10) the following new paragraph:

      ‘(11) SPECIAL LIMITATION RULE FOR GOVERNMENTAL PLANS- In the case of a governmental plan (as defined in section 414(d)), subparagraph (B) of paragraph (1) shall not apply.’

    (c) Treatment of Certain Excess Benefit Plans-

      (1) IN GENERAL- Section 415 is amended by adding at the end thereof the following new subsection:

    ‘(m) Treatment of Qualified Governmental Excess Benefit Arrangements-

      ‘(1) GOVERNMENTAL PLAN NOT AFFECTED- In determining whether a governmental plan (as defined in section 414(d)) meets the requirements of this section, benefits provided under a qualified governmental excess benefit arrangement shall not be taken into account. Income accruing to a governmental plan (or to a trust that is maintained solely for the purpose of providing benefits under a qualified governmental excess benefit arrangement) in respect of a qualified governmental excess benefit arrangement shall constitute income derived from the exercise of an essential governmental function upon which such governmental plan (or trust) shall be exempt from tax under section 115.

      ‘(2) TAXATION OF PARTICIPANT- For purposes of this chapter--

        ‘(A) the taxable year or years for which amounts in respect of a qualified governmental excess benefit arrangement are includible in gross income by a participant, and

        ‘(B) the treatment of such amounts when so includible by the participant,

      shall be determined as if such qualified governmental excess benefit arrangement were treated as a plan for the deferral of compensation which is maintained by a corporation not exempt from tax under this chapter and which does not meet the requirements for qualification under section 401.

      ‘(3) QUALIFIED GOVERNMENTAL EXCESS BENEFIT ARRANGEMENT- For purposes of this subsection, the term ‘qualified governmental excess benefit arrangement’ means a portion of a governmental plan if--

        ‘(A) such portion is maintained solely for the purpose of providing to participants in the plan that part of the participant’s annual benefit otherwise payable under the terms of the plan that exceeds the limitations on benefits imposed by this section,

        ‘(B) under such portion no election is provided at any time to the participant (directly or indirectly) to defer compensation, and

        ‘(C) benefits described in subparagraph (A) are not paid from a trust forming a part of such governmental plan unless such trust is maintained solely for the purpose of providing such benefits.’

      (2) COORDINATION WITH SECTION 457- Subsection (e) of section 457 is amended by adding at the end thereof the following new paragraph:

      ‘(15) TREATMENT OF QUALIFIED GOVERNMENTAL EXCESS BENEFIT ARRANGEMENTS- Subsections (b)(2) and (c)(1) shall not apply to any qualified governmental excess benefit arrangement (as defined in section 415(m)(3)), and benefits provided under such an arrangement shall not be taken into account in determining whether any other plan is an eligible deferred compensation plan.’

      (3) CONFORMING AMENDMENT- Paragraph (2) of section 457(f) is amended by striking the word ‘and’ at the end of subparagraph (C), by striking the period after subparagraph (D) and inserting the words ‘, and’, and by inserting immediately thereafter the following new subparagraph:

        ‘(E) a qualified governmental excess benefit arrangement described in section 415(m).’

    (d) EXEMPTION FOR SURVIVOR AND DISABILITY BENEFITS- Paragraph (2) of section 415(b) is amended by adding at the end thereof the following new subparagraph:

        ‘(I) EXEMPTION FOR SURVIVOR AND DISABILITY BENEFITS PROVIDED UNDER GOVERNMENTAL PLANS- Subparagraph (B) of paragraph (1), subparagraph (C) of this paragraph, and paragraph (5) shall not apply to--

          ‘(i) income received from a governmental plan (as defined in section 414(d)) as a pension, annuity, or similar allowance as the result of the recipient becoming disabled by reason of personal injuries or sickness, or

          ‘(ii) amounts received from a governmental plan by the beneficiaries, survivors, or the estate of an employee as the result of the death of the employee.’

    (e) REVOCATION OF GRANDFATHER ELECTION- Subparagraph (C) of section 415(b)(10) is amended by adding at the end thereof the following new sentence: ‘An election made pursuant to the preceding sentence to have the provisions of this paragraph applied to the plan may be revoked not later than the last day of the 3rd plan year beginning after the date of enactment with respect to all plan years as to which such election has been applicable and all subsequent plan years; provided that any amount paid by the plan in a taxable year ending after revocation of such election in respect of benefits attributable to a taxable year during which such election was in effect shall be includible in income by the recipient in accordance with the rules of this chapter in the taxable year in which such amount is received (except that such amount shall be treated as received for purposes of the limitations imposed by this section in the earlier taxable year or years to which such amount is attributable).’

    (f) Effective Date-

      (1) IN GENERAL- The amendments made by subsections (a), (b), (c), and (d) shall apply to taxable years beginning on or after the date of the enactment of this Act. The amendments made by subsection (e) shall apply with respect to election revocations adopted after the date of the enactment of this Act.

      (2) TREATMENT FOR YEARS BEGINNING BEFORE DATE OF ENACTMENT- In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), such plan shall be treated as satisfying the requirements of section 415 of such Code for all taxable years beginning before the date of the enactment of this Act.

SEC. 239. UNIFORM RETIREMENT AGE.

    (a) DISCRIMINATION TESTING- Paragraph (5) of section 401(a) (relating to special rules relating to nondiscrimination requirements) is amended by adding at the end thereof the following new subparagraph:

        ‘(F) SOCIAL SECURITY RETIREMENT AGE- For purposes of testing for discrimination under paragraph (4)--

          ‘(i) the social security retirement age (as defined in section 415(b)(8)) shall be treated as a uniform retirement age, and

          ‘(ii) subsidized early retirement benefits and joint and survivor annuities shall not be treated as being unavailable to employees on the same terms merely because such benefits or annuities are based in whole or in part on an employee’s social security retirement age (as so defined).’

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 1993.

SEC. 240. UNIFORM PENALTY PROVISIONS TO APPLY TO CERTAIN PENSION REPORTING REQUIREMENTS.

    (a) IN GENERAL-

      (1) Paragraph (1) of section 6724(d) is amended by striking ‘and’ at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ‘, and’, and by inserting after subparagraph (B) the following new subparagraph:

        ‘(C) any statement of the amount of payments to another person required to be made to the Secretary under--

          ‘(i) section 408(i) (relating to reports with respect to individual retirement accounts or annuities), or

          ‘(ii) section 6047(d) (relating to reports by employers, plan administrators, etc.).’

      (2) Paragraph (2) of section 6724(d) is amended by striking ‘or’ at the end of subparagraph (S), by striking the period at the end of subparagraph (T) and inserting a comma, and by inserting after subparagraph (T) the following new subparagraphs:

        ‘(U) section 408(i) (relating to reports with respect to individual retirement plans) to any person other than the Secretary with respect to the amount of payments made to such person, or

        ‘(V) section 6047(d) (relating to reports by plan administrators) to any person other than the Secretary with respect to the amount of payments made to such person.’

    (b) MODIFICATION OF REPORTABLE DESIGNATED DISTRIBUTIONS-

      (1) SECTION 408- Subsection (i) of section 408 (relating to individual retirement account reports) is amended by inserting ‘aggregating $10 or more in any calendar year’ after ‘distributions’.

      (2) SECTION 6047- Paragraph (1) of section 6047(d) (relating to reports by employers, plan administrators, etc.) is amended by adding at the end thereof the following new sentence: ‘No return or report may be required under the preceding sentence with respect to distributions to any person during any year unless such distributions aggregate $10 or more.’

    (c) QUALIFYING ROLLOVER DISTRIBUTIONS- Section 6652(i) is amended--

      (1) by striking ‘the $10’ and inserting ‘$100’, and

      (2) by striking ‘$5,000’ and inserting ‘$50,000’.

    (d) CONFORMING AMENDMENTS-

      (1) Paragraph (1) of section 6047(f) is amended to read as follows:

‘(1) For provisions relating to penalties for failures to file returns and reports required under this section, see sections 6652(e), 6721, and 6722.’

      (2) Subsection (e) of section 6652 is amended by adding at the end thereof the following new sentence: ‘This subsection shall not apply to any return or statement which is an information return described in section 6724(d)(1)(C)(ii) or a payee statement described in section 6724(d)(2)(U).’

      (3) Subsection (a) of section 6693 is amended by adding at the end thereof the following new sentence: ‘This subsection shall not apply to any report which is an information return described in section 6724(d)(1)(C)(i) or a payee statement described in section 6724(d)(2)(T).’

    (e) EFFECTIVE DATE- The amendments made by this section shall apply to returns, reports, and other statements the due date for which (determined without regard to extensions) is after December 31, 1993.

SEC. 241. CONTRIBUTIONS ON BEHALF OF DISABLED EMPLOYEES.

    (a) ALL DISABLED PARTICIPANTS RECEIVING CONTRIBUTIONS- Section 415(c)(3)(C) is amended by adding at the end thereof the following: ‘If a defined contribution plan provides for the continuation of contributions on behalf of all participants described in clause (i) for a fixed or determinable period, this subparagraph shall be applied without regard to clauses (ii) and (iii).’

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 1993.

SEC. 242. SPECIAL RULES FOR PLANS COVERING PILOTS.

    (a) GENERAL RULE-

      (1) Subparagraph (B) of section 410(b)(3) is amended to read as follows:

        ‘(B) in the case of a plan established or maintained by one or more employers to provide contributions or benefits for air pilots employed by one or more common carriers engaged in interstate or foreign commerce or air pilots employed by carriers transporting mail for or under contract with the United States Government, all employees who are not air pilots.’

      (2) Paragraph (3) of section 410(b) is amended by striking the last sentence and inserting the following new sentence: ‘Subparagraph (B) shall not apply in the case of a plan which provides contributions or benefits for employees who are not air pilots or for air pilots whose principal duties are not customarily performed aboard aircraft in flight.’

    (b) EFFECTIVE DATE- The amendments made by subsection (a) shall apply to years beginning after December 31, 1993.

SEC. 243. TREATMENT OF DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.

    (a) SPECIAL RULES FOR PLAN DISTRIBUTIONS- Paragraph (9) of section 457(e) (relating to other definitions and special rules) is amended to read as follows:

      ‘(9) BENEFITS NOT TREATED AS MADE AVAILABLE BY REASON OF CERTAIN ELECTIONS, ETC-

        ‘(A) TOTAL AMOUNT PAYABLE IS $3,500 OR LESS- The total amount payable to a participant under the plan shall not be treated as made available merely because the participant may elect to receive such amount (or the plan may distribute such amount without the participant’s consent) if--

          ‘(i) such amount does not exceed $3,500, and

          ‘(ii) such amount may be distributed only if--

            ‘(I) no amount has been deferred under the plan with respect to such participant during the 2-year period ending on the date of the distribution, and

            ‘(II) there has been no prior distribution under the plan to such participant to which this subparagraph applied.

        A plan shall not be treated as failing to meet the distribution requirements of subsection (d) by reason of a distribution to which this subparagraph applies.

        ‘(B) ELECTION TO DEFER COMMENCEMENT OF DISTRIBUTIONS- The total amount payable to a participant under the plan shall not be treated as made available merely because the participant may elect to defer commencement of distributions under the plan if--

          ‘(i) such election is made after amounts may be available under the plan in accordance with subsection (d)(1)(A) and before commencement of such distributions, and

          ‘(ii) the participant may make only 1 such election.’

    (b) COST-OF-LIVING ADJUSTMENT OF MAXIMUM DEFERRAL AMOUNT- Subsection (e) of section 457 is amended by adding at the end thereof the following new paragraph:

      ‘(14) COST-OF-LIVING ADJUSTMENT OF MAXIMUM DEFERRAL AMOUNT- The Secretary shall adjust the $7,500 amount specified in subsections (b)(2) and (c)(1) at the same time and in the same manner as under section 415(d), except that the base year in applying such section for purposes of this paragraph shall be 1993.’

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 244. TREATMENT OF EMPLOYER REVERSIONS REQUIRED BY CONTRACT TO BE PAID TO THE UNITED STATES.

    (a) IN GENERAL- Subparagraph (B) of section 4980(c)(2) (defining employer reversion) is amended by striking ‘or’ at the end of clause (i), by striking the period at the end of clause (ii) and inserting ‘, or’, and by adding at the end thereof the following new clause:

          ‘(iii) any distribution to the employer to the extent that the distribution is paid within a reasonable period to the United States in satisfaction of a Federal claim for an equitable share of the plan’s surplus assets, as determined pursuant to Federal contracting regulations.’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to reversions on or after the date of the enactment of this Act.

SEC. 245. CONTINUATION HEALTH COVERAGE FOR EMPLOYEES OF FAILED FINANCIAL INSTITUTIONS.

    (a) ENFORCEMENT OF CONTINUATION OF HEALTH PLAN REQUIREMENTS OF ACQUIRERS OF FAILED DEPOSITORY INSTITUTIONS- Subsection (f) of section 4980B (relating to continuation of coverage requirements of group health plans) is amended by adding at the end thereof the following new paragraph:

      ‘(9) SPECIAL RULES FOR ACQUIRERS OF FAILED DEPOSITORY INSTITUTIONS-

        ‘(A) IN GENERAL- Except as provided in subparagraph (B), any acquirer of a failed depository institution--

          ‘(i) shall have the same obligation to provide a group health plan meeting the requirements of this subsection with respect to qualified individuals of such institution as the failed depository institution would have had but for its failure, and

          ‘(ii) shall be treated as the employer of such qualified individuals for purposes of this section.

        ‘(B) TAX NOT TO APPLY IF FDIC OR RTC PROVIDE CONTINUATION COVERAGE- No person shall be subject to any liability under this section by reason of being an acquirer of a failed depository institution if the Federal Deposit Insurance Corporation or the Resolution Trust Corporation elects to relieve such acquirer from its obligations under subparagraph (A). In any such case, the requirements of subparagraph (A) shall apply to the Federal Deposit Insurance Corporation or the Resolution Trust Corporation, as the case may be.

        ‘(C) ACQUIRER- For purposes of this paragraph, an entity is an acquirer of a failed depository institution during any period if--

          ‘(i) such entity holds substantially all of the assets or liabilities of such institution, and

          ‘(ii)(I) such entity is a bridge bank, or

          ‘(II) such entity acquired such assets or liabilities from the Federal Deposit Insurance Corporation, the Resolution Trust Corporation, or a bridge bank.

        ‘(D) FAILED DEPOSITORY INSTITUTION- For purposes of this section, the term ‘failed depository institution’ means any depository institution (as defined in section 3(c) of the Federal Deposit Insurance Act) for which a receiver or conservator has been appointed.

        ‘(E) QUALIFIED INDIVIDUAL- For purposes of this section, the term ‘qualified individual’ means--

          ‘(i) any individual who was, on the day before the date of the appointment of the receiver or conservator, provided coverage under a group health plan of the failed depository institution by reason of the performance of services for such institution, and

          ‘(ii) any individual who was, on such day, a beneficiary under such plan as the spouse or dependent child of the individual described in clause (i).’

    (b) TREATMENT OF DEPOSITORY INSTITUTION FAILURES AS QUALIFYING EVENTS FOR RETIREES OF SUCH INSTITUTIONS-

      (1) IN GENERAL- Subparagraph (B) of section 4980B(f)(3) is amended--

        (A) by striking ‘The termination’ and inserting ‘(i) The termination’,

        (B) by striking the period at the end and inserting ‘, or’, and

        (C) by inserting after clause (i) the following new clause:

        ‘(ii) the appointment of a receiver or conservator for a failed depository institution from whose employment the covered employee retired at any time.’

      (2) CONFORMING AMENDMENT- Subclause (I) of section 4980B(f)(2)(B)(i) is amended by striking ‘AND REDUCED HOURS’ and inserting ‘, REDUCED HOURS, AND FAILURES OF DEPOSITORY INSTITUTIONS’.

    (c) EFFECTIVE DATES-

      (1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply as if included in section 451 of the Federal Deposit Insurance Corporation Improvement Act of 1991 as of the date of the enactment of such Act.

      (2) LIABILITY OF FDIC- In the case of the Federal Deposit Insurance Corporation or any acquirer from such Corporation, the amendments made by this section shall apply only to failed depository institutions for which the receiver or conservator is appointed after the date of the enactment of this Act.

      (3) SPECIAL RULE FOR COVERAGE UNDER FDIC PLAN- Effective as of the date of the enactment of the Federal Deposit Insurance Corporation Improvement Act of 1991, coverage under the health care continuation plan maintained by the Federal Deposit Insurance Corporation on June 25, 1992, and any other substantially similar plan maintained by such Corporation, shall be deemed to satisfy the obligations of the Federal Deposit Insurance Corporation (and any acquirer from such Corporation) under section 4980B(f) of the Internal Revenue Code of 1986 and section 451 of the Federal Deposit Insurance Corporation Improvement Act of 1991 with respect to qualified individuals of failed depository institutions.

SEC. 246. DATE FOR ADOPTION OF PLAN AMENDMENTS.

    If any amendment made by this title requires an amendment to any plan, such plan amendment shall not be required to be made before the first day of the first plan year beginning on or after January 1, 1995, if--

      (1) during the period after such amendment takes effect and before such first plan year, the plan is operated in accordance with the requirements of such amendment, and

      (2) such plan amendment applies retroactively to such period.

TITLE III--TREATMENT OF LARGE PARTNERSHIPS

Subtitle A--General Provisions

SEC. 301. SIMPLIFIED FLOW-THROUGH FOR LARGE PARTNERSHIPS.

    (a) GENERAL RULE- Subchapter K (relating to partners and partnerships) is amended by adding at the end thereof the following new part:

‘PART IV--SPECIAL RULES FOR LARGE PARTNERSHIPS

‘Sec. 771. Application of subchapter to large partnerships.

‘Sec. 772. Simplified flow-through.

‘Sec. 773. Computations at partnership level.

‘Sec. 774. Other modifications.

‘Sec. 775. Large partnership defined.

‘Sec. 776. Special rules for partnerships holding oil and gas properties.

‘Sec. 777. Regulations.

‘SEC. 771. APPLICATION OF SUBCHAPTER TO LARGE PARTNERSHIPS.

    ‘The preceding provisions of this subchapter to the extent inconsistent with the provisions of this part shall not apply to a large partnership and its partners.

‘SEC. 772. SIMPLIFIED FLOW-THROUGH.

    ‘(a) GENERAL RULE- In determining the income tax of a partner of a large partnership, such partner shall take into account separately such partner’s distributive share of the partnership’s--

      ‘(1) taxable income or loss from passive loss limitation activities,

      ‘(2) taxable income or loss from other activities,

      ‘(3) net capital gain (or net capital loss)--

        ‘(A) to the extent allocable to passive loss limitation activities, and

        ‘(B) to the extent allocable to other activities,

      ‘(4) tax-exempt interest,

      ‘(5) applicable net AMT adjustment separately computed for--

        ‘(A) passive loss limitation activities, and

        ‘(B) other activities,

      ‘(6) general credits,

      ‘(7) low-income housing credit determined under section 42,

      ‘(8) rehabilitation credit determined under section 47,

      ‘(9) foreign income taxes,

      ‘(10) the credit allowable under section 29, and

      ‘(11) other items to the extent that the Secretary determines that the separate treatment of such items is appropriate.

    ‘(b) SEPARATE COMPUTATIONS- In determining the amounts required under subsection (a) to be separately taken into account by any partner, this section and section 773 shall be applied separately with respect to such partner by taking into account such partner’s distributive share of the items of income, gain, loss, deduction, or credit of the partnership.

    ‘(c) TREATMENT AT PARTNER LEVEL-

      ‘(1) IN GENERAL- Except as provided in this subsection, rules similar to the rules of section 702(b) shall apply to any partner’s distributive share of the amounts referred to in subsection (a).

      ‘(2) INCOME OR LOSS FROM PASSIVE LOSS LIMITATION ACTIVITIES- For purposes of this chapter, any partner’s distributive share of any income or loss described in subsection (a)(1) shall be treated as an item of income or loss (as the case may be) from the conduct of a trade or business which is a single passive activity (as defined in section 469). A similar rule shall apply to a partner’s distributive share of amounts referred to in paragraphs (3)(A) and (5)(A) of subsection (a).

      ‘(3) INCOME OR LOSS FROM OTHER ACTIVITIES-

        ‘(A) IN GENERAL- For purposes of this chapter, any partner’s distributive share of any income or loss described in subsection (a)(2) shall be treated as an item of income or expense (as the case may be) with respect to property held for investment.

        ‘(B) DEDUCTIONS FOR LOSS NOT SUBJECT TO SECTION 67- The deduction under section 212 for any loss described in subparagraph (A) shall not be treated as a miscellaneous itemized deduction for purposes of section 67.

      ‘(4) TREATMENT OF NET CAPITAL GAIN OR LOSS- For purposes of this chapter, any partner’s distributive share of any gain or loss described in subsection (a)(3) shall be treated as a long-term capital gain or loss, as the case may be.

      ‘(5) MINIMUM TAX TREATMENT- In determining the alternative minimum taxable income of any partner, such partner’s distributive share of any applicable net AMT adjustment shall be taken into account in lieu of making the separate adjustments provided in sections 56, 57, and 58 with respect to the items of the partnership. Except as provided in regulations, the applicable net AMT adjustment shall be treated, for purposes of section 53, as an adjustment or item of tax preference not specified in section 53(d)(1)(B)(ii).

      ‘(6) GENERAL CREDITS- A partner’s distributive share of the amount referred to in paragraph (6) of subsection (a) shall be taken into account as a current year business credit.

    ‘(d) OPERATING RULES- For purposes of this section--

      ‘(1) PASSIVE LOSS LIMITATION ACTIVITY- The term ‘passive loss limitation activity’ means--

        ‘(A) any activity which involves the conduct of a trade or business, and

        ‘(B) any rental activity.

      For purposes of the preceding sentence, the term ‘trade or business’ includes any activity treated as a trade or business under paragraph (5) or (6) of section 469(c).

      ‘(2) TAX-EXEMPT INTEREST- The term ‘tax-exempt interest’ means interest excludable from gross income under section 103.

      ‘(3) APPLICABLE NET AMT ADJUSTMENT-

        ‘(A) IN GENERAL- The applicable net AMT adjustment is--

          ‘(i) with respect to taxpayers other than corporations, the net adjustment determined by using the adjustments applicable to individuals, and

          ‘(ii) with respect to corporations, the net adjustment determined by using the adjustments applicable to corporations.

        ‘(B) NET ADJUSTMENT- The term ‘net adjustment’ means the net adjustment in the items attributable to passive loss activities or other activities (as the case may be) which would result if such items were determined with the adjustments of sections 56, 57, and 58.

      ‘(4) TREATMENT OF CERTAIN SEPARATELY STATED ITEMS-

        ‘(A) EXCLUSION FOR CERTAIN PURPOSES- In determining the amounts referred to in paragraphs (1) and (2) of subsection (a), any net capital gain or net capital loss (as the case may be), and any item referred to in subsection (a)(11), shall be excluded.

        ‘(B) ALLOCATION RULES- The net capital gain shall be treated--

          ‘(i) as allocable to passive loss limitation activities to the extent the net capital gain does not exceed the net capital gain determined by only taking into account gains and losses from sales and exchanges of property used in connection with such activities, and

          ‘(ii) as allocable to other activities to the extent such gain exceeds the amount allocated under clause (i).

        A similar rule shall apply for purposes of allocating any net capital loss.

        ‘(C) NET CAPITAL LOSS- The term ‘net capital loss’ means the excess of the losses from sales or exchanges of capital assets over the gains from sales or exchange of capital assets.

      ‘(5) GENERAL CREDITS- The term ‘general credits’ means any credit other than the low-income housing credit, the rehabilitation credit, the foreign tax credit, and the credit allowable under section 29.

      ‘(6) FOREIGN INCOME TAXES- The term ‘foreign income taxes’ means taxes described in section 901 which are paid or accrued to foreign countries and to possessions of the United States.

    ‘(e) SPECIAL RULE FOR UNRELATED BUSINESS TAX- In the case of a partner which is an organization subject to tax under section 511, such partner’s distributive share of any items shall be taken into account separately to the extent necessary to comply with the provisions of section 512(c)(1).

    ‘(f) SPECIAL RULES FOR APPLYING PASSIVE LOSS LIMITATIONS- If any person holds an interest in a large partnership other than as a limited partner--

      ‘(1) paragraph (2) of subsection (c) shall not apply to such partner, and

      ‘(2) such partner’s distributive share of the partnership items allocable to passive loss limitation activities shall be taken into account separately to the extent necessary to comply with the provisions of section 469.

    The preceding sentence shall not apply to any items allocable to an interest held as a limited partner.

‘SEC. 773. COMPUTATIONS AT PARTNERSHIP LEVEL.

    ‘(a) GENERAL RULE-

      ‘(1) TAXABLE INCOME- The taxable income of a large partnership shall be computed in the same manner as in the case of an individual except that--

        ‘(A) the items described in section 772(a) shall be separately stated, and

        ‘(B) the modifications of subsection (b) shall apply.

      ‘(2) ELECTIONS- All elections affecting the computation of the taxable income of a large partnership or the computation of any credit of a large partnership shall be made by the partnership; except that the election under section 901, and any election under section 108, shall be made by each partner separately.

      ‘(3) LIMITATIONS, ETC-

        ‘(A) IN GENERAL- Except as provided in subparagraph (B), all limitations and other provisions affecting the computation of the taxable income of a large partnership or the computation of any credit of a large partnership shall be applied at the partnership level (and not at the partner level).

        ‘(B) CERTAIN LIMITATIONS APPLIED AT PARTNER LEVEL- The following provisions shall be applied at the partner level (and not at the partnership level):

          ‘(i) Section 68 (relating to overall limitation on itemized deductions).

          ‘(ii) Sections 49 and 465 (relating to at risk limitations).

          ‘(iii) Section 469 (relating to limitation on passive activity losses and credits).

          ‘(iv) Any other provision specified in regulations.

      ‘(4) COORDINATION WITH OTHER PROVISIONS- Paragraphs (2) and (3) shall apply notwithstanding any other provision of this chapter other than this part.

    ‘(b) MODIFICATIONS TO DETERMINATION OF TAXABLE INCOME- In determining the taxable income of a large partnership--

      ‘(1) CERTAIN DEDUCTIONS NOT ALLOWED- The following deductions shall not be allowed:

        ‘(A) The deduction for personal exemptions provided in section 151.

        ‘(B) The net operating loss deduction provided in section 172.

        ‘(C) The additional itemized deductions for individuals provided in part VII of subchapter B (other than section 212 thereof).

      ‘(2) CHARITABLE DEDUCTIONS- In determining the amount allowable under section 170, the limitation of section 170(b)(2) shall apply.

      ‘(3) COORDINATION WITH SECTION 67- In lieu of applying section 67, 70 percent of the amount of the miscellaneous itemized deductions shall be disallowed.

    ‘(c) SPECIAL RULES FOR INCOME FROM DISCHARGE OF INDEBTEDNESS- If a large partnership has income from the discharge of any indebtedness--

      ‘(1) such income shall be excluded in determining the amounts referred to in section 772(a), and

      ‘(2) in determining the income tax of any partner of such partnership--

        ‘(A) such income shall be treated as an item required to be separately taken into account under section 772(a), and

        ‘(B) the provisions of section 108 shall be applied without regard to this part.

‘SEC. 774. OTHER MODIFICATIONS.

    ‘(a) TREATMENT OF CERTAIN OPTIONAL ADJUSTMENTS, ETC- In the case of a large partnership--

      ‘(1) computations under section 773 shall be made without regard to any adjustment under section 743(b) or 108(b), but

      ‘(2) a partner’s distributive share of any amount referred to in section 772(a) shall be appropriately adjusted to take into account any adjustment under section 743(b) or 108(b) with respect to such partner.

    ‘(b) CREDIT RECAPTURE DETERMINED AT PARTNERSHIP LEVEL-

      ‘(1) IN GENERAL- In the case of a large partnership--

        ‘(A) any credit recapture shall be taken into account by the partnership, and

        ‘(B) the amount of such recapture shall be determined as if the credit with respect to which the recapture is made had been fully utilized to reduce tax.

      ‘(2) METHOD OF TAKING RECAPTURE INTO ACCOUNT- A large partnership shall take into account a credit recapture by reducing the amount of the appropriate current year credit to the extent thereof, and if such recapture exceeds the amount of such current year credit, the partnership shall be liable to pay such excess.

      ‘(3) DISPOSITIONS NOT TO TRIGGER RECAPTURE- No credit recapture shall be required by reason of any transfer of an interest in a large partnership.

      ‘(4) CREDIT RECAPTURE- For purposes of this subsection, the term ‘credit recapture’ means any increase in tax under section 42(j) or 50(a).

    ‘(c) PARTNERSHIP NOT TERMINATED BY REASON OF CHANGE IN OWNERSHIP- Subparagraph (B) of section 708(b)(1) shall not apply to a large partnership.

    ‘(d) PARTNERSHIP ENTITLED TO CERTAIN CREDITS- The following shall be allowed to a large partnership and shall not be taken into account by the partners of such partnership:

      ‘(1) The credit provided by section 34.

      ‘(2) Any credit or refund under section 852(b)(3)(D).

    ‘(e) TREATMENT OF REMIC RESIDUALS- For purposes of applying section 860E(e)(6) to any large partnership--

      ‘(1) all interests in such partnership shall be treated as held by disqualified organizations,

      ‘(2) in lieu of applying subparagraph (C) of section 860E(e)(6), the amount subject to tax under section 860E(e)(6) shall be excluded from the gross income of such partnership, and

      ‘(3) subparagraph (D) of section 860E(e)(6) shall not apply.

    ‘(f) SPECIAL RULES FOR APPLYING CERTAIN INSTALLMENT SALE RULES- In the case of a large partnership--

      ‘(1) the provisions of sections 453(l)(3) and 453A shall be applied at the partnership level, and

      ‘(2) in determining the amount of interest payable under such sections, such partnership shall be treated as subject to tax under this chapter at the highest rate of tax in effect under section 1 or 11.

‘SEC. 775. LARGE PARTNERSHIP.

    ‘(a) GENERAL RULE- For purposes of this part--

      ‘(1) IN GENERAL- Except as otherwise provided in this section or section 776, the term ‘large partnership’ means, with respect to any partnership taxable year, any partnership if the number of persons who were partners in such partnership in such taxable year or any preceding partnership taxable year ending on or after December 31, 1994, equaled or exceeded 250. To the extent provided in regulations, a partnership shall cease to be treated as a large partnership for any partnership taxable year if in such taxable year fewer than 100 persons were partners in such partnership.

      ‘(2) ELECTION FOR PARTNERSHIPS WITH AT LEAST 100 PARTNERS- If a partnership makes an election under this paragraph, paragraph (1) shall be applied by substituting ‘100’ for ‘250’. Such an election shall apply to the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.

    ‘(b) SPECIAL RULES FOR CERTAIN SERVICE PARTNERSHIPS-

      ‘(1) CERTAIN PARTNERS NOT COUNTED- For purposes of this section, the term ‘partner’ does not include any individual performing substantial services in connection with the activities of the partnership and holding an interest in such partnership, or an individual who formerly performed substantial services in connection with such activities and who held an interest in such partnership at the time the individual performed such services.

      ‘(2) EXCLUSION- For purposes of this part, the term ‘large partnership’ does not include any partnership if substantially all the partners of such partnership--

        ‘(A) are individuals performing substantial services in connection with the activities of such partnership or are personal service corporations (as defined in section 269A(b)) the owner-employees (as defined in section 269A(b)) of which perform such substantial services,

        ‘(B) are retired partners who had performed such substantial services, or

        ‘(C) are spouses of partners who are performing (or had previously performed) such substantial services.

      ‘(3) SPECIAL RULE FOR LOWER TIER PARTNERSHIPS- For purposes of this subsection, the activities of a partnership shall include the activities of any other partnership in which the partnership owns directly an interest in the capital and profits of at least 80 percent.

    ‘(c) EXCLUSION OF COMMODITY POOLS- For purposes of this part, the term ‘large partnership’ does not include any partnership the principal activity of which is the buying and selling of commodities (not described in section 1221(1)), or options, futures, or forwards with respect to such commodities.

    ‘(d) SECRETARY MAY RELY ON TREATMENT ON RETURN- If, on the partnership return of any partnership, such partnership is treated as a large partnership, such treatment shall be binding on such partnership and all partners of such partnership but not on the Secretary.

‘SEC. 776. SPECIAL RULES FOR PARTNERSHIPS HOLDING OIL AND GAS PROPERTIES.

    ‘(a) EXCEPTION FOR PARTNERSHIPS HOLDING SIGNIFICANT OIL AND GAS PROPERTIES-

      ‘(1) IN GENERAL- For purposes of this part, the term ‘large partnership’ shall not include any partnership if the average percentage of assets (by value) held by such partnership during the taxable year which are oil or gas properties is at least 25 percent. For purposes of the preceding sentence, any interest held by a partnership in another partnership shall be disregarded, except that the partnership shall be treated as holding its proportionate share of the assets of such other partnership.

      ‘(2) ELECTION TO WAIVE EXCEPTION- Any partnership may elect to have paragraph (1) not apply. Such an election shall apply to the partnership taxable year for which made and all subsequent partnership taxable years unless revoked with the consent of the Secretary.

    ‘(b) SPECIAL RULES WHERE PART APPLIES-

      ‘(1) COMPUTATION OF PERCENTAGE DEPLETION- In the case of a large partnership, except as provided in paragraph (2)--

        ‘(A) the allowance for depletion under section 611 with respect to any partnership oil or gas property shall be computed at the partnership level without regard to any provision of section 613A requiring such allowance to be computed separately by each partner,

        ‘(B) such allowance shall be determined without regard to the provisions of section 613A(c) limiting the amount of production for which percentage depletion is allowable and without regard to paragraph (1) of section 613A(d), and

        ‘(C) paragraph (3) of section 705(a) shall not apply.

      ‘(2) TREATMENT OF CERTAIN PARTNERS-

        ‘(A) IN GENERAL- In the case of a disqualified person, the treatment under this chapter of such person’s distributive share of any item of income, gain, loss, deduction, or credit attributable to any partnership oil or gas property shall be determined without regard to this part. Such person’s distributive share of any such items shall be excluded for purposes of making determinations under sections 772 and 773.

        ‘(B) DISQUALIFIED PERSON- For purposes of subparagraph (A), the term ‘disqualified person’ means, with respect to any partnership taxable year--

          ‘(i) any person referred to in paragraph (2) or (4) of section 613A(d) for such person’s taxable year in which such partnership taxable year ends, and

          ‘(ii) any other person if such person’s average daily production of domestic crude oil and natural gas for such person’s taxable year in which such partnership taxable year ends exceeds 500 barrels.

        ‘(C) AVERAGE DAILY PRODUCTION- For purposes of subparagraph (B), a person’s average daily production of domestic crude oil and natural gas for any taxable year shall be computed as provided in section 613A(c)(2)--

          ‘(i) by taking into account all production of domestic crude oil and natural gas (including such person’s proportionate share of any production of a partnership),

          ‘(ii) by treating 6,000 cubic feet of natural gas as a barrel of crude oil, and

          ‘(iii) by treating as 1 person all persons treated as 1 taxpayer under section 613A(c)(8) or among whom allocations are required under such section.

‘SEC. 777. REGULATIONS.

    ‘The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this part.’

    (b) CLERICAL AMENDMENT- The table of parts for subchapter K of chapter 1 is amended by adding at the end thereof the following new item:

‘Part IV. Special rules for large partnerships.’

SEC. 302. SIMPLIFIED AUDIT PROCEDURES FOR LARGE PARTNERSHIPS.

    (a) GENERAL RULE- Chapter 63 is amended by adding at the end thereof the following new subchapter:

‘Subchapter D--Treatment of Large Partnerships

‘Part I. Treatment of partnership items and adjustments.

‘Part II. Partnership level adjustments.

‘Part III. Definitions and special rules.

‘PART I--TREATMENT OF PARTNERSHIP ITEMS AND ADJUSTMENTS

‘Sec. 6240. Application of subchapter.

‘Sec. 6241. Partner’s return must be consistent with partnership return.

‘Sec. 6242. Procedures for taking partnership adjustments into account.

‘SEC. 6240. APPLICATION OF SUBCHAPTER.

    ‘(a) GENERAL RULE- This subchapter shall only apply to large partnerships and partners in such partnerships.

    ‘(b) COORDINATION WITH OTHER PARTNERSHIP AUDIT PROCEDURES-

      ‘(1) IN GENERAL- Subchapter C of this chapter shall not apply to any large partnership other than in its capacity as a partner in another partnership which is not a large partnership.

      ‘(2) TREATMENT WHERE PARTNER IN OTHER PARTNERSHIP- If a large partnership is a partner in another partnership which is not a large partnership--

        ‘(A) subchapter C of this chapter shall apply to items of such large partnership which are partnership items with respect to such other partnership, but

        ‘(B) any adjustment under such subchapter C shall be taken into account in the manner provided by section 6242.

‘SEC. 6241. PARTNER’S RETURN MUST BE CONSISTENT WITH PARTNERSHIP RETURN.

    ‘(a) GENERAL RULE- A partner of any large partnership shall, on the partner’s return, treat each partnership item attributable to such partnership in a manner which is consistent with the treatment of such partnership item on the partnership return.

    ‘(b) UNDERPAYMENT DUE TO INCONSISTENT TREATMENT ASSESSED AS MATH ERROR- Any underpayment of tax by a partner by reason of failing to comply with the requirements of subsection (a) shall be assessed and collected in the same manner as if such underpayment were on account of a mathematical or clerical error appearing on the partner’s return. Paragraph (2) of section 6213(b) shall not apply to any assessment of an underpayment referred to in the preceding sentence.

    ‘(c) ADJUSTMENTS NOT TO AFFECT PRIOR YEAR OF PARTNERS-

      ‘(1) IN GENERAL- Except as provided in paragraph (2), subsections (a) and (b) shall apply without regard to any adjustment to the partnership item under part II.

      ‘(2) CERTAIN CHANGES IN DISTRIBUTIVE SHARE TAKEN INTO ACCOUNT BY PARTNER-

        ‘(A) IN GENERAL- To the extent that any adjustment under part II involves a change under section 704 in a partner’s distributive share of the amount of any partnership item shown on the partnership return, such adjustment shall be taken into account in applying this title to such partner for the partner’s taxable year for which such item was required to be taken into account.

        ‘(B) COORDINATION WITH DEFICIENCY PROCEDURES-

          ‘(i) IN GENERAL- Subchapter B shall not apply to the assessment or collection of any underpayment of tax attributable to an adjustment referred to in subparagraph (A).

          ‘(ii) ADJUSTMENT NOT PRECLUDED- Notwithstanding any other law or rule of law, nothing in subchapter B (or in any proceeding under subchapter B) shall preclude the assessment or collection of any underpayment of tax (or the allowance of any credit or refund of any overpayment of tax) attributable to an adjustment referred to in subparagraph (A) and such assessment or collection or allowance (or any notice thereof) shall not preclude any notice, proceeding, or determination under subchapter B.

        ‘(C) PERIOD OF LIMITATIONS- The period for--

          ‘(i) assessing any underpayment of tax, or

          ‘(ii) filing a claim for credit or refund of any overpayment of tax,

        attributable to an adjustment referred to in subparagraph (A) shall not expire before the close of the period prescribed by section 6248 for making adjustments with respect to the partnership taxable year involved.

        ‘(D) TIERED STRUCTURES- If the partner referred to in subparagraph (A) is another partnership or an S corporation, the rules of this paragraph shall also apply to persons holding interests in such partnership or S corporation (as the case may be); except that, if such partner is a large partnership, the adjustment referred to in subparagraph (A) shall be taken into account in the manner provided by section 6242.

    ‘(d) ADDITION TO TAX FOR FAILURE TO COMPLY WITH SECTION-

‘For addition to tax in case of partner’s disregard of requirements of this section, see part II of subchapter A of chapter 68.

‘SEC. 6242. PROCEDURES FOR TAKING PARTNERSHIP ADJUSTMENTS INTO ACCOUNT.

    ‘(a) ADJUSTMENTS FLOW THROUGH TO PARTNERS FOR YEAR IN WHICH ADJUSTMENT TAKES EFFECT-

      ‘(1) IN GENERAL- If any partnership adjustment with respect to any partnership item takes effect (within the meaning of subsection (d)(2)) during any partnership taxable year and if an election under paragraph (2) does not apply to such adjustment, such adjustment shall be taken into account in determining the amount of such item for the partnership taxable year in which such adjustment takes effect. In applying this title to any person who is (directly or indirectly) a partner in such partnership during such partnership taxable year, such adjustment shall be treated as an item actually arising during such taxable year.

      ‘(2) PARTNERSHIP LIABLE IN CERTAIN CASES- If--

        ‘(A) a partnership elects under this paragraph to not take an adjustment into account under paragraph (1),

        ‘(B) a partnership does not make such an election but in filing its return for any partnership taxable year fails to take fully into account any partnership adjustment as required under paragraph (1), or

        ‘(C) any partnership adjustment involves a reduction in a credit which exceeds the amount of such credit determined for the partnership taxable year in which the adjustment takes effect,

      the partnership shall pay to the Secretary an amount determined by applying the rules of subsection (b)(4) to the adjustments not so taken into account and any excess referred to in subparagraph (C).

      ‘(3) OFFSETTING ADJUSTMENTS TAKEN INTO ACCOUNT- If a partnership adjustment requires another adjustment in a taxable year after the adjusted year and before the partnership taxable year in which such partnership adjustment takes effect, such other adjustment shall be taken into account under this subsection for the partnership taxable year in which such partnership adjustment takes effect.

      ‘(4) COORDINATION WITH PART II- Amounts taken into account under this subsection for any partnership taxable year shall continue to be treated as adjustments for the adjusted year for purposes of determining whether such amounts may be readjusted under part II.

    ‘(b) PARTNERSHIP LIABLE FOR INTEREST AND PENALTIES-

      ‘(1) IN GENERAL- If a partnership adjustment takes effect during any partnership taxable year and such adjustment results in an imputed underpayment for the adjusted year, the partnership--

        ‘(A) shall pay to the Secretary interest computed under paragraph (2), and

        ‘(B) shall be liable for any penalty, addition to tax, or additional amount as provided in paragraph (3).

      ‘(2) DETERMINATION OF AMOUNT OF INTEREST- The interest computed under this paragraph with respect to any partnership adjustment is the interest which would be determined under chapter 67--

        ‘(A) on the imputed underpayment determined under paragraph (4) with respect to such adjustment,

        ‘(B) for the period beginning on the day after the return due date for the adjusted year and ending on the return due date for the partnership taxable year in which such adjustment takes effect (or, if earlier, in the case of any adjustment to which subsection (a)(2) applies, the date on which the payment under subsection (a)(2) is made).

      Proper adjustments in the amount determined under the preceding sentence shall be made for adjustments required for partnership taxable years after the adjusted year and before the year in which the partnership adjustment takes effect by reason of such partnership adjustment.

      ‘(3) PENALTIES- A partnership shall be liable for any penalty, addition to tax, or additional amount for which it would have been liable if such partnership had been an individual subject to tax under chapter 1 for the adjusted year and the imputed underpayment determined under paragraph (4) were an actual underpayment (or understatement) for such year.

      ‘(4) IMPUTED UNDERPAYMENT- For purposes of this subsection, the imputed underpayment determined under this paragraph with respect to any partnership adjustment is the underpayment (if any) which would result--

        ‘(A) by netting all adjustments to items of income, gain, loss, or deduction and by treating any net increase in income as an underpayment equal to the amount of such net increase multiplied by the highest rate of tax in effect under section 1 or 11 for the adjusted year, and

        ‘(B) by taking adjustments to credits into account as increases or decreases (whichever is appropriate) in the amount of tax.

      For purposes of the preceding sentence, any net decrease in a loss shall be treated as an increase in income and a similar rule shall apply to a net increase in a loss.

    ‘(c) ADMINISTRATIVE PROVISIONS-

      ‘(1) IN GENERAL- Any payment required by subsection (a)(2) or (b)(1)(A)--

        ‘(A) shall be assessed and collected in the same manner as if it were a tax imposed by subtitle C, and

        ‘(B) shall be paid on or before the return due date for the partnership taxable year in which the partnership adjustment takes effect.

      ‘(2) INTEREST- For purposes of determining interest, any payment required by subsection (a)(2) or (b)(1)(A) shall be treated as an underpayment of tax.

      ‘(3) PENALTIES-

        ‘(A) IN GENERAL- In the case of any failure by any partnership to pay on the date prescribed therefor any amount required by subsection (a)(2) or (b)(1)(A), there is hereby imposed on such partnership a penalty of 10 percent of the underpayment. For purposes of the preceding sentence, the term ‘underpayment’ means the excess of any payment required under this section over the amount (if any) paid on or before the date prescribed therefor.

        ‘(B) ACCURACY-RELATED AND FRAUD PENALTIES MADE APPLICABLE- For purposes of part II of subchapter A of chapter 68, any payment required by subsection (a)(2) shall be treated as an underpayment of tax.

    ‘(d) DEFINITIONS AND SPECIAL RULES- For purposes of this section--

      ‘(1) PARTNERSHIP ADJUSTMENT- The term ‘partnership adjustment’ means any adjustment in the amount of any partnership item of a large partnership.

      ‘(2) WHEN ADJUSTMENT TAKES EFFECT- A partnership adjustment takes effect--

        ‘(A) in the case of an adjustment pursuant to the decision of a court in a proceeding brought under part II, when such decision becomes final,

        ‘(B) in the case of an adjustment pursuant to any administrative adjustment request under section 6251, when such adjustment is allowed by the Secretary, or

        ‘(C) in any other case, when such adjustment is made.

      ‘(3) ADJUSTED YEAR- The term ‘adjusted year’ means the partnership taxable year to which the item being adjusted relates.

      ‘(4) RETURN DUE DATE- The term ‘return due date’ means, with respect to any taxable year, the date prescribed for filing the partnership return for such taxable year (determined without regard to extensions).

      ‘(5) ADJUSTMENTS INVOLVING CHANGES IN CHARACTER- Under regulations, appropriate adjustments in the application of this section shall be made for purposes of taking into account partnership adjustments which involve a change in the character of any item of income, gain, loss, or deduction.

    ‘(e) PAYMENTS NONDEDUCTIBLE- No deduction shall be allowed under subtitle A for any payment required to be made by a large partnership under this section.

‘PART II--PARTNERSHIP LEVEL ADJUSTMENTS

‘Subpart A. Adjustments by Secretary.

‘Subpart B. Claims for adjustments by partnership.

‘Subpart A--Adjustments by Secretary

‘Sec. 6245. Secretarial authority.

‘Sec. 6246. Restrictions on partnership adjustments.

‘Sec. 6247. Judicial review of partnership adjustment.

‘Sec. 6248. Period of limitations for making adjustments.

‘SEC. 6245. SECRETARIAL AUTHORITY.

    ‘(a) GENERAL RULE- The Secretary is authorized and directed to make adjustments at the partnership level in any partnership item to the extent necessary to have such item be treated in the manner required.

    ‘(b) NOTICE OF PARTNERSHIP ADJUSTMENT-

      ‘(1) IN GENERAL- If the Secretary determines that a partnership adjustment is required, the Secretary is authorized to send notice of such adjustment to the partnership by certified mail or registered mail. Such notice shall be sufficient if mailed to the partnership at its last known address even if the partnership has terminated its existence.

      ‘(2) FURTHER NOTICES RESTRICTED- If the Secretary mails a notice of a partnership adjustment to any partnership for any partnership taxable year and the partnership files a petition under section 6247 with respect to such notice, in the absence of a showing of fraud, malfeasance, or misrepresentation of a material fact, the Secretary shall not mail another such notice to such partnership with respect to such taxable year.

      ‘(3) AUTHORITY TO RESCIND NOTICE WITH PARTNERSHIP CONSENT- The Secretary may, with the consent of the partnership, rescind any notice of a partnership adjustment mailed to such partnership. Any notice so rescinded shall not be treated as a notice of a partnership adjustment, for purposes of this section, section 6246, and section 6247, and the taxpayer shall have no right to bring a proceeding under section 6247 with respect to such notice. Nothing in this subsection shall affect any suspension of the running of any period of limitations during any period during which the rescinded notice was outstanding.

‘SEC. 6246. RESTRICTIONS ON PARTNERSHIP ADJUSTMENTS.

    ‘(a) GENERAL RULE- Except as otherwise provided in this chapter, no adjustment to any partnership item may be made (and no levy or proceeding in any court for the collection of any amount resulting from such adjustment may be made, begun or prosecuted) before--

      ‘(1) the close of the 90th day after the day on which a notice of a partnership adjustment was mailed to the partnership, and

      ‘(2) if a petition is filed under section 6247 with respect to such notice, the decision of the court has become final.

    ‘(b) PREMATURE ACTION MAY BE ENJOINED- Notwithstanding section 7421(a), any action which violates subsection (a) may be enjoined in the proper court, including the Tax Court. The Tax Court shall have no jurisdiction to enjoin any action under this subsection unless a timely petition has been filed under section 6247 and then only in respect of the adjustments that are the subject of such petition.

    ‘(c) EXCEPTIONS TO RESTRICTIONS ON ADJUSTMENTS-

      ‘(1) ADJUSTMENTS ARISING OUT OF MATH OR CLERICAL ERRORS-

        ‘(A) IN GENERAL- If the partnership is notified that, on account of a mathematical or clerical error appearing on the partnership return, an adjustment to a partnership item is required, rules similar to the rules of paragraphs (1) and (2) of section 6213(b) shall apply to such adjustment.

        ‘(B) SPECIAL RULE- If a large partnership is a partner in another large partnership, any adjustment on account of such partnership’s failure to comply with the requirements of section 6241(a) with respect to its interest in such other partnership shall be treated as an adjustment referred to in subparagraph (A), except that paragraph (2) of section 6213(b) shall not apply to such adjustment.

      ‘(2) PARTNERSHIP MAY WAIVE RESTRICTIONS- The partnership shall at any time (whether or not a notice of partnership adjustment has been issued) have the right, by a signed notice in writing filed with the Secretary, to waive the restrictions provided in subsection (a) on the making of any partnership adjustment.

    ‘(d) LIMIT WHERE NO PROCEEDING BEGUN- If no proceeding under section 6247 is begun with respect to any notice of a partnership adjustment during the 90-day period described in subsection (a), the amount for which the partnership is liable under section 6242 (and any increase in any partner’s liability for tax under chapter 1 by reason of any adjustment under section 6242(a)) shall not exceed the amount determined in accordance with such notice.

‘SEC. 6247. JUDICIAL REVIEW OF PARTNERSHIP ADJUSTMENT.

    ‘(a) GENERAL RULE- Within 90 days after the date on which a notice of a partnership adjustment is mailed to the partnership with respect to any partnership taxable year, the partnership may file a petition for a readjustment of the partnership items for such taxable year with--

      ‘(1) the Tax Court,

      ‘(2) the district court of the United States for the district in which the partnership’s principal place of business is located, or

      ‘(3) the Claims Court.

    ‘(b) JURISDICTIONAL REQUIREMENT FOR BRINGING ACTION IN DISTRICT COURT OR CLAIMS COURT-

      ‘(1) IN GENERAL- A readjustment petition under this section may be filed in a district court of the United States or the Claims Court only if the partnership filing the petition deposits with the Secretary, on or before the date the petition is filed, the amount for which the partnership would be liable under section 6242(b) (as of the date of the filing of the petition) if the partnership items were adjusted as provided by the notice of partnership adjustment. The court may by order provide that the jurisdictional requirements of this paragraph are satisfied where there has been a good faith attempt to satisfy such requirement and any shortfall of the amount required to be deposited is timely corrected.

      ‘(2) INTEREST PAYABLE- Any amount deposited under paragraph (1), while deposited, shall not be treated as a payment of tax for purposes of this title (other than chapter 67).

    ‘(c) SCOPE OF JUDICIAL REVIEW- A court with which a petition is filed in accordance with this section shall have jurisdiction to determine all partnership items of the partnership for the partnership taxable year to which the notice of partnership adjustment relates and the proper allocation of such items among the partners (and the applicability of any penalty, addition to tax, or additional amount for which the partnership may be liable under section 6242(b)).

    ‘(d) DETERMINATION OF COURT REVIEWABLE- Any determination by a court under this section shall have the force and effect of a decision of the Tax Court or a final judgment or decree of the district court or the Claims Court, as the case may be, and shall be reviewable as such. The date of any such determination shall be treated as being the date of the court’s order entering the decision.

    ‘(e) EFFECT OF DECISION DISMISSING ACTION- If an action brought under this section is dismissed other than by reason of a rescission under section 6245(b)(3), the decision of the court dismissing the action shall be considered as its decision that the notice of partnership adjustment is correct, and an appropriate order shall be entered in the records of the court.

‘SEC. 6248. PERIOD OF LIMITATIONS FOR MAKING ADJUSTMENTS.

    ‘(a) GENERAL RULE- Except as otherwise provided in this section, no adjustment under this subpart to any partnership item for any partnership taxable year may be made after the date which is 3 years after the later of--

      ‘(1) the date on which the partnership return for such taxable year was filed, or

      ‘(2) the last day for filing such return for such year (determined without regard to extensions).

    ‘(b) EXTENSION BY AGREEMENT- The period described in subsection (a) (including an extension period under this subsection) may be extended by an agreement entered into by the Secretary and the partnership before the expiration of such period.

    ‘(c) SPECIAL RULE IN CASE OF FRAUD, ETC-

      ‘(1) FALSE RETURN- In the case of a false or fraudulent partnership return with intent to evade tax, the adjustment may be made at any time.

      ‘(2) SUBSTANTIAL OMISSION OF INCOME- If any partnership omits from gross income an amount properly includible therein which is in excess of 25 percent of the amount of gross income stated in its return, subsection (a) shall be applied by substituting ‘6 years’ for ‘3 years’.

      ‘(3) NO RETURN- In the case of a failure by a partnership to file a return for any taxable year, the adjustment may be made at any time.

      ‘(4) RETURN FILED BY SECRETARY- For purposes of this section, a return executed by the Secretary under subsection (b) of section 6020 on behalf of the partnership shall not be treated as a return of the partnership.

    ‘(d) SUSPENSION WHEN SECRETARY MAILS NOTICE OF ADJUSTMENT- If notice of a partnership adjustment with respect to any taxable year is mailed to the partnership, the running of the period specified in subsection (a) (as modified by the other provisions of this section) shall be suspended--

      ‘(1) for the period during which an action may be brought under section 6247 (and, if a petition is filed under section 6247 with respect to such notice, until the decision of the court becomes final), and

      ‘(2) for 1 year thereafter.

‘Subpart B--Claims for Adjustments by Partnership

‘Sec. 6251. Administrative adjustment requests.

‘Sec. 6252. Judicial review where administrative adjustment request is not allowed in full.

‘SEC. 6251. ADMINISTRATIVE ADJUSTMENT REQUESTS.

    ‘(a) GENERAL RULE- A partnership may file a request for an administrative adjustment of partnership items for any partnership taxable year at any time which is--

      ‘(1) within 3 years after the later of--

        ‘(A) the date on which the partnership return for such year is filed, or

        ‘(B) the last day for filing the partnership return for such year (determined without regard to extensions), and

      ‘(2) before the mailing to the partnership of a notice of a partnership adjustment with respect to such taxable year.

    ‘(b) SECRETARIAL ACTION- If a partnership files an administrative adjustment request under subsection (a), the Secretary may allow any part of the requested adjustments.

    ‘(c) SPECIAL RULE IN CASE OF EXTENSION UNDER SECTION 6248- If the period described in section 6248(a) is extended pursuant to an agreement under section 6248(b), the period prescribed by subsection (a)(1) shall not expire before the date 6 months after the expiration of the extension under section 6248(b).

‘SEC. 6252. JUDICIAL REVIEW WHERE ADMINISTRATIVE ADJUSTMENT REQUEST IS NOT ALLOWED IN FULL.

    ‘(a) IN GENERAL- If any part of an administrative adjustment request filed under section 6251 is not allowed by the Secretary, the partnership may file a petition for an adjustment with respect to the partnership items to which such part of the request relates with--

      ‘(1) the Tax Court,

      ‘(2) the district court of the United States for the district in which the principal place of business of the partnership is located, or

      ‘(3) the Claims Court.

    ‘(b) PERIOD FOR FILING PETITION- A petition may be filed under subsection (a) with respect to partnership items for a partnership taxable year only--

      ‘(1) after the expiration of 6 months from the date of filing of the request under section 6251, and

      ‘(2) before the date which is 2 years after the date of such request.

    The 2-year period set forth in paragraph (2) shall be extended for such period as may be agreed upon in writing by the partnership and the Secretary.

    ‘(c) COORDINATION WITH SUBPART A-

      ‘(1) NOTICE OF PARTNERSHIP ADJUSTMENT BEFORE FILING OF PETITION- No petition may be filed under this section after the Secretary mails to the partnership a notice of a partnership adjustment for the partnership taxable year to which the request under section 6251 relates.

      ‘(2) NOTICE OF PARTNERSHIP ADJUSTMENT AFTER FILING BUT BEFORE HEARING OF PETITION- If the Secretary mails to the partnership a notice of a partnership adjustment for the partnership taxable year to which the request under section 6251 relates after the filing of a petition under this subsection but before the hearing of such petition, such petition shall be treated as an action brought under section 6247 with respect to such notice, except that subsection (b) of section 6247 shall not apply.

      ‘(3) NOTICE MUST BE BEFORE EXPIRATION OF STATUTE OF LIMITATIONS- A notice of a partnership adjustment for the partnership taxable year shall be taken into account under paragraphs (1) and (2) only if such notice is mailed before the expiration of the period prescribed by section 6248 for making adjustments to partnership items for such taxable year.

    ‘(d) SCOPE OF JUDICIAL REVIEW- Except in the case described in paragraph (2) of subsection (c), a court with which a petition is filed in accordance with this section shall have jurisdiction to determine only those partnership items to which the part of the request under section 6251 not allowed by the Secretary relates and those items with respect to which the Secretary asserts adjustments as offsets to the adjustments requested by the partnership.

    ‘(e) DETERMINATION OF COURT REVIEWABLE- Any determination by a court under this subsection shall have the force and effect of a decision of the Tax Court or a final judgment or decree of the district court or the Claims Court, as the case may be, and shall be reviewable as such. The date of any such determination shall be treated as being the date of the court’s order entering the decision.

‘PART III--DEFINITIONS AND SPECIAL RULES

‘Sec. 6255. Definitions and special rules.

‘SEC. 6255. DEFINITIONS AND SPECIAL RULES.

    ‘(a) DEFINITIONS- For purposes of this subchapter--

      ‘(1) LARGE PARTNERSHIP- The term ‘large partnership’ has the meaning given to such term by section 775 without regard to section 776(a).

      ‘(2) PARTNERSHIP ITEM- The term ‘partnership item’ has the meaning given to such term by section 6231(a)(3).

    ‘(b) PARTNERS BOUND BY ACTIONS OF PARTNERSHIP, ETC-

      ‘(1) DESIGNATION OF PARTNER- Each large partnership shall designate (in the manner prescribed by the Secretary) a partner (or other person) who shall have the sole authority to act on behalf of such partnership under this subchapter. In any case in which such a designation is not in effect, the Secretary may select any partner as the partner with such authority.

      ‘(2) BINDING EFFECT- A large partnership and all partners of such partnership shall be bound--

        ‘(A) by actions taken under this subchapter by the partnership, and

        ‘(B) by any decision in a proceeding brought under this subchapter.

    ‘(c) PARTNERSHIPS HAVING PRINCIPAL PLACE OF BUSINESS OUTSIDE THE UNITED STATES- For purposes of sections 6247 and 6252, a principal place of business located outside the United States shall be treated as located in the District of Columbia.

    ‘(d) TREATMENT WHERE PARTNERSHIP CEASES TO EXIST- If a partnership ceases to exist before a partnership adjustment under this subchapter takes effect, such adjustment shall be taken into account by the former partners of such partnership under regulations prescribed by the Secretary.

    ‘(e) DATE DECISION BECOMES FINAL- For purposes of this subchapter, the principles of section 7481(a) shall be applied in determining the date on which a decision of a district court or the Claims Court becomes final.

    ‘(f) PARTNERSHIPS IN CASES UNDER TITLE 11 OF THE UNITED STATES CODE- The running of any period of limitations provided in this subchapter on making a partnership adjustment (or provided by section 6501 or 6502 on the assessment or collection of any amount required to be paid under section 6242) shall, in a case under title 11 of the United States Code, be suspended during the period during which the Secretary is prohibited by reason of such case from making the adjustment (or assessment or collection) and--

      ‘(1) for adjustment or assessment, 60 days thereafter, and

      ‘(2) for collection, 6 months thereafter.

    ‘(g) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this subchapter, including regulations--

      ‘(1) to prevent abuse through manipulation of the provisions of this subchapter, and

      ‘(2) providing that this subchapter shall not apply to any case described in section 6231(c)(1) (or the regulations prescribed thereunder) where the application of this subchapter to such a case would interfere with the effective and efficient enforcement of this title.

    In any case to which this subchapter does not apply by reason of paragraph (2), rules similar to the rules of sections 6229(f) and 6255(f) shall apply.’

    (b) CLERICAL AMENDMENT- The table of subchapters for chapter 63 is amended by adding at the end thereof the following new item:

‘Subchapter D. Treatment of large partnerships.’

SEC. 303. DUE DATE FOR FURNISHING INFORMATION TO PARTNERS OF LARGE PARTNERSHIPS.

    (a) GENERAL RULE- Subsection (b) of section 6031 (relating to copies to partners) is amended by adding at the end thereof the following new sentence: ‘In the case of a large partnership (as defined in sections 775 and 776(a)), such information shall be furnished on or before the first March 15 following the close of such taxable year.’

    (b) TREATMENT AS INFORMATION RETURN- Section 6724 is amended by adding at the end thereof the following new subsection:

    ‘(e) SPECIAL RULE FOR CERTAIN PARTNERSHIP RETURNS- If any partnership return under section 6031(a) is required under section 6011(e) to be filed on magnetic media or in other machine-readable form, for purposes of this part, each schedule required to be included with such return with respect to each partner shall be treated as a separate information return.’

SEC. 304. RETURNS MAY BE REQUIRED ON MAGNETIC MEDIA.

    Paragraph (2) of section 6011(e) (relating to returns on magnetic media) is amended by adding at the end thereof the following new sentence:

      ‘The preceding sentence shall not apply in the case of the partnership return of a large partnership (as defined in sections 775 and 776(a)) or any other partnership with 250 or more partners.’

SEC. 305. TREATMENT OF PARTNERSHIP ITEMS OF INDIVIDUAL RETIREMENT ACCOUNTS.

    Subsection (b) of section 6012 is amended by adding at the end thereof the following new paragraph:

      ‘(6) IRA SHARE OF PARTNERSHIP INCOME- In the case of a trust which is exempt from taxation under section 408(e), for purposes of this section, the trust’s distributive share of items of gross income and gain of any partnership to which subchapter C or D of chapter 63 applies shall be treated as equal to the trust’s distributive share of the taxable income of such partnership.’

SEC. 306. EFFECTIVE DATE.

    (a) GENERAL RULE- Except as otherwise provided in this section, the amendments made by this subtitle shall apply to partnership taxable years ending on or after December 31, 1994.

    (b) SPECIAL RULE FOR SECTION 304- In the case of a partnership which is not a large partnership (as defined in sections 775 and 776(a) of the Internal Revenue Code of 1986, as added by this subtitle), the amendment made by section 304 shall only apply to partnership taxable years ending on or after December 31, 1998.

    (c) SPECIAL RULE FOR SECTION 305- The amendment made by section 305 shall apply to taxable years beginning after December 31, 1993.

Subtitle B--Provisions Related to TEFRA Partnership Proceedings

SEC. 311. TREATMENT OF PARTNERSHIP ITEMS IN DEFICIENCY PROCEEDINGS.

    (a) IN GENERAL- Subchapter C of chapter 63 is amended by adding at the end thereof the following new section:

‘SEC. 6234. DECLARATORY JUDGMENT RELATING TO TREATMENT OF ITEMS OTHER THAN PARTNERSHIP ITEMS WITH RESPECT TO AN OVERSHELTERED RETURN.

    ‘(a) GENERAL RULE- If--

      ‘(1) a taxpayer files an oversheltered return for a taxable year,

      ‘(2) the Secretary makes a determination with respect to the treatment of items (other than partnership items) of such taxpayer for such taxable year, and

      ‘(3) the adjustments resulting from such determination do not give rise to a deficiency (as defined in section 6211) but would give rise to a deficiency if there were no net loss from partnership items,

    the Secretary is authorized to send a notice of adjustment reflecting such determination to the taxpayer by certified or registered mail.

    ‘(b) OVERSHELTERED RETURN- For purposes of this section, the term ‘oversheltered return’ means an income tax return which--

      ‘(1) shows no taxable income for the taxable year, and

      ‘(2) shows a net loss from partnership items.

    ‘(c) JUDICIAL REVIEW IN THE TAX COURT- Within 90 days, or 150 days if the notice is addressed to a person outside the United States, after the day on which the notice of adjustment authorized in subsection (a) is mailed to the taxpayer, the taxpayer may file a petition with the Tax Court for redetermination of the adjustments. Upon the filing of such a petition, the Tax Court shall have jurisdiction to make a declaration with respect to all items (other than partnership items and affected items which require partner level determinations as described in section 6230(a)(2)(A)(i)) for the taxable year to which the notice of adjustment relates, in accordance with the principles of section 6214(a). Any such declaration shall have the force and effect of a decision of the Tax Court and shall be reviewable as such.

    ‘(d) FAILURE TO FILE PETITION-

      ‘(1) IN GENERAL- Except as provided in paragraph (2), if the taxpayer does not file a petition with the Tax Court within the time prescribed in subsection (c), the determination of the Secretary set forth in the notice of adjustment that was mailed to the taxpayer shall be deemed to be correct.

      ‘(2) EXCEPTION- Paragraph (1) shall not apply after the date that the taxpayer--

        ‘(A) files a petition with the Tax Court within the time prescribed in subsection (c) with respect to a subsequent notice of adjustment relating to the same taxable year, or

        ‘(B) files a claim for refund of an overpayment of tax under section 6511 for the taxable year involved.

      If a claim for refund is filed by the taxpayer, then solely for purposes of determining (for the taxable year involved) the amount of any computational adjustment in connection with a partnership proceeding under this subchapter (other than under this section) or the amount of any deficiency attributable to affected items in a proceeding under section 6230(a)(2), the items that are the subject of the notice of adjustment shall be presumed to have been correctly reported on the taxpayer’s return during the pendency of the refund claim (and, if within the time prescribed by section 6532 the taxpayer commences a civil action for refund under section 7422, until the decision in the refund action becomes final).

    ‘(e) LIMITATIONS PERIOD-

      ‘(1) IN GENERAL- Any notice to a taxpayer under subsection (a) shall be mailed before the expiration of the period prescribed by section 6501 (relating to the period of limitations on assessment).

      ‘(2) SUSPENSION WHEN SECRETARY MAILS NOTICE OF ADJUSTMENT- If the Secretary mails a notice of adjustment to the taxpayer for a taxable year, the period of limitations on the making of assessments shall be suspended for the period during which the Secretary is prohibited from making the assessment (and, in any event, if a proceeding in respect of the notice of adjustment is placed on the docket of the Tax Court, until the decision of the Tax Court becomes final), and for 60 days thereafter.

      ‘(3) RESTRICTIONS ON ASSESSMENT- Except as otherwise provided in section 6851, 6852, or 6861, no assessment of a deficiency with respect to any tax imposed by subtitle A attributable to any item (other than a partnership item or any item affected by a partnership item) shall be made--

        ‘(A) until the expiration of the applicable 90-day or 150-day period set forth in subsection (c) for filing a petition with the Tax Court, or

        ‘(B) if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final.

    ‘(f) FURTHER NOTICES OF ADJUSTMENT RESTRICTED- If the Secretary mails a notice of adjustment to the taxpayer for a taxable year and the taxpayer files a petition with the Tax Court within the time prescribed in subsection (c), the Secretary may not mail another such notice to the taxpayer with respect to the same taxable year in the absence of a showing of fraud, malfeasance, or misrepresentation of a material fact.

    ‘(g) COORDINATION WITH OTHER PROCEEDINGS UNDER THIS SUBCHAPTER-

      ‘(1) IN GENERAL- The treatment of any item that has been determined pursuant to subsection (c) or (d) shall be taken into account in determining the amount of any computational adjustment that is made in connection with a partnership proceeding under this subchapter (other than under this section), or the amount of any deficiency attributable to affected items in a proceeding under section 6230(a)(2), for the taxable year involved. Notwithstanding any other law or rule of law pertaining to the period of limitations on the making of assessments, for purposes of the preceding sentence, any adjustment made in accordance with this section shall be taken into account regardless of whether any assessment has been made with respect to such adjustment.

      ‘(2) SPECIAL RULE IN CASE OF COMPUTATIONAL ADJUSTMENT- In the case of a computational adjustment that is made in connection with a partnership proceeding under this subchapter (other than under this section), the provisions of paragraph (1) shall apply only if the computational adjustment is made within the period prescribed by section 6229 for assessing any tax under subtitle A which is attributable to any partnership item or affected item for the taxable year involved.

      ‘(3) CONVERSION TO DEFICIENCY PROCEEDING- If--

        ‘(A) after the notice referred to in subsection (a) is mailed to a taxpayer for a taxable year but before the expiration of the period for filing a petition with the Tax Court under subsection (c) (or, if a petition is filed with the Tax Court, before the Tax Court makes a declaration for that taxable year), the treatment of any partnership item for the taxable year is finally determined, or any such item ceases to be a partnership item pursuant to section 6231(b), and

        ‘(B) as a result of that final determination or cessation, a deficiency can be determined with respect to the items that are the subject of the notice of adjustment,

      the notice of adjustment shall be treated as a notice of deficiency under section 6212 and any petition filed in respect of the notice shall be treated as an action brought under section 6213.

      ‘(4) FINALLY DETERMINED- For purposes of this subsection, the treatment of partnership items shall be treated as finally determined if--

        ‘(A) the Secretary enters into a settlement agreement (within the meaning of section 6224) with the taxpayer regarding such items,

        ‘(B) a notice of final partnership administrative adjustment has been issued and--

          ‘(i) no petition has been filed under section 6226 and the time for doing so has expired, or

          ‘(ii) a petition has been filed under section 6226 and the decision of the court has become final, or

        ‘(C) the period within which any tax attributable to such items may be assessed against the taxpayer has expired.

    ‘(h) SPECIAL RULES IF SECRETARY INCORRECTLY DETERMINES APPLICABLE PROCEDURE-

      ‘(1) SPECIAL RULE IF SECRETARY ERRONEOUSLY MAILS NOTICE OF ADJUSTMENT- If the Secretary erroneously determines that subchapter B does not apply to a taxable year of a taxpayer and consistent with that determination timely mails a notice of adjustment to the taxpayer pursuant to subsection (a) of this section, the notice of adjustment shall be treated as a notice of deficiency under section 6212 and any petition that is filed in respect of the notice shall be treated as an action brought under section 6213.

      ‘(2) SPECIAL RULE IF SECRETARY ERRONEOUSLY MAILS NOTICE OF DEFICIENCY- If the Secretary erroneously determines that subchapter B applies to a taxable year of a taxpayer and consistent with that determination timely mails a notice of deficiency to the taxpayer pursuant to section 6212, the notice of deficiency shall be treated as a notice of adjustment under subsection (a) and any petition that is filed in respect of the notice shall be treated as an action brought under subsection (c).’

    (b) TREATMENT OF PARTNERSHIP ITEMS IN DEFICIENCY PROCEEDINGS- Section 6211 (defining deficiency) is amended by adding at the end thereof the following new subsection:

    ‘(c) COORDINATION WITH SUBCHAPTER C- In determining the amount of any deficiency for purposes of this subchapter, adjustments to partnership items shall be made only as provided in subchapter C.’

    (c) CLERICAL AMENDMENT- The table of sections for subchapter C of chapter 63 is amended by adding at the end thereof the following new item:

‘Sec. 6234. Declaratory judgment relating to treatment of items other than partnership items with respect to an oversheltered return.’

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to partnership taxable years ending after the date of the enactment of this Act.

SEC. 312. PARTNERSHIP RETURN TO BE DETERMINATIVE OF AUDIT PROCEDURES TO BE FOLLOWED.

    (a) IN GENERAL- Section 6231 (relating to definitions and special rules) is amended by adding at the end thereof the following new subsection:

    ‘(g) PARTNERSHIP RETURN TO BE DETERMINATIVE OF WHETHER SUBCHAPTER APPLIES-

      ‘(1) DETERMINATION THAT SUBCHAPTER APPLIES- If, on the basis of a partnership return for a taxable year, the Secretary reasonably determines that this subchapter applies to such partnership for such year but such determination is erroneous, then the provisions of this subchapter are hereby extended to such partnership (and its items) for such taxable year and to partners of such partnership.

      ‘(2) DETERMINATION THAT SUBCHAPTER DOES NOT APPLY- If, on the basis of a partnership return for a taxable year, the Secretary reasonably determines that this subchapter does not apply to such partnership for such year but such determination is erroneous, then the provisions of this subchapter shall not apply to such partnership (and its items) for such taxable year or to partners of such partnership.’

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to partnership taxable years ending after the date of the enactment of this Act.

SEC. 313. PROVISIONS RELATING TO STATUTE OF LIMITATIONS.

    (a) SUSPENSION OF STATUTE WHERE UNTIMELY PETITION FILED- Paragraph (1) of section 6229(d) (relating to suspension where Secretary makes administrative adjustment) is amended by striking all that follows ‘section 6226’ and inserting the following: ‘(and, if a petition is filed under section 6226 with respect to such administrative adjustment, until the decision of the court becomes final), and’.

    (b) SUSPENSION OF STATUTE DURING BANKRUPTCY PROCEEDING- Section 6229 is amended by adding at the end thereof the following new subsection:

    ‘(h) SUSPENSION DURING PENDENCY OF BANKRUPTCY PROCEEDING- If a petition is filed naming a partner as a debtor in a bankruptcy proceeding under title 11 of the United States Code, the running of the period of limitations provided in this section with respect to such partner shall be suspended--

      ‘(1) for the period during which the Secretary is prohibited by reason of such bankruptcy proceeding from making an assessment, and

      ‘(2) for 60 days thereafter.’

    (c) TAX MATTERS PARTNER IN BANKRUPTCY- Section 6229(b) is amended by redesignating paragraph (2) as paragraph (3) and by inserting after paragraph (1) the following new paragraph:

      ‘(2) SPECIAL RULE WITH RESPECT TO DEBTORS IN TITLE 11 CASES- Notwithstanding any other law or rule of law, if an agreement is entered into under paragraph (1)(B) and the agreement is signed by a person who would be the tax matters partner but for the fact that, at the time that the agreement is executed, the person is a debtor in a bankruptcy proceeding under title 11 of the United States Code, such agreement shall be binding on all partners in the partnership unless the Secretary has been notified of the bankruptcy proceeding in accordance with regulations prescribed by the Secretary.’

    (d) EFFECTIVE DATES-

      (1) SUBSECTIONS (a) AND (b)- The amendments made by subsections (a) and (b) shall apply to partnership taxable years with respect to which the period under section 6229 of the Internal Revenue Code of 1986 for assessing tax has not expired on or before the date of the enactment of this Act.

      (2) SUBSECTION (c)- The amendment made by subsection (c) shall apply to agreements entered into after the date of the enactment of this Act.

SEC. 314. EXPANSION OF SMALL PARTNERSHIP EXCEPTION.

    (a) IN GENERAL- Clause (i) of section 6231(a)(1)(B) (relating to exception for small partnerships) is amended to read as follows:

          ‘(i) IN GENERAL- The term ‘partnership’ shall not include any partnership having 10 or fewer partners each of whom is an individual (other than a nonresident alien), a C corporation, or an estate of a deceased partner. For purposes of the preceding sentence, a husband and wife (and their estates) shall be treated as 1 partner.’

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to partnership taxable years ending after the date of the enactment of this Act.

SEC. 315. EXCLUSION OF PARTIAL SETTLEMENTS FROM 1 YEAR LIMITATION ON ASSESSMENT.

    (a) IN GENERAL- Subsection (f) of section 6229 (relating to items becoming nonpartnership items) is amended--

      (1) by striking ‘(f) ITEMS BECOMING NONPARTNERSHIP ITEMS- If’ and inserting the following:

    ‘(f) SPECIAL RULES-

      ‘(1) ITEMS BECOMING NONPARTNERSHIP ITEMS- If’,

      (2) by moving the text of such subsection 2 ems to the right, and

      (3) by adding at the end thereof the following new paragraph:

      ‘(2) SPECIAL RULE FOR PARTIAL SETTLEMENT AGREEMENTS- If a partner enters into a settlement agreement with the Secretary with respect to the treatment of some of the partnership items in dispute for a partnership taxable year but other partnership items for such year remain in dispute, the period of limitations for assessing any tax attributable to the settled items shall be determined as if such agreement had not been entered into.’

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to settlements entered into after the date of the enactment of this Act.

SEC. 316. EXTENSION OF TIME FOR FILING A REQUEST FOR ADMINISTRATIVE ADJUSTMENT.

    (a) IN GENERAL- Section 6227 (relating to administrative adjustment requests) is amended by redesignating subsections (b) and (c) as subsections (c) and (d), respectively, and by inserting after subsection (a) the following new subsection:

    ‘(b) SPECIAL RULE IN CASE OF EXTENSION OF PERIOD OF LIMITATIONS UNDER SECTION 6229- The period prescribed by subsection (a)(1) for filing of a request for an administrative adjustment shall be extended--

      ‘(1) for the period within which an assessment may be made pursuant to an agreement (or any extension thereof) under section 6229(b), and

      ‘(2) for 6 months thereafter.’

    (b) EFFECTIVE DATE- The amendment made by this section shall take effect as if included in the amendments made by section 402 of the Tax Equity and Fiscal Responsibility Act of 1982.

SEC. 317. AVAILABILITY OF INNOCENT SPOUSE RELIEF IN CONTEXT OF PARTNERSHIP PROCEEDINGS.

    (a) IN GENERAL- Subsection (a) of section 6230 is amended by adding at the end thereof the following new paragraph:

      ‘(3) SPECIAL RULE IN CASE OF ASSERTION BY PARTNER’S SPOUSE OF INNOCENT SPOUSE RELIEF-

        ‘(A) Notwithstanding section 6404(b), if the spouse of a partner asserts that section 6013(e) applies with respect to a liability that is attributable to any adjustment to a partnership item, then such spouse may file with the Secretary within 60 days after the notice of computational adjustment is mailed to the spouse a request for abatement of the assessment specified in such notice. Upon receipt of such request, the Secretary shall abate the assessment. Any reassessment of the tax with respect to which an abatement is made under this subparagraph shall be subject to the deficiency procedures prescribed by subchapter B. The period for making any such reassessment shall not expire before the expiration of 60 days after the date of such abatement.

        ‘(B) If the spouse files a petition with the Tax Court pursuant to section 6213 with respect to the request for abatement described in subparagraph (A), the Tax Court shall only have jurisdiction pursuant to this section to determine whether the requirements of section 6013(e) have been satisfied. For purposes of such determination, the treatment of partnership items under the settlement, the final partnership administrative adjustment, or the decision of the court (whichever is appropriate) that gave rise to the liability in question shall be conclusive.

        ‘(C) Rules similar to the rules contained in subparagraphs (B) and (C) of paragraph (2) shall apply for purposes of this paragraph.’

    (b) CLAIMS FOR REFUND- Subsection (c) of section 6230 is amended by adding at the end thereof the following new paragraph:

      ‘(5) RULES FOR SEEKING INNOCENT SPOUSE RELIEF-

        ‘(A) IN GENERAL- The spouse of a partner may file a claim for refund on the ground that the Secretary failed to relieve the spouse under section 6013(e) from a liability that is attributable to an adjustment to a partnership item.

        ‘(B) TIME FOR FILING CLAIM- Any claim under subparagraph (A) shall be filed within 6 months after the day on which the Secretary mails to the spouse the notice of computational adjustment referred to in subsection (a)(3)(A).

        ‘(C) SUIT IF CLAIM NOT ALLOWED- If the claim under subparagraph (B) is not allowed, the spouse may bring suit with respect to the claim within the period specified in paragraph (3).

        ‘(D) PRIOR DETERMINATIONS ARE BINDING- For purposes of any claim or suit under this paragraph, the treatment of partnership items under the settlement, the final partnership administrative adjustment, or the decision of the court (whichever is appropriate) that gave rise to the liability in question shall be conclusive.’

    (c) TECHNICAL AMENDMENTS-

      (1) Paragraph (1) of section 6230(a) is amended by striking ‘paragraph (2)’ and inserting ‘paragraph (2) or (3)’.

      (2) Subsection (a) of section 6503 is amended by striking ‘section 6230(a)(2)(A)’ and inserting ‘paragraph (2)(A) or (3) of section 6230(a)’.

    (d) EFFECTIVE DATE- The amendments made by this section shall take effect as if included in the amendments made by section 402 of the Tax Equity and Fiscal Responsibility Act of 1982.

SEC. 318. DETERMINATION OF PENALTIES AT PARTNERSHIP LEVEL.

    (a) IN GENERAL- Section 6221 (relating to tax treatment determined at partnership level) is amended by striking ‘item’ and inserting ‘item (and the applicability of any penalty, addition to tax, or additional amount which relates to an adjustment to a partnership item)’.

    (b) CONFORMING AMENDMENTS-

      (1) Subsection (f) of section 6226 is amended--

        (A) by striking ‘relates and’ and inserting ‘relates,’, and

        (B) by inserting before the period ‘, and the applicability of any penalty, addition to tax, or additional amount which relates to an adjustment to a partnership item’.

      (2) Clause (i) of section 6230(a)(2)(A) is amended to read as follows:

          ‘(i) affected items which require partner level determinations (other than penalties, additions to tax, and additional amounts that relate to adjustments to partnership items), or’.

      (3)(A) Subparagraph (A) of section 6230(a)(3), as added by section 317, is amended by inserting ‘(including any liability for any penalty, addition to tax, or additional amount relating to such adjustment)’ after ‘partnership item’.

      (B) Subparagraph (B) of such section is amended by inserting ‘(and the applicability of any penalties, additions to tax, or additional amounts)’ after ‘partnership items’.

      (C) Subparagraph (A) of section 6230(c)(5), as added by section 317, is amended by inserting before the period ‘(including any liability for any penalties, additions to tax, or additional amounts relating to such adjustment)’.

      (D) Subparagraph (D) of section 6230(c)(5), as added by section 317, is amended by inserting ‘(and the applicability of any penalties, additions to tax, or additional amounts)’ after ‘partnership items’.

      (4) Paragraph (1) of section 6230(c) is amended by striking ‘or’ at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ‘, or’, and by adding at the end thereof the following new subparagraph:

        ‘(C) the Secretary erroneously imposed any penalty, addition to tax, or additional amount which relates to an adjustment to a partnership item.’

      (5) So much of subparagraph (A) of section 6230(c)(2) as precedes ‘shall be filed’ is amended to read as follows:

        ‘(A) UNDER PARAGRAPH (1) (A) OR (C)- Any claim under subparagraph (A) or (C) of paragraph (1)’.

      (6) Paragraph (4) of section 6230(c) is amended by adding at the end thereof the following: ‘In addition, the determination under the final partnership administrative adjustment or under the decision of the court (whichever is appropriate) concerning the applicability of any penalty, addition to tax, or additional amount which relates to an adjustment to a partnership item shall also be conclusive. Notwithstanding the preceding sentence, the partner shall be allowed to assert any partner level defenses that may apply or to challenge the amount of the computational adjustment.’

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to partnership taxable years ending after the date of the enactment of this Act.

SEC. 319. PROVISIONS RELATING TO COURT JURISDICTION, ETC.

    (a) TAX COURT JURISDICTION TO ENJOIN PREMATURE ASSESSMENTS OF DEFICIENCIES ATTRIBUTABLE TO PARTNERSHIP ITEMS- Subsection (b) of section 6225 is amended by striking ‘the proper court.’ and inserting ‘the proper court, including the Tax Court. The Tax Court shall have no jurisdiction to enjoin any action or proceeding under this subsection unless a timely petition for a readjustment of the partnership items for the taxable year has been filed and then only in respect of the adjustments that are the subject of such petition.’

    (b) JURISDICTION TO CONSIDER STATUTE OF LIMITATIONS WITH RESPECT TO PARTNERS- Paragraph (1) of section 6226(d) is amended by adding at the end thereof the following new sentence:

      ‘Notwithstanding subparagraph (B), any person treated under subsection (c) as a party to an action shall be permitted to participate in such action (or file a readjustment petition under subsection (b) or paragraph (2) of this subsection) solely for the purpose of asserting that the period of limitations for assessing any tax attributable to partnership items has expired with respect to such person, and the court having jurisdiction of such action shall have jurisdiction to consider such assertion.’

    (c) TAX COURT JURISDICTION TO DETERMINE OVERPAYMENTS ATTRIBUTABLE TO AFFECTED ITEMS-

      (1) Paragraph (6) of section 6230(d) is amended by striking ‘(or an affected item)’.

      (2) Paragraph (3) of section 6512(b) is amended by adding at the end thereof the following new sentence:

      ‘In the case of a credit or refund relating to an affected item (within the meaning of section 6231(a)(5)), the preceding sentence shall be applied by substituting the periods under sections 6229 and 6230(d) for the periods under section 6511(b)(2), (c), and (d).’

    (d) VENUE ON APPEAL-

      (1) Paragraph (1) of section 7482(b) is amended by striking ‘or’ at the end of subparagraph (D), by striking the period at the end of subparagraph (E) and inserting ‘, or’, and by inserting after subparagraph (E) the following new subparagraph:

        ‘(F) in the case of a petition under section 6234(c)--

          ‘(i) the legal residence of the petitioner if the petitioner is not a corporation, and

          ‘(ii) the place or office applicable under subparagraph (B) if the petitioner is a corporation.’

      (2) The last sentence of section 7482(b)(1) is amended by striking ‘or 6228(a)’ and inserting ‘, 6228(a), or 6234(c)’.

    (e) OTHER PROVISIONS-

      (1) Subsection (c) of section 7459 is amended by striking ‘or section 6228(a)’ and inserting ‘, 6228(a), or 6234(c)’.

      (2) Subsection (o) of section 6501 is amended by adding at the end thereof the following new paragraph:

      ‘(3) For declaratory judgment relating to treatment of items other than partnership items with respect to an oversheltered return, see section 6234.’

    (f) EFFECTIVE DATE- The amendments made by this section shall apply to partnership taxable years ending after the date of the enactment of this Act.

SEC. 320. TREATMENT OF PREMATURE PETITIONS FILED BY NOTICE PARTNERS OR 5-PERCENT GROUPS.

    (a) IN GENERAL- Subsection (b) of section 6226 (relating to judicial review of final partnership administrative adjustments) is amended by redesignating paragraph (5) as paragraph (6) and by inserting after paragraph (4) the following new paragraph:

      ‘(5) TREATMENT OF PREMATURE PETITIONS- If--

        ‘(A) a petition for a readjustment of partnership items for the taxable year involved is filed by a notice partner (or a 5-percent group) during the 90-day period described in subsection (a), and

        ‘(B) no action is brought under paragraph (1) during the 60-day period described therein with respect to such taxable year which is not dismissed,

      such petition shall be treated for purposes of paragraph (1) as filed on the last day of such 60-day period.’

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to petitions filed after the date of the enactment of this Act.

SEC. 321. BONDS IN CASE OF APPEALS FROM TEFRA PROCEEDING.

    (a) IN GENERAL- Subsection (b) of section 7485 (relating to bonds to stay assessment of collection) is amended--

      (1) by inserting ‘penalties,’ after ‘any interest,’, and

      (2) by striking ‘aggregate of such deficiencies’ and inserting ‘aggregate liability of the parties to the action’.

    (b) EFFECTIVE DATE- The amendment made by this section shall take effect as if included in the amendments made by section 402 of the Tax Equity and Fiscal Responsibility Act of 1982.

SEC. 322. SUSPENSION OF INTEREST WHERE DELAY IN COMPUTATIONAL ADJUSTMENT RESULTING FROM TEFRA SETTLEMENTS.

    (a) IN GENERAL- Subsection (c) of section 6601 (relating to interest on underpayment, nonpayment, or extension of time for payment, of tax) is amended by adding at the end thereof the following new sentence: ‘In the case of a settlement under section 6224(c) which results in the conversion of partnership items to nonpartnership items pursuant to section 6231(b)(1)(C), the preceding sentence shall apply to a computational adjustment resulting from such settlement in the same manner as if such adjustment were a deficiency and such settlement were a waiver referred to in the preceding sentence.’

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to adjustments with respect to partnership taxable years beginning after the date of the enactment of this Act.

SEC. 323. SPECIAL RULES FOR ADMINISTRATIVE ADJUSTMENT REQUESTS WITH RESPECT TO BAD DEBTS OR WORTHLESS SECURITIES.

    (a) GENERAL RULE- Section 6227 (relating to administrative adjustment requests) is amended by adding at the end thereof the following new subsection:

    ‘(d) REQUESTS WITH RESPECT TO BAD DEBTS OR WORTHLESS SECURITIES- In the case of that portion of any request for an administrative adjustment which relates to the deductibility by the partnership under section 166 of a debt as a debt which became worthless, or under section 165(g) of a loss from worthlessness of a security, the period prescribed in subsection (a)(1) shall be 7 years from the last day for filing the partnership return for the year with respect to which such request is made (determined without regard to extensions).’

    (b) EFFECTIVE DATE-

      (1) IN GENERAL- The amendment made by subsection (a) shall take effect as if included in the amendments made by section 402 of the Tax Equity and Fiscal Responsibility Act of 1982.

      (2) TREATMENT OF REQUESTS FILED BEFORE DATE OF ENACTMENT- In the case of that portion of any request (filed before the date of the enactment of this Act) for an administrative adjustment which relates to the deductibility of a debt as a debt which became worthless or the deductibility of a loss from the worthlessness of a security--

        (A) paragraph (2) of section 6227(a) of the Internal Revenue Code of 1986 shall not apply,

        (B) the period for filing a petition under section 6228 of the Internal Revenue Code of 1986 with respect to such request shall not expire before the date 6 months after the date of the enactment of this Act, and

        (C) such a petition may be filed without regard to whether there was a notice of the beginning of an administrative proceeding or a final partnership administrative adjustment.

TITLE IV--FOREIGN PROVISIONS

Subtitle A--Simplification of Treatment of Passive Foreign Corporations

SEC. 401. REPEAL OF FOREIGN PERSONAL HOLDING COMPANY RULES AND FOREIGN INVESTMENT COMPANY RULES.

    (a) GENERAL RULE- The following provisions are hereby repealed:

      (1) Part III of subchapter G of chapter 1 (relating to foreign personal holding companies).

      (2) Section 1246 (relating to gain on foreign investment company stock).

      (3) Section 1247 (relating to election by foreign investment companies to distribute income currently).

    (b) EXEMPTION OF FOREIGN CORPORATIONS FROM ACCUMULATED EARNINGS TAX AND PERSONAL HOLDING COMPANY RULES-

      (1) ACCUMULATED EARNINGS TAX- Subsection (b) of section 532 (relating to exceptions) is amended--

        (A) by striking paragraph (2) and inserting the following:

      ‘(2) a foreign corporation, or’,

        (B) by striking ‘, or’ at the end of paragraph (3) and inserting a period, and

        (C) by striking paragraph (4).

      (2) PERSONAL HOLDING COMPANY RULES- Subsection (c) of section 542 (relating to exceptions) is amended--

        (A) by striking paragraph (5) and inserting the following:

      ‘(5) a foreign corporation,’,

        (B) by striking paragraphs (7) and (10) and by redesignating paragraphs (8) and (9) as paragraphs (7) and (8), respectively,

        (C) by inserting ‘and’ at the end of paragraph (7) (as so redesignated), and

        (D) by striking ‘; and’ at the end of paragraph (8) (as so redesignated) and inserting a period.

    (c) TREATMENT OF CERTAIN SERVICE CONTRACTS UNDER SUBPART F-

      (1) Paragraph (1) of section 954(c) (defining foreign personal holding company income) is amended by adding at the end thereof the following new subparagraph:

        ‘(F) PERSONAL SERVICE CONTRACTS-

          ‘(i) Amounts received under a contract under which the corporation is to furnish personal services, if some person other than the corporation has the right to designate (by name or by description) the individual who is to perform the services, or if the individual who is to perform the services is designated (by name or by description) in the contract.

          ‘(ii) Amounts received from the sale or other disposition of such contract.

        This subparagraph shall apply with respect to amounts received for services under a particular contract only if at some time during the taxable year 25 percent or more in value of the outstanding stock of the corporation is owned, directly or indirectly, by or for the individual who has performed, is to perform, or may be designated (by name or by description) as the one to perform, such services. For purposes of the preceding sentence, the attribution rules of section 544 shall apply, determined as if any reference to section 543(a)(7) were a reference to this subparagraph.’

      (2) Clause (iii) of section 904(d)(2)(A) is amended by striking ‘and’ at the end of subclause (II), by striking the period at the end of subclause (III) and inserting ‘, and’, and by adding at the end thereof the following new subclause:

            ‘(IV) any income described in section 954(c)(1)(F) (relating to personal service contracts).’

SEC. 402. REPLACEMENT FOR PASSIVE FOREIGN INVESTMENT COMPANY RULES.

    (a) GENERAL RULE- Part VI of subchapter P of chapter 1 (relating to treatment of certain passive foreign investment companies) is amended to read as follows:

‘PART VI--TREATMENT OF PASSIVE FOREIGN CORPORATIONS

‘Subpart A. Current taxation rules.

‘Subpart B. Interest on holdings to which subpart A does not apply.

‘Subpart C. General provisions.

‘Subpart A--Current Taxation Rules

‘Sec. 1291. Stock in certain passive foreign corporations marked to market.

‘Sec. 1292. Inclusion of income of certain passive foreign corporations.

‘SEC. 1291. STOCK IN CERTAIN PASSIVE FOREIGN CORPORATIONS MARKED TO MARKET.

    ‘(a) GENERAL RULE- In the case of marketable stock in a passive foreign corporation which is owned (or treated under subsection (g) as owned) by a United States person at the close of any taxable year of such person--

      ‘(1) If the fair market value of such stock as of the close of such taxable year exceeds its adjusted basis, such United States person shall include in gross income for such taxable year an amount equal to the amount of such excess.

      ‘(2) If the adjusted basis of such stock exceeds the fair market value of such stock as of the close of such taxable year, such United States person shall be allowed a deduction for such taxable year equal to the lesser of--

        ‘(A) the amount of such excess, or

        ‘(B) the unreversed inclusions with respect to such stock.

    ‘(b) BASIS ADJUSTMENTS-

      ‘(1) IN GENERAL- The adjusted basis of stock in a passive foreign corporation--

        ‘(A) shall be increased by the amount included in the gross income of the United States person under subsection (a)(1) with respect to such stock, and

        ‘(B) shall be decreased by the amount allowed as a deduction to the United States person under subsection (a)(2) with respect to such stock.

      ‘(2) SPECIAL RULE FOR STOCK CONSTRUCTIVELY OWNED- In the case of stock in a passive foreign corporation which the United States person is treated as owning under subsection (g)--

        ‘(A) the adjustments under paragraph (1) shall apply to such stock in the hands of the person actually holding such stock but only for purposes of determining the subsequent treatment under this chapter of the United States person with respect to such stock, and

        ‘(B) similar adjustments shall be made to the adjusted basis of the property by reason of which the United States person is treated as owning such stock.

    ‘(c) CHARACTER AND SOURCE RULES-

      ‘(1) ORDINARY TREATMENT-

        ‘(A) GAIN- Any amount included in gross income under subsection (a)(1), and any gain on the sale or other disposition of marketable stock in a passive foreign corporation, shall be treated as ordinary income.

        ‘(B) LOSS- Any--

          ‘(i) amount allowed as a deduction under subsection (a)(2), and

          ‘(ii) loss on the sale or other disposition of marketable stock in a passive foreign corporation to the extent that the amount of such loss does not exceed the unreversed inclusions with respect to such stock,

        shall be treated as an ordinary loss. The amount so treated shall be treated as a deduction allowable in computing adjusted gross income.

      ‘(2) SOURCE- The source of any amount included in gross income under subsection (a)(1) (or allowed as a deduction under subsection (a)(2)) shall be determined in the same manner as if such amount were gain or loss (as the case may be) from the sale of stock in the passive foreign corporation.

    ‘(d) UNREVERSED INCLUSIONS- For purposes of this section, the term ‘unreversed inclusions’ means, with respect to any stock in a passive foreign corporation, the excess (if any) of--

      ‘(1) the amount included in gross income of the taxpayer under subsection (a)(1) with respect to such stock for prior taxable years, over

      ‘(2) the amount allowed as a deduction under subsection (a)(2) with respect to such stock for prior taxable years.

    The amount referred to in paragraph (1) shall include any amount which would have been included in gross income under subsection (a)(1) with respect to such stock for any prior taxable year but for section 1293.

    ‘(e) COORDINATION WITH SECTION 1292- This section shall not apply with respect to any stock in a passive foreign corporation--

      ‘(1) which is United States controlled,

      ‘(2) which is a qualified electing fund with respect to the United States person for the taxable year, or

      ‘(3) in which the United States person is a 25-percent shareholder.

    ‘(f) TREATMENT OF CONTROLLED FOREIGN CORPORATIONS WHICH ARE SHAREHOLDERS IN PASSIVE FOREIGN CORPORATIONS- In the case of a foreign corporation which is a controlled foreign corporation (or is treated as a controlled foreign corporation under section 1292) and which owns (or is treated under subsection (g) as owning) stock in a passive foreign corporation--

      ‘(1) this section (other than subsection (c)(2) thereof) shall apply to such foreign corporation in the same manner as if such corporation were a United States person, and

      ‘(2) for purposes of subpart F of part III of subchapter N--

        ‘(A) any amount included in gross income under subsection (a)(1) shall be treated as foreign personal holding company income described in section 954(c)(1)(A), and

        ‘(B) any amount allowed as a deduction under subsection (a)(2) shall be treated as a deduction allocable to foreign personal holding company income so described.

    ‘(g) STOCK OWNED THROUGH CERTAIN FOREIGN ENTITIES- Except as provided in regulations--

      ‘(1) IN GENERAL- For purposes of this section, stock owned, directly or indirectly, by or for a foreign partnership or foreign trust or foreign estate shall be considered as being owned proportionately by its partners or beneficiaries. Stock considered to be owned by a person by reason of the application of the preceding sentence shall, for purposes of applying such sentence, be treated as actually owned by such person.

      ‘(2) TREATMENT OF CERTAIN DISPOSITIONS- In any case in which a United States person is treated as owning stock in a passive foreign corporation by reason of paragraph (1)--

        ‘(A) any disposition by the United States person or by any other person which results in the United States person being treated as no longer owning such stock, and

        ‘(B) any disposition by the person owning such stock,

      shall be treated as a disposition by the United States person of the stock in the passive foreign corporation.

    ‘(h) COORDINATION WITH SECTION 851(b)- For purposes of paragraphs (2) and (3) of section 851(b), any amount included in gross income under subsection (a) shall be treated as a dividend.

    ‘(i) TRANSITION RULES-

      ‘(1) INDIVIDUALS BECOMING SUBJECT TO UNITED STATES TAX- If any individual becomes a United States person in a taxable year beginning after December 31, 1993, solely for purposes of this section, the adjusted basis (before adjustments under subsection (b)) of any marketable stock in a passive foreign corporation owned (or treated as owned under subsection (g)) by such individual on the first day of such taxable year shall be treated as being the greater of its fair market value on such first day or its adjusted basis on such first day.

      ‘(2) MARKETABLE STOCK HELD BEFORE EFFECTIVE DATE-

        ‘(A) IN GENERAL- If any marketable stock in a passive foreign corporation is owned (or treated under subsection (g) as owned) by a United States person on the first day of such person’s first taxable year, beginning after December 31, 1993--

          ‘(i) paragraph (2) of section 1294(a) shall apply to such stock as if it became marketable during such first taxable year; except that--

            ‘(I) section 1293 shall not apply to the amount included in gross income under subsection (a) to the extent such amount is attributable to increases in fair market value during such first taxable year, and

            ‘(II) the taxpayer’s holding period shall be treated as having ended on the last day of the preceding taxable year for purposes of allocating amounts under section 1293(a)(1)(A), and

          ‘(ii) such person may elect to extend the time for the payment of the applicable section 1293 deferred tax as provided in subparagraph (B).

        ‘(B) ELECTION TO EXTEND TIME FOR PAYMENT-

          ‘(i) IN GENERAL- At the election of the taxpayer, the time for the payment of the applicable section 1293 deferred tax shall be extended to the extent and subject to the limitations provided in this subparagraph.

          ‘(ii) TERMINATION OF EXTENSION-

            ‘(I) DISTRIBUTIONS- If any distribution is received with respect to any stock to which an extension under clause (i) relates and such distribution would be an excess distribution within the meaning of section 1293 if such section applied to such stock, then the extension under clause (i) for the appropriate portion (as determined under regulations) of the applicable section 1293 deferred tax shall expire on the last day prescribed by law (determined without regard to extensions) for filing the return of tax for the taxable year in which the distribution is received.

            ‘(II) REVERSAL OF INCLUSION- If an amount is allowable as a deduction under subsection (a)(2) with respect to any stock to which an extension under clause (i) relates and the amount so allowable is allocable to the amount which gave rise to the applicable section 1293 deferred tax, then the extension under clause (i) for the appropriate portion (as determined under regulations) of the applicable section 1293 deferred tax shall expire on the last day prescribed by law (determined without regard to extensions) for filing the return of the tax for the taxable year for which such deduction is allowed.

            ‘(III) DISPOSITIONS, ETC- If stock in a passive foreign corporation is disposed of during the taxable year, all extensions under clause (i) for payment of the applicable section 1293 deferred tax attributable to such stock which have not expired before the date of such disposition shall expire on the last date prescribed by law (determined without regard to extensions) for filing the return of tax for the taxable year in which such disposition occurs. To the extent provided in regulations, the preceding sentence shall not apply in the case of a disposition in a transaction with respect to which gain or loss is not recognized (in whole or in part), and the person acquiring such stock in such transaction shall succeed to the treatment under this section of the person making such disposition.

          ‘(iii) OTHER RULES-

            ‘(I) ELECTION- The election under clause (i) shall be made not later than the time prescribed by law (including extensions) for filing the return of tax imposed by this chapter for the first taxable year referred to in subparagraph (A).

            ‘(II) TREATMENT OF LOANS TO SHAREHOLDER- For purposes of this subparagraph, any loan by a passive foreign corporation (directly or indirectly) to a shareholder of such corporation shall be treated as a distribution to such shareholder.

        ‘(C) CROSS REFERENCE-

‘For provisions providing for interest for the period of the extension under this paragraph, see section 6601.

        ‘(D) APPLICABLE SECTION 1293 DEFERRED TAX- For purposes of this paragraph, the term ‘applicable section 1293 deferred tax’ means the deferred tax amount determined under section 1293 with respect to the amount which, but for section 1293, would have been included in gross income for the first taxable year referred to in subparagraph (A). Such term also includes the tax imposed by this chapter for such first taxable year to the extent attributable to the amounts allocated under section 1293(a)(1)(A) to a period described in section 1293(a)(1)(B)(ii).

      ‘(3) SPECIAL RULES FOR REGULATED INVESTMENT COMPANIES-

        ‘(A) IN GENERAL- If any marketable stock in a passive foreign corporation is owned (or treated under subsection (g) as owned) by a regulated investment company on the first day of such company’s first taxable year beginning after December 31, 1993--

          ‘(i) section 1293 shall not apply to such stock with respect to any distribution or disposition during, or amount included in gross income under this section for, such first taxable year, but

          ‘(ii) such company’s tax under this chapter for such first taxable year shall be increased by the aggregate amount of interest which would have been determined under section 1293(c)(3) if section 1293 were applied without regard to this subparagraph.

        ‘(B) DISALLOWANCE OF DEDUCTION- No deduction shall be allowed to any regulated investment company for the increase in tax under subparagraph (A)(ii).

‘SEC. 1292. CURRENT INCLUSION OF INCOME OF CERTAIN PASSIVE FOREIGN CORPORATIONS.

    ‘(a) PASSIVE FOREIGN CORPORATIONS WHICH ARE UNITED STATES CONTROLLED-

      ‘(1) TREATMENT UNDER SUBPART F-

        ‘(A) IN GENERAL- If a passive foreign corporation is United States controlled, then for purposes of subpart F of part III of subchapter N--

          ‘(i) such corporation, if not otherwise a controlled foreign corporation, shall be treated as a controlled foreign corporation,

          ‘(ii) the term ‘United States shareholder’ means, with respect to such corporation, any United States person who owns (within the meaning of section 958(a)) any stock in such corporation,

          ‘(iii) the entire gross income of such corporation shall, after being reduced under the principles of paragraph (5) of section 954(b), be treated as foreign base company income, and

          ‘(iv) sections 970 and 971 shall not apply to such corporation.

        Except as provided in regulations, the preceding sentence shall also apply for purposes of section 904(d).

        ‘(B) SPECIAL RULES- If any taxpayer is treated as being a United States shareholder in a controlled foreign corporation solely by reason of this section--

          ‘(i) section 954(b)(4) (relating to exception for certain income subject to high foreign taxes) shall not apply for purposes of determining the amount included in the gross income of such taxpayer under section 951 by reason of being so treated with respect to such corporation,

          ‘(ii) the amount so included in the gross income of such taxpayer under section 951 with respect to such corporation shall be treated as long-term capital gain to the extent attributable to the net capital gain of such corporation, and

          ‘(iii) sections 956 and 956A shall not apply to such taxpayer.

      ‘(2) UNITED STATES CONTROLLED- For purposes of this subpart, a passive foreign corporation is United States controlled if--

        ‘(A) such corporation is a controlled foreign corporation determined without regard to this subsection, or

        ‘(B) at any time during the taxable year more than 50 percent of--

          ‘(i) the total combined voting power of all classes of stock of such corporation entitled to vote, or

          ‘(ii) the total value of the stock of such corporation,

        is owned directly or indirectly by 5 or fewer United States persons.

      ‘(3) CONSTRUCTIVE OWNERSHIP RULES FOR PURPOSES OF PARAGRAPH (2)(B)- For purposes of paragraph (2)(B), the attribution rules provided in section 544 shall apply, determined as if any reference to a personal holding company were a reference to a corporation described in paragraph (2)(B) (and any reference to the stock ownership requirement provided in section 542(a)(2) were a reference to the requirement of paragraph (2)(B)); except that--

        ‘(A) subsection (a)(4) of such section shall be applied by substituting ‘Paragraphs (1), (2), and (3)’ for ‘Paragraphs (2) and (3)’,

        ‘(B) stock owned by a nonresident alien individual shall not be considered by reason of attribution through family membership as owned by a citizen or resident alien individual who is not the spouse of the nonresident alien individual and who does not otherwise own stock in the foreign corporation (determined after the application of such attribution rules other than attribution through family membership), and

        ‘(C) stock of a corporation owned by any foreign person shall not be considered by reason of attribution through partners as owned by a citizen or resident of the United States who does not otherwise own stock in the foreign corporation (determined after the application of such attribution rules and subparagraph (A), other than attribution through partners).

    ‘(b) TAXPAYERS ELECTING CURRENT INCLUSION AND 25-PERCENT SHAREHOLDERS-

      ‘(1) IN GENERAL- If a passive foreign corporation which is not United States controlled is a qualified electing fund with respect to any taxpayer or the taxpayer is a 25-percent shareholder in such corporation, then for purposes of subpart F of part III of subchapter N--

        ‘(A) such passive foreign corporation shall be treated as a controlled foreign corporation with respect to such taxpayer,

        ‘(B) such taxpayer shall be treated as a United States shareholder in such corporation, and

        ‘(C) the modifications of clauses (iii) and (iv) of subsection (a)(1)(A) and of subparagraph (B) of subsection (a)(1) shall apply in determining the amount included under such subpart F in the gross income of such taxpayer (and the character of the amount so included).

      For purposes of section 904(d), any amount included in the gross income of the taxpayer under the preceding sentence shall be treated as a dividend from a foreign corporation which is not a controlled foreign corporation.

      ‘(2) QUALIFIED ELECTING FUND- For purposes of this subpart, the term ‘qualified electing fund’ means any passive foreign corporation if--

        ‘(A) an election by the taxpayer under paragraph (3) applies to such corporation for the taxable year of the taxpayer, and

        ‘(B) such corporation complies with such requirements as the Secretary may prescribe for purposes of carrying out the purposes of this subpart.

      ‘(3) ELECTION-

        ‘(A) IN GENERAL- A taxpayer may make an election under this paragraph with respect to any passive foreign corporation for any taxable year of the taxpayer. Such an election, once made with respect to any corporation, shall apply to all subsequent taxable years of the taxpayer with respect to such corporation unless revoked by the taxpayer with the consent of the Secretary.

        ‘(B) WHEN MADE- An election under this subsection may be made for any taxable year of the taxpayer at any time on or before the due date (determined with regard to extensions) for filing the return of the tax imposed by this chapter for such taxable year. To the extent provided in regulations, such an election may be made later than as required in the preceding sentence where the taxpayer fails to make a timely election because the taxpayer reasonably believes that the corporation was not a passive foreign corporation.

      ‘(4) 25-PERCENT SHAREHOLDER- For purposes of this subpart, the term ‘25-percent shareholder’ means, with respect to any passive foreign corporation, any United States person who owns (within the meaning of section 958(a)), or is considered as owning by applying the rules of section 958(b), 25 percent or more (by vote or value) of the stock of such corporation.

‘Subpart B--Interest on Holdings To Which Subpart A Does Not Apply

‘Sec. 1293. Interest on tax deferral.

‘Sec. 1294. Definitions and special rules.

‘SEC. 1293. INTEREST ON TAX DEFERRAL.

    ‘(a) TREATMENT OF DISTRIBUTIONS AND STOCK DISPOSITIONS-

      ‘(1) DISTRIBUTIONS- If a United States person receives an excess distribution in respect of stock to which this section applies, then--

        ‘(A) the amount of the excess distribution shall be allocated ratably to each day in the taxpayer’s holding period for the stock,

        ‘(B) with respect to such excess distribution, the taxpayer’s gross income for the current year shall include (as ordinary income) only the amounts allocated under subparagraph (A) to--

          ‘(i) the current year, or

          ‘(ii) any period in the taxpayer’s holding period before the first day of the first taxable year of the corporation which begins after December 31, 1986, and for which it was a passive foreign corporation, and

        ‘(C) the tax imposed by this chapter for the current year shall be increased by the deferred tax amount (determined under subsection (c)).

      ‘(2) DISPOSITIONS- If the taxpayer disposes of stock to which this section applies, then the rules of paragraph (1) shall apply to any gain recognized on such disposition in the same manner as if such gain were an excess distribution.

      ‘(3) DEFINITIONS- For purposes of this subpart--

        ‘(A) HOLDING PERIOD- The taxpayer’s holding period shall be determined under section 1223; except that--

          ‘(i) for purposes of applying this section to an excess distribution, such holding period shall be treated as ending on the date of such distribution, and

          ‘(ii) if section 1291 applied to such stock with respect to the taxpayer for any prior taxable year, such holding period shall be treated as beginning on the first day of the first taxable year beginning after the last taxable year for which section 1291 so applied.

        ‘(B) CURRENT YEAR- The term ‘current year’ means the taxable year in which the excess distribution or disposition occurs.

    ‘(b) EXCESS DISTRIBUTION-

      ‘(1) IN GENERAL- For purposes of this section, the term ‘excess distribution’ means any distribution in respect of stock received during any taxable year to the extent such distribution does not exceed its ratable portion of the total excess distribution (if any) for such taxable year.

      ‘(2) TOTAL EXCESS DISTRIBUTION- For purposes of this subsection--

        ‘(A) IN GENERAL- The term ‘total excess distribution’ means the excess (if any) of--

          ‘(i) the amount of the distributions in respect of the stock received by the taxpayer during the taxable year, over

          ‘(ii) 125 percent of the average amount of the distributions received in respect of such stock by the taxpayer during the 3 preceding taxable years (or, if shorter, the portion of the taxpayer’s holding period before the taxable year).

        For purposes of clause (ii), any excess distribution received during such 3-year period shall be taken into account only to the extent it was included in gross income under subsection (a)(1)(B).

        ‘(B) NO EXCESS FOR FIRST YEAR- The total excess distributions with respect to any stock shall be zero for the taxable year in which the taxpayer’s holding period in such stock begins.

      ‘(3) ADJUSTMENTS- Under regulations prescribed by the Secretary--

        ‘(A) determinations under this subsection shall be made on a share-by-share basis, except that shares with the same holding period may be aggregated,

        ‘(B) proper adjustments shall be made for stock splits and stock dividends,

        ‘(C) if the taxpayer does not hold the stock during the entire taxable year, distributions received during such year shall be annualized,

        ‘(D) if the taxpayer’s holding period includes periods during which the stock was held by another person, distributions received by such other person shall be taken into account as if received by the taxpayer,

        ‘(E) if the distributions are received in a foreign currency, determinations under this subsection shall be made in such currency and the amount of any excess distribution determined in such currency shall be translated into dollars,

        ‘(F) proper adjustment shall be made for amounts not includible in gross income by reason of section 959(a) or for which a deduction is allowable under section 245(c), and

        ‘(G) if a charitable deduction was allowable under section 642(c) to a trust for any distribution of its income, proper adjustments shall be made for the deduction so allowable to the extent allocable to distributions or gain in respect of stock in a passive foreign corporation.

      For purposes of subparagraph (F), any amount not includible in gross income by reason of section 551(d) (as in effect on January 1, 1993) or 1293(c) (as so in effect) shall be treated as an amount not includible in gross income by reason of section 959(a).

    ‘(c) DEFERRED TAX AMOUNT- For purposes of this section--

      ‘(1) IN GENERAL- The term ‘deferred tax amount’ means, with respect to any distribution or disposition to which subsection (a) applies, an amount equal to the sum of--

        ‘(A) the aggregate increases in taxes described in paragraph (2), plus

        ‘(B) the aggregate amount of interest (determined in the manner provided under paragraph (3)) on such increases in tax.

      Any increase in the tax imposed by this chapter for the current year under subsection (a) to the extent attributable to the amount referred to in subparagraph (B) shall be treated as interest paid under section 6601 on the due date for the current year.

      ‘(2) AGGREGATE INCREASES IN TAXES- For purposes of paragraph (1)(A), the aggregate increases in taxes shall be determined by multiplying each amount allocated under subsection (a)(1)(A) to any taxable year (other than any taxable year referred to in subsection (a)(1)(B)) by the highest rate of tax in effect for such taxable year under section 1 or 11, whichever applies.

      ‘(3) COMPUTATION OF INTEREST-

        ‘(A) IN GENERAL- The amount of interest referred to in paragraph (1)(B) on any increase determined under paragraph (2) for any taxable year shall be determined for the period--

          ‘(i) beginning on the day after the due date for such taxable year, and

          ‘(ii) ending on the due date for the taxable year with or within which the distribution or disposition occurs,

        by using the rates and method applicable under section 6621 for underpayments of tax for such period.

        ‘(B) DUE DATE- For purposes of this subsection, the term ‘due date’ means the date prescribed by law (determined without regard to extensions) for filing the return of the tax imposed by this chapter for the taxable year.

        ‘(C) SPECIAL RULE- For purposes of determining the amount of interest referred to in paragraph (1)(B), the amount of any increase in tax determined under paragraph (2) shall be determined without regard to any reduction under section 1294(d) for a tax described in paragraph (2)(A)(ii) thereof.

‘SEC. 1294. DEFINITIONS AND SPECIAL RULES.

    ‘(a) STOCK TO WHICH SECTION 1293 APPLIES-

      ‘(1) IN GENERAL- Except as otherwise provided in this subsection, section 1293 shall apply to any stock in a passive foreign corporation unless--

        ‘(A) such stock is marketable stock as of the time of the distribution or disposition involved, or

        ‘(B)(i) with respect to each of such corporation’s taxable years for which such corporation was a passive foreign corporation and which began after December 31, 1993, and included any portion of the taxpayer’s holding period in such stock--

          ‘(I) such corporation was United States controlled (within the meaning of section 1292(a)(2)), or

          ‘(II) such corporation was treated as a controlled foreign corporation under section 1292(b) with respect to the taxpayer, and

        ‘(ii) with respect to each of such corporation’s taxable years for which such corporation was a passive foreign corporation and which begin after December 31, 1986, and before January 1, 1994, and included any portion of the taxpayer’s holding period in such stock, such corporation was treated as a qualified electing fund under this part (as in effect on January 1, 1993) with respect to the taxpayer.

      ‘(2) TREATMENT WHERE STOCK BECOMES MARKETABLE- If any stock in a passive foreign corporation becomes marketable stock after the beginning of the taxpayer’s holding period in such stock, and if the requirements of paragraph (1)(B) are not satisfied, section 1293 shall apply to--

        ‘(A) any distributions with respect to, or disposition of, such stock in the taxable year of the taxpayer in which it becomes so marketable, and

        ‘(B) any amount which, but for section 1293, would have been included in gross income under section 1291(a) with respect to such stock for such taxable year in the same manner as if such amount were gain on the disposition of such stock.

      ‘(3) ELECTION TO RECOGNIZE GAIN WHERE COMPANY BECOMES SUBJECT TO CURRENT INCLUSIONS-

        ‘(A) IN GENERAL- If--

          ‘(i) a passive foreign corporation first meets the requirements of clause (i) of paragraph (1)(B) with respect to the taxpayer for a taxable year of such taxpayer which begins after December 31, 1993,

          ‘(ii) the taxpayer holds stock in such company on the first day of such taxable year, and

          ‘(iii) the taxpayer establishes to the satisfaction of the Secretary the fair market value of such stock on such first day,

        the taxpayer may elect to recognize gain as if he sold such stock on such first day for such fair market value.

        ‘(B) ADDITIONAL ELECTION FOR SHAREHOLDER OF CONTROLLED FOREIGN CORPORATIONS-

          ‘(i) IN GENERAL- If--

            ‘(I) a passive foreign corporation first meets the requirements of subclause (I) of paragraph (1)(B)(i) with respect to the taxpayer for a taxable year of such taxpayer which begins after December 31, 1993,

            ‘(II) the taxpayer holds stock in such corporation on the first day of such taxable year, and

            ‘(III) such corporation is a controlled foreign corporation without regard to this part,

        the taxpayer may elect to be treated as receiving a dividend on such first day in an amount equal to the portion of the post-1986 earnings and profits of such corporation attributable (under regulations prescribed by the Secretary) to the stock in such corporation held by the taxpayer on such first day. The amount treated as a dividend under the preceding sentence shall be treated as an excess distribution and shall be allocated under section 1293(a)(1)(A) only to days during periods taken into account in determining the post-1986 earnings and profits so attributable.

          ‘(ii) POST-1986 EARNINGS AND PROFITS- For purposes of clause (i), the term ‘post-1986 earnings and profits’ means earnings and profits which were accumulated in taxable years of the corporation beginning after December 31, 1986, and during the period or periods the stock was held by the taxpayer while the corporation was a passive foreign corporation.

          ‘(iii) COORDINATION WITH SECTION 959(e)- For purposes of section 959(e), any amount treated as a dividend under this subparagraph shall be treated as included in gross income under section 1248(a).

        ‘(C) ADJUSTMENTS- In the case of any stock to which subparagraph (A) or (B) applies--

          ‘(i) the adjusted basis of such stock shall be increased by the gain recognized under subparagraph (A) or the amount treated as a dividend under subparagraph (B), as the case may be, and

          ‘(ii) the taxpayer’s holding period in such stock shall be treated as beginning on the first day referred to in such subparagraph.

    ‘(b) RULES RELATING TO STOCK ACQUIRED FROM A DECEDENT-

      ‘(1) BASIS- In the case of stock of a passive foreign corporation acquired by bequest, devise, or inheritance (or by the decedent’s estate), notwithstanding section 1014, the basis of such stock in the hands of the person so acquiring it shall be the adjusted basis of such stock in the hands of the decedent immediately before his death (or, if lesser, the basis which would have been determined under section 1014 without regard to this paragraph).

      ‘(2) DEDUCTION FOR ESTATE TAX- If stock in a passive foreign corporation is acquired from a decedent, the taxpayer shall, under regulations prescribed by the Secretary, be allowed (for the taxable year of the sale or exchange) a deduction from gross income equal to that portion of the decedent’s estate tax deemed paid which is attributable to the excess of (A) the value at which such stock was taken into account for purposes of determining the value of the decedent’s gross estate, over (B) the basis determined under paragraph (1).

      ‘(3) EXCEPTIONS- This subsection shall not apply to any stock in a passive foreign corporation if--

        ‘(A) section 1293 would not have applied to a disposition of such stock by the decedent immediately before his death, or

        ‘(B) the decedent was a nonresident alien at all times during his holding period in such stock.

    ‘(c) RECOGNITION OF GAIN- Except as otherwise provided in regulations, in the case of any transfer of stock in a passive foreign company to which section 1293 applies, where (but for this subsection) there is not full recognition of gain, the excess (if any) of--

      ‘(1) the fair market value of such stock, over

      ‘(2) its adjusted basis,

    shall be treated as gain from the sale or exchange of such stock and shall be recognized notwithstanding any provision of law. Proper adjustment shall be made to the basis of property for gain recognized under the preceding sentence.

    ‘(d) COORDINATION WITH FOREIGN TAX CREDIT RULES-

      ‘(1) IN GENERAL- If there are creditable foreign taxes with respect to any distribution in respect of stock in a passive foreign corporation--

        ‘(A) the amount of such distribution shall be determined for purposes of section 1293 with regard to section 78,

        ‘(B) the excess distribution taxes shall be allocated ratably to each day in the taxpayer’s holding period for the stock, and

        ‘(C) to the extent--

          ‘(i) that such excess distribution taxes are allocated to a taxable year referred to in section 1293(a)(1)(B), such taxes shall be taken into account under section 901 for the current year, and

          ‘(ii) that such excess distribution taxes are allocated to any other taxable year, such taxes shall reduce (subject to the principles of section 904 and not below zero) the increase in tax determined under section 1293(c)(2) for such taxable year by reason of such distribution (but such taxes shall not be taken into account under section 901).

      ‘(2) DEFINITIONS- For purposes of this subsection--

        ‘(A) CREDITABLE FOREIGN TAXES- The term ‘creditable foreign taxes’ means, with respect to any distribution--

          ‘(i) any foreign taxes deemed paid under section 902 with respect to such distribution, and

          ‘(ii) any withholding tax imposed with respect to such distribution,

        but only if the taxpayer chooses the benefits of section 901 and such taxes are creditable under section 901 (determined without regard to paragraph (1)(C)(ii)).

        ‘(B) EXCESS DISTRIBUTION TAXES- The term ‘excess distribution taxes’ means, with respect to any distribution, the portion of the creditable foreign taxes with respect to such distribution which is attributable (on a pro rata basis) to the portion of such distribution which is an excess distribution.

        ‘(C) SECTION 1248 GAIN- The rules of this subsection also shall apply in the case of any gain which but for this section would be includible in gross income as a dividend under section 1248.

    ‘(e) ATTRIBUTION OF OWNERSHIP- For purposes of this subpart--

      ‘(1) ATTRIBUTION TO UNITED STATES PERSONS- This subsection--

        ‘(A) shall apply to the extent that the effect is to treat stock of a passive foreign corporation as owned by a United States person, and

        ‘(B) except as provided in paragraph (3) or in regulations, shall not apply to treat stock owned (or treated as owned under this subsection) by a United States person as owned by any other person.

      ‘(2) CORPORATIONS-

        ‘(A) IN GENERAL- If 50 percent or more in value of the stock of a corporation (other than an S corporation) is owned, directly or indirectly, by or for any person, such person shall be considered as owning the stock owned directly or indirectly by or for such corporation in that proportion which the value of the stock which such person so owns bears to the value of all stock in the corporation.

        ‘(B) 50-PERCENT LIMITATION NOT TO APPLY IN CERTAIN CASES- For purposes of determining whether a shareholder of a passive foreign corporation (or whether a United States shareholder of a controlled foreign corporation which is not a passive foreign corporation) is treated as owning stock owned directly or indirectly by or for such corporation, subparagraph (A) shall be applied without regard to the 50-percent limitation contained therein.

        ‘(C) FAMILY AND PARTNER ATTRIBUTION FOR 50-PERCENT LIMITATION- For purposes of determining whether the 50-percent limitation of subparagraph (A) is met, the constructive ownership rules of section 544(a)(2) shall apply in addition to the other rules of this subsection.

      ‘(3) PARTNERSHIPS, ETC- Except as provided in regulations, stock owned, directly or indirectly, by or for a partnership, S corporation, estate, or trust shall be considered as being owned proportionately by its partners, shareholders, or beneficiaries (as the case may be).

      ‘(4) OPTIONS- To the extent provided in regulations, if any person has an option to acquire stock, such stock shall be considered as owned by such person. For purposes of this paragraph, an option to acquire such an option, and each one of a series of such options, shall be considered as an option to acquire such stock.

      ‘(5) SUCCESSIVE APPLICATION- Stock considered to be owned by a person by reason of the application of paragraph (2), (3), or (4) shall, for purposes of applying such paragraphs, be considered as actually owned by such person.

    ‘(f) OTHER SPECIAL RULES- For purposes of this subpart--

      ‘(1) TIME FOR DETERMINATION- Stock held by a taxpayer shall be treated as stock in a passive foreign corporation if, at any time during the holding period of the taxpayer with respect to such stock, such corporation (or any predecessor) was a passive foreign corporation. The preceding sentence shall not apply if the taxpayer elects to recognize gain (as of the last day of the last taxable year for which the company was a passive foreign corporation) under rules similar to the rules of subsection (a)(3)(A).

      ‘(2) APPLICATION OF SUBPART WHERE STOCK HELD BY OTHER ENTITY- Under regulations--

        ‘(A) IN GENERAL- In any case in which a United States person is treated as owning stock in a passive foreign corporation by reason of subsection (e)--

          ‘(i) any transaction which results in the United States person being treated as no longer owning such stock,

          ‘(ii) any disposition of such stock by the person owning such stock, and

          ‘(iii) any distribution of property in respect of such stock to the person holding such stock,

        shall be treated as a disposition by, or distribution to, the United States person with respect to the stock in the passive foreign corporation.

        ‘(B) AMOUNT TREATED IN SAME MANNER AS PREVIOUSLY TAXED INCOME- Rules similar to the rules of section 959(b) shall apply to any amount described in subparagraph (A) in respect of stock which the taxpayer is treated as owning under subsection (e).

        ‘(C) COORDINATION WITH SECTION 951- If, but for this subparagraph, an amount would be taken into account under section 1293 by reason of subparagraph (A) and such amount would also be included in the gross income of the taxpayer under section 951, such amount shall only be taken into account under section 1293.

      ‘(3) DISPOSITIONS- Except as provided in regulations, if a taxpayer uses any stock in a passive foreign corporation as security for a loan, the taxpayer shall be treated as having disposed of such stock.

‘Subpart C--General Provisions

‘Sec. 1296. Passive foreign corporation.

‘Sec. 1297. Special rules.

‘SEC. 1296. PASSIVE FOREIGN CORPORATION.

    ‘(a) IN GENERAL- For purposes of this part, except as otherwise provided in this subpart, the term ‘passive foreign corporation’ means any foreign corporation if--

      ‘(1) 60 percent or more of the gross income of such corporation for the taxable year is passive income,

      ‘(2) the average percentage of assets (by value) held by such corporation during the taxable year which produce passive income or which are held for the production of passive income is at least 50 percent, or

      ‘(3) such corporation is registered under the Investment Company Act of 1940, as amended (15 U.S.C. 80a-1 to 80b-2), either as a management company or as a unit investment trust.

    In the case of a controlled foreign corporation (or any other foreign corporation if such corporation so elects), the determination under paragraph (2) shall be based on the adjusted bases (as determined for purposes of computing earnings and profits) of its assets in lieu of their value. Such an election, once made, may be revoked only with the consent of the Secretary.

    ‘(b) PASSIVE INCOME- For purposes of this section--

      ‘(1) IN GENERAL- Except as otherwise provided in this subsection, the term ‘passive income’ means any income which is of a kind which would be foreign personal holding company income as defined in section 954(c) without regard to paragraph (3) thereof.

      ‘(2) EXCEPTIONS- Except as provided in regulations, the term ‘passive income’ does not include any income--

        ‘(A) derived in the active conduct of a banking business by an institution licensed to do business as a bank in the United States (or, to the extent provided in regulations, by any other corporation),

        ‘(B) derived in the active conduct of an insurance business by a corporation which is predominantly engaged in an insurance business and which would be subject to tax under subchapter L if it were a domestic corporation,

        ‘(C) which is interest, a dividend, or a rent or royalty, which is received or accrued from a related person (within the meaning of section 954(d)(3)) to the extent such amount is properly allocable (under regulations prescribed by the Secretary) to income of such related person which is not passive income, or

        ‘(D) any foreign trade income of a FSC.

      For purposes of subparagraph (C), the term ‘related person’ has the meaning given such term by section 954(d)(3) determined by substituting ‘foreign corporation’ for ‘controlled foreign corporation’ each place it appears in section 954(d)(3).

      ‘(3) TREATMENT OF INCOME FROM CERTAIN ASSETS- To the extent that any asset is properly treated as not held for the production of passive income for purposes of subsection (a)(2), all income from such asset shall be treated as income which is not passive income.

      ‘(4) TREATMENT OF CERTAIN DEALERS IN SECURITIES-

        ‘(A) IN GENERAL- In the case of any foreign corporation which is a controlled foreign corporation (as defined in section 957(a)), the term ‘passive income’ does not include any income derived in the active conduct of a securities business by such corporation if such corporation is registered as a securities broker or dealer under section 15(a) of the Securities Exchange Act of 1934 or is registered as a Government securities broker or dealer under section 15C(a) of such Act. To the extent provided in regulations, such term shall not include any income derived in the active conduct of a securities business by a controlled foreign corporation which is not so registered.

        ‘(B) APPLICATION OF LOOK-THROUGH RULES- For purposes of paragraph (2)(C), rules similar to the rules of subparagraph (A) of this paragraph shall apply in determining whether any income of a related person (whether or not a corporation) is passive income.

        ‘(C) LIMITATION- The preceding provisions of this paragraph shall only apply in the case of persons who are United States shareholders (as defined in section 951(b)) in the controlled foreign corporation.

    ‘(c) LOOK-THROUGH IN CASE OF 25-PERCENT OWNED CORPORATION- If a foreign corporation owns (directly or indirectly) at least 25 percent (by value) of the stock of another corporation, for purposes of determining whether such foreign corporation is a passive foreign corporation, such foreign corporation shall be treated as if it--

      ‘(1) held its proportionate share of the assets of such other corporation, and

      ‘(2) received directly its proportionate share of the income of such other corporation.

‘SEC. 1297. SPECIAL RULES.

    ‘(a) UNITED STATES PERSON- For purposes of this part, the term ‘United States person’ has the meaning given to such term by section 7701(a)(30).

    ‘(b) CONTROLLED FOREIGN CORPORATION- For purposes of this part, the term ‘controlled foreign corporation’ has the meaning given such term by section 957(a).

    ‘(c) MARKETABLE STOCK- For purposes of this part--

      ‘(1) IN GENERAL- The term ‘marketable stock’ means--

        ‘(A) any stock which is regularly traded on--

          ‘(i) a national securities exchange which is registered with the Securities and Exchange Commission or the national market system established pursuant to section 11A of the Securities and Exchange Act of 1934, or

          ‘(ii) any exchange or other market which the Secretary determines has rules adequate to carry out the purposes of this part, and

        ‘(B) to the extent provided in regulations, stock in any foreign corporation which is comparable to a regulated investment company and which offers for sale or has outstanding any stock of which it is the issuer and which is redeemable at its net asset value.

      ‘(2) SPECIAL RULE FOR REGULATED INVESTMENT COMPANIES- In the case of any regulated investment company which is offering for sale or has outstanding any stock of which it is the issuer and which is redeemable at its net asset value, all stock in a passive foreign corporation which it owns (or is treated under section 1291(g) as owning) shall be treated as marketable stock for purposes of this part. Except as provided in regulations, a similar rule shall apply in the case of any other regulated investment company.

    ‘(d) OTHER SPECIAL RULES- For purposes of this part--

      ‘(1) CERTAIN CORPORATIONS NOT TREATED AS PASSIVE- A corporation shall not be treated as a passive foreign corporation for the 1st taxable year such corporation has gross income (hereinafter in this paragraph referred to as the ‘start-up year’) if--

        ‘(A) no predecessor of such corporation was a passive foreign corporation,

        ‘(B) it is established to the satisfaction of the Secretary that such corporation will not be a passive foreign corporation for either of the 1st 2 taxable years following the start-up year, and

        ‘(C) such corporation is not a passive foreign corporation for either of the 1st 2 taxable years following the start-up year.

      ‘(2) CERTAIN CORPORATIONS CHANGING BUSINESSES- A corporation shall not be treated as a passive foreign corporation for any taxable year if--

        ‘(A) neither such corporation (nor any predecessor) was a passive foreign corporation for any prior taxable year,

        ‘(B) it is established to the satisfaction of the Secretary that--

          ‘(i) substantially all of the passive income of the corporation for the taxable year is attributable to proceeds from the disposition of 1 or more active trades or businesses, and

          ‘(ii) such corporation will not be a passive foreign corporation for either of the first 2 taxable years following the taxable year, and

        ‘(C) such corporation is not a passive foreign corporation for either of such 2 taxable years.

      For purposes of section 1296(c), any passive income referred to in subparagraph (B)(i) shall be treated as income which is not passive income and any assets which produce income so described shall be treated as assets producing income other than passive income.

      ‘(3) TREATMENT OF CERTAIN FOREIGN CORPORATIONS OWNING STOCK IN 25-PERCENT OWNED DOMESTIC CORPORATION-

        ‘(A) IN GENERAL- If a foreign corporation owns at least 25 percent (by value) of the stock of a domestic corporation, for purposes of determining whether such foreign corporation is a passive foreign corporation, any qualified stock held by such domestic corporation shall be treated as an asset which does not produce passive income (and is not held for the production of passive income) and any amount included in gross income with respect to such stock shall not be treated as passive income.

        ‘(B) QUALIFIED STOCK- For purposes of subparagraph (A), the term ‘qualified stock’ means any stock in a C corporation which is a domestic corporation and which is not a regulated investment company or real estate investment trust.

      ‘(4) TREATMENT OF CORPORATION WHICH WAS A PFIC- A corporation shall be treated as a passive foreign corporation for any taxable year beginning before January 1, 1994, if and only if such corporation was a passive foreign investment company under this part as in effect for such taxable year.

      ‘(5) SEPARATE INTERESTS TREATED AS SEPARATE CORPORATIONS- Under regulations prescribed by the Secretary, where necessary to carry out the purposes of this part, separate classes of stock (or other interests) in a corporation shall be treated as interests in separate corporations.

      ‘(6) TREATMENT OF CERTAIN SUBPART F INCLUSIONS- Any amount included in gross income under subparagraph (B) or (C) of section 951(a)(1) shall be treated as a distribution received with respect to the stock.

    ‘(e) TREATMENT OF CERTAIN LEASED PROPERTY- For purposes of this part--

      ‘(1) IN GENERAL- Any tangible personal property with respect to which a foreign corporation is the lessee under a lease with a term of at least 12 months shall be treated as an asset actually held by such corporation.

      ‘(2) AMOUNT TAKEN INTO ACCOUNT-

        ‘(A) IN GENERAL- The amount taken into account under section 1296(a)(2) with respect to any asset to which paragraph (1) applies shall be the unamortized portion (as determined under regulations prescribed by the Secretary) of the present value of the payments under the lease for the use of such property.

        ‘(B) PRESENT VALUE- For purposes of subparagraph (A), the present value of payments described in subparagraph (A) shall be determined in the manner provided in regulations prescribed by the Secretary--

          ‘(i) as of the beginning of the lease term, and

          ‘(ii) except as provided in such regulations, by using a discount rate equal to the applicable Federal rate determined under section 1274(d)--

            ‘(I) by substituting the lease term for the term of the debt instrument, and

            ‘(II) without regard to paragraph (2) or (3) thereof.

      ‘(3) EXCEPTIONS- This subsection shall not apply in any case where--

        ‘(A) the lessor is a related person (as defined in section 954(d)(3)) with respect to the foreign corporation, or

        ‘(B) a principal purpose of leasing the property was to avoid the provisions of this part or section 956A.

    ‘(f) SPECIAL RULES FOR CERTAIN INTANGIBLES- For purposes of this part--

      ‘(1) RESEARCH EXPENDITURES- The adjusted basis of the total assets of a controlled foreign corporation shall be increased by the research or experimental expenditures (within the meaning of section 174) paid or incurred by such foreign corporation during the taxable year and the preceding 2 taxable years. Any expenditure otherwise taken into account under the preceding sentence shall be reduced by the amount of any reimbursement received by the controlled foreign corporation with respect to such expenditure.

      ‘(2) CERTAIN LICENSED INTANGIBLES-

        ‘(A) IN GENERAL- In the case of any intangible property (as defined in section 936(h)(3)(B)) with respect to which a controlled foreign corporation is a licensee and which is used by such foreign corporation in the active conduct of a trade or business, the adjusted basis of the total assets of such foreign corporation shall be increased by an amount equal to 300 percent of the payments made during the taxable year by such foreign corporation for the use of such intangible property.

        ‘(B) EXCEPTIONS- Subparagraph (A) shall not apply to--

          ‘(i) any payments to a foreign person if such foreign person is a related person (as defined in section 954(d)(3)) with respect to the controlled foreign corporation, and

          ‘(ii) any payments under a license if a principal purpose of entering into such license was to avoid the provisions of this part or section 956A.

      ‘(3) CONTROLLED FOREIGN CORPORATION- For purposes of this subsection, the term ‘controlled foreign corporation’ has the meaning given such term by section 957(a).

    ‘(g) ELECTION BY CERTAIN PASSIVE FOREIGN CORPORATIONS TO BE TREATED AS A DOMESTIC CORPORATION-

      ‘(1) IN GENERAL- For purposes of this title, if--

        ‘(A) a passive foreign corporation would qualify as a regulated investment company under part I of subchapter M if such passive foreign corporation were a domestic corporation,

        ‘(B) such passive foreign corporation meets such requirements as the Secretary shall prescribe to ensure that the taxes imposed by this title on such passive foreign corporation are paid, and

        ‘(C) such passive foreign corporation makes an election to have this paragraph apply and waives all benefits which are granted by the United States under any treaty and to which such corporation would otherwise be entitled by reason of being a resident of another country,

      such corporation shall be treated as a domestic corporation.

      ‘(2) CERTAIN RULES MADE APPLICABLE- Rules similar to the rules of paragraphs (2), (3), (4)(A), and (5) of section 953(d) shall apply with respect to any corporation making an election under paragraph (1).

    ‘(h) SPECIAL RULES FOR CERTAIN TAXPAYERS-

      ‘(1) TAX-EXEMPT ORGANIZATIONS- In the case of any organization exempt from tax under section 501--

        ‘(A) this part shall apply to any stock in a passive foreign corporation owned (or treated as owned under section 1294(e)) by such organization only to the extent that a dividend on such stock would be taken into account in determining the unrelated business taxable income of such organization, and

        ‘(B) to the extent that this part applies to any such stock, this part shall be applied in the same manner as if such organization were not exempt from tax under section 501(a).

      ‘(2) TREATMENT OF STOCK HELD BY POOLED INCOME FUND- If stock in a passive foreign corporation is owned (or treated as owned under section 1294(e)) by a pooled income fund (as defined in section 642(c)(5)) and no portion of any gain from a disposition of such stock may be allocated to income under the terms of the governing instrument of such fund--

        ‘(A) section 1293 shall not apply to any gain on a disposition of such stock by such fund if (without regard to section 1293) a deduction would be allowable with respect to such gain under section 642(c)(3),

        ‘(B) subpart A shall not apply with respect to such stock, and

        ‘(C) in determining whether section 1293 applies to any distribution in respect of such stock, such stock shall be treated as failing to qualify for the exceptions under section 1294(a)(1).

    ‘(i) INFORMATION FROM SHAREHOLDERS- Every United States person who owns stock in any passive foreign corporation shall furnish with respect to such corporation such information as the Secretary may prescribe.

    ‘(j) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this part, including regulations--

      ‘(1) providing that gross income shall be determined without regard to section 1293 for such purposes as may be specified in such regulations, and

      ‘(2) to prevent avoidance of the provisions of this part through changes in citizenship or residence status.’

    (b) INSTALLMENT SALES TREATMENT NOT AVAILABLE- Paragraph (2) of section 453(k) is amended by striking ‘or’ at the end of subparagraph (A), by inserting ‘or’ at the end of subparagraph (B), and by adding at the end thereof the following new subparagraph:

        ‘(C) stock in a passive foreign corporation (as defined in section 1296) if section 1293 applies to such sale,’.

    (c) TREATMENT OF MARK-TO-MARKET GAIN UNDER SECTION 4982-

      (1) Subsection (e) of section 4982 is amended by adding at the end thereof the following new paragraph:

      ‘(6) TREATMENT OF GAIN RECOGNIZED UNDER SECTION 1291- For purposes of determining a regulated investment company’s ordinary income--

        ‘(A) notwithstanding paragraph (1)(C), section 1291 shall be applied as if such company’s taxable year ended on October 31, and

        ‘(B) any ordinary gain or loss from an actual disposition of stock in a passive foreign corporation during the portion of the calendar year after October 31 shall be taken into account in determining such company’s ordinary income for the following calendar year.

      In the case of a company making an election under paragraph (4), the preceding sentence shall be applied by substituting the last day of the company’s taxable year for October 31.’

      (2) Subsection (b) of section 852 is amended by adding at the end thereof the following new paragraph:

      ‘(10) SPECIAL RULE FOR CERTAIN LOSSES ON STOCK IN PASSIVE FOREIGN CORPORATIONS- To the extent provided in regulations, the taxable income of a regulated investment company (other than a company to which an election under section 4982(e)(4) applies) shall be computed without regard to any net reduction in the value of any stock of a passive foreign corporation to which section 1291 applies occurring after October 31 of the taxable year, and any such reduction shall be treated as occurring on the first day of the following taxable year.’

      (3) Subsection (c) of section 852 is amended by inserting after ‘October 31 of such year’ the following: ‘, without regard to any net reduction in the value of any stock of a passive foreign corporation to which section 1291 applies occurring after October 31 of such year,’.

    (d) TREATMENT OF CERTAIN PREVIOUSLY TAXED AMOUNTS- Subsection (e) of section 959 is amended--

      (1) by adding at the end thereof the following new sentence: ‘A similar rule shall apply in the case of amounts included in gross income under section 1293 (as in effect on January 1, 1993).’, and

      (2) by striking ‘AMOUNTS PREVIOUSLY TAXED UNDER SECTION 1248’ in the subsection heading and inserting ‘CERTAIN PREVIOUSLY TAXED AMOUNTS’.

SEC. 403. TECHNICAL AND CONFORMING AMENDMENTS.

    (a) GENERAL RULE-

      (1) Paragraph (2) of section 171(c) is amended--

        (A) by striking ‘, or by a foreign personal holding company, as defined in section 552’, and

        (B) by striking ‘or foreign personal holding company’.

      (2) Section 312 is amended by striking subsection (j).

      (3) Subsection (m) of section 312 is amended by striking ‘, a foreign investment company (within the meaning of section 1246(b)), or a foreign personal holding company (within the meaning of section 552)’ and inserting ‘or a passive foreign corporation (as defined in section 1296)’.

      (4) Subsection (e) of section 443 is amended by striking paragraph (3) and by redesignating paragraphs (4) and (5) as paragraphs (3) and (4), respectively.

      (5) Clause (ii) of section 465(c)(7)(B) is amended to read as follows:

          ‘(ii) a passive foreign corporation with respect to which the stock ownership requirements of section 1292(a)(2)(B) are met, or’.

      (6) Subsection (b) of section 535 is amended by striking paragraph (9).

      (7) Subsection (d) of section 535 is hereby repealed.

      (8) Paragraph (1) of section 543(b) is amended by inserting ‘and’ at the end of subparagraph (A), by striking ‘, and’ at the end of subparagraph (B) and inserting a period, and by striking subparagraph (C).

      (9) Section 545 is amended by striking subsections (b)(7) and (c).

      (10) Paragraph (1) of section 562(b) is amended by striking ‘or a foreign personal holding company described in section 552’.

      (11) Section 563 is amended--

        (A) by striking subsection (c),

        (B) by redesignating subsection (d) as subsection (c), and

        (C) by striking ‘subsection (a), (b), or (c)’ in subsection (c) (as so redesignated) and inserting ‘subsection (a) or (b)’.

      (12) Paragraph (2) of section 751(d) is amended by striking ‘subsection (a) of section 1246 (relating to gain on foreign investment company stock)’ and inserting ‘section 1291 (relating to stock in certain passive foreign corporations marked to market)’.

      (13) Subsection (b) of section 851 is amended by striking the sentence following paragraph (4)(B) which contains a reference to section 1293(a).

      (14) Clause (ii) of section 864(b)(2)(A) is amended by striking ‘(other than’ and all that follows down through ‘holding company)’ and inserting ‘(other than a corporation which would be a personal holding company but for section 542(c)(5) and which is not United States controlled (as defined in section 1292(a)(2))’.

      (15) Subsection (d) of section 904 is amended by striking paragraphs (2)(A)(ii), (2)(E)(iii), and (3)(I).

      (16)(A) Subparagraph (A) of section 904(g)(1) is amended to read as follows:

        ‘(A) Any amount included in gross income under section 951(a) (relating to amounts included in gross income of United States shareholders).’

      (B) The paragraph heading of paragraph (2) of section 904(g) is amended by striking ‘AND FOREIGN PERSONAL HOLDING OR PASSIVE FOREIGN INVESTMENT COMPANY’.

      (17) Section 951 is amended by striking subsections (c), (d), and (f), and by redesignating subsection (e) as subsection (c).

      (18) Paragraph (3) of section 956A(c) is amended--

        (A) by striking ‘1297(d)’ in subparagraph (B) and inserting ‘1297(e)’, and

        (B) by striking ‘1297(e)’ in subparagraph (C) and inserting ‘1297(f)’.

      (19) Paragraph (1) of section 986(c) is amended by striking ‘or 1293(c)’.

      (20) Paragraph (3) of section 989(b) is amended by striking ‘, 551(a), or 1293(a)’.

      (21) Paragraph (5) of section 1014(b) is hereby repealed.

      (22) Subsection (a) of section 1016 is amended by striking paragraph (13) and by redesignating the following paragraphs accordingly.

      (23) Paragraph (3) of section 1212(a) is amended--

        (A) by striking subparagraph (A),

        (B) by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively, and

        (C) by amending subparagraph (D) to read as follows:

        ‘(C) for which it is a passive foreign corporation.’

      (24) Section 1223 is amended by striking paragraph (10) and by redesignating the following paragraphs accordingly.

      (25) Subsection (d) of section 1248 is amended by striking paragraphs (5) and (7).

      (26)(A) Subsection (a) of section 6035 is amended by striking ‘foreign personal holding company (as defined in section 552)’ and inserting ‘passive foreign corporation with respect to which the stock ownership requirements of section 1292(a)(2)(B) are met’.

      (B) The section heading for section 6035 is amended by striking ‘foreign personal holding companies’ and inserting ‘closely held passive foreign corporations’.

      (C) The table of sections for subpart A of part III of subchapter A of chapter 61 is amended by striking ‘foreign personal holding companies’ in the item relating to section 6035 and inserting ‘closely-held passive foreign corporations’.

      (27) Subparagraph (D) of section 6103(e)(1) is amended by striking clause (iv) and redesignating clauses (v) and (vi) as clauses (iv) and (v), respectively.

      (28) Subparagraph (B) of section 6501(e)(1) is amended to read as follows:

        ‘(B) CONSTRUCTIVE DIVIDENDS- If the taxpayer omits from gross income an amount properly includible therein under section 951(a), the tax may be assessed, or a proceeding in court for the collection of such tax may be done without assessing, at any time within 6 years after the return was filed.’

      (29) Section 4947 and section 4948(c)(4) are each amended by striking ‘556(b)(2),’ each place it appears.

    (b) CLERICAL AMENDMENTS-

      (1) The table of parts for subchapter G of chapter 1 is amended by striking the item relating to part III.

      (2) The table of sections for part IV of subchapter P of chapter 1 is amended by striking the items relating to sections 1246 and 1247.

      (3) The table of parts for subchapter P of chapter 1 is amended by striking the item relating to part VI and inserting the following:

‘Part VI. Treatment of passive foreign corporations.’

SEC. 404. EFFECTIVE DATE.

    (a) GENERAL RULE- Except as otherwise provided in this section, the amendments made by this subtitle shall apply to--

      (1) taxable years of United States persons beginning after December 31, 1993, and

      (2) taxable years of foreign corporations ending with or within such taxable years of United States persons.

    (b) DENIAL OF INSTALLMENT SALES TREATMENT- The amendment made by section 402(b) shall apply to dispositions after December 31, 1993.

    (c) BASIS RULE- The amendments made by this subtitle shall not affect the determination of the basis of any stock acquired from a decedent in a taxable year beginning before January 1, 1994.

Subtitle B--Treatment of Controlled Foreign Corporations

SEC. 411. GAIN ON CERTAIN STOCK SALES BY CONTROLLED FOREIGN CORPORATIONS TREATED AS DIVIDENDS.

    (a) GENERAL RULE- Section 964 (relating to miscellaneous provisions) is amended by adding at the end thereof the following new subsection:

    ‘(e) GAIN ON CERTAIN STOCK SALES BY CONTROLLED FOREIGN CORPORATIONS TREATED AS DIVIDENDS-

      ‘(1) IN GENERAL- If a controlled foreign corporation sells or exchanges stock in any other foreign corporation, gain recognized on such sale or exchange shall be included in the gross income of such controlled foreign corporation as a dividend to the same extent that it would have been so included under section 1248(a) if such controlled foreign corporation were a United States person. For purposes of determining the amount which would have been so includible, the determination of whether such other foreign corporation was a controlled foreign corporation shall be made without regard to the preceding sentence.

      ‘(2) SAME COUNTRY EXCEPTION NOT APPLICABLE- Clause (i) of section 954(c)(3)(A) shall not apply to any amount treated as a dividend by reason of paragraph (1).

      ‘(3) CLARIFICATION OF DEEMED SALES- For purposes of this subsection, a controlled foreign corporation shall be treated as having sold or exchanged any stock if, under any provision of this subtitle, such controlled foreign corporation is treated as having gain from the sale or exchange of such stock.’

    (b) AMENDMENT OF SECTION 904(d)- Clause (i) of section 904(d)(2)(E) is amended by striking ‘and except as provided in regulations, the taxpayer was a United States shareholder in such corporation’.

    (c) EFFECTIVE DATES-

      (1) The amendment made by subsection (a) shall apply to gain recognized on transactions occurring after the date of the enactment of this Act.

      (2) The amendment made by subsection (b) shall apply to distributions after the date of the enactment of this Act.

SEC. 412. MISCELLANEOUS MODIFICATIONS TO SUBPART F.

    (a) SECTION 1248 GAIN TAKEN INTO ACCOUNT IN DETERMINING PRO RATA SHARE-

      (1) IN GENERAL- Paragraph (2) of section 951(a) (defining pro rata share of subpart F income) is amended by adding at the end thereof the following new sentence: ‘For purposes of subparagraph (B), any gain included in the gross income of any person as a dividend under section 1248 shall be treated as a distribution received by such person with respect to the stock involved.’

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply to dispositions after the date of the enactment of this Act.

    (b) BASIS ADJUSTMENTS IN STOCK HELD BY FOREIGN CORPORATION-

      (1) IN GENERAL- Section 961 (relating to adjustments to basis of stock in controlled foreign corporations and of other property) is amended by adding at the end thereof the following new subsection:

    ‘(c) BASIS ADJUSTMENTS IN STOCK HELD BY FOREIGN CORPORATION- Under regulations prescribed by the Secretary, if a United States shareholder is treated under section 958(a)(2) as owning any stock in a controlled foreign corporation which is actually owned by another controlled foreign corporation, adjustments similar to the adjustments provided by subsections (a) and (b) shall be made to the basis of such stock in the hands of such other controlled foreign corporation, but only for the purposes of determining the amount included under section 951 in the gross income of such United States shareholder (or any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder by reason of which such shareholder was treated as owning such stock, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary may prescribe by regulations).’

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply for purposes of determining inclusions for taxable years of United States shareholders beginning after December 31, 1993.

    (c) DETERMINATION OF PREVIOUSLY TAXED INCOME IN SECTION 304 DISTRIBUTIONS, ETC-

      (1) IN GENERAL- Section 959 (relating to exclusion from gross income of previously taxed earnings and profits) is amended by adding at the end thereof the following new subsection:

    ‘(g) ADJUSTMENTS FOR CERTAIN TRANSACTIONS- If by reason of--

      ‘(1) a transaction to which section 304 applies,

      ‘(2) the structure of a United States shareholder’s holdings in controlled foreign corporations, or

      ‘(3) other circumstances,

    there would be a multiple inclusion of any item in income (or an inclusion or exclusion without an appropriate basis adjustment) by reason of this subpart, the Secretary may prescribe regulations providing such modifications in the application of this subpart as may be necessary to eliminate such multiple inclusion or provide such basis adjustment, as the case may be.’

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall take effect on the date of the enactment of this Act.

    (d) CLARIFICATION OF TREATMENT OF BRANCH TAX EXEMPTIONS OR REDUCTIONS-

      (1) IN GENERAL- Subsection (b) of section 952 is amended by adding at the end thereof the following new sentence: ‘For purposes of this subsection, any exemption (or reduction) with respect to the tax imposed by section 884 shall not be taken into account.’.

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply to taxable years beginning after December 31, 1986.

SEC. 413. INDIRECT FOREIGN TAX CREDIT ALLOWED FOR CERTAIN LOWER TIER COMPANIES.

    (a) SECTION 902 CREDIT-

      (1) IN GENERAL- Subsection (b) of section 902 (relating to deemed taxes increased in case of certain 2nd and 3rd tier foreign corporations) is amended to read as follows:

    ‘(b) DEEMED TAXES INCREASED IN CASE OF CERTAIN LOWER TIER CORPORATIONS-

      ‘(1) IN GENERAL- If--

        ‘(A) any foreign corporation is a member of a qualified group, and

        ‘(B) such foreign corporation owns 10 percent or more of the voting stock of another member of such group from which it receives dividends in any taxable year,

      such foreign corporation shall be deemed to have paid the same proportion of such other member’s post-1986 foreign income taxes as would be determined under subsection (a) if such foreign corporation were a domestic corporation.

      ‘(2) QUALIFIED GROUP- For purposes of paragraph (1), the term ‘qualified group’ means--

        ‘(A) the foreign corporation described in subsection (a), and

        ‘(B) any other foreign corporation if--

          ‘(i) the domestic corporation owns at least 5 percent of the voting stock of such other foreign corporation indirectly through a chain of foreign corporations connected through stock ownership of at least 10 percent of their voting stock,

          ‘(ii) the foreign corporation described in subsection (a) is the first tier corporation in such chain, and

          ‘(iii) such other corporation is not below the sixth tier in such chain,

      The term ‘qualified group’ shall not include any foreign corporation below the third tier in the chain referred to in clause (i) unless such foreign corporation is a controlled foreign corporation (as defined in section 957) and the domestic corporation is a United States shareholder (as defined in section 951(b)) in such foreign corporation. Paragraph (1) shall apply to those taxes paid by a member of the qualified group below the third tier only with respect to periods during which it was a controlled foreign corporation.’

      (2) CONFORMING AMENDMENTS-

        (A) Subparagraph (B) of section 902(c)(3) is amended by adding ‘or’ at the end of clause (i) and by striking clauses (ii) and (iii) and inserting the following new clause:

          ‘(ii) the requirements of subsection (b)(2) are met with respect to such foreign corporation.’

        (B) Subparagraph (B) of section 902(c)(4) is amended by striking ‘3rd foreign corporation’ and inserting ‘sixth tier foreign corporation’.

        (C) The heading for paragraph (3) of section 902(c) is amended by striking ‘WHERE DOMESTIC CORPORATION ACQUIRES 10 PERCENT OF FOREIGN CORPORATION’ and inserting ‘WHERE FOREIGN CORPORATION FIRST QUALIFIES’.

        (D) Paragraph (3) of section 902(c) is amended by striking ‘ownership’ each place it appears.

    (b) SECTION 960 CREDIT- Paragraph (1) of section 960(a) (relating to special rules for foreign tax credits) is amended to read as follows:

      ‘(1) DEEMED PAID CREDIT- For purposes of subpart A of this part, if there is included under section 951(a) in the gross income of a domestic corporation any amount attributable to earnings and profits of a foreign corporation which is a member of a qualified group (as defined in section 902(b)) with respect to the domestic corporation, then, except to the extent provided in regulations, section 902 shall be applied as if the amount so included were a dividend paid by such foreign corporation (determined by applying section 902(c) in accordance with section 904(d)(3)(B)).’

    (c) EFFECTIVE DATE-

      (1) IN GENERAL- The amendments made by this section shall apply to taxes of foreign corporations for taxable years of such corporations beginning after the date of enactment of this Act.

      (2) SPECIAL RULE- In the case of any chain of foreign corporations described in clauses (i) and (ii) of section 902(b)(2)(B) of the Internal Revenue Code of 1986 (as amended by this section), no liquidation, reorganization, or similar transaction in a taxable year beginning after the date of the enactment of this Act shall have the effect of permitting taxes to be taken into account under section 902 of the Internal Revenue Code of 1986 which could not have been taken into account under such section but for such transaction.

Subtitle C--Other Provisions

SEC. 421. EXCHANGE RATE USED IN TRANSLATING FOREIGN TAXES.

    (a) ACCRUED TAXES TRANSLATED BY USING AVERAGE RATE FOR YEAR TO WHICH TAXES RELATE-

      (1) IN GENERAL- Subsection (a) of section 986 (relating to translation of foreign taxes) is amended to read as follows:

    ‘(a) FOREIGN INCOME TAXES-

      ‘(1) TRANSLATION OF ACCRUED TAXES-

        ‘(A) IN GENERAL- For purposes of determining the amount of the foreign tax credit, in the case of a taxpayer who takes foreign income taxes into account when accrued, the amount of any foreign income taxes (and any adjustment thereto) shall be translated into dollars by using the average exchange rate for the taxable year to which such taxes relate.

        ‘(B) EXCEPTION FOR TAXES NOT PAID WITHIN FOLLOWING 2 YEARS-

          ‘(i) Subparagraph (A) shall not apply to any foreign income taxes paid after the date 2 years after the close of the taxable year to which such taxes relate.

          ‘(ii) Subparagraph (A) shall not apply to taxes paid before the beginning of the taxable year to which such taxes relate.

        ‘(C) EXCEPTION FOR INFLATIONARY CURRENCIES- To the extent provided in regulations, subparagraph (A) shall not apply to any foreign income taxes the liability for which is denominated in any currency determined to be an inflationary currency under such regulations.

        ‘(D) CROSS REFERENCE-

‘For adjustments where tax is not paid within 2 years, see section 905(c).

      ‘(2) TRANSLATION OF TAXES TO WHICH PARAGRAPH (1) DOES NOT APPLY- For purposes of determining the amount of the foreign tax credit, in the case of any foreign income taxes to which subparagraph (A) of paragraph (1) does not apply--

        ‘(A) such taxes shall be translated into dollars using the exchange rates as of the time such taxes were paid to the foreign country or possession of the United States, and

        ‘(B) any adjustment to the amount of such taxes shall be translated into dollars using--

          ‘(i) except as provided in clause (ii), the exchange rate as of the time when such adjustment is paid to the foreign country or possession, or

          ‘(ii) in the case of any refund or credit of foreign income taxes, using the exchange rate as of the time of the original payment of such foreign income taxes.

      ‘(3) FOREIGN INCOME TAXES- For purposes of this subsection, the term ‘foreign income taxes’ means any income, war profits, or excess profits taxes paid or accrued to any foreign country or to any possession of the United States.’

      (2) ADJUSTMENT WHEN NOT PAID WITHIN 2 YEARS AFTER YEAR TO WHICH TAXES RELATE- Subsection (c) of section 905 is amended to read as follows:

    ‘(c) ADJUSTMENTS TO ACCRUED TAXES-

      ‘(1) IN GENERAL- If--

        ‘(A) accrued taxes when paid differ from the amounts claimed as credits by the taxpayer,

        ‘(B) accrued taxes are not paid before the date 2 years after the close of the taxable year to which such taxes relate, or

        ‘(C) any tax paid is refunded in whole or in part,

      the taxpayer shall notify the Secretary, who shall redetermine the amount of the tax for the year or years affected.

      ‘(2) SPECIAL RULE FOR TAXES NOT PAID WITHIN 2 YEARS- In making the redetermination under paragraph (1), no credit shall be allowed for accrued taxes not paid before the date referred to in subparagraph (B) of paragraph (1). Any such taxes if subsequently paid shall be taken into account for the taxable year in which paid and no redetermination under this section shall be made on account of such payment.

      ‘(3) ADJUSTMENTS- The amount of tax due on any redetermination under paragraph (1) (if any) shall be paid by the taxpayer on notice and demand by the Secretary, and the amount of tax overpaid (if any) shall be credited or refunded to the taxpayer in accordance with subchapter B of chapter 66 (section 6511 et seq.).

      ‘(4) BOND REQUIREMENTS- In the case of any tax accrued but not paid, the Secretary, as a condition precedent to the allowance of the credit provided in this subpart, may require the taxpayer to give a bond, with sureties satisfactory to and approved by the Secretary, in such sum as the Secretary may require, conditioned on the payment by the taxpayer of any amount of tax found due on any such redetermination. Any such bond shall contain such further conditions as the Secretary may require.

      ‘(5) OTHER SPECIAL RULES- In any redetermination under paragraph (1) by the Secretary of the amount of tax due from the taxpayer for the year or years affected by a refund, the amount of the taxes refunded for which credit has been allowed under this section shall be reduced by the amount of any tax described in section 901 imposed by the foreign country or possession of the United States with respect to such refund; but no credit under this subpart, or deduction under section 164, shall be allowed for any taxable year with respect to any such tax imposed on the refund. No interest shall be assessed or collected on any amount of tax due on any redetermination by the Secretary, resulting from a refund to the taxpayer, for any period before the receipt of such refund, except to the extent interest was paid by the foreign country or possession of the United States on such refund for such period.’

    (b) AUTHORITY TO USE AVERAGE RATES-

      (1) IN GENERAL- Subsection (a) of section 986 (as amended by subsection (a)) is amended by redesignating paragraph (3) as paragraph (4) and inserting after paragraph (2) the following new paragraph:

      ‘(3) AUTHORITY TO PERMIT USE OF AVERAGE RATES- To the extent prescribed in regulations, the average exchange rate for the period (specified in such regulations) during which the taxes or adjustment is paid may be used instead of the exchange rate as of the time of such payment.’

      (2) DETERMINATION OF AVERAGE RATES- Subsection (c) of section 989 is amended by striking ‘and’ at the end of paragraph (4), by striking the period at the end of paragraph (5) and inserting ‘, and’, and by adding at the end thereof the following new paragraph:

      ‘(6) setting forth procedures for determining the average exchange rate for any period.’

      (3) CONFORMING AMENDMENTS- Subsection (b) of section 989 is amended by striking ‘weighted’ each place it appears.

    (c) EFFECTIVE DATES-

      (1) IN GENERAL- The amendments made by subsections (a)(1) and (b) shall apply to taxes paid or accrued in taxable years beginning after December 31, 1992.

      (2) SUBSECTION (a)(2)- The amendment made by subsection (a)(2) shall apply to taxes which relate to taxable years beginning after December 31, 1992.

SEC. 422. ELECTION TO USE SIMPLIFIED SECTION 904 LIMITATION FOR ALTERNATIVE MINIMUM TAX.

    (a) GENERAL RULE- Subsection (a) of section 59 (relating to alternative minimum tax foreign tax credit) is amended by adding at the end thereof the following new paragraph:

      ‘(3) ELECTION TO USE SIMPLIFIED SECTION 904 LIMITATION-

        ‘(A) IN GENERAL- In determining the alternative minimum tax foreign tax credit for any taxable year to which an election under this paragraph applies--

          ‘(i) subparagraph (B) of paragraph (1) shall not apply, and

          ‘(ii) the limitation of section 904 shall be based on the proportion which--

            ‘(I) the taxpayer’s taxable income (as determined for purposes of the regular tax) from sources without the United States (but not in excess of the taxpayer’s entire alternative minimum taxable income), bears to

            ‘(II) the taxpayer’s entire alternative minimum taxable income for the taxable year.

        ‘(B) ELECTION-

          ‘(i) IN GENERAL- An election under this paragraph may be made only for the taxpayer’s first taxable year which begins after December 31, 1993, and for which the taxpayer claims an alternative minimum tax foreign tax credit.

          ‘(ii) ELECTION REVOCABLE ONLY WITH CONSENT- An election under this paragraph, once made, shall apply to the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.’

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1993.

SEC. 423. MODIFICATION OF SECTION 1491.

    (a) GENERAL RULE- So much of chapter 5 (relating to tax on transfers to avoid income tax) as precedes section 1492 is amended to read as follows:

‘CHAPTER 5--TREATMENT OF TRANSFERS TO AVOID INCOME TAX

‘Sec. 1491. Recognition of gain.

‘Sec. 1492. Exceptions.

‘SEC. 1491. RECOGNITION OF GAIN.

    ‘In the case of any transfer of property by a United States person to a foreign corporation as paid-in surplus or as a contribution to capital, to a foreign estate or trust, or to a foreign partnership, for purposes of this subtitle, such transfer shall be treated as a sale or exchange for an amount equal to the fair market value of the property transferred, and the transferor shall recognize as gain the excess of--

      ‘(1) the fair market value of the property so transferred, over

      ‘(2) the adjusted basis (for purposes of determining gain) of such property in the hands of the transferor.’

    (b) CONFORMING AMENDMENTS-

      (1) Section 1057 is hereby repealed.

      (2) Section 1492 is amended to read as follows:

‘SEC. 1492. EXCEPTIONS.

    ‘The provisions of section 1491 shall not apply--

      ‘(1) If the transferee is an organization exempt from income tax under part I of subchapter F of chapter 1 (other than an organization described in section 401(a)),

      ‘(2) To a transfer described in section 367, or

      ‘(3) To any other transfer, to the extent provided in regulations in accordance with principles similar to the principles of section 367 or otherwise consistent with the purpose of section 1491.’

      (3) Section 1494 is hereby repealed.

      (4) The table of sections for part IV of subchapter O of chapter 1 is amended by striking the item relating to section 1057.

      (5) The table of chapters for subtitle A is amended by striking ‘Tax on’ in the item relating to chapter 5 and inserting ‘Treatment of’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to transfers after December 31, 1994.

SEC. 424. MODIFICATION OF SECTION 367(b).

    (a) GENERAL RULE- Paragraph (1) of section 367(b) is amended to read as follows:

      ‘(1) IN GENERAL- In the case of any transaction described in section 332, 351, 354, 355, 356, or 361 in which the status of a foreign corporation as a corporation is a general condition for nonrecognition by 1 or more of the parties to the transaction, income shall be required to be recognized to the extent provided in regulations prescribed by the Secretary which are necessary or appropriate to prevent the avoidance of Federal income taxes. This subsection shall not apply to a transaction in which the foreign corporation is not treated as a corporation under subsection (a)(1).’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to transfers after December 31, 1994.

TITLE V--OTHER INCOME TAX PROVISIONS

Subtitle A--Provisions Relating to Subchapter S Corporations

SEC. 501. AUTHORITY TO VALIDATE CERTAIN INVALID ELECTIONS.

    (a) GENERAL RULE- Subsection (f) of section 1362 (relating to inadvertent terminations) is amended to read as follows:

    ‘(f) INADVERTENT INVALID ELECTIONS OR TERMINATIONS- If--

      ‘(1) an election under subsection (a) by any corporation--

        ‘(A) was not effective for the taxable year for which made (determined without regard to subsection (b)(2)) by reason of a failure to meet the requirements of section 1361(b) or to obtain shareholder consents, or

        ‘(B) was terminated under paragraph (2) or (3) of subsection (d),

      ‘(2) the Secretary determines that the circumstances resulting in such ineffectiveness or termination were inadvertent,

      ‘(3) no later than a reasonable period of time after discovery of the circumstances resulting in such ineffectiveness or termination, steps were taken--

        ‘(A) so that the corporation is a small business corporation, or

        ‘(B) to acquire the required shareholder consents, and

      ‘(4) the corporation, and each person who was a shareholder in the corporation at any time during the period specified pursuant to this subsection, agrees to make such adjustments (consistent with the treatment of the corporation as an S corporation) as may be required by the Secretary with respect to such period,

    then, notwithstanding the circumstances resulting in such ineffectiveness or termination, such corporation shall be treated as an S corporation during the period specified by the Secretary.’

    (b) LATE ELECTIONS- Subsection (b) of section 1362 is amended by adding at the end thereof the following new paragraph:

      ‘(5) AUTHORITY TO TREAT LATE ELECTIONS AS TIMELY- If--

        ‘(A) an election under subsection (a) is made for any taxable year (determined without regard to paragraph (3)) after the date prescribed by this subsection for making such election for such taxable year, and

        ‘(B) the Secretary determines that there was reasonable cause for the failure to timely make such election,

      the Secretary may treat such election as timely made for such taxable year (and paragraph (3) shall not apply).’

    (c) EFFECTIVE DATE- The amendments made by this section shall apply with respect to elections for taxable years beginning after December 31, 1982.

SEC. 502. TREATMENT OF DISTRIBUTIONS DURING LOSS YEARS.

    (a) ADJUSTMENTS FOR DISTRIBUTIONS TAKEN INTO ACCOUNT BEFORE LOSSES-

      (1) Subparagraph (A) of section 1366(d)(1) is amended by striking ‘paragraph (1)’ and inserting ‘paragraphs (1) and (2)(A)’.

      (2) Subsection (d) of section 1368 is amended by adding at the end thereof the following new sentence:

    ‘In the case of any distribution made during any taxable year, the adjusted basis of the stock shall be determined with regard to the adjustments provided in paragraph (1) of section 1367(a) for the taxable year.’

    (b) ACCUMULATED ADJUSTMENTS ACCOUNT- Paragraph (1) of section 1368(e) (relating to accumulated adjustments account) is amended by adding at the end thereof the following new subparagraph:

      ‘(C) Net loss for year disregarded-

        ‘(i) IN GENERAL- In applying this section to distributions made during any taxable year, the amount in the accumulated adjustments account as of the close of such taxable year shall be determined without regard to any net negative adjustment for such taxable year.

        ‘(ii) NET NEGATIVE ADJUSTMENT- For purposes of clause (i), the term ‘net negative adjustment’ means, with respect to any taxable year, the excess (if any) of--

          ‘(I) the reductions in the account for the taxable year (other than for distributions), over

          ‘(II) the increases in such account for such taxable year.’

    (c) CONFORMING AMENDMENTS- Subparagraph (A) of section 1368(e)(1) is amended--

      (1) by striking ‘as provided in subparagraph (B)’ and inserting ‘as otherwise provided in this paragraph’, and

      (2) by striking ‘section 1367(b)(2)(A)’ and inserting ‘section 1367(a)(2)’.

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to distributions in taxable years beginning after December 31, 1992.

SEC. 503. ELECTING SMALL BUSINESS TRUSTS.

    (a) GENERAL RULE- Subparagraph (A) of section 1361(c)(2) (relating to certain trusts permitted as shareholders) is amended by inserting after clause (iv) the following new clause:

          ‘(v) An electing small business trust.’

    (b) CURRENT BENEFICIARIES TREATED AS SHAREHOLDERS- Subparagraph (B) of section 1361(c)(2) is amended by adding at the end the following new clause:

          ‘(v) In the case of a trust described in clause (v) of subparagraph (A), each potential current beneficiary of such trust shall be treated as a shareholder; except that, if for any period there is no potential current beneficiary of such trust, such trust shall be treated as the shareholder during such period.’

    (c) ELECTING SMALL BUSINESS TRUST DEFINED- Section 1361 (defining S corporation) is amended by adding at the end the following new subsection:

    ‘(e) ELECTING SMALL BUSINESS TRUST DEFINED-

      ‘(1) ELECTING SMALL BUSINESS TRUST- For purposes of this section--

        ‘(A) IN GENERAL- Except as provided in subparagraph (B), the term ‘electing small business trust’ means any trust if--

          ‘(i) such trust does not have as a beneficiary any person other than (I) an individual, (II) an estate, or (III) an organization described in paragraph (2), (3), (4), or (5) of section 170(c) which holds a contingent interest and is not a potential current beneficiary,

          ‘(ii) no interest in such trust was acquired by purchase, and

          ‘(iii) an election under this subsection applies to such trust.

        ‘(B) CERTAIN TRUSTS NOT ELIGIBLE- The term ‘electing small business trust’ shall not include--

          ‘(i) any qualified subchapter S trust (as defined in subsection (d)(3)) if an election under subsection (d)(2) applies to any corporation the stock of which is held by such trust, and

          ‘(ii) any trust exempt from tax under this subtitle.

        ‘(C) PURCHASE- For purposes of subparagraph (A), the term ‘purchase’ means any acquisition if the basis of the property acquired is determined under section 1012.

      ‘(2) POTENTIAL CURRENT BENEFICIARY- For purposes of this section, the term ‘potential current beneficiary’ means, with respect to any period, any person who at any time during such period is entitled to, or at the discretion of any person may receive, a distribution from the principal or income of the trust. If a trust disposes of all of the stock which it holds in an S corporation, then, with respect to such corporation, the term ‘potential current beneficiary’ does not include any person who first met the requirements of the preceding sentence during the 60-day period ending on the date of such disposition.

      ‘(3) ELECTION- An election under this subsection shall be made by the trustee. Any such election shall apply to the taxable year of the trust for which made and all subsequent taxable years of such trust unless revoked with the consent of the Secretary.

      ‘(4) CROSS REFERENCE-

‘For special treatment of electing small business trusts, see section 641(d).’

    (d) TAXATION OF ELECTING SMALL BUSINESS TRUSTS- Section 641 (relating to imposition of tax on trusts) is amended by adding at the end the following new subsection:

    ‘(d) SPECIAL RULES FOR TAXATION OF ELECTING SMALL BUSINESS TRUSTS-

      ‘(1) IN GENERAL- For purposes of this chapter--

        ‘(A) the portion of any electing small business trust which consists of stock in 1 or more S corporations shall be treated as a separate trust, and

        ‘(B) the amount of the tax imposed by this chapter on such separate trust shall be determined with the modifications of paragraph (2).

      ‘(2) MODIFICATIONS- For purposes of paragraph (1), the modifications of this paragraph are the following:

        ‘(A) Except as provided in section 1(h), the amount of the tax imposed by section 1(e) shall be determined by using the highest rate of tax set forth in section 1(e).

        ‘(B) The exemption amount under section 55(d) shall be zero.

        ‘(C) The only items of income, loss, deduction, or credit to be taken into account are the following:

          ‘(i) The items required to be taken into account under section 1366.

          ‘(ii) Any gain or loss from the disposition of stock in an S corporation.

          ‘(iii) To the extent provided in regulations, State or local income taxes or administrative expenses to the extent allocable to items described in clauses (i) and (ii).

        No deduction or credit shall be allowed for any amount not described in this paragraph, and no item described in this paragraph shall be apportioned to any beneficiary.

        ‘(D) No amount shall be allowed under paragraph (1) or (2) of section 1211(b).

      ‘(3) TREATMENT OF REMAINDER OF TRUST AND DISTRIBUTIONS- For purposes of determining--

        ‘(A) the amount of the tax imposed by this chapter on the portion of any electing small business trust not treated as a separate trust under paragraph (1), and

        ‘(B) the distributable net income of the entire trust,

      the items referred to in paragraph (2)(C) shall be excluded. Except as provided in the preceding sentence, this subsection shall not affect the taxation of any distribution from the trust.

      ‘(4) TREATMENT OF UNUSED DEDUCTIONS WHERE TERMINATION OF SEPARATE TRUST- If a portion of an electing small business trust ceases to be treated as a separate trust under paragraph (1), any carryover or excess deduction of the separate trust which is referred to in section 642(h) shall be taken into account by the entire trust.

      ‘(5) ELECTING SMALL BUSINESS TRUST- For purposes of this subsection, the term ‘electing small business trust’ has the meaning given such term by section 1361(e)(1).’

    (e) TECHNICAL AMENDMENT- Paragraph (1) of section 1366(a) is amended by inserting ‘, or of a trust or estate which terminates,’ after ‘who dies’.

    (f) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 504. OTHER MODIFICATIONS.

    (a) TREATMENT OF S CORPORATIONS UNDER SUBCHAPTER C- Subsection (a) of section 1371 (relating to application of subchapter C rules) is amended to read as follows:

    ‘(a) APPLICATION OF SUBCHAPTER C RULES- Except as otherwise provided in this title, and except to the extent inconsistent with this subchapter, subchapter C shall apply to an S corporation and its shareholders.’

    (b) S Corporations Permitted To Hold Subsidiaries-

      (1) IN GENERAL- Paragraph (2) of section 1361(b) (defining ineligible corporation) is amended by striking subparagraph (A) and by redesignating subparagraphs (B), (C), (D), and (E) as subparagraphs (A), (B), (C), and (D), respectively.

      (2) Conforming amendments-

        (A) Subsection (c) of section 1361 is amended by striking paragraph (6).

        (B) Subsection (b) of section 1504 (defining includible corporation) is amended by adding at the end thereof the following new paragraph:

      ‘(8) An S corporation.’

    (c) ELIMINATION OF PRE-1983 Earnings and Profits-

      (1) IN GENERAL- If--

        (A) a corporation was an electing small business corporation under subchapter S of chapter 1 of the Internal Revenue Code of 1986 for any taxable year beginning before January 1, 1983, and

        (B) such corporation is an S corporation under subchapter S of chapter 1 of such Code for its first taxable year beginning after December 31, 1992,

      the amount of such corporation’s accumulated earnings and profits (as of the beginning of such first taxable year) shall be reduced by an amount equal to the portion (if any) of such accumulated earnings and profits which were accumulated in any taxable year beginning before January 1, 1983, for which such corporation was an electing small business corporation under such subchapter S.

      (2) Conforming amendments-

        (A) Paragraph (3) of section 1362(d) is amended--

          (i) by striking ‘SUBCHAPTER C’ in the paragraph heading and inserting ‘ACCUMULATED’,

          (ii) by striking ‘subchapter C’ in subparagraph (A)(i)(I) and inserting ‘accumulated’, and

          (iii) by striking subparagraph (B) and redesignating the following subparagraphs accordingly.

        (B)(i) Subsection (a) of section 1375 is amended by striking ‘subchapter C’ in paragraph (1) and inserting ‘accumulated’.

        (ii) Paragraph (3) of section 1375(b) is amended to read as follows:

      ‘(3) PASSIVE INVESTMENT INCOME, ETC- The terms ‘passive investment income’ and ‘gross receipts’ have the same respective meanings as when used in paragraph (3) of section 1362(d).’

        (iii) The section heading for section 1375 is amended by striking ‘subchapter c’ and inserting ‘accumulated’.

        (iv) The table of sections for part III of subchapter S of chapter 1 is amended by striking ‘subchapter C’ in the item relating to section 1375 and inserting ‘accumulated’.

        (C) Clause (i) of section 1042(c)(4)(A) is amended by striking ‘section 1362(d)(3)(D)’ and inserting ‘section 1362(d)(3)(C)’.

    (d) ADJUSTMENTS TO BASIS OF INHERITED S STOCK TO REFLECT CERTAIN ITEMS OF INCOME- Subsection (b) of section 1367 (relating to adjustments to basis of stock of shareholders, etc.) is amended by adding at the end thereof the following new paragraph:

      ‘(4) Adjustments in case of inherited stock-

        ‘(A) IN GENERAL- If any person acquires stock in an S corporation by reason of the death of a decedent or by bequest, devise, or inheritance, section 691 shall be applied with respect to any item of income of the S corporation in the same manner as if the decedent had held directly his pro rata share of such item.

        ‘(B) ADJUSTMENTS TO BASIS- The basis determined under section 1014 of any stock in an S corporation shall be reduced by the portion of the value of the stock which is attributable to items constituting income in respect of the decedent.’

    (e) EFFECTIVE DATES-

      (1) SUBSECTIONS (a) AND (b)- The amendments made by subsections (a) and (b) shall take effect on the date of the enactment of this Act.

      (2) SUBSECTION (c)- The amendments made by subsection (c) shall apply to taxable years beginning after December 31, 1992.

      (3) SUBSECTION (d)- The amendment made by subsection (d) shall apply in the case of decedents dying after the date of the enactment of this Act.

Subtitle B--Accounting Provision

SEC. 511. MODIFICATIONS TO LOOK-BACK METHOD FOR LONG-TERM CONTRACTS.

    (a) LOOK-BACK METHOD NOT TO APPLY IN CERTAIN CASES- Subsection (b) of section 460 (relating to percentage of completion method) is amended by adding at the end thereof the following new paragraph:

      ‘(6) Election to have look-back method not apply in de minimis cases-

        ‘(A) AMOUNTS TAKEN INTO ACCOUNT AFTER COMPLETION OF CONTRACT- Paragraph (1)(B) shall not apply with respect to any taxable year (beginning after the taxable year in which the contract is completed) if--

          ‘(i) the cumulative taxable income (or loss) under the contract as of the close of such taxable year, is within

          ‘(ii) 10 percent of the cumulative look-back taxable income (or loss) under the contract as of the close of the most recent taxable year to which paragraph (1)(B) applied (or would have applied but for subparagraph (B)).

        ‘(B) DE MINIMIS DISCREPANCIES- Paragraph (1)(B) shall not apply in any case to which it would otherwise apply if--

          ‘(i) the cumulative taxable income (or loss) under the contract as of the close of each prior contract year, is within

          ‘(ii) 10 percent of the cumulative look-back income (or loss) under the contract as of the close of such prior contract year.

        ‘(C) DEFINITIONS- For purposes of this paragraph--

          ‘(i) CONTRACT YEAR- The term ‘contract year’ means any taxable year for which income is taken into account under the contract.

          ‘(ii) LOOK-BACK INCOME OR LOSS- The look-back income (or loss) is the amount which would be the taxable income (or loss) under the contract if the allocation method set forth in paragraph (2)(A) were used in determining taxable income.

          ‘(iii) DISCOUNTING NOT APPLICABLE- The amounts taken into account after the completion of the contract shall be determined without regard to any discounting under the 2nd sentence of paragraph (2).

        ‘(D) CONTRACTS TO WHICH PARAGRAPH APPLIES- This paragraph shall only apply if the taxpayer makes an election under this subparagraph. Unless revoked with the consent of the Secretary, such an election shall apply to all long-term contracts completed during the taxable year for which election is made or during any subsequent taxable year.’

    (b) MODIFICATION OF INTEREST RATE-

      (1) IN GENERAL- Subparagraph (C) of section 460(b)(2) is amended by striking ‘the overpayment rate established by section 6621’ and inserting ‘the adjusted overpayment rate (as defined in paragraph (7))’.

      (2) ADJUSTED OVERPAYMENT RATE- Subsection (b) of section 460 is amended by adding at the end thereof the following new paragraph:

      ‘(7) ADJUSTED OVERPAYMENT RATE-

        ‘(A) IN GENERAL- The adjusted overpayment rate for any interest accrual period is the overpayment rate in effect under section 6621 for the calendar quarter in which such interest accrual period begins.

        ‘(B) INTEREST ACCRUAL PERIOD- For purposes of subparagraph (A), the term ‘interest accrual period’ means the period--

          ‘(i) beginning on the day after the return due date for any taxable year of the taxpayer, and

          ‘(ii) ending on the return due date for the following taxable year.

        For purposes of the preceding sentence, the term ‘return due date’ means the date prescribed for filing the return of the tax imposed by this chapter (determined without regard to extensions).’

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to contracts completed in taxable years ending after the date of the enactment of this Act.

Subtitle C--Provisions Relating To Regulated Investment Companies

SEC. 521. REPEAL OF 30-PERCENT GROSS INCOME LIMITATION.

    (a) GENERAL RULE- Subsection (b) of section 851 (relating to limitations) is amended by striking paragraph (3), by adding ‘and’ at the end of paragraph (2), and by redesignating paragraph (4) as paragraph (3).

    (b) Technical Amendments-

      (1) The material following paragraph (3) of section 851 (as redesignated by subsection (a)) is amended--

        (A) by striking out ‘paragraphs (2) and (3)’ and inserting ‘paragraph (2)’, and

        (B) by striking out the last sentence thereof.

      (2) Subsection (c) of section 851 is amended by striking ‘subsection (b)(4)’ each place it appears (including the heading) and inserting ‘subsection (b)(3)’.

      (3) Subsection (d) of section 851 is amended by striking ‘subsections (b)(4)’ and inserting ‘subsections (b)(3)’.

      (4) Paragraph (1) of section 851(e) is amended by striking ‘subsection (b)(4)’ and inserting ‘subsection (b)(3)’.

      (5) Paragraph (4) of section 851(e) is amended by striking ‘subsections (b)(4)’ and inserting ‘subsections (b)(3)’.

      (6) Section 851 is amended by striking subsection (g) and redesignating subsection (h) as subsection (g).

      (7) Subsection (g) of section 851 (as redesignated by paragraph (6)) is amended by striking paragraph (3).

      (8) Section 817(h)(2) is amended--

        (A) by striking ‘851(b)(4)’ in subparagraph (A) and inserting ‘851(b)(3)’, and

        (B) by striking ‘851(b)(4)(A)(i)’ in subparagraph (B) and inserting ‘851(b)(3)(A)(i)’.

      (9) Section 1092(f)(2) is amended by striking ‘Except for purposes of section 851(b)(3), the’ and inserting ‘The’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.

SEC. 522. BASIS RULES FOR SHARES IN OPEN-END REGULATED INVESTMENT COMPANIES.

    (a) ADDITIONAL REPORTING REQUIREMENT- Section 6045 (relating to returns of brokers) is amended by adding at the end thereof the following new subsection:

    ‘(f) Additional Information Required With Respect to Open-End Regulated Investment Companies-

      ‘(1) IN GENERAL- If any person is required under subsection (a) to make a return regarding the gross proceeds from any disposition of stock in an open-end regulated investment company, such return shall include--

        ‘(A) the basis of the stock disposed of (determined by reference to the average basis of all of the stock in the account from which the disposition was made immediately before the disposition), and

        ‘(B) the portion of such basis and such gross proceeds attributable to stock held for more than 1 year and the portion not so attributable.

      Determinations under subparagraph (B) shall be made on a first-in, first-out, basis and determinations of basis and holding period shall be made in such manner as the Secretary may prescribe.

      ‘(2) OPEN-END REGULATED INVESTMENT COMPANY- For purposes of this subsection, the term ‘open-end regulated investment company’ means any regulated investment company which is offering for sale or has outstanding any redeemable security (as defined in section 2(a)(32) of the Investment Company Act of 1940) of which it is the issuer.

      ‘(3) INFORMATION TRANSFERS- To the extent provided in regulations, there shall be such exchanges of information between brokers as such regulations may require for purposes of enabling brokers to meet the requirements of this subsection.

      ‘(4) APPLICATION OF SUBSECTION- This subsection shall not apply with respect to stock in any account--

        ‘(A) which was established before January 1, 1995, or

        ‘(B) which includes any stock not acquired by purchase.’

    (b) BASIS FOR INCOME TAX PURPOSES- Section 1012 of such Code is amended--

      (1) by striking ‘The basis’ and inserting ‘(a) GENERAL RULE- The basis’, and

      (2) by adding at the end thereof the following new subsection:

    ‘(b) Special Rules for Stock in Open-End Regulated Investment Companies-

      ‘(1) IN GENERAL- In the case of any disposition of stock from a covered account--

        ‘(A) the basis of such stock shall be determined by reference to the average basis of all of the stock in such account immediately before such disposition, and

        ‘(B) the determination of which stock in such account is so disposed of shall be made on a first-in, first-out, basis.

      ‘(2) COVERED ACCOUNT- For purposes of this subsection--

        ‘(A) IN GENERAL- The term ‘covered account’ means any account of stock in an open-end regulated investment company if section 6045(f) applies to such account.

        ‘(B) ELECTION OUT- The term ‘covered account’ shall not include any account if, on the taxpayer’s return for his first taxable year in which a disposition from such account occurs, the taxpayer elects to have this subsection not apply to such account.’

    (c) COORDINATION WITH WASH SALE RULES- Section 1091 is amended by adding at the end thereof the following new subsection:

    ‘(f) SPECIAL RULES FOR CERTAIN ACCOUNTS IN OPEN-END REGULATED INVESTMENT COMPANIES-

      ‘(1) IN GENERAL- In applying this section to a disposition during December of any calendar year of stock from a covered account, any acquisition of stock after January 15 of the following calendar year shall be disregarded if such acquisition is a result of a dividend reinvestment pursuant to a dividend reinvestment program established at the time such account was opened or, if later, at least 6 months before the date of such disposition.

      ‘(2) DE MINIMIS EXCEPTION- If--

        ‘(A) but for this paragraph, losses from dispositions during December of any calendar year of stock from a covered account would have been disallowed under this section by reason of acquisitions during January of the following calendar year, and

        ‘(B) the amount of such losses which would have been so disallowed does not exceed $25,

      nothing in this section shall disallow such losses.

      ‘(3) COVERED ACCOUNT- For purposes of this subsection, the term ‘covered account’ means any account of stock in an open-end regulated investment company if section 6045(f) applies to such account.’

    (d) MODIFICATION OF LOAD BASIS DEFERRAL RULE FOR CERTAIN ACQUISITIONS OCCURRING AFTER DECEMBER 31-

      (1) Paragraph (1) of section 852(f) is amended by striking ‘subparagraph (C)) shall not’ and all that follows and inserting ‘subparagraph (C)) shall be recaptured as provided in paragraph (2). To the extent such charge is recaptured under paragraph (2), such charge shall be treated as incurred in connection with the acquisition referred to in subparagraph (C) (including for purposes of reapplying this paragraph).’

      (2) Subsection (f) of section 852 is amended by redesignating paragraph (2) as paragraph (3) and by inserting after paragraph (1) the following new paragraph:

      ‘(2) RECAPTURE-

        ‘(A) IN GENERAL- Except as provided in subparagraph (B), any load charge required by paragraph (1) to be recaptured shall not be taken into account in determining the amount of gain or loss on the disposition referred to in paragraph (1)(B).

        ‘(B) SUBSEQUENT ACQUISITIONS OCCURRING AFTER DECEMBER 31- If--

          ‘(i) the acquisition referred to in paragraph (1)(A) occurs in a calendar year, and

          ‘(ii) the subsequent acquisition referred to in paragraph (1)(C) occurs after December 31 of such calendar year,

        subparagraph (A) shall not apply and the amount of the load charge required by paragraph (1) to be recaptured shall be included in gross income as short-term capital gain for the taxable year in which the subsequent acquisition referred to in paragraph (1)(C) occurs.’

    (e) TECHNICAL AMENDMENT- Section 6724 of such Code is amended by adding at the end thereof the following new subsection:

    ‘(f) SPECIAL RULE FOR CERTAIN REPORTS WITH RESPECT TO STOCK IN OPEN END REGULATED INVESTMENT COMPANIES- For purposes of sections 6721(e)(2)(B) and 6722(c)(1)(B), the amount required to be reported under section 6045 shall be determined without regard to subsection (f) thereof.’

    (f) Effective Date-

      (1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to returns and statements required for calendar year 1995 and subsequent calendar years.

      (2) SUBSECTIONS (b)- The amendments made by subsections (b), (c), and (d) shall apply to dispositions after December 31, 1994.

SEC. 523. NONRECOGNITION TREATMENT FOR CERTAIN TRANSFERS BY COMMON TRUST FUNDS TO REGULATED INVESTMENT COMPANIES.

    (a) GENERAL RULE- Section 584 (relating to common trust funds) is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection:

    ‘(h) NONRECOGNITION TREATMENT FOR CERTAIN TRANSFERS TO REGULATED INVESTMENT COMPANIES-

      ‘(1) IN GENERAL- If--

        ‘(A) a common trust fund transfers substantially all of its assets to a regulated investment company in exchange solely for stock in such company, and

        ‘(B) such stock is distributed by such common trust fund to participants in such common trust fund in exchange solely for their interests in such common trust fund,

      no gain or loss shall be recognized by such common trust fund by reason of such transfer or distribution, and no gain or loss shall be recognized by any participant in such common trust fund by reason of such exchange.

      ‘(2) BASIS RULES-

        ‘(A) REGULATED INVESTMENT COMPANY- The basis of any asset received by a regulated investment company in a transfer referred to in paragraph (1)(A) shall be the same as it would be in the hands of the common trust fund.

        ‘(B) PARTICIPANTS- The basis of any stock in a regulated investment company which is received in an exchange referred to in paragraph (1)(B) shall be the same as that of the property exchanged.

      ‘(3) TREATMENT OF ASSUMPTIONS OF LIABILITY-

        ‘(A) IN GENERAL- In determining whether the transfer referred to in paragraph (1)(A) is in exchange solely for stock in the regulated investment company, the assumption by such company of a liability of the common trust fund, and the fact that any property transferred by the common trust fund is subject to a liability, shall be disregarded.

        ‘(B) SPECIAL RULE WHERE ASSUMED LIABILITIES EXCEED BASIS-

          ‘(i) IN GENERAL- If in any transfer referred to in paragraph (1)(A) the assumed liabilities exceed the aggregate adjusted bases (in the hands of the common trust fund) of the assets transferred to the regulated investment company--

            ‘(I) notwithstanding paragraph (1), gain shall be recognized to the common trust fund on such transfer in an amount equal to such excess,

            ‘(II) the basis of the assets received by the regulated investment company in such transfer shall be increased by the amount so recognized, and

            ‘(III) any adjustment to the basis of a participant’s interest in the common trust fund as a result of the gain so recognized shall be treated as occurring immediately before the exchange referred to in paragraph (1)(B).

          ‘(ii) ASSUMED LIABILITIES- For purposes of clause (i), the term ‘assumed liabilities’ means the aggregate of--

            ‘(I) any liability of the common trust fund assumed by the regulated investment company in connection with the transfer referred to in paragraph (1)(A), and

            ‘(II) any liability to which property so transferred is subject.

      ‘(4) COMMON TRUST FUND MUST MEET DIVERSIFICATION RULES- This subsection shall not apply to any common trust fund which would not meet the requirements of section 368(a)(2)(F)(ii) if it were a corporation. For purposes of the preceding sentence, Government securities shall not be treated as securities of an issuer in applying the 25-percent and 50-percent test and such securities shall not be excluded for purposes of determining total assets under clause (iv) of section 368(a)(2)(F).’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to transfers after the date of the enactment of this Act.

Subtitle D--Tax-Exempt Bond Provisions

SEC. 531. REPEAL OF $100,000 LIMITATION ON UNSPENT PROCEEDS UNDER 1-YEAR EXCEPTION FROM REBATE.

    Subclause (I) of section 148(f)(4)(B)(ii) (relating to additional period for certain bonds) is amended by striking ‘the lesser of 5 percent of the proceeds of the issue or $100,000’ and inserting ‘5 percent of the proceeds of the issue’.

SEC. 532. EXCEPTION FROM REBATE FOR EARNINGS ON BONA FIDE DEBT SERVICE FUND UNDER CONSTRUCTION BOND RULES.

    Subparagraph (C) of section 148(f)(4) is amended by adding at the end thereof the following new clause:

          ‘(xvii) TREATMENT OF BONA FIDE DEBT SERVICE FUNDS- If the spending requirements of clause (ii) are met with respect to the available construction proceeds of a construction issue, then paragraph (2) shall not apply to earnings on a bona fide debt service fund for such issue.’

SEC. 533. REPEAL OF DEBT SERVICE-BASED LIMITATION ON INVESTMENT IN CERTAIN NONPURPOSE INVESTMENTS.

    Subsection (d) of section 148 (relating to special rules for reasonably required reserve or replacement fund) is amended by striking paragraph (3).

SEC. 534. REPEAL OF EXPIRED PROVISIONS.

    (a) Paragraph (2) of section 148(c) is amended by striking subparagraph (B) and by redesignating subparagraphs (C), (D), and (E) as subparagraph (B), (C), and (D), respectively.

    (b) Paragraph (4) of section 148(f) is amended by striking subparagraph (E).

SEC. 535. CLARIFICATION OF INVESTMENT-TYPE PROPERTY.

    Subparagraph (D) of section 148(b)(2) is amended to read as follows:

        ‘(D) any investment-type property, or’.

SEC. 536. EFFECTIVE DATES.

    (a) IN GENERAL- Except as provided in subsection (b), the amendments made by this subtitle shall apply to bonds issued after the date of the enactment of this Act.

    (b) INVESTMENT-TYPE PROPERTY- The amendment made by section 535 shall take effect as if included in the amendments made by section 1301 of the Tax Reform Act of 1986.

Subtitle E--Insurance Provisions

SEC. 541. TREATMENT OF CERTAIN INSURANCE CONTRACTS ON RETIRED LIVES.

    (a) GENERAL RULE-

      (1) Paragraph (2) of section 817(d) (defining variable contract) is amended by striking ‘or’ at the end of subparagraph (A), by striking ‘and’ at the end of subparagraph (B) and inserting ‘or’, and by inserting after subparagraph (B) the following new subparagraph:

        ‘(C) provides for funding of insurance on retired lives as described in section 807(c)(6), and’.

      (2) Paragraph (3) of section 817(d) is amended by striking ‘or’ at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ‘, or’, and by inserting after subparagraph (B) the following new subparagraph:

        ‘(C) in the case of funds held under a contract described in paragraph (2)(C), the amounts paid in, or the amounts paid out, reflect the investment return and the market value of the segregated asset account.’

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1992.

SEC. 542. TREATMENT OF MODIFIED GUARANTEED CONTRACTS.

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

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

    ‘(a) COMPUTATION OF RESERVES- In the case of a modified guaranteed contract, clause (ii) of section 807(e)(1)(A) shall not apply.

    ‘(b) SEGREGATED ASSETS UNDER MODIFIED GUARANTEED CONTRACTS MARKED TO MARKET-

      ‘(1) IN GENERAL- In the case of any life insurance company, for purposes of this subtitle--

        ‘(A) Any gain or loss with respect to a segregated asset shall be treated as ordinary income or loss, as the case may be.

        ‘(B) If any segregated asset is held by such company as of the close of any taxable year--

          ‘(i) such company shall recognize gain or loss as if such asset were sold for its fair market value on the last business day of such taxable year, and

          ‘(ii) any such gain or loss shall be taken into account for such taxable year.

        Proper adjustment shall be made in the amount of any gain or loss subsequently realized for gain or loss taken into account under the preceding sentence. The Secretary may provide by regulations for the application of this subparagraph at times other than the times provided in this subparagraph.

      ‘(2) SEGREGATED ASSET- For purposes of paragraph (1), the term ‘segregated asset’ means any asset held as part of a segregated account referred to in subsection (d)(1) under a modified guaranteed contract.

    ‘(c) SPECIAL RULE IN COMPUTING LIFE INSURANCE RESERVES- For purposes of applying section 816(b)(1)(A) to any modified guaranteed contract, an assumed rate of interest shall include a rate of interest determined, from time to time, with reference to a market rate of interest.

    ‘(d) MODIFIED GUARANTEED CONTRACT DEFINED- For purposes of this section, the term ‘modified guaranteed contract’ means a contract not described in section 817--

      ‘(1) all or part of the amounts received under which are allocated to an account which, pursuant to State law or regulation, is segregated from the general asset accounts of the company and is valued from time to time with reference to market values,

      ‘(2) which--

        ‘(A) provides for the payment of annuities,

        ‘(B) is a life insurance contract, or

        ‘(C) is a pension plan contract which is not a life, accident, or health, property, casualty, or liability contract,

      ‘(3) for which reserves are valued at market for annual statement purposes, and

      ‘(4) which provides for a net surrender value or a policyholder’s fund (as defined in section 807(e)(1)).

    ‘(e) REGULATIONS- The Secretary may prescribe regulations--

      ‘(1) to provide for the treatment of market value adjustments under sections 72, 7702, 7702A, and 807(e)(1)(B),

      ‘(2) to determine the interest rates applicable under sections 807(c)(3), 807(d)(2)(B), and 812 with respect to a modified guaranteed contract annually, in a manner appropriate for modified guaranteed contracts and, to the extent appropriate for such a contract, to modify or waive the applicability of section 811(d),

      ‘(3) to provide rules to limit ordinary gain or loss treatment to assets constituting reserves for modified guaranteed contracts (and not other assets) of the company,

      ‘(4) to provide appropriate treatment of transfers of assets to and from the segregated account, and

      ‘(5) as may be necessary or appropriate to carry out the purposes of this section.’

    (b) CLERICAL AMENDMENT- The table of sections for subpart E of part I of subchapter L of chapter 1 is amended by inserting after the item relating to section 817 the following new item:

‘Sec. 817A. Special rules for modified guaranteed contracts.’

    (c) Effective Date-

      (1) IN GENERAL- The amendments made by this section shall apply to taxable years beginning after December 31, 1992.

      (2) TREATMENT OF NET ADJUSTMENTS- In the case of any taxpayer required by the amendments made by this section to change its calculation of reserves to take into account market value adjustments and to mark segregated assets to market for any taxable year--

        (A) such changes shall be treated as a change in method of accounting initiated by the taxpayer,

        (B) such changes shall be treated as made with the consent of the Secretary, and

        (C) the adjustments required by reason of section 481 of the Internal Revenue Code of 1986 shall be taken into account as ordinary income or loss by the taxpayer for the taxpayer’s first taxable year beginning after December 31, 1992.

Subtitle F--Other Provisions

SEC. 551. CLOSING OF PARTNERSHIP TAXABLE YEAR WITH RESPECT TO DECEASED PARTNER, ETC.

    (a) GENERAL RULE- Subparagraph (A) of section 706(c)(2) (relating to disposition of entire interest) is amended to read as follows:

        ‘(A) DISPOSITION OF ENTIRE INTEREST- The taxable year of a partnership shall close with respect to a partner whose entire interest in the partnership terminates (whether by reason of death, liquidation, or otherwise).’

    (b) CLERICAL AMENDMENT- The paragraph heading for paragraph (2) of section 706(c) is amended to read as follows:

      ‘(2) TREATMENT OF DISPOSITIONS- ’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to partnership taxable years beginning after December 31, 1993.

SEC. 552. MODIFICATION OF CREDIT FOR PRODUCING FUEL FROM A NONCONVENTIONAL SOURCE.

    (a) IN GENERAL- Subparagraph (A) of section 29(c)(2) (relating to gas from geopressured brine, etc.) is amended by adding at the end the following new sentence: ‘If the Federal Energy Regulatory Commission ceases to make the determinations described in the preceding sentence, the Secretary shall make such determinations in accordance with section 503 of such Act.’

    (b) CONFORMING AMENDMENT- Section 29(c)(2)(A) is amended by inserting ‘(as in effect before its repeal by the Natural Gas Wellhead Decontrol Act of 1989)’ after ‘Natural Gas Policy Act of 1978’.

    (c) EFFECTIVE DATE- The amendments made by this section shall take effect on January 1, 1993.

TITLE VI--ESTATE AND GIFT TAX PROVISIONS

SEC. 601. CLARIFICATION OF WAIVER OF CERTAIN RIGHTS OF RECOVERY.

    (a) AMENDMENT TO SECTION 2207A- Paragraph (2) of section 2207A(a) (relating to right of recovery in the case of certain marital deduction property) is amended to read as follows:

      ‘(2) DECEDENT MAY OTHERWISE DIRECT- Paragraph (1) shall not apply with respect to any property to the extent that the decedent in his will (or a revocable trust) specifically indicates an intent to waive any right of recovery under this subchapter with respect to such property.’

    (b) AMENDMENT TO SECTION 2207B- Paragraph (2) of section 2207B(a) (relating to right of recovery where decedent retained interest) is amended to read as follows:

      ‘(2) DECEDENT MAY OTHERWISE DIRECT- Paragraph (1) shall not apply with respect to any property to the extent that the decedent in his will (or a revocable trust) specifically indicates an intent to waive any right of recovery under this subchapter with respect to such property.’

    (c) EFFECTIVE DATE- The amendments made by this section shall apply with respect to the estates of decedents dying after the date of the enactment of this Act.

SEC. 602. ADJUSTMENTS FOR GIFTS WITHIN 3 YEARS OF DECEDENT’S DEATH.

    (a) GENERAL RULE- Section 2035 is amended to read as follows:

‘SEC. 2035. ADJUSTMENTS FOR CERTAIN GIFTS MADE WITHIN 3 YEARS OF DECEDENT’S DEATH.

    ‘(a) INCLUSION OF CERTAIN PROPERTY IN GROSS ESTATE- If--

      ‘(1) the decedent made a transfer (by trust or otherwise) of an interest in any property, or relinquished a power with respect to any property, during the 3-year period ending on the date of the decedent’s death, and

      ‘(2) the value of such property (or an interest therein) would have been included in the decedent’s gross estate under section 2036, 2037, 2038, or 2042 if such transferred interest or relinquished power had been retained by the decedent on the date of his death,

    the value of the gross estate shall include the value of any property (or interest therein) which would have been so included.

    ‘(b) INCLUSION OF GIFT TAX ON GIFTS MADE DURING 3 YEARS BEFORE DECEDENT’S DEATH- The amount of the gross estate (determined without regard to this subsection) shall be increased by the amount of any tax paid under chapter 12 by the decedent or his estate on any gift made by the decedent or his spouse during the 3-year period ending on the date of the decedent’s death.

    ‘(c) OTHER RULES RELATING TO TRANSFERS WITHIN 3 YEARS OF DEATH-

      ‘(1) IN GENERAL- For purposes of--

        ‘(A) section 303(b) (relating to distributions in redemption of stock to pay death taxes),

        ‘(B) section 2032A (relating to special valuation of certain farms, etc., real property), and

        ‘(C) subchapter C of chapter 64 (relating to lien for taxes),

      the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, during the 3-year period ending on the date of the decedent’s death.

      ‘(2) COORDINATION WITH SECTION 6166- An estate shall be treated as meeting the 35 percent of adjusted gross estate requirement of section 6166(a)(1) only if the estate meets such requirement both with and without the application of paragraph (1).

      ‘(3) SMALL TRANSFERS- Paragraph (1) shall not apply to any transfer (other than a transfer with respect to a life insurance policy) made during a calendar year to any donee if the decedent was not required by section 6019 (other than by reason of section 6019(a)(2)) to file any gift tax return for such year with respect to transfers to such donee.

    ‘(d) EXCEPTION- Subsection (a) shall not apply to any bona fide sale for an adequate and full consideration in money or money’s worth.

    ‘(e) TREATMENT OF CERTAIN TRANSFERS FROM REVOCABLE TRUSTS- For purposes of this section and section 2038, any transfer from any portion of a trust with respect to which the decedent was the grantor during any period when the decedent held the power to revest in the decedent title to such portion shall be treated as a transfer made directly by the decedent.’

    (b) CLERICAL AMENDMENT- The table of sections for part III of subchapter A of chapter 11 is amended by striking ‘gifts’ in the item relating to section 2035 and inserting ‘certain gifts’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to the estates of decedents dying after the date of the enactment of this Act.

SEC. 603. CLARIFICATION OF QUALIFIED TERMINABLE INTEREST RULES.

    (a) GENERAL RULE-

      (1) ESTATE TAX- Subparagraph (B) of section 2056(b)(7) (defining qualified terminable interest property) is amended by adding at the end thereof the following new clause:

          ‘(vi) TREATMENT OF CERTAIN INCOME DISTRIBUTIONS- An income interest shall not fail to qualify as a qualified income interest for life solely because income for the period after the last distribution date and on or before the date of the surviving spouse’s death is not required to be distributed to the surviving spouse or to the estate of the surviving spouse.’

      (2) GIFT TAX- Paragraph (3) of section 2523(f) is amended by striking ‘and (iv)’ and inserting ‘(iv), and (vi)’.

    (b) CLARIFICATION OF SUBSEQUENT INCLUSIONS- Section 2044 is amended by adding at the end thereof the following new subsection:

    ‘(d) CLARIFICATION OF INCLUSION OF CERTAIN INCOME- The amount included in the gross estate under subsection (a) shall include the amount of any income from the property to which this section applies for the period after the last distribution date and on or before the date of the decedent’s death if such income is not otherwise included in the decedent’s gross estate.’

    (c) EFFECTIVE DATE-

      (1) IN GENERAL- The amendments made by this section shall apply with respect to the estates of decedents dying, and gifts made, after the date of the enactment of this Act.

      (2) APPLICATION OF SECTION 2044 TO TRANSFERS BEFORE DATE OF ENACTMENT- In the case of the estate of any decedent dying after the date of the enactment of this Act, if there was a transfer of property on or before such date--

        (A) such property shall not be included in the gross estate of the decedent under section 2044 of the Internal Revenue Code of 1986 if no prior marital deduction was allowed with respect to such a transfer of such property to the decedent, but

        (B) such property shall be so included if such a deduction was allowed.

SEC. 604. TRANSITIONAL RULE UNDER SECTION 2056A.

    (a) GENERAL RULE- In the case of any trust created under an instrument executed before the date of the enactment of the Revenue Reconciliation Act of 1990, such trust shall be treated as meeting the requirements of paragraph (1) of section 2056A(a) of the Internal Revenue Code of 1986 if the trust instrument requires that all trustees of the trust be individual citizens of the United States or domestic corporations.

    (b) EFFECTIVE DATE- The provisions of subsection (a) shall take effect as if included in the provisions of section 11702(g) of the Revenue Reconciliation Act of 1990.

SEC. 605. OPPORTUNITY TO CORRECT CERTAIN FAILURES UNDER SECTION 2032A.

    (a) GENERAL RULE- Paragraph (3) of section 2032A(d) (relating to modification of election and agreement to be permitted) is amended to read as follows:

      ‘(3) MODIFICATION OF ELECTION AND AGREEMENT TO BE PERMITTED- The Secretary shall prescribe procedures which provide that in any case in which the executor makes an election under paragraph (1) (and submits the agreement referred to in paragraph (2)) within the time prescribed therefor, but--

        ‘(A) the notice of election, as filed, does not contain all required information, or

        ‘(B) signatures of 1 or more persons required to enter into the agreement described in paragraph (2) are not included on the agreement as filed, or the agreement does not contain all required information,

      the executor will have a reasonable period of time (not exceeding 90 days) after notification of such failures to provide such information or signatures.’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to the estates of decedents dying after the date of the enactment of this Act.

TITLE VII--EXCISE TAX SIMPLIFICATION

Subtitle A--Provisions Related to Distilled Spirits, Wines, and Beer

SEC. 701. CREDIT OR REFUND FOR IMPORTED BOTTLED DISTILLED SPIRITS RETURNED TO DISTILLED SPIRITS PLANT.

    (a) IN GENERAL- Paragraph (1) of section 5008(c) (relating to distilled spirits returned to bonded premises) is amended by striking ‘withdrawn from bonded premises on payment or determination of tax’ and inserting ‘on which tax has been determined or paid’.

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall take effect at the beginning of the first calendar quarter beginning more than 180 days after the date of the enactment of this Act.

SEC. 702. AUTHORITY TO CANCEL OR CREDIT EXPORT BONDS WITHOUT SUBMISSION OF RECORDS.

    (a) IN GENERAL- Subsection (c) of section 5175 (relating to export bonds) is amended by striking ‘on the submission of’ and all that follows and inserting ‘if there is such proof of exportation as the Secretary may by regulations require.’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall take effect at the beginning of the first calendar quarter beginning more than 180 days after the date of the enactment of this Act.

SEC. 703. REPEAL OF REQUIRED MAINTENANCE OF RECORDS ON PREMISES OF DISTILLED SPIRITS PLANT.

    (a) IN GENERAL- Subsection (c) of section 5207 (relating to records and reports) is amended by striking ‘shall be kept on the premises where the operations covered by the record are carried on and’.

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall take effect at the beginning of the first calendar quarter beginning more than 180 days after the date of the enactment of this Act.

SEC. 704. FERMENTED MATERIAL FROM ANY BREWERY MAY BE RECEIVED AT A DISTILLED SPIRITS PLANT.

    (a) IN GENERAL- Paragraph (2) of section 5222(b) (relating to production, receipt, removal, and use of distilling materials) is amended to read as follows:

      ‘(2) beer conveyed without payment of tax from brewery premises, beer which has been lawfully removed from brewery premises upon determination of tax, or’.

    (b) CLARIFICATION OF AUTHORITY TO PERMIT REMOVAL OF BEER WITHOUT PAYMENT OF TAX FOR USE AS DISTILLING MATERIAL- Section 5053 (relating to exemptions) is amended by redesignating subsection (f) as subsection (i) and by inserting after subsection (e) the following new subsection:

    ‘(f) REMOVAL FOR USE AS DISTILLING MATERIAL- Subject to such regulations as the Secretary may prescribe, beer may be removed from a brewery without payment of tax to any distilled spirits plant for use as distilling material.’

    (c) CLARIFICATION OF REFUND AND CREDIT OF TAX- Section 5056 (relating to refund and credit of tax, or relief from liability) is amended--

      (1) by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:

    ‘(c) BEER RECEIVED AT A DISTILLED SPIRITS PLANT- Any tax paid by any brewer on beer produced in the United States may be refunded or credited to the brewer, without interest, or if the tax has not been paid, the brewer may be relieved of liability therefor, under regulations as the Secretary may prescribe, if such beer is received on the bonded premises of a distilled spirits plant pursuant to the provisions of section 5222(b)(2), for use in the production of distilled spirits.’, and

      (2) by striking ‘or rendering unmerchantable’ in subsection (d) (as so redesignated) and inserting ‘rendering unmerchantable, or receipt on the bonded premises of a distilled spirits plant’.

    (d) EFFECTIVE DATE- The amendments made by this section shall take effect at the beginning of the first calendar quarter beginning more than 180 days after the date of the enactment of this Act.

SEC. 705. REPEAL OF REQUIREMENT FOR WHOLESALE DEALERS IN LIQUORS TO POST SIGN.

    (a) IN GENERAL- Section 5115 (relating to sign required on premises) is hereby repealed.

    (b) CONFORMING AMENDMENTS-

      (1) Subsection (a) of section 5681 is amended by striking ‘, and every wholesale dealer in liquors,’ and by striking ‘section 5115(a) or’.

      (2) Subsection (c) of section 5681 is amended--

        (A) by striking ‘or wholesale liquor establishment, on which no sign required by section 5115(a) or’ and inserting ‘on which no sign required by’, and

        (B) by striking ‘or wholesale liquor establishment, or who’ and inserting ‘or who’.

      (3) The table of sections for subpart D of part II of subchapter A of chapter 51 is amended by striking the item relating to section 5115.

    (c) EFFECTIVE DATE- The amendments made by this section shall take effect on the date of the enactment of this Act.

SEC. 706. REFUND OF TAX TO WINE RETURNED TO BOND NOT LIMITED TO UNMERCHANTABLE WINE.

    (a) IN GENERAL- Subsection (a) of section 5044 (relating to refund of tax on unmerchantable wine) is amended by striking ‘as unmerchantable’.

    (b) CONFORMING AMENDMENTS-

      (1) Section 5361 is amended by striking ‘unmerchantable’.

      (2) The section heading for section 5044 is amended by striking ‘unmerchantable’.

      (3) The item relating to section 5044 in the table of sections for subpart C of part I of subchapter A of chapter 51 is amended by striking ‘unmerchantable’.

    (c) EFFECTIVE DATE- The amendments made by this section shall take effect at the beginning of the first calendar quarter beginning more than 180 days after the date of the enactment of this Act.

SEC. 707. USE OF ADDITIONAL AMELIORATING MATERIAL IN CERTAIN WINES.

    (a) IN GENERAL- Subparagraph (D) of section 5384(b)(2) (relating to ameliorated fruit and berry wines) is amended by striking ‘loganberries, currants, or gooseberries,’ and inserting ‘any fruit or berry with a natural fixed acid of 20 parts per thousand or more (before any correction of such fruit or berry)’.

    (b) EFFECTIVE DATE- The amendment made by this section shall take effect at the beginning of the first calendar quarter beginning more than 180 days after the date of the enactment of this Act.

SEC. 708. DOMESTICALLY PRODUCED BEER MAY BE WITHDRAWN FREE OF TAX FOR USE OF FOREIGN EMBASSIES, LEGATIONS, ETC.

    (a) IN GENERAL- Section 5053 (relating to exemptions) is amended by inserting after subsection (f) the following new subsection:

    ‘(g) REMOVALS FOR USE OF FOREIGN EMBASSIES, LEGATIONS, ETC-

      ‘(1) IN GENERAL- Subject to such regulations as the Secretary may prescribe--

        ‘(A) beer may be withdrawn from the brewery without payment of tax for transfer to any customs bonded warehouse for entry pending withdrawal therefrom as provided in subparagraph (B), and

        ‘(B) beer entered into any customs bonded warehouse under subparagraph (A) may be withdrawn for consumption in the United States by, and for the official and family use of, such foreign governments, organizations, and individuals as are entitled to withdraw imported beer from such warehouses free of tax.

      Beer transferred to any customs bonded warehouse under subparagraph (A) shall be entered, stored, and accounted for in such warehouse under such regulations and bonds as the Secretary may prescribe, and may be withdrawn therefrom by such governments, organizations, and individuals free of tax under the same conditions and procedures as imported beer.

      ‘(2) OTHER RULES TO APPLY- Rules similar to the rules of paragraphs (2) and (3) of section 5362(e) of such section shall apply for purposes of this subsection.’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall take effect at the beginning of the first calendar quarter beginning more than 180 days after the date of the enactment of this Act.

SEC. 709. BEER MAY BE WITHDRAWN FREE OF TAX FOR DESTRUCTION.

    (a) IN GENERAL- Section 5053 is amended by inserting after subsection (g) the following new subsection:

    ‘(h) REMOVALS FOR DESTRUCTION- Subject to such regulations as the Secretary may prescribe, beer may be removed from the brewery without payment of tax for destruction.’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall take effect at the beginning of the first calendar quarter beginning more than 180 days after the date of the enactment of this Act.

SEC. 710. AUTHORITY TO ALLOW DRAWBACK ON EXPORTED BEER WITHOUT SUBMISSION OF RECORDS.

    (a) IN GENERAL- The first sentence of section 5055 (relating to drawback of tax on beer) is amended by striking ‘found to have been paid’ and all that follows and inserting ‘paid on such beer if there is such proof of exportation as the Secretary may by regulations require.’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall take effect at the beginning of the first calendar quarter beginning more than 180 days after the date of the enactment of this Act.

SEC. 711. TRANSFER TO BREWERY OF BEER IMPORTED IN BULK WITHOUT PAYMENT OF TAX.

    (a) IN GENERAL- Part II of subchapter G of chapter 51 is amended by adding at the end thereof the following new section:

‘SEC. 5418. BEER IMPORTED IN BULK.

    ‘Beer imported or brought into the United States in bulk containers may, under such regulations as the Secretary may prescribe, be withdrawn from customs custody and transferred in such bulk containers to the premises of a brewery without payment of the internal revenue tax imposed on such beer. The proprietor of a brewery to which such beer is transferred shall become liable for the tax on the beer withdrawn from customs custody under this section upon release of the beer from customs custody, and the importer, or the person bringing such beer into the United States, shall thereupon be relieved of the liability for such tax.’

    (b) CLERICAL AMENDMENT- The table of sections for such part II is amended by adding at the end thereof the following new item:

‘Sec. 5418. Beer imported in bulk.’

    (c) EFFECTIVE DATE- The amendments made by this section shall take effect at the beginning of the first calendar quarter beginning more than 180 days after the date of the enactment of this Act.

Subtitle B--Other Excise Tax Provisions

SEC. 721. AUTHORITY TO GRANT EXEMPTIONS FROM REGISTRATION REQUIREMENTS.

    (a) IN GENERAL- The first sentence of section 4222 (relating to registration) is amended to read as follows: ‘Except as provided in subsection (b), section 4221 shall not apply with respect to the sale of any article by or to any person who is required by the Secretary to be registered under this section and who is not so registered.’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to sales after the 180th day after the date of the enactment of this Act.

SEC. 722. REPEAL OF EXPIRED PROVISIONS.

    (a) PIGGY-BACK TRAILERS- Section 4051 is amended by striking subsection (d) and by redesignating subsection (e) as subsection (d).

    (b) DEEP SEABED MINING-

      (1) Subchapter F of chapter 36 (relating to tax on removal of hard mineral resources from deep seabed) is hereby repealed.

      (2) The table of subchapters for chapter 36 is amended by striking the item relating to subchapter F.

TITLE VIII--ADMINISTRATIVE PROVISIONS

Subtitle A--General Provisions

SEC. 801. USE OF REPRODUCTIONS OF RETURNS STORED IN DIGITAL IMAGE FORMAT.

    (a) IN GENERAL- Paragraph (2) of section 6103(p) (relating to procedure and recordkeeping) is amended by adding at the end thereof the following new subparagraph:

        ‘(D) REPRODUCTION FROM DIGITAL IMAGES- For purposes of this paragraph, the term ‘reproduction’ includes a reproduction from digital images.’

    (b) STUDY- The Comptroller General of the United States shall conduct a study of available digital image technology for the purpose of determining the extent to which reproductions of documents stored using that technology accurately reflect the data on the original document and the appropriate period for retaining the original document. Not later than 1 year after the date of the enactment of this Act, a report on the results of such study shall be submitted to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate.

SEC. 802. REPEAL OF AUTHORITY TO DISCLOSE WHETHER PROSPECTIVE JUROR HAS BEEN AUDITED.

    (a) IN GENERAL- Subsection (h) of section 6103 (relating to disclosure to certain Federal officers and employees for purposes of tax administration, etc.) is amended by striking paragraph (5) and by redesignating paragraph (6) as paragraph (5).

    (b) CONFORMING AMENDMENT- Paragraph (4) of section 6103(p) is amended by striking ‘(h)(6)’ each place it appears and inserting ‘(h)(5)’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to judicial proceedings pending on, or commenced after, the date of the enactment of this Act.

SEC. 803. REPEAL OF SPECIAL AUDIT PROVISIONS FOR SUBCHAPTER S ITEMS.

    (a) GENERAL RULE- Subchapter D of chapter 63 (relating to tax treatment of subchapter S items) is hereby repealed.

    (b) CONSISTENT TREATMENT REQUIRED- Section 6037 (relating to return of S corporation) is amended by adding at the end thereof the following new subsection:

    ‘(c) SHAREHOLDER’S RETURN MUST BE CONSISTENT WITH CORPORATE RETURN OR SECRETARY NOTIFIED OF INCONSISTENCY-

      ‘(1) IN GENERAL- A shareholder of an S corporation shall, on such shareholder’s return, treat a subchapter S item in a manner which is consistent with the treatment of such item on the corporate return.

      ‘(2) NOTIFICATION OF INCONSISTENT TREATMENT-

        ‘(A) IN GENERAL- In the case of any subchapter S item, if--

          ‘(i)(I) the corporation has filed a return but the shareholder’s treatment on his return is (or may be) inconsistent with the treatment of the item on the corporate return, or

          ‘(II) the corporation has not filed a return, and

          ‘(ii) the shareholder files with the Secretary a statement identifying the inconsistency,

        paragraph (1) shall not apply to such item.

        ‘(B) SHAREHOLDER RECEIVING INCORRECT INFORMATION- A shareholder shall be treated as having complied with clause (ii) of subparagraph (A) with respect to a subchapter S item if the shareholder--

          ‘(i) demonstrates to the satisfaction of the Secretary that the treatment of the subchapter S item on the shareholder’s return is consistent with the treatment of the item on the schedule furnished to the shareholder by the corporation, and

          ‘(ii) elects to have this paragraph apply with respect to that item.

      ‘(3) EFFECT OF FAILURE TO NOTIFY- In any case--

        ‘(A) described in subparagraph (A)(i)(I) of paragraph (2), and

        ‘(B) in which the shareholder does not comply with subparagraph (A)(ii) of paragraph (2),

      any adjustment required to make the treatment of the items by such shareholder consistent with the treatment of the items on the corporate return shall be treated as arising out of mathematical or clerical errors and assessed according to section 6213(b)(1). Paragraph (2) of section 6213(b) shall not apply to any assessment referred to in the preceding sentence.

      ‘(4) SUBCHAPTER S ITEM- For purposes of this subsection, the term ‘subchapter S item’ means any item of an S corporation to the extent that regulations prescribed by the Secretary provide that, for purposes of this subtitle, such item is more appropriately determined at the corporation level than at the shareholder level.

      ‘(5) ADDITION TO TAX FOR FAILURE TO COMPLY WITH SECTION-

‘For addition to tax in the case of a shareholder’s negligence in connection with, or disregard of, the requirements of this section, see part II of subchapter A of chapter 68.’

    (c) CONFORMING AMENDMENTS-

      (1) Section 1366 is amended by striking subsection (g).

      (2) Subsection (b) of section 6233 is amended to read as follows:

    ‘(b) SIMILAR RULES IN CERTAIN CASES- If a partnership return is filed for any taxable year but it is determined that there is no entity for such taxable year, to the extent provided in regulations, rules similar to the rules of subsection (a) shall apply.’

      (3) The table of subchapters for chapter 63 is amended by striking the item relating to subchapter D.

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.

SEC. 804. CLARIFICATION OF STATUTE OF LIMITATIONS.

    (a) IN GENERAL- Subsection (a) of section 6501 (relating to limitations on assessment and collection) is amended by adding at the end thereof the following new sentence: ‘For purposes of this chapter, the term ‘return’ means the return required to be filed by the taxpayer (and does not include a return of any person from whom the taxpayer has received an item of income, gain, loss, deduction, or credit).’

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 805. CERTAIN NOTICES DISREGARDED UNDER PROVISION INCREASING INTEREST RATE ON LARGE CORPORATE UNDERPAYMENTS.

    (a) GENERAL RULE- Subparagraph (B) of section 6621(c)(2) (defining applicable date) is amended by adding at the end thereof the following new clause:

          ‘(iii) EXCEPTION FOR LETTERS OR NOTICES INVOLVING SMALL AMOUNTS- For purposes of this paragraph, any letter or notice shall be disregarded if the amount of the deficiency or proposed deficiency (or the assessment or proposed assessment) set forth in such letter or notice is not greater than $100,000 (determined by not taking into account any interest, penalties, or additions to tax).’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply for purposes of determining interest for periods after December 31, 1993.

Subtitle B--Tax Court Procedures

SEC. 811. OVERPAYMENT DETERMINATIONS OF TAX COURT.

    (a) APPEAL OF ORDER- Paragraph (2) of section 6512(b) (relating to jurisdiction to enforce) is amended by adding at the end the following new sentence: ‘An order of the Tax Court disposing of a motion under this paragraph shall be reviewable in the same manner as a decision of the Tax Court, but only with respect to the matters determined in such order.’

    (b) DENIAL OF JURISDICTION REGARDING CERTAIN CREDITS AND REDUCTIONS- Subsection (b) of section 6512 (relating to overpayment determined by Tax Court) is amended by adding at the end the following new paragraph:

      ‘(4) DENIAL OF JURISDICTION REGARDING CERTAIN CREDITS AND REDUCTIONS- The Tax Court shall have no jurisdiction under this subsection to restrain or review any credit or reduction made by the Secretary under section 6402.’

    (c) EFFECTIVE DATE- The amendments made by this section shall take effect on the date of the enactment of this Act.

SEC. 812. AWARDING OF ADMINISTRATIVE COSTS.

    (a) RIGHT TO APPEAL TAX COURT DECISION- Subsection (f) of section 7430 (relating to right of appeal) is amended by adding at the end the following new paragraph:

      ‘(3) APPEAL OF TAX COURT DECISION- An order of the Tax Court disposing of a petition under paragraph (2) shall be reviewable in the same manner as a decision of the Tax Court, but only with respect to the matters determined in such order.’

    (b) PERIOD FOR APPLYING TO IRS FOR COSTS- Subsection (b) of section 7430 (relating to limitations) is amended by adding at the end the following new paragraph:

      ‘(5) PERIOD FOR APPLYING TO IRS FOR ADMINISTRATIVE COSTS- An award may be made under subsection (a) by the Internal Revenue Service for reasonable administrative costs only if the prevailing party files an application with the Internal Revenue Service for such costs before the 91st day after the date on which the final decision of the Internal Revenue Service as to the determination of the tax, interest, or penalty is mailed to such party.’

    (c) PERIOD FOR PETITIONING OF TAX COURT FOR REVIEW OF DENIAL OF COSTS- Paragraph (2) of section 7430(f) (relating to right of appeal) is amended--

      (1) by striking ‘appeal to’ and inserting ‘the filing of a petition for review with’, and

      (2) by adding at the end the following new sentence: ‘If the Secretary sends by certified or registered mail a notice of such decision to the petitioner, no proceeding in the Tax Court may be initiated under this paragraph unless such petition is filed before the 91st day after the date of such mailing.’

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to civil actions or proceedings commenced after the date of the enactment of this Act.

SEC. 813. REDETERMINATION OF INTEREST PURSUANT TO MOTION.

    (a) IN GENERAL- Paragraph (3) of section 7481(c) (relating to jurisdiction over interest determinations) is amended by striking ‘petition’ and inserting ‘motion’.

    (b) EFFECTIVE DATE- The amendment made by this section shall take effect on the date of the enactment of this Act.

SEC. 814. APPLICATION OF NET WORTH REQUIREMENT FOR AWARDS OF LITIGATION COSTS.

    (a) IN GENERAL- Paragraph (4) of section 7430(c) (defining prevailing party) is amended by adding at the end thereof the following new subparagraph:

        ‘(C) SPECIAL RULES FOR APPLYING NET WORTH REQUIREMENT- In applying the requirements of section 2412(d)(2)(B) of title 28, United States Code, for purposes of subparagraph (A)(iii) of this paragraph--

          ‘(i) the net worth limitation in clause (i) of such section shall apply to--

            ‘(I) an estate but shall be determined as of the date of the decedent’s death, and

            ‘(II) a trust but shall be determined as of the last day of the taxable year involved in the proceeding, and

          ‘(ii) individuals filing a joint return shall be treated as 1 individual for purposes of clause (i) of such section, except in the case of a spouse relieved of liability under section 6013(e).’

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to proceedings commenced after the date of the enactment of this Act.

Subtitle C--Authority for Certain Cooperative Agreements

SEC. 821. COOPERATIVE AGREEMENTS WITH STATE TAX AUTHORITIES.

    (a) GENERAL RULE- Chapter 77 (relating to miscellaneous provisions) is amended by adding at the end thereof the following new section:

‘SEC. 7524. COOPERATIVE AGREEMENTS WITH STATE TAX AUTHORITIES.

    ‘(a) AUTHORIZATION OF AGREEMENTS- The Secretary is hereby authorized to enter into cooperative agreements with State tax authorities for purposes of enhancing joint tax administration. Such agreements may provide for--

      ‘(1) joint filing of Federal and State income tax returns,

      ‘(2) single processing of such returns,

      ‘(3) joint collection of taxes (other than Federal income taxes), and

      ‘(4) such other provisions as may enhance joint tax administration.

    ‘(b) SERVICES ON REIMBURSABLE BASIS- Any agreement under subsection (a) may require reimbursement for services provided by either party to the agreement.

    ‘(c) AVAILABILITY OF FUNDS- Any funds appropriated for purposes of the administration of this title shall be available for purposes of carrying out the Secretary’s responsibility under an agreement entered into under subsection (a). Any reimbursement received pursuant to such an agreement shall be credited to the amount so appropriated.

    ‘(d) STATE TAX AUTHORITY- For purposes of this section, the term ‘State tax authority’ means agency, body, or commission referred to in section 6103(d)(1).’

    (b) CLERICAL AMENDMENT- The table of sections for chapter 77 is amended by adding at the end thereof the following new item:

‘Sec. 7524. Cooperative agreements with State tax authorities.’

Subtitle D--Administrative Practice and Procedural Simplification

SEC. 831. NOTIFICATION OF REASONS FOR TERMINATION OR DENIAL OF INSTALLMENT AGREEMENTS.

    (a) TERMINATIONS- Subsection (b) of section 6159 (relating to extent to which agreements remain in effect) is amended by adding at the end thereof the following new paragraph:

      ‘(5) NOTICE REQUIREMENTS- The Secretary may not take any action under paragraph (2), (3), or (4) unless--

        ‘(A) a notice of such action is provided to the taxpayer not later than the day 30 days before the date of such action, and

        ‘(B) such notice includes an explanation why the Secretary intends to take such action.

      The preceding sentence shall not apply in any case in which the Secretary believes that collection of any tax to which an agreement under this section relates is in jeopardy.’

    (b) DENIALS- Section 6159 (relating to agreements for payment of tax liability in installments) is amended by adding at the end thereof the following new subsection:

    ‘(c) NOTICE REQUIREMENTS FOR DENIALS- The Secretary may not deny any request for an installment agreement under this section unless--

      ‘(1) a notice of the proposed denial is provided to the taxpayer not later than the day 30 days before the date of such denial, and

      ‘(2) such notice includes an explanation why the Secretary intends to deny such request.

    The preceding sentence shall not apply in any case in which the Secretary believes that collection of any tax to which a request for an agreement under this section relates is in jeopardy.’

    (c) CONFORMING AMENDMENT- Paragraph (3) of section 6159(b) is amended to read as follows:

      ‘(3) SUBSEQUENT CHANGE IN FINANCIAL CONDITIONS- If the Secretary makes a determination that the financial condition of a taxpayer with whom the Secretary has entered into an agreement under subsection (a) has significantly changed, the Secretary may alter, modify, or terminate such agreement.’

    (d) EFFECTIVE DATE- The amendments made by this section shall take effect on the date 6 months after the date of the enactment of this Act.

SEC. 832. JOINT RETURN MAY BE MADE AFTER SEPARATE RETURNS WITHOUT FULL PAYMENT OF TAX.

    (a) GENERAL RULE- Paragraph (2) of section 6013(b) (relating to limitations on filing of joint return after filing separate returns) is amended by striking subparagraph (A) and redesignating the following subparagraphs accordingly.

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 833. OFFERS-IN-COMPROMISE.

    (a) GENERAL RULE- Subsection (a) of section 7122 (relating to compromises) is amended by adding at the end thereof the following new sentence: ‘The Secretary may make such a compromise in any case where the Secretary determines that such compromise would be in the best interests of the United States.’.

    (b) REVIEW REQUIREMENTS- Subsection (b) of section 7122 (relating to records) is amended by striking ‘$500.’ and inserting ‘$50,000. However, such compromise shall be subject to continuing quality review by the Secretary.’.

    (c) EFFECTIVE DATE- The amendments made by this section shall take effect on the date of the enactment of this Act.

SEC. 834. PRELIMINARY NOTICE REQUIREMENT.

    (a) IN GENERAL- Section 6672 (relating to failure to collect and pay over tax, or attempt to evade or defeat tax) is amended by redesignating subsection (b) as subsection (c) and by inserting after subsection (a) the following new subsection:

    ‘(b) PRELIMINARY NOTICE REQUIREMENT-

      ‘(1) IN GENERAL- No penalty shall be imposed under subsection (a) unless the Secretary notifies the taxpayer in writing by mail to an address as determined under section 6212(b) that the taxpayer shall be subject to an assessment of such penalty.

      ‘(2) TIMING OF NOTICE- The mailing of the notice described in paragraph (1) shall precede any notice and demand of any penalty under subsection (a) by at least 60 days.

      ‘(3) STATUTE OF LIMITATIONS- If a notice described in paragraph (1) with respect to any penalty is mailed before the expiration of the period provided by section 6501 for the assessment of such penalty (determined without regard to this paragraph), the period provided by such section for the assessment of such penalty shall not expire before the date 90 days after the date on which such notice was mailed.

      ‘(4) EXCEPTION FOR JEOPARDY- This subsection shall not apply if the Secretary finds that the collection of the penalty is in jeopardy.’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to assessments made after June 30, 1995.

SEC. 835. PENALTIES UNDER SECTION 6672.

    (a) PUBLIC INFORMATION REQUIREMENTS- The Secretary of the Treasury or the Secretary’s delegate (hereafter in this section referred to as the ‘Secretary’) shall take such actions as may be appropriate to ensure that employees are aware of their responsibilities under the Federal tax depository system, the circumstances under which employees may be liable for the penalty imposed by section 6672 of the Internal Revenue Code of 1986, and the responsibility to promptly report to the Internal Revenue Service any failure referred to in subsection (a) of such section 6672. Such actions shall include--

      (1) printing of a warning on deposit coupon booklets and the appropriate tax returns that certain employees may be liable for the penalty imposed by such section 6672, and

      (2) the development of a special information packet.

    (b) BOARD MEMBERS OF TAX-EXEMPT ORGANIZATIONS-

      (1) VOLUNTARY BOARD MEMBERS-

        (A) IN GENERAL- The penalty under section 6672 of the Internal Revenue Code of 1986 shall not be imposed on unpaid, volunteer members of any board of trustees or directors of an organization referred to in section 501 of such Code to the extent such members are solely serving in an honorary capacity, do not participate in the day-to-day or financial operations of the organization, and do not have actual knowledge of the failure on which such penalty is imposed.

        (B) APPLICATION OF PARAGRAPH- This paragraph shall not apply if it results in no person being held liable for the penalty described in section 6672(a) of the Internal Revenue Code of 1986.

      (2) DEVELOPMENT OF EXPLANATORY MATERIALS- The Secretary shall develop materials explaining the circumstances under which board members of tax-exempt organizations (including voluntary and honorary members) may be subject to penalty under section 6672 of such Code. Such materials shall be made available to tax-exempt organizations.

      (3) IRS INSTRUCTIONS- The Secretary shall clarify the instructions to Internal Revenue Service employees on the application of the penalty under section 6672 of such Code with regard to voluntary members of boards of trustees or directors of tax-exempt organizations.

    (c) PROMPT NOTIFICATION- To the maximum extent practicable, the Secretary shall notify all persons who have failed to make timely and complete deposit of any taxes described in section 6672 of the Internal Revenue Code of 1986 of such failure within 30 days after the return was filed reflecting such failure or after the date on which the Secretary is first aware of such failure. If the person failing to make the deposit is not an individual, the Secretary shall notify the entity subject to such deposit requirement and that entity shall notify, within 15 days of the notification by the Secretary, all officers, general partners, trustees, or other managers of the failure.

SEC. 836. REQUIRED CONTENT OF CERTAIN NOTICES.

    (a) GENERAL RULE- Subsection (a) of section 7522 (relating to content of tax due, deficiency, and other notices) is amended by striking ‘shall describe the basis for, and identify’ and inserting ‘shall set forth the adjustments which are the basis for, and shall identify’.

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to notices sent after the date 6 months after the date of the enactment of this Act.

SEC. 837. REQUIRED NOTICE OF CERTAIN PAYMENTS.

    If any payment is received by the Secretary of the Treasury or the Secretary’s delegate (hereafter in the section referred to as the ‘Secretary’) from any taxpayer and the Secretary cannot associate such payment with any outstanding tax liability of such taxpayer, the Secretary shall make reasonable efforts to notify the taxpayer of such inability within 60 days after the receipt of such payment.

SEC. 838. IMPROVED PROCEDURES FOR NOTIFYING SERVICE OF CHANGE OF ADDRESS OR NAME.

    The Secretary of the Treasury shall provide improved procedures for taxpayers to notify the Secretary of changes in names and addresses. Not later than December 31, 1994, the Secretary shall institute procedures for timely updating all Internal Revenue Service records with change-of-address information provided to the Secretary by taxpayers.

SEC. 839. RIGHTS AND RESPONSIBILITIES OF DIVORCED INDIVIDUALS.

    The Secretary of the Treasury shall include in the Internal Revenue Service publication entitled ‘Your Rights As A Taxpayer’ a section on the rights and responsibilities of divorced individuals.

TITLE IX--FINANCING PROVISIONS

SEC. 901. CERTAIN AMOUNTS DERIVED FROM FOREIGN CORPORATIONS TREATED AS UNRELATED BUSINESS TAXABLE INCOME.

    (a) GENERAL RULE- Subsection (b) of section 512 (relating to modifications) is amended by adding at the end thereof the following new paragraph:

      ‘(17) TREATMENT OF CERTAIN AMOUNTS DERIVED FROM FOREIGN CORPORATIONS-

        ‘(A) IN GENERAL- Notwithstanding paragraph (1), any disqualified amount derived by an organization from a foreign corporation in which such organization is a 10-percent shareholder shall be included as an item of gross income derived from an unrelated trade or business. There shall be allowed all deductions directly connected with amounts included in gross income under the preceding sentence.

        ‘(B) DISQUALIFIED AMOUNT- For purposes of subparagraph (A), the term ‘disqualified amount’ means any of the following:

          ‘(i) SUBPART F INCLUSION- Any amount included in gross income under section 951(a)(1)(A) to the extent the amount so included is attributable to income which, if derived directly by the organization, would be treated as gross income from an unrelated trade or business.

          ‘(ii) DIVIDENDS- Any dividend paid out of the earnings and profits of any foreign corporation in proportion to the ratio of--

            ‘(I) the portion of the earnings and profits attributable to income which, if derived directly by the organization, would be treated as gross income from an unrelated trade or business, to

            ‘(II) the total amount of earnings and profits.

          For purposes of the preceding sentence, earnings and profits accumulated in taxable years beginning before January 1, 1994, shall not be taken into account.

        ‘(C) 10-PERCENT SHAREHOLDER- The term ‘10-percent shareholder’ means any organization who owns (within the meaning of section 958(a)), or is considered as owning by applying the rules of section 958(b), 10 percent or more of the combined voting power of all class of stock entitled to vote of the foreign corporation.

        ‘(D) TREATMENT OF CERTAIN AMOUNTS AS DIVIDENDS- The rules of section 904(d)(3)(G) shall apply for purposes of this paragraph.

        ‘(E) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations for the application of this paragraph in the case of income paid through 1 or more entities or between 2 or more chains of entities.’

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to--

      (1) dividends paid out of earnings and profits of foreign corporations for taxable years beginning after December 31, 1993, and

      (2) amounts included in gross income under section 951(a)(1)(A) of the Internal Revenue Code of 1986 in respect of any such taxable year.

SEC. 902. SPECIAL RULES FOR RENTAL USE OF DWELLING FOR LESS THAN 15 DAYS PER YEAR.

    (a) IN GENERAL- Section 280A is amended by striking subsection (g) and inserting:

    ‘(g) SPECIAL RULE FOR CERTAIN RENTAL USE- Notwithstanding any other provision of this section or section 183, if the principal residence of the taxpayer is actually rented for less than 15 days during the taxable year for the purpose of providing accommodations to visitors to an event for which commercial rental accommodations in the community holding the event are not sufficient to reasonably provide more than one-half of the accommodations necessary (and the rental income received by the taxpayer for any visitor is not greater than a reasonable rental rate charged per individual guest by commercial rental accommodations), then--

      ‘(1) no deduction otherwise allowable under this chapter because of the rental use of such dwelling unit shall be allowed, and

      ‘(2) the income derived from such use for the taxable year shall not be included in the gross income of such taxpayer under section 61.

    ‘(h) REGULATIONS- The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this section, including regulations providing such de minimis rules as the Secretary may deem appropriate.’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1993.

SEC. 903. LOSS CARRYOVERS AND CARRYBACKS NOT EXCLUDED IN APPLYING TAXABLE INCOME LIMITATION ON CERTAIN RESERVE DEDUCTIONS.

    (a) GENERAL RULE- Subparagraph (D) of section 593(b)(2) (relating to computation of taxable income) is amended by adding at the end thereof the following new sentence:

        ‘Except as providing in the preceding sentence, for purposes of this paragraph, taxable income shall be computed as provided in this chapter, including the application of any carryover or carryback.’

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to losses incurred in taxable years ending after December 31, 1993.

SEC. 904. EXTENSION OF WITHHOLDING TO CERTAIN GAMBLING WINNINGS.

    (a) REPEAL OF EXEMPTION FOR BINGO AND KENO- Paragraph (5) of section 3402(q) is amended to read as follows:

      ‘(5) EXEMPTION FOR SLOT MACHINES- The tax imposed by paragraph (1) shall not apply to winnings from a slot machine.’

    (b) THRESHOLD AMOUNT- Paragraph (3) of section 3402(q) is amended--

      (1) by striking ‘(B) and (C)’ in subparagraph (A) and inserting ‘(B), (C), and (D)’, and

      (2) by adding at the end thereof the following new subparagraph:

        ‘(D) BINGO AND KENO- Proceeds of more than $10,000 from a wager placed in a bingo or keno game.’

    (c) EFFECTIVE DATE- The amendments made by this section shall take effect on January 1, 1994.

TITLE X--TECHNICAL CORRECTIONS

Subtitle A--Revenue Provisions

SEC. 1001. AMENDMENTS RELATED TO REVENUE RECONCILIATION ACT OF 1990.

    (a) AMENDMENTS RELATED TO SUBTITLE A-

      (1) Subparagraph (B) of section 59(j)(3) is amended by striking ‘section 1(i)(3)(B)’ and inserting ‘section 1(g)(3)(B)’.

      (2) Clause (i) of section 151(d)(3)(C) is amended by striking ‘joint of a return’ and inserting ‘joint return’.

      (3) Subsection (b) of section 1 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1993) is amended by striking ‘$26,500’ in the table contained therein and inserting ‘$26,050’.

    (b) AMENDMENTS RELATED TO SUBTITLE B-

      (1) Paragraph (1) of section 11212(e) of the Revenue Reconciliation Act of 1990 is amended by striking ‘Paragraph (1) of section 6724(d)’ and inserting ‘Subparagraph (B) of section 6724(d)(1)’.

      (2)(A) Subparagraph (B) of section 4093(c)(2), as in effect before the amendments made by the Revenue Reconciliation Act of 1993, is amended by inserting before the period ‘unless such fuel is sold for exclusive use by a State or any political subdivision thereof’.

      (B) Paragraph (4) of section 6427(l), as in effect before the amendments made by the Revenue Reconciliation Act of 1993, is amended by inserting before the period ‘unless such fuel was used by a State or any political subdivision thereof’.

      (3) Paragraph (1) of section 6416(b) is amended by striking ‘chapter 32 or by section 4051’ and inserting ‘chapter 31 or 32’.

      (4) Section 7012 is amended--

        (A) by striking ‘production or importation of gasoline’ in paragraph (3) and inserting ‘taxes on gasoline and diesel fuel’, and

        (B) by striking paragraph (4) and redesignating paragraphs (5) and (6) as paragraphs (4) and (5), respectively.

      (5) Subsection (c) of section 5041 is amended by striking paragraph (6) and by inserting the following new paragraphs:

      ‘(6) CREDIT FOR TRANSFEREE IN BOND- If--

        ‘(A) wine produced by any person would be eligible for any credit under paragraph (1) if removed by such person during the calendar year,

        ‘(B) wine produced by such person is removed during such calendar year by any other person (hereafter in this paragraph referred to as the ‘transferee’) to whom such wine was transferred in bond and who is liable for the tax imposed by this section with respect to such wine, and

        ‘(C) such producer holds title to such wine at the time of its removal and provides to the transferee such information as is necessary to properly determine the transferee’s credit under this paragraph,

      then, the transferee (and not the producer) shall be allowed the credit under paragraph (1) which would be allowed to the producer if the wine removed by the transferee had been removed by the producer on that date.

      ‘(7) REGULATIONS- The Secretary may prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations--

        ‘(A) to prevent the credit provided in this subsection from benefiting any person who produces more than 250,000 wine gallons during a calendar year, and

        ‘(B) to assure proper reduction of such credit for persons producing more than 150,000 wine gallons of wine during a calendar year.’

      (6) Paragraph (3) of section 5061(b) is amended to read as follows:

      ‘(3) section 5041(f),’.

      (7) Section 5354 is amended by inserting ‘(taking into account the appropriate amount of credit with respect to such wine under section 5041(c))’ after ‘any one time’.

      (8) Effective on the date of the enactment of this Act, paragraph (7) of section 11202(i) of the Revenue Reconciliation Act of 1990 is amended by adding at the end thereof the following: ‘The Secretary may treat any person who bore the ultimate burden of the tax imposed by this subsection as the person to whom a credit or refund under such provisions may be allowed or made.’.

    (c) AMENDMENTS RELATED TO SUBTITLE C-

      (1) Paragraph (4) of section 56(g) is amended by redesignating subparagraphs (I) and (J) as subparagraphs (H) and (I), respectively.

      (2) Subparagraph (B) of section 6724(d)(1) is amended--

        (A) by striking ‘or’ at the end of clause (xii), and

        (B) by striking the period at the end of clause (xiii) and inserting ‘, or’.

      (3) Subsection (g) of section 6302 is amended by inserting ‘, 22,’ after ‘chapters 21’.

      (4) The earnings and profits of any insurance company to which section 11305(c)(3) of the Revenue Reconciliation Act of 1990 applies shall be determined without regard to any deduction allowed under such section; except that, for purposes of applying sections 56 and 902, and subpart F of part III of subchapter N of chapter 1 of the Internal Revenue Code of 1986, such deduction shall be taken into account.

      (5) Subparagraph (D) of section 6038A(e)(4) is amended--

        (A) by striking ‘any transaction to which the summons relates’ and inserting ‘any affected taxable year’, and

        (B) by adding at the end thereof the following new sentence: ‘For purposes of this subparagraph, the term ‘affected taxable year’ means any taxable year if the determination of the amount of tax imposed for such taxable year is affected by the treatment of the transaction to which the summons relates.’.

      (6) Subparagraph (A) of section 6621(c)(2) is amended by adding at the end thereof the following new sentence: ‘The preceding sentence shall be applied without regard to any such letter or notice which is withdrawn by the Secretary.’.

      (7) Clause (i) of section 6621(c)(2)(B) is amended by striking ‘this subtitle’ and inserting ‘this title’.

    (d) AMENDMENTS RELATED TO SUBTITLE D-

      (1) Notwithstanding section 11402(c) of the Revenue Reconciliation Act of 1990, the amendment made by section 11402(b)(1) of such Act shall apply to taxable years ending after December 31, 1989.

      (2) Clause (ii) of section 143(m)(4)(C) is amended--

        (A) by striking ‘any month of the 10-year period’ and inserting ‘any year of the 4-year period’,

        (B) by striking ‘succeeding months’ and inserting ‘succeeding years’, and

        (C) by striking ‘over the remainder of such period (or, if lesser, 5 years)’ and inserting ‘to zero over the succeeding 5 years’.

    (e) AMENDMENTS RELATED TO SUBTITLE E-

      (1)(A) Clause (ii) of section 56(d)(1)(B) is amended to read as follows:

          ‘(ii) appropriate adjustments in the application of section 172(b)(2) shall be made to take into account the limitation of subparagraph (A).’

      (B) For purposes of applying sections 56(g)(1) and 56(g)(3) of the Internal Revenue Code of 1986 with respect to taxable years beginning in 1991 and 1992, the reference in such sections to the alternative tax net operating loss deduction shall be treated as including a reference to the deduction under section 56(h) of such Code as in effect before the amendments made by section 1915 of the Energy Policy Act of 1992.

      (2) Clause (i) of section 613A(c)(3)(A) is amended by striking ‘the table contained in’.

      (3) Section 6501 is amended--

        (A) by striking subsection (m) (relating to deficiency attributable to election under section 44B) and by redesignating subsections (n) and (o) as subsections (m) and (n), respectively, and

        (B) by striking ‘section 40(f) or 51(j)’ in subsection (m) (as redesignated by subparagraph (A)) and inserting ‘section 40(f), 43, or 51(j)’.

      (4) Subparagraph (C) of section 38(c)(2) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) is amended by inserting before the period at the end of the first sentence the following: ‘and without regard to the deduction under section 56(h)’.

      (5) The amendment made by section 1913(b)(2)(C)(i) of the Energy Policy Act of 1992 shall apply to taxable years beginning after December 31, 1990.

    (f) AMENDMENTS RELATED TO SUBTITLE F-

      (1)(A) Section 2701(a)(3) is amended by adding at the end thereof the following new subparagraph:

        ‘(C) VALUATION OF QUALIFIED PAYMENTS WHERE NO LIQUIDATION, ETC. RIGHTS- In the case of an applicable retained interest which is described in subparagraph (B)(i) but not subparagraph (B)(ii), the value of the distribution right shall be determined without regard to this section.’

      (B) Section 2701(a)(3)(B) is amended by inserting ‘CERTAIN’ before ‘QUALIFIED’ in the heading thereof.

      (C) Sections 2701 (d)(1) and (d)(4) are each amended by striking ‘subsection (a)(3)(B)’ and inserting ‘subsection (a)(3) (B) or (C)’.

      (2) Clause (i) of section 2701(a)(4)(B) is amended by inserting ‘(or, to the extent provided in regulations, the rights as to either income or capital)’ after ‘income and capital’.

      (3)(A) Section 2701(b)(2) is amended by adding at the end thereof the following new subparagraph:

        ‘(C) APPLICABLE FAMILY MEMBER- For purposes of this subsection, the term ‘applicable family member’ includes any lineal descendant of any parent of the transferor or the transferor’s spouse.’

      (B) Section 2701(e)(3) is amended--

        (i) by striking subparagraph (B), and

        (ii) by striking so much of paragraph (3) as precedes ‘shall be treated as holding’ and inserting:

      ‘(3) ATTRIBUTION OF INDIRECT HOLDINGS AND TRANSFERS- An individual’.

      (C) Section 2704(c)(3) is amended by striking ‘section 2701(e)(3)(A)’ and inserting ‘section 2701(e)(3)’.

      (4) Clause (i) of section 2701(c)(1)(B) is amended to read as follows:

          ‘(i) a right to distributions with respect to any interest which is junior to the rights of the transferred interest,’.

      (5)(A) Clause (i) of section 2701(c)(3)(C) is amended to read as follows:

          ‘(i) IN GENERAL- Payments under any interest held by a transferor which (without regard to this subparagraph) are qualified payments shall be treated as qualified payments unless the transferor elects not to treat such payments as qualified payments. Payments described in the preceding sentence which are held by an applicable family member shall be treated as qualified payments only if such member elects to treat such payments as qualified payments.’

      (B) The first sentence of section 2701(c)(3)(C)(ii) is amended to read as follows: ‘A transferor or applicable family member holding any distribution right which (without regard to this subparagraph) is not a qualified payment may elect to treat such right as a qualified payment, to be paid in the amounts and at the times specified in such election.’.

      (C) The time for making an election under the second sentence of section 2701(c)(3)(C)(i) of the Internal Revenue Code of 1986 (as amended by subparagraph (A)) shall not expire before the due date (including extensions) for filing the transferor’s return of the tax imposed by section 2501 of such Code for the first calendar year ending after the date of enactment.

      (6) Section 2701(d)(3)(A)(iii) is amended by striking ‘the period ending on the date of’.

      (7) Subclause (I) of section 2701(d)(3)(B)(ii) is amended by inserting ‘or the exclusion under section 2503(b),’ after ‘section 2523,’.

      (8) Section 2701(e)(5) is amended--

        (A) by striking ‘such contribution to capital or such redemption, recapitalization, or other change’ in subparagraph (A) and inserting ‘such transaction’, and

        (B) by striking ‘the transfer’ in subparagraph (B) and inserting ‘such transaction’.

      (9) Section 2701(d)(4) is amended by adding at the end thereof the following new subparagraph:

        ‘(C) TRANSFER TO TRANSFERORS- In the case of a taxable event described in paragraph (3)(A)(ii) involving a transfer of an applicable retained interest from an applicable family member to a transferor, this subsection shall continue to apply to the transferor during any period the transferor holds such interest.’

      (10) Section 2701(e)(6) is amended by inserting ‘or to reflect the application of subsection (d)’ before the period at the end thereof.

      (11)(A) Section 2702(a)(3)(A) is amended--

        (i) by striking ‘to the extent’ and inserting ‘if’ in clause (i),

        (ii) by striking ‘or’ at the end of clause (i),

        (iii) by striking the period at the end of clause (ii) and inserting ‘, or’, and

        (iv) by adding at the end thereof the following new clause:

          ‘(iii) to the extent that regulations provide that such transfer is not inconsistent with the purposes of this section.’

      (B)(i) Section 2702(a)(3) is amended by striking ‘incomplete transfer’ each place it appears and inserting ‘incomplete gift’.

      (ii) The heading for section 2702(a)(3)(B) is amended by striking ‘INCOMPLETE TRANSFER’ and inserting ‘INCOMPLETE GIFT’.

    (g) AMENDMENTS RELATED TO SUBTITLE G-

      (1)(A) Subsection (a) of section 1248 is amended--

        (i) by striking ‘, or if a United States person receives a distribution from a foreign corporation which, under section 302 or 331, is treated as an exchange of stock’ in paragraph (1), and

        (ii) by adding at the end thereof the following new sentence: ‘For purposes of this section, a United States person shall be treated as having sold or exchanged any stock if, under any provision of this subtitle, such person is treated as realizing gain from the sale or exchange of such stock.’.

      (B) Paragraph (1) of section 1248(e) is amended by striking ‘, or receives a distribution from a domestic corporation which, under section 302 or 331, is treated as an exchange of stock’.

      (C) Subparagraph (B) of section 1248(f)(1) is amended by striking ‘or 361(c)(1)’ and inserting ‘355(c)(1), or 361(c)(1)’.

      (D) Paragraph (1) of section 1248(i) is amended to read as follows:

      ‘(1) IN GENERAL- If any shareholder of a 10-percent corporate shareholder of a foreign corporation exchanges stock of the 10-percent corporate shareholder for stock of the foreign corporation, such 10-percent corporate shareholder shall recognize gain in the same manner as if the stock of the foreign corporation received in such exchange had been--

        ‘(A) issued to the 10-percent corporate shareholder, and

        ‘(B) then distributed by the 10-percent corporate shareholder to such shareholder in redemption or liquidation (whichever is appropriate).

      The amount of gain recognized by such 10-percent corporate shareholder under the preceding sentence shall not exceed the amount treated as a dividend under this section.’

      (2) Section 897 is amended by striking subsection (f).

      (3) Paragraph (13) of section 4975(d) is amended by striking ‘section 408(b)’ and inserting ‘section 408(b)(12)’.

      (4) Clause (iii) of section 56(g)(4)(D) is amended by inserting ‘, but only with respect to taxable years beginning after December 31, 1989’ before the period at the end thereof.

      (5)(A) Paragraph (11) of section 11701(a) of the Revenue Reconciliation Act of 1990 (and the amendment made by such paragraph) are hereby repealed, and section 7108(r)(2) of the Revenue Reconciliation Act of 1989 shall be applied as if such paragraph (and amendment) had never been enacted.

      (B) Subparagraph (A) shall not apply to any building if the owner of such building establishes to the satisfaction of the Secretary of the Treasury or his delegate that such owner reasonably relied on the amendment made by such paragraph (11).

    (h) AMENDMENTS RELATED TO SUBTITLE H-

      (1)(A) Clause (vi) of section 168(e)(3)(B) is amended by striking ‘or’ at the end of subclause (I), by striking the period at the end of subclause (II) and inserting ‘, or’, and by adding at the end thereof the following new subclause:

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

      (B) Subparagraph (K) of section 168(g)(4) is amended by striking ‘section 48(a)(3)(A)(iii)’ and inserting ‘section 48(l)(3)(A)(ix) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990)’.

      (2) Clause (ii) of section 172(b)(1)(E) is amended by striking ‘subsection (m)’ and inserting ‘subsection (h)’.

      (3) Sections 805(a)(4)(E), 832(b)(5)(C)(ii)(II), and 832(b)(5)(D)(ii)(II) are each amended by striking ‘243(b)(5)’ and inserting ‘243(b)(2)’.

      (4) Subparagraph (A) of section 243(b)(3) is amended by inserting ‘of’ after ‘In the case’.

      (5) The subsection heading for subsection (a) of section 280F is amended by striking ‘Investment Tax Credit and’.

      (6) Clause (i) of section 1504(c)(2)(B) is amended by inserting ‘section’ before ‘243(b)(2)’.

      (7) Paragraph (3) of section 341(f) is amended by striking ‘351, 361, 371(a), or 374(a)’ and inserting ‘351, or 361’.

      (8) Paragraph (2) of section 243(b) is amended to read as follows:

      ‘(2) AFFILIATED GROUP- For purposes of this subsection:

        ‘(A) IN GENERAL- The term ‘affiliated group’ has the meaning given such term by section 1504(b), except that for such purposes sections 1504(b)(2), 1504(b)(4), and 1504(c) shall not apply.

        ‘(B) GROUP MUST BE CONSISTENT IN FOREIGN TAX TREATMENT- The requirements of paragraph (1)(A) shall not be treated as being met with respect to any dividend received by a corporation if, for any taxable year which includes the day on which such dividend is received--

          ‘(i) 1 or more members of the affiliated group referred to in paragraph (1)(A) choose to any extent to take the benefits of section 901, and

          ‘(ii) 1 or more other members of such group claim to any extent a deduction for taxes otherwise creditable under section 901.’

      (9) The amendment made by section 11813(b)(17) of the Revenue Reconciliation Act of 1990 shall be applied as if the material stricken by such amendment included the closing parenthesis after ‘section 48(a)(5)’.

      (10) Paragraph (1) of section 179(d) is amended--

        (A) by striking ‘in a trade or business’ and inserting ‘a trade or business’, and

        (B) by adding at the end thereof the following new sentence: ‘Such term shall not include any property described in section 50(b) and shall not include air conditioning or heating units and horses’.

      (11) Subparagraph (E) of section 50(a)(2) is amended by striking ‘section 48(a)(5)(A)’ and inserting ‘section 48(a)(5)’.

      (12) The amendment made by section 11801(c)(9)(G)(ii) of the Revenue Reconciliation Act of 1990 shall be applied as if it struck ‘Section 422A(c)(2)’ and inserted ‘Section 422(c)(2)’.

      (13) Subparagraph (B) of section 424(c)(3) is amended by striking ‘a qualified stock option, an incentive stock option, an option granted under an employee stock purchase plan, or a restricted stock option’ and inserting ‘an incentive stock option or an option granted under an employee stock purchase plan’.

      (14) Subparagraph (E) of section 1367(a)(2) is amended by striking ‘section 613A(c)(13)(B)’ and inserting ‘section 613A(c)(11)(B)’.

      (15) Subparagraph (B) of section 460(e)(6) is amended by striking ‘section 167(k)’ and inserting ‘section 168(e)(2)(A)(ii)’.

      (16) Subparagraph (C) of section 172(h)(4) is amended by striking ‘subsection (b)(1)(M)’ and inserting ‘subsection (b)(1)(E)’.

      (17) Section 6503 is amended--

        (A) by redesignating the subsection relating to extension in case of certain summonses as subsection (j), and

        (B) by redesignating the subsection relating to cross references as subsection (k).

      (18) Paragraph (4) of section 1250(e) is hereby repealed.

      (19) Subsection (c) of section 2104 is amended by striking ‘subparagraph (A), (C), or (D)’ and inserting ‘subparagraph (A)’.

    (i) EFFECTIVE DATE- Except as otherwise expressly provided--

      (1) the amendments made by this section shall be treated as amendments to the Internal Revenue Code of 1986 as amended by the Revenue Reconciliation Act of 1993; and

      (2) any amendment made by this section shall apply to periods before the date of the enactment of this section in the same manner as if it had been included in the provision of the Revenue Reconciliation Act of 1990 to which such amendment relates.

SEC. 1002. AMENDMENTS RELATED TO REVENUE RECONCILIATION ACT OF 1993.

    (a) AMENDMENT RELATED TO SECTION 13114- Paragraph (2) of section 1044(c) is amended to read as follows:

      ‘(2) PURCHASE- The taxpayer shall be considered to have purchased any property if, but for subsection (d), the unadjusted basis of such property would be its cost within the meaning of section 1012.’

    (b) AMENDMENTS RELATED TO SECTION 13142-

      (1) Subparagraph (B) of section 13142(b)(6) of the Revenue Reconciliation Act of 1993 is amended to read as follows:

        ‘(B) FULL-TIME STUDENTS, WAIVER AUTHORITY, AND PROHIBITED DISCRIMINATION- The amendments made by paragraphs (2), (3), and (4) shall take effect on the date of the enactment of this Act.’

      (2) Subparagraph (C) of section 13142(b)(6) of such Act is amended by striking ‘paragraph (2)’ and inserting ‘paragraph (5)’.

    (c) AMENDMENT RELATED TO SECTION 13161-

      (1) IN GENERAL- Subsection (e) of section 4001 (relating to inflation adjustment) is amended to read as follows:

    ‘(e) INFLATION ADJUSTMENT-

      ‘(1) IN GENERAL- In the case of any calendar year after 1993, the $30,000 amount in subsection (a) and section 4003(a) shall be increased by an amount equal to--

        ‘(A) $30,000, multiplied by

        ‘(B) the cost-of-living adjustment under section 1(f)(3) for such calendar year, determined by substituting ‘calendar year 1990’ for ‘calendar year 1992’ in subparagraph (B) thereof.

      ‘(2) ROUNDING- If any amount as adjusted under paragraph (1) is not a multiple of $2,000, such amount shall be rounded to the next lowest multiple of $2,000.’

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall take effect on January 1, 1994.

    (d) AMENDMENT RELATED TO SECTION 13201- Clause (ii) of section 135(b)(2)(B) is amended by inserting before the period at the end thereof the following: ‘, determined by substituting ‘calendar year 1989’ for ‘calendar year 1992’ in subparagraph (B) thereof’.

    (e) AMENDMENTS RELATED TO SECTION 13203- Subsection (a) of section 59 is amended--

      (1) by striking ‘the amount determined under section 55(b)(1)(A)’ in paragraph (1)(A) and (2)(A)(i) and inserting ‘the pre-credit tentative minimum tax’,

      (2) by striking ‘specified in section 55(b)(1)(A)’ in paragraph (1)(C) and inserting ‘specified in subparagraph (A)(i) or (B)(i) of section 55(b)(1) (whichever applies)’,

      (3) by striking ‘which would be determined under section 55(b)(1)(A)’ in paragraph (2)(A)(ii) and inserting ‘which would be the pre-credit tentative minimum tax’, and

      (4) by adding at the end thereof the following new paragraph:

      ‘(4) PRE-CREDIT TENTATIVE MINIMUM TAX- For purposes of this subsection, the term ‘pre-credit tentative minimum tax’ means--

        ‘(A) in the case of a taxpayer other than a corporation, the amount determined under the first sentence of section 55(b)(1)(A)(i), or

        ‘(B) in the case of a corporation, the amount determined under section 55(b)(1)(B)(i).’

    (f) AMENDMENT RELATED TO SECTION 13212- Subparagraph (B) of section 401(a)(17) is amended to read as follows:

        ‘(B) COST-OF-LIVING ADJUSTMENT- The Secretary shall adjust annually the $150,000 amount in subparagraph (A) for increases in the cost-of-living at the same time and in the same manner as under section 415(d), except that the base period for purposes of section 415(d)(1)(A) shall be the calendar quarter beginning October 1, 1993.’

    (g) AMENDMENT RELATED TO SECTION 13221- Subparagraph (A) of section 7518(g)(6) is amended by striking ‘34 percent’ and inserting ‘35 percent’.

    (h) AMENDMENTS RELATED TO SECTION 13222-

      (1) Subparagraph (B) of section 6033(e)(1) is amended by adding at the end thereof the following new clause:

          ‘(iii) COORDINATION WITH SECTION 527(f)- This subsection shall not apply to any amount on which tax is imposed by reason of section 527(f).’.

      (2) Clause (i) of section 6033(e)(1)(B) is amended by striking ‘this subtitle’ and inserting ‘section 501’.

    (i) AMENDMENT RELATED TO SECTION 13225- Paragraph (3) of section 6655(g) is amended by striking all that follows ‘3rd month’ in the sentence following subparagraph (C) and inserting ‘, subsection (e)(2)(A) shall be applied by substituting ‘2 months’ for ‘3 months’ in clause (i)(I), the election under clause (i) of subsection (e)(2)(C) may be made separately for each installment, and clause (ii) of subsection (e)(2)(C) shall not apply.’.

    (j) AMENDMENTS RELATED TO SECTION 13231-

      (1) Paragraph (1) of section 956A(b) is amended to read as follows:

      ‘(1) the amount (not including a deficit) referred to in section 316(a)(1) to the extent such amount was accumulated in prior taxable years beginning after September 30, 1993, and’.

      (2) Subsection (f) of section 956A is amended by inserting before the period at the end thereof: ‘and regulations coordinating the provisions of subsections (c)(3)(A) and (d)’.

      (3)(A) Subparagraph (A) of section 1297(d)(2) is amended by striking ‘The adjusted basis of any asset’ and inserting ‘The amount taken into account under section 1296(a)(2) with respect to any asset’.

      (B) The paragraph heading of paragraph (2) of section 1297(d) is amended to read as follows:

      ‘(2) AMOUNT TAKEN INTO ACCOUNT- ’.

      (4) Subsection (e) of section 1297 is amended by inserting ‘For purposes of this part--’ after the subsection heading.

    (k) AMENDMENT RELATED TO SECTION 13241- Subparagraph (B) of section 40(e)(1) is amended to read as follows:

        ‘(B) for any period before January 1, 2001, during which the rates of tax under section 4081(a)(2)(A) are 4.3 cents per gallon.’

    (l) AMENDMENT RELATED TO SECTION 13261- Clause (iii) of section 13261(g)(2)(A) of the Revenue Reconciliation Act of 1993 is amended by striking ‘by the taxpayer’ and inserting ‘by the taxpayer or a related person’.

    (m) AMENDMENT RELATED TO SECTION 13301- Subparagraph (B) of section 1397B(d)(5) is amended by striking ‘preceding’.

    (n) CLERICAL AMENDMENTS-

      (1) Subsection (d) of section 39 is amended--

        (A) by striking ‘45’ in the heading of paragraph (5) and inserting ‘45A’, and

        (B) by striking ‘45’ in the heading of paragraph (6) and inserting ‘45B’.

      (2) Subparagraph (A) of section 108(d)(9) is amended by striking ‘paragraph (3)(B)’ and inserting ‘paragraph (3)(C)’.

      (3) Subparagraph (C) of section 143(d)(2) is amended by striking the period at the end thereof and inserting a comma.

      (4) Clause (ii) of section 163(j)(6)(E) is amended by striking ‘which is a’ and inserting ‘which is’.

      (5) Subparagraph (A) of section 1017(b)(4) is amended by striking ‘subsection (b)(2)(D)’ and inserting ‘subsection (b)(2)(E)’.

      (6) So much of section 1245(a)(3) as precedes subparagraph (A) thereof is amended to read as follows:

      ‘(3) SECTION 1245 PROPERTY- For purposes of this section, the term ‘section 1245 property’ means any property which is or has been property of a character subject to the allowance for depreciation provided in section 167 and is either--’.

      (7) Paragraph (2) of section 1394(e) is amended--

        (A) by striking ‘(i)’ and inserting ‘(A)’, and

        (B) by striking ‘(ii)’ and inserting ‘(B)’.

      (8) Subsection (m) of section 6501 (as redesignated by section 1001) is amended by striking ‘or 51(j)’ and inserting ‘45B, or 51(j)’.

      (9)(A) The section 6714 added by section 13242(b)(1) of the Revenue Reconciliation Act of 1993 is hereby redesignated as section 6715.

      (B) The table of sections for part I of subchapter B of chapter 68 is amended by striking ‘6714’ in the item added by such section 13242(b)(2) of such Act and inserting ‘6715’.

      (10) Paragraph (2) of section 9502(b) is amended by inserting ‘and before’ after ‘1982,’.

      (11) Subsections (a)(2) and (a)(3) of section 13206 of the Revenue Reconciliation Act of 1993 are each amended by striking ‘this section’ and inserting ‘this subsection’.

      (12) Paragraph (1) of section 13215(c) of the Revenue Reconciliation Act of 1993 is amended by striking ‘Public Law 92-21’ and inserting ‘Public Law 98-21’.

      (13) Paragraph (2) of section 13311(e) of the Revenue Reconciliation Act of 1993 is amended by striking ‘section 1393(a)(3)’ and inserting ‘section 1393(a)(2)’.

      (14) Subparagraph (B) of section 117(d)(2) is amended by striking ‘section 132(f)’ and inserting ‘section 132(h)’.

    (o) EFFECTIVE DATE- Any amendment made by this section shall take effect as if included in the provision of the Revenue Reconciliation Act of 1993 to which such amendment relates.

SEC. 1003. MISCELLANEOUS PROVISIONS.

    (a) APPLICATION OF AMENDMENTS MADE BY TITLE XII OF OMNIBUS BUDGET RECONCILIATION ACT OF 1990- Except as otherwise expressly provided, whenever in title XII of the Omnibus Budget Reconciliation Act of 1990 an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.

    (b) TREATMENT OF CERTAIN AMOUNTS UNDER HEDGE BOND RULES-

      (1) Clause (iii) of section 149(g)(3)(B) is amended to read as follows:

          ‘(iii) AMOUNTS HELD PENDING REINVESTMENT OR REDEMPTION- Amounts held for not more than 30 days pending reinvestment or bond redemption shall be treated as invested in bonds described in clause (i).’

      (2) The amendment made by paragraph (1) shall take effect as if included in the amendments made by section 7651 of the Omnibus Budget Reconciliation Act of 1989.

    (c) TREATMENT OF CERTAIN DISTRIBUTIONS UNDER SECTION 1445-

      (1) IN GENERAL- Paragraph (3) of section 1445(e) is amended by adding at the end thereof the following new sentence: ‘Rules similar to the rules of the preceding provisions of this paragraph shall apply in the case of any distribution to which section 301 applies and which is not made out of the earnings and profits of such a domestic corporation.’

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply to distributions after the date of the enactment of this Act.

    (d) TREATMENT OF CERTAIN CREDITS UNDER SECTION 469-

      (1) IN GENERAL- Subparagraph (B) of section 469(c)(3) is amended by adding at the end thereof the following new sentence: ‘If the preceding sentence applies to the net income from any property for any taxable year, any credits allowable under subpart B (other than section 27(a)) or D of part IV of subchapter A for such taxable year which are attributable to such property shall be treated as credits not from a passive activity to the extent the amount of such credits does not exceed the regular tax liability of the taxpayer for the taxable year which is allocable to such net income.’

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply to taxable years beginning after December 31, 1986.

    (e) TREATMENT OF DISPOSITIONS UNDER PASSIVE LOSS RULES-

      (1) IN GENERAL- Subparagraph (A) of section 469(g)(1) is amended to read as follows:

        ‘(A) IN GENERAL- If all gain or loss realized on such disposition is recognized, the excess of--

          ‘(i) any loss from such activity for such taxable year (determined after the application of subsection (b)), over

          ‘(ii) any net income or gain for such taxable year from all other passive activities (determined after the application of subsection (b)),

        shall be treated as a loss which is not from a passive activity.’

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply to taxable years beginning after December 31, 1986.

    (f) MISCELLANEOUS AMENDMENTS TO FOREIGN PROVISIONS-

      (1) COORDINATION OF UNIFIED ESTATE TAX CREDIT WITH TREATIES- Subparagraph (A) of section 2102(c)(3) is amended by adding at the end thereof the following new sentence: ‘For purposes of the preceding sentence, property shall not be treated as situated in the United States if such property is exempt from the tax imposed by this subchapter under any treaty obligation of the United States.’

      (2) TREATMENT OF CERTAIN INTEREST PAID TO RELATED PERSON-

        (A) IN GENERAL- Subparagraph (B) of section 163(j)(1) is amended by inserting before the period at the end thereof the following: ‘(and clause (ii) of paragraph (2)(A) shall not apply for purposes of applying this subsection to the amount so treated)’.

        (B) EFFECTIVE DATE- The amendment made by subparagraph (A) shall apply as if included in the amendments made by section 7210(a) of the Revenue Reconciliation Act of 1989.

      (3) TREATMENT OF INTEREST ALLOCABLE TO EFFECTIVELY CONNECTED INCOME-

        (A) IN GENERAL-

          (i) Subparagraph (B) of section 884(f)(1) is amended by striking ‘to the extent’ and all that follows down through ‘subparagraph (A)’ and inserting ‘to the extent that the allocable interest exceeds the interest described in subparagraph (A)’.

          (ii) The second sentence of section 884(f)(1) is amended by striking ‘reasonably expected’ and all that follows down through the period at the end thereof and inserting ‘reasonably expected to be allocable interest.’

          (iii) Paragraph (2) of section 884(f) is amended to read as follows:

      ‘(2) ALLOCABLE INTEREST- For purposes of this subsection, the term ‘allocable interest’ means any interest which is allocable to income which is effectively connected (or treated as effectively connected) with the conduct of a trade or business in the United States.’

        (B) EFFECTIVE DATE- The amendments made by subparagraph (A) shall take effect as if included in the amendments made by section 1241(a) of the Tax Reform Act of 1986.

      (4) CLARIFICATION OF SOURCE RULE-

        (A) IN GENERAL- Paragraph (2) of section 865(b) is amended by striking ‘863(b)’ and inserting ‘863’.

        (B) EFFECTIVE DATE- The amendment made by subparagraph (A) shall take effect as if included in the amendments made by section 1211 of the Tax Reform Act of 1986.

      (5) REPEAL OF OBSOLETE PROVISIONS-

        (A) Paragraph (1) of section 6038(a) is amended by striking ‘, and’ at the end of subparagraph (E) and inserting a period, and by striking subparagraph (F).

        (B) Subsection (b) of section 6038A is amended by adding ‘and’ at the end of paragraph (2), by striking ‘, and’ at the end of paragraph (3) and inserting a period, and by striking paragraph (4).

    (g) TREATMENT OF ASSIGNMENT OF INTEREST IN CERTAIN BOND-FINANCED FACILITIES-

      (1) IN GENERAL- Subparagraph (A) of section 1317(3) of the Tax Reform Act of 1986 is amended by adding at the end thereof the following new sentence: ‘A facility shall not fail to be treated as described in this subparagraph by reason of an assignment (or an agreement to an assignment) by the governmental unit on whose behalf the bonds are issued of any part of its interest in the property financed by such bonds to another governmental unit.’

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall take effect as if included in such section 1317 on the date of the enactment of the Tax Reform Act of 1986.

    (h) CLARIFICATION OF TREATMENT OF MEDICARE ENTITLEMENT UNDER COBRA PROVISIONS-

      (1) IN GENERAL-

        (A) Subclause (V) of section 4980B(f)(2)(B)(i) is amended to read as follows:

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

        (B) Clause (v) of section 602(2)(A) of the Employee Retirement Income Security Act of 1974 is amended to read as follows:

          ‘(v) MEDICARE ENTITLEMENT FOLLOWED BY QUALIFYING EVENT- In the case of a qualifying event described in section 603(2) that occurs less than 18 months after the date the covered employee became entitled to benefits under title XVIII of the Social Security Act, the period of coverage for qualified beneficiaries other than the covered employee shall not terminate under this subparagraph before the close of the 36-month period beginning on the date the covered employee became so entitled.’

        (C) Clause (iv) of section 2202(2)(A) of the Public Health Service Act is amended to read as follows:

          ‘(iv) MEDICARE ENTITLEMENT FOLLOWED BY QUALIFYING EVENT- In the case of a qualifying event described in section 2203(2) that occurs less than 18 months after the date the covered employee became entitled to benefits under title XVIII of the Social Security Act, the period of coverage for qualified beneficiaries other than the covered employee shall not terminate under this subparagraph before the close of the 36-month period beginning on the date the covered employee became so entitled.’

      (2) EFFECTIVE DATE- The amendments made by this subsection shall apply to plan years beginning after December 31, 1989.

    (i) TREATMENT OF CERTAIN REMIC INCLUSIONS-

      (1) IN GENERAL- Subsection (a) of section 860E is amended by adding at the end thereof the following new paragraph:

      ‘(6) COORDINATION WITH MINIMUM TAX- For purposes of part VI of subchapter A of this chapter--

        ‘(A) the reference in section 55(b)(2) to taxable income shall be treated as a reference to taxable income determined without regard to this subsection,

        ‘(B) the alternative minimum taxable income of any holder of a residual interest in a REMIC for any taxable year shall in no event be less than the excess inclusion for such taxable year, and

        ‘(C) any excess inclusion shall be disregarded for purposes of computing the alternative tax net operating loss deduction.

      The preceding sentence shall not apply to any organization to which section 593 applies, except to the extent provided in regulations prescribed by the Secretary under paragraph (2).’

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall take effect as if included in the amendments made by section 671 of the Tax Reform Act of 1986 unless the taxpayer elects to apply such amendment only to taxable years beginning after the date of the enactment of this Act.

    (j) EXEMPTION FROM HARBOR MAINTENANCE TAX FOR CERTAIN PASSENGERS-

      (1) IN GENERAL- Subparagraph (D) of section 4462(b)(1) (relating to special rule for Alaska, Hawaii, and possessions) is amended by inserting before the period the following: ‘, or passengers transported on United States flag vessels operating solely within the State waters of Alaska or Hawaii and adjacent international waters’.

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall take effect as if included in the amendments made by section 1402(a) of the Harbor Maintenance Revenue Act of 1986.

    (k) AMENDMENTS RELATED TO REVENUE PROVISIONS OF ENERGY POLICY ACT OF 1992-

      (1) Effective with respect to taxable years beginning after December 31, 1990, subclause (II) of section 53(d)(1)(B)(iv) is amended to read as follows:

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

      (2) Subsection (g) of section 179A is redesignated as subsection (f).

    (l) TREATMENT OF QUALIFIED FOOTBALL COACHES PLAN-

      (1) IN GENERAL- Section 1022 of title II of the Employee Retirement Income Security Act of 1974 is amended by adding at the end thereof the following new subsection:

    ‘(i) QUALIFIED FOOTBALL COACHES PLAN- For purposes of determining the qualified plan status of a qualified football coaches plan, section 3(37)(F) shall be treated as part of this title and a qualified football coaches plan shall be treated as a multiemployer collectively bargained plan for purposes of the Internal Revenue Code of 1986.’

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply to years beginning after the date of the enactment of Public Law 100-202.

    (m) MISCELLANEOUS CLERICAL AMENDMENTS-

      (1) Subclause (II) of section 56(g)(4)(C)(ii) is amended by striking ‘of the subclause’ and inserting ‘of subclause’.

      (2) Paragraph (2) of section 72(m) is amended by inserting ‘and’ at the end of subparagraph (A), by striking subparagraph (B), and by redesignating subparagraph (C) as subparagraph (B).

      (3) Paragraph (2) of section 86(b) is amended by striking ‘adusted’ and inserting ‘adjusted’.

      (4)(A) The heading for section 112 is amended by striking ‘combat pay’ and inserting ‘combat zone compensation’.

      (B) The item relating to section 112 in the table of sections for part III of subchapter B of chapter 1 is amended by striking ‘combat pay’ and inserting ‘combat zone compensation’.

      (C) Paragraph (1) of section 3401(a) is amended by striking ‘combat pay’ and inserting ‘combat zone compensation’.

      (5) Clause (i) of section 172(h)(3)(B) is amended by striking the comma at the end thereof and inserting a period.

      (6) Clause (ii) of section 543(a)(2)(B) is amended by striking ‘section 563(c)’ and inserting ‘section 563(d)’.

      (7) Paragraph (1) of section 958(a) is amended by striking ‘sections 955(b)(1)(A) and (B), 955(c)(2)(A)(ii), and 960(a)(1)’ and inserting ‘section 960(a)(1)’.

      (8) Subsection (g) of section 642 is amended by striking ‘under 2621(a)(2)’ and inserting ‘under section 2621(a)(2)’.

      (9) Section 1463 is amended by striking ‘this subsection’ and inserting ‘this section’.

      (10) Subsection (k) of section 3306 is amended by inserting a period at the end thereof.

      (11) The item relating to section 4472 in the table of sections for subchapter B of chapter 36 is amended by striking ‘and special rules’.

      (12) Paragraph (2) of section 4978(b) is amended by striking the period at the end of subparagraph (A) and inserting a comma, and by striking the period and quotation marks at the end of subparagraph (B) and inserting a comma.

      (13) Paragraph (3) of section 5134(c) is amended by striking ‘section 6662(a)’ and inserting ‘section 6665(a)’.

      (14) Paragraph (2) of section 5206(f) is amended by striking ‘section 5(e)’ and inserting ‘section 105(e)’.

      (15) Paragraph (1) of section 6050B(c) is amended by striking ‘section 85(c)’ and inserting ‘section 85(b)’.

      (16) Subsection (k) of section 6166 is amended by striking paragraph (6).

      (17) Subsection (e) of section 6214 is amended to read as follows:

    ‘(e) CROSS REFERENCE-

‘For provision giving Tax Court jurisdiction to order a refund of an overpayment and to award sanctions, see section 6512(b)(2).’

      (18) The section heading for section 6043 is amended by striking the semicolon and inserting a comma.

      (19) The item relating to section 6043 in the table of sections for subpart B of part III of subchapter A of chapter 61 is amended by striking the semicolon and inserting a comma.

      (20) The table of sections for part I of subchapter A of chapter 68 is amended by striking the item relating to section 6662.

      (21)(A) Section 7232 is amended--

        (i) by striking ‘lubricating oil,’ in the heading, and

        (ii) by striking ‘lubricating oil,’ in the text.

      (B) The table of sections for part II of subchapter A of chapter 75 is amended by striking ‘lubricating oil,’ in the item relating to section 7232.

      (22) Paragraph (1) of section 6701(a) of the Omnibus Budget Reconciliation Act of 1989 is amended by striking ‘subclause (IV)’ and inserting ‘subclause (V)’.

      (23) Clause (ii) of section 7304(a)(2)(D) of such Act is amended by striking ‘subsection (c)(2)’ and inserting ‘subsection (c)’.

      (24) Paragraph (1) of section 7646(b) of such Act is amended by striking ‘section 6050H(b)(1)’ and inserting ‘section 6050H(b)(2)’.

      (25) Paragraph (10) of section 7721(c) of such Act is amended by striking ‘section 6662(b)(2)(C)(ii)’ and inserting ‘section 6661(b)(2)(C)(ii)’.

      (26) Subparagraph (A) of section 7811(i)(3) of such Act is amended by inserting ‘the first place it appears’ before ‘in clause (i)’.

      (27) Paragraph (10) of section 7841(d) of such Act is amended by striking ‘section 381(a)’ and inserting ‘section 381(c)’.

      (28) Paragraph (2) of section 7861(c) of such Act is amended by inserting ‘the second place it appears’ before ‘and inserting’.

      (29) Paragraph (1) of section 460(b) is amended by striking ‘the look-back method of paragraph (3)’ and inserting ‘the look-back method of paragraph (2)’.

      (30) Subparagraph (C) of section 50(a)(2) is amended by striking ‘subsection (c)(4)’ and inserting ‘subsection (d)(5)’.

      (31) Subparagraph (B) of section 172(h)(4) is amended by striking the material following the heading and preceding clause (i) and inserting ‘For purposes of subsection (b)(2)--’.

      (32) Subparagraph (A) of section 355(d)(7) is amended by inserting ‘section’ before ‘267(b)’.

      (33) Subparagraph (C) of section 420(e)(1) is amended by striking ‘mean’ and inserting ‘means’.

      (34) Paragraph (4) of section 537(b) is amended by striking ‘section 172(i)’ and inserting ‘section 172(f)’.

      (35) Subparagraph (B) of section 613(e)(1) is amended by striking the comma at the end thereof and inserting a period.

      (36) Paragraph (4) of section 856(a) is amended by striking ‘section 582(c)(5)’ and inserting ‘section 582(c)(2)’.

      (37) Sections 904(f)(2)(B)(i) and 907(c)(4)(B)(iii) are each amended by inserting ‘(as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990)’ after ‘section 172(h)’.

      (38) Subsection (b) of section 936 is amended by striking ‘subparagraphs (D)(ii)(I)’ and inserting ‘subparagraphs (D)(ii)’.

      (39) Subsection (c) of section 2104 is amended by striking ‘subparagraph (A), (C), or (D) of section 861(a)(1)’ and inserting ‘section 861(a)(1)(A)’.

      (40) Paragraph (1) of section 5002(b) is amended by striking ‘section 5041(c)’ and inserting ‘section 5041(d)’.

      (41) Section 6038 is amended by redesignating the subsection relating to cross references as subsection (f).

      (42) Clause (iv) of section 6103(e)(1)(A) is amended by striking all that follows ‘provisions of’ and inserting ‘section 1(g) or 59(j);’.

      (43) The subsection (f) of section 6109 of the Internal Revenue Code of 1986 which was added by section 2201(d) of Public Law 101-624 is redesignated as subsection (g).

      (44) Subsection (b) of section 7454 is amended by striking ‘section 4955(e)(2)’ and inserting ‘section 4955(f)(2)’.

      (45) Subsection (d) of section 11231 of the Revenue Reconciliation Act of 1990 shall be applied as if ‘comma’ appeared instead of ‘period’ and as if the paragraph (9) proposed to be added ended with a comma.

      (46) Paragraph (1) of section 11303(b) of the Revenue Reconciliation Act of 1990 shall be applied as if ‘paragraph’ appeared instead of ‘subparagraph’ in the material proposed to be stricken.

      (47) Subsection (f) of section 11701 of the Revenue Reconciliation Act of 1990 is amended by inserting ‘(relating to definitions)’ after ‘section 6038(e)’.

      (48) Subsection (i) of section 11701 of the Revenue Reconciliation Act of 1990 shall be applied as if ‘subsection’ appeared instead of ‘section’ in the material proposed to be stricken.

      (49) Subparagraph (B) of section 11801(c)(2) of the Revenue Reconciliation Act of 1990 shall be applied as if ‘section 56(g)’ appeared instead of ‘section 59(g)’.

      (50) Subparagraph (C) of section 11801(c)(8) of the Revenue Reconciliation Act of 1990 shall be applied as if ‘reorganizations’ appeared instead of ‘reorganization’ in the material proposed to be stricken.

      (51) Subparagraph (H) of section 11801(c)(9) of the Revenue Reconciliation Act of 1990 shall be applied as if ‘section 1042(c)(1)(B)’ appeared instead of ‘section 1042(c)(2)(B)’.

      (52) Subparagraph (F) of section 11801(c)(12) of the Revenue Reconciliation Act of 1990 shall be applied as if ‘and (3)’ appeared instead of ‘and (E)’.

      (53) Subparagraph (A) of section 11801(c)(22) of the Revenue Reconciliation Act of 1990 shall be applied as if ‘chapters 21’ appeared instead of ‘chapter 21’ in the material proposed to be stricken.

      (54) Paragraph (3) of section 11812(b) of the Revenue Reconciliation Act of 1990 shall be applied by not executing the amendment therein to the heading of section 42(d)(5)(B).

      (55) Clause (i) of section 11813(b)(9)(A) of the Revenue Reconciliation Act of 1990 shall be applied as if a comma appeared after ‘(3)(A)(ix)’ in the material proposed to be stricken.

      (56) Subparagraph (F) of section 11813(b)(13) of the Revenue Reconciliation Act of 1990 shall be applied as if ‘tax’ appeared after ‘investment’ in the material proposed to be stricken.

      (57) Paragraph (19) of section 11813(b) of the Revenue Reconciliation Act of 1990 shall be applied as if ‘Paragraph (20) of section 1016(a), as redesignated by section 11801,’ appeared instead of ‘Paragraph (21) of section 1016(a)’.

      (58) Paragraph (5) section 8002(a) of the Surface Transportation Revenue Act of 1991 shall be applied as if ‘4481(e)’ appeared instead of ‘4481(c)’.

      (59) Section 7872 is amended--

        (A) by striking ‘foregone’ each place it appears in subsections (a) and (e)(2) and inserting ‘forgone’, and

        (B) by striking ‘FOREGONE’ in the heading for subsection (e) and the heading for paragraph (2) of subsection (e) and inserting ‘FORGONE’.

      (60) Paragraph (7) of section 7611(h) is amended by striking ‘appropriate’ and inserting ‘appropriate’.

      (61) The heading of paragraph (3) of section 419A(c) is amended by striking ‘SEVERENCE’ and inserting ‘SEVERANCE’.

      (62) Clause (ii) of section 807(d)(3)(B) is amended by striking ‘Commissioners’ ’ and inserting ‘Commissioners’ ’.

      (63) Subparagraph (B) of section 1274A(c)(1) is amended by striking ‘instrument’ and inserting ‘instrument’.

      (64) Subparagraph (B) of section 724(d)(3) by striking ‘Subparagraph’ and inserting ‘Subparagraph’.

      (65) The last sentence of paragraph (2) of section 42(c) is amended by striking ‘of 1988’.

      (66) Paragraph (1) of section 9707(d) is amended by striking ‘diligence,’ and inserting ‘diligence’.

      (67) Subsection (c) of section 4977 is amended by striking ‘section 132(g)(2)’ and inserting ‘section 132(h)’.

      (68) The last sentence of section 401(a)(20) is amended by striking ‘section 211’ and inserting ‘section 521’.

      (69) Subparagraph (A) of section 402(g)(3) is amended by striking ‘subsection (a)(8)’ and inserting ‘subsection (e)(3)’.

      (70) The last sentence of section 403(b)(10) is amended by striking ‘an direct’ and inserting ‘a direct’.

      (71) Subparagraph (A) of section 4973(b)(1) is amended by striking ‘sections 402(c)’ and inserting ‘section 402(c)’.

      (72) Paragraph (12) of section 3405(e) is amended by striking ‘(b)(3)’ and inserting ‘(b)(2)’.

      (73) Paragraph (41) of section 521(b) of the Unemployment Compensation Amendments of 1992 shall be applied as if ‘section’ appeared instead of ‘sections’ in the material proposed to be stricken.

      (74) Paragraph (27) of section 521(b) of the Unemployment Compensation Amendments of 1992 shall be applied as if ‘Section 691(c)(5)’ appeared instead of ‘Section 691(c)’.

      (75) Paragraph (5) of section 860F(a) is amended by striking ‘paragraph (1)’ and inserting ‘paragraph (2)’.

Subtitle B--Income Security and Human Resource Amendments

PART I--AMENDMENTS RELATING TO OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE PROGRAM

SEC. 1011. TECHNICAL CORRECTIONS RELATED TO OASDI IN THE OMNIBUS BUDGET RECONCILIATION ACT OF 1990.

    (a) AMENDMENTS RELATED TO PROVISIONS IN SECTION 5103(b) RELATING TO DISABLED WIDOWS- Section 223(f)(2) of the Social Security Act (42 U.S.C. 423(f)(2)) is amended--

      (1) in subparagraph (A), by striking ‘(in a case to which clause (ii)(II) does not apply)’; and

      (2) by striking subparagraph (B)(ii) and inserting the following:

          ‘(ii) the individual is now able to engage in substantial gainful activity; or’.

    (b) AMENDMENTS RELATED TO PROVISIONS IN SECTION 5105(d) RELATING TO REPRESENTATIVE PAYEES- Section 5105(d)(1)(A) of the Omnibus Budget Reconciliation Act of 1990 (Public Law 101-508) is amended--

      (1) by striking ‘Section 205(j)(5)’ and inserting ‘Section 205(j)(6)’; and

      (2) by redesignating the paragraph (5) as amended thereby as paragraph (6).

    (c) AMENDMENTS RELATED TO PROVISIONS IN SECTION 5106 Relating to Coordination of Rules Under Titles II and XVI Governing Fees for Representatives of Claimants With Entitlements Under Both Titles-

      (1) CALCULATION OF FEE OF CLAIMANT’S REPRESENTATIVE BASED ON AMOUNT OF PAST-DUE SUPPLEMENTAL SECURITY INCOME BENEFITS AFTER APPLICATION OF WINDFALL OFFSET PROVISION- Section 1631(d)(2)(A)(i) of the Social Security Act (as amended by section 5106(a)(2) of the Omnibus Budget Reconciliation Act of 1990) (42 U.S.C. 1383(d)(2)(A)(i)) is amended to read as follows:

      ‘(i) by substituting, in subparagraphs (A)(ii)(I) and (C)(i), the phrase ‘(as determined before any applicable reduction under section 1631(g), and reduced by the amount of any reduction in benefits under this title or title II made pursuant to section 1127(a))’ for the parenthetical phrase contained therein; and’.

      (2) CALCULATION OF PAST-DUE BENEFITS FOR PURPOSES OF DETERMINING ATTORNEY FEES IN JUDICIAL PROCEEDINGS-

        (A) IN GENERAL- Section 206(b)(1) of such Act (42 U.S.C. 406(b)(1)) is amended--

          (i) by inserting ‘(A)’ after ‘(b)(1)’; and

          (ii) by adding at the end the following new subparagraph:

    ‘(B) For purposes of this paragraph--

      ‘(i) the term ‘past-due benefits’ excludes any benefits with respect to which payment has been continued pursuant to subsection (g) or (h) of section 223, and

      ‘(ii) amounts of past-due benefits shall be taken into account to the extent provided under the rules applicable in cases before the Secretary.’.

        (B) PROTECTION FROM OFFSETTING SSI BENEFITS- The last sentence of section 1127(a) of such Act (as added by section 5106(b) of the Omnibus Budget Reconciliation Act of 1990) (42 U.S.C. 1320a-6(a)) is amended by striking ‘section 206(a)(4)’ and inserting ‘subsection (a)(4) or (b) of section 206’.

      (3) APPLICATION OF SINGLE DOLLAR AMOUNT CEILING TO CONCURRENT CLAIMS UNDER TITLES II AND XVI-

        (A) IN GENERAL- Section 206(a)(2) of such Act (as amended by section 5106(a)(1) of the Omnibus Budget Reconciliation Act of 1990) (42 U.S.C. 406(a)(2)) is amended--

          (i) by redesignating subparagraph (C) as subparagraph (D); and

          (ii) by inserting after subparagraph (B) the following new subparagraph:

    ‘(C) In any case involving--

      ‘(i) an agreement described in subparagraph (A) with any person relating to both a claim of entitlement to past-due benefits under this title and a claim of entitlement to past-due benefits under title XVI, and

      ‘(ii) a favorable determination made by the Secretary with respect to both such claims,

    the Secretary may approve such agreement only if the total fee or fees specified in such agreement does not exceed, in the aggregate, the dollar amount in effect under subparagraph (A)(ii)(II).’.

        (B) CONFORMING AMENDMENT- Section 206(a)(3)(A) of such Act (as amended by section 5106(a)(1) of the Omnibus Budget Reconciliation Act of 1990) (42 U.S.C. 406(a)(3)(A)) is amended by striking ‘paragraph (2)(C)’ and inserting ‘paragraph (2)(D)’.

    (d) AMENDMENT RELATED TO PROVISIONS IN SECTION 5115 RELATING TO ADVANCE TAX TRANSFERS- Section 201(a) of the Social Security Act (42 U.S.C. 401(a)) is amended in the last sentence by striking ‘and’ the second place it appears.

    (e) EFFECTIVE DATE- Each amendment made by this section shall take effect as if included in the provisions of the Omnibus Budget Reconciliation Act of 1990 to which such amendment relates.

SEC. 1012. ELIMINATION OF ROUNDING DISTORTION IN THE CALCULATION OF THE OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE CONTRIBUTION AND BENEFIT BASE AND THE EARNINGS TEST EXEMPT AMOUNTS.

    (a) ADJUSTMENT OF OASDI CONTRIBUTION AND BENEFIT BASE-

      (1) IN GENERAL- Section 230(b) of the Social Security Act (42 U.S.C. 430(b)) is amended by striking paragraphs (1) and (2) and inserting the following:

      ‘(1) $60,600, and

      ‘(2) the ratio of (A) the deemed average total wages (as defined in section 209(k)(1)) for the calendar year before the calendar year in which the determination under subsection (a) is made to (B) the deemed average total wages (as so defined) for 1992,’.

      (2) CONFORMING AMENDMENT RELATING TO APPLICABLE PRIOR LAW- Section 230(d) of such Act (42 U.S.C. 430(d)) is amended by striking ‘(except that’ and all that follows through the end and inserting ‘(except that, for purposes of subsection (b) of such section 230 as so in effect, the reference to the contribution and benefit base in paragraph (1) of such subsection (b) shall be deemed a reference to an amount equal to $45,000, each reference in paragraph (2) of such subsection (b) to the average of the wages of all employees as reported to the Secretary of the Treasury shall be deemed a reference to the deemed average total wages (as defined in section 209(k)(1)), the reference to a preceding calendar year in paragraph (2)(A) of such subsection (b) shall be deemed a reference to the calendar year before the calendar year in which the determination under subsection (a) of such section 230 is made, and the reference to a calendar year in paragraph (2)(B) of such subsection (b) shall be deemed a reference to 1992).’.

      (3) ADJUSTMENT OF CONTRIBUTION AND BENEFIT BASE APPLICABLE IN DETERMINING YEARS OF COVERAGE FOR PURPOSES OF SPECIAL MINIMUM PRIMARY INSURANCE AMOUNT- Section 215(a)(1)(C)(ii) of such Act is amended by striking ‘(except that’ and all that follows through the end and inserting ‘(except that, for purposes of subsection (b) of such section 230 as so in effect, the reference to the contribution and benefit base in paragraph (1) of such subsection (b) shall be deemed a reference to an amount equal to $45,000, each reference in paragraph (2) of such subsection (b) to the average of the wages of all employees as reported to the Secretary of the Treasury shall be deemed a reference to the deemed average total wages (as defined in section 209(k)(1)), the reference to a preceding calendar year in paragraph (2)(A) of such subsection (b) shall be deemed a reference to the calendar year before the calendar year in which the determination under subsection (a) of such section 230 is made, and the reference to a calendar year in paragraph (2)(B) of such subsection (b) shall be deemed a reference to 1992).’.

    (b) ADJUSTMENT OF EARNINGS TEST EXEMPT AMOUNT- Section 203(f)(8)(B)(ii) of the Social Security Act (42 U.S.C. 403(f)(8)(B)(ii)) is amended to read as follows:

        ‘(ii) the product of the corresponding exempt amount which is in effect with respect to months in the taxable year ending after 1993 and before 1995, and the ratio of--

          ‘(I) the deemed average total wages (as defined in section 209(k)(1)) for the calendar year before the calendar year in which the determination under subparagraph (A) is made, to

          ‘(II) the deemed average total wages (as so defined) for 1992,

        with such product, if not a multiple of $10, being rounded to the next higher multiple of $10 where such product is a multiple of $5 but not of $10 and to the nearest multiple of $10 in any other case.’.

    (c) EFFECTIVE DATES-

      (1) The amendments made by subsection (a) shall be effective with respect to the determination of the contribution and benefit base for years after 1994.

      (2) The amendment made by subsection (b) shall be effective with respect to the determination of the exempt amounts applicable to any taxable year ending after 1994.

PART II--HUMAN RESOURCES PROVISIONS

SEC. 1016. CORRECTIONS RELATED TO THE INCOME SECURITY AND HUMAN RESOURCES PROVISIONS OF THE OMNIBUS BUDGET RECONCILIATION ACT OF 1990.

    (a) AMENDMENT RELATED TO SECTION 5035(a)(2)- Section 5035(a)(2) of the Omnibus Budget Reconciliation Act of 1990 (Public Law 101-508) is amended by striking ‘a semicolon’ and inserting ‘ ‘; and’ ’.

    (b) REPEAL OF PROVISION INADVERTENTLY INCLUDED- Section 5057 of the Omnibus Budget Reconciliation Act of 1990 (Public Law 101-508), and the amendment made by such section, are hereby repealed, and section 1139(d) of the Social Security Act shall be applied and administered as if such section 5057 had never been enacted.

    (c) AMENDMENT RELATED TO SECTION 5105(d)(1)(B)- Section 5105(d)(1)(B) of the Omnibus Budget Reconciliation Act of 1990 (Public Law 101-508; 104 Stat. 1388-266) is amended to read as follows:

        ‘(B) TITLE XVI- Section 1631(a)(2)(F) (42 U.S.C. 1383(a)(2)(F)), as so redesignated by subsection (c)(2) of this section, is amended to read as follows:

    ‘(F) The Secretary shall include as a part of the annual report required under section 704 information with respect to the implementation of the preceding provisions of this paragraph, including--

      ‘(i) the number of cases in which the representative payee was changed;

      ‘(ii) the number of cases discovered where there has been a misuse of funds;

      ‘(iii) how any such cases were dealt with by the Secretary;

      ‘(iv) the final disposition of such cases (including any criminal penalties imposed); and

      ‘(v) such other information as the Secretary determines to be appropriate.’.’

    (d) AMENDMENT RELATED TO SECTION 5105(a)(1)(B)- The second paragraph of section 1631(a) of the Social Security Act (42 U.S.C. 1383(a)) is amended by striking ‘(A)(i) Payments’ and inserting ‘(2)(A)(i) Payments’.

    (e) AMENDMENTS RELATED TO SECTION 5105(b)- Section 1631(a)(2)(C) of the Social Security Act (42 U.S.C. 1383(a)(2)(C)) is amended--

      (1) by striking clause (ii);

      (2) by redesignating clauses (iii), (iv), and (v) as clauses (ii), (iii), and (iv), respectively; and

      (3) in clause (iv) (as so redesignated), by striking ‘(iii), and (iv)’ and inserting ‘and (iii)’.

    (f) AMENDMENTS RELATED TO SECTION 5107(a)(2)(B)- Section 1631(c)(1)(B) of the Social Security Act (42 U.S.C. 1383(c)(1)(B)) is amended by striking ‘paragraph (1)’ each place such term appears and inserting ‘subparagraph (A)’.

    (g) AMENDMENT RELATED TO SECTION 5109(a)(2)- Section 1631 of the Social Security Act (42 U.S.C. 1383) is amended by redesignating the subsection (n) added by section 5109(a)(2) of the Omnibus Budget Reconciliation Act of 1990, as subsection (o).

    (h) AMENDMENTS RELATED TO SECTION 11115(b)(2)- Section 11115(b)(2) of the Omnibus Budget Reconciliation Act of 1990 (Public Law 101-508) is amended--

      (1) in subparagraph (A), by striking ‘paragraph (8)’ and inserting ‘paragraph (9)’;

      (2) in subparagraph (B), by striking ‘paragraph (9)’ and inserting ‘paragraph (10)’; and

      (3) in subparagraph (C), by redesignating the new paragraph added thereby as paragraph (11).

    (i) EFFECTIVE DATE- Each amendment made by this section shall take effect as if included in the provision of the Omnibus Budget Reconciliation Act of 1990 to which the amendment relates at the time such provision became law.

SEC. 1017. TECHNICAL CORRECTIONS RELATED TO THE HUMAN RESOURCE AND INCOME SECURITY PROVISIONS OF OMNIBUS BUDGET RECONCILIATION ACT OF 1989.

    (a) AMENDMENT RELATING TO SECTION 8004(a)- Section 408(m)(2)(A) of the Social Security Act (42 U.S.C. 608(m)(2)(A)) is amended by striking ‘a fiscal’ and inserting ‘the fiscal’.

    (b) AMENDMENT RELATING TO SECTION 8006(a)- Section 473(a)(6)(B) of such Act (42 U.S.C. 673(a)(6)(B)) is amended by striking ‘474(a)(3)(B)’ and inserting ‘474(a)(3)(C)’.

    (c) AMENDMENT RELATING TO SECTION 8007(b)(3)- Subparagraph (D) of section 475(5) of such Act (42 U.S.C. 675(5)(D)) is amended by moving such subparagraph 2 ems to the right so that the left margin of such subparagraph is aligned with the left margin of subparagraph (C) of such section.

    (d) EFFECTIVE DATE- Each amendment made by this section shall take effect as if the amendment had been included in the provision of the Omnibus Budget Reconciliation Act of 1989 to which the amendment relates, at the time the provision became law.

SEC. 1018. ELIMINATION OF OBSOLETE PROVISIONS RELATING TO TREATMENT OF THE EARNED INCOME TAX CREDIT.

    (a) TREATMENT OF EITC AS EARNED INCOME- Section 1612(a)(1) of the Social Security Act (42 U.S.C. 1382a(a)(1)) is amended by striking subparagraph (C) and by redesignating subparagraphs (D) and (E) as subparagraphs (C) and (D), respectively.

    (b) ADJUSTMENT OF BENEFITS DUE TO TREATMENT OF EITC AS EARNED INCOME- Section 1631(b) of such Act (42 U.S.C. 1383(b)) is amended by striking paragraph (3) and by redesignating paragraphs (4) and (5) as paragraphs (3) and (4), respectively.

SEC. 1019. REDESIGNATION OF CERTAIN PROVISIONS.

    Section 1631(e)(6) of the Social Security Act (42 U.S.C. 1383(e)(6)) is amended by redesignating subparagraphs (1) and (2) as subparagraphs (A) and (B), respectively.

Subtitle C--Tariff and Customs

SEC. 1021. TECHNICAL AMENDMENTS TO THE HARMONIZED TARIFF SCHEDULE OF THE UNITED STATES.

    (a) IN GENERAL- The Harmonized Tariff Schedule of the United States is amended as follows:

      (1) TAPESTRY AND UPHOLSTERY FABRICS- The article description for subheading 5112.19.20 is amended by striking ‘of a weight exceeding 300 g/m2’.

      (2) GLOVES-

        (A) Chapter 61 is amended by redesignating subheading 6116.10.45 as subheading 6116.10.48.

        (B) Chapter 62 is amended by striking the superior text ‘Other:’ that appears between subheadings 6216.00.46 and 6216.00.52.

      (3) AGGLOMERATE STONE FLOOR AND WALL TILES- The article description for subheading 6810.19.12 is amended to read as follows: ‘Of stone agglomerated with binders other than cement’.

      (4) 2,4-DIAMINOBENZENESULFONIC ACID- The article description for heading 9902.30.43 is amended by striking ‘2921.51.50’ and inserting ‘2921.59.50’.

      (5) MACHINES USED IN THE MANUFACTURE OF BICYCLE PARTS- The article description for heading 9902.84.79 is amended by striking ‘8479.89.90’ and inserting ‘8462.49.00, 8479.89.90 or 9031.80.00’.

      (6) COPYING MACHINES AND PARTS- The article description for heading 9902.90.90 is amended by inserting ‘or 8473.40.40’ after ‘8472.90.80’.

    (b) STAGED RATE REDUCTIONS FOR GLOVES- Any staged reduction of a special rate of duty set forth in subheading 6116.10.45 of such Schedule that takes effect on or after October 1, 1990, by reason of section 10011(a)(2) of the Omnibus Budget Reconciliation Act of 1990 shall apply to the corresponding rate of duty in subheading 6116.10.48 (as redesignated by subsection (a)(2)(A)).

    (c) EFFECTIVE DATES-

      (1) IN GENERAL- Except as provided in paragraph (2), the amendments made by subsection (a) shall apply with respect to goods entered, or withdrawn from warehouse for consumption, on or after the 15th day after the date of the enactment of this Act.

      (2) RETROACTIVE APPLICATION FOR CERTAIN LIQUIDATIONS AND RELIQUIDATIONS-

        (A) Notwithstanding section 514 of the Tariff Act of 1930 or any other provision of law, upon proper request filed with the appropriate customs officer on or before the 90th day after the date of the enactment of this Act, any entry--

          (i) that was made after the applicable date and before the 15th day after such date of enactment; and

          (ii) with respect to which there would have been a lesser or no duty if any amendment made by subsection (a) applied to such entry;

        shall be liquidated or reliquidated as though such amendment applied to such entry.

        (B) For purposes of this subsection, the term ‘applicable date’ means--

          (i) if such amendment is made by subsection (a)(3) or (a)(6), December 31, 1988; and

          (ii) if such amendment is made by subsection (a)(1), (a)(2), (a)(4), (a)(5), September 30, 1990.

SEC. 1022. CLARIFICATION REGARDING THE APPLICATION OF CUSTOMS USER FEES.

    (a) IN GENERAL- Subparagraph (D) of section 13031(b)(8) of the Consolidated Omnibus Budget Reconciliation Act of 1985 (19 U.S.C. 58c(b)(8)(D)) is amended--

      (1) by striking ‘and’ at the end of clause (iv);

      (2) by striking the period at the end of clause (v) and inserting ‘; and’; and

      (3) by inserting after clause (v) the following new clause:

      ‘(vi) in the case of merchandise entered from a foreign trade zone (other than merchandise to which clause (v) applies), be applied only to the value of the privileged or nonprivileged foreign status merchandise under section 3 of the Act of June 18, 1934 (commonly known as the Foreign Trade Zones Act, 19 U.S.C. 81c).’

    (b) EFFECTIVE DATE- The amendments made by subsection (a) apply to--

      (1) any entry made from a foreign trade zone on or after the 15th day after the date of the enactment of this Act; and

      (2) any entry made from a foreign trade zone after November 30, 1986, and before such 15th day if the entry was not liquidated before such 15th day.

    (c) APPLICATION OF FEES TO CERTAIN AGRICULTURAL PRODUCTS- The amendment made by section 111(b)(2)(D)(iv) of the Customs and Trade Act of 1990 shall apply to--

      (1) any entry made from a foreign trade zone on or after the 15th day after the date of the enactment of this Act; and

      (2) any entry made from a foreign trade zone after November 30, 1986, and before such 15th day if the entry was not liquidated, or if the liquidation has not become final, before such 15th day.

SEC. 1023. TECHNICAL AMENDMENTS TO THE OMNIBUS TRADE AND COMPETITIVENESS ACT OF 1988.

    (a) IN GENERAL- Paragraph (2) of section 1102(a) of the Omnibus Trade and Competitiveness Act of 1988 (19 U.S.C. 2902(a)(2)) is amended--

      (1) in subparagraph (A)--

        (A) by striking ‘the date of enactment of this Act’ and inserting ‘January 1, 1989’; and

        (B) by striking ‘such date of enactment’ and inserting ‘January 1, 1989’; and

      (2) in subparagraph (B), by striking ‘such date of enactment’ and inserting ‘January 1, 1989’.

    (b) EFFECTIVE DATE- The amendments made by subsection (a) shall take effect January 1, 1989.

    (c) CONSTRUCTION- For purposes of applying the amendments made by subsection (a), the column 1-general rate of duty established by any amendment to the Harmonized Tariff Schedule of the United States that was enacted after January 1, 1989, shall, if--

      (1) such amendment has, or is statutorily treated as having, an effective date of January 1, 1989; or

      (2) application for liquidation or reliquidation at such rate with respect to entries made after December 31, 1988, and before the effective date of the amendment, is provided for;

    be treated as the rate in effect on January 1, 1989.

SEC. 1024. TECHNICAL AMENDMENT TO THE CUSTOMS AND TRADE ACT OF 1990.

    Subsection (b) of section 484H of the Customs and Trade Act of 1990 (19 U.S.C. 1553 note) is amended by striking ‘, or withdrawn from warehouse for consumption,’ and inserting ‘for transportation in bond’.

SEC. 1025. TECHNICAL AMENDMENTS REGARDING CERTAIN BENEFICIARY COUNTRIES.

    (a) CARIBBEAN BASIN ECONOMIC RECOVERY ACT- Section 213(h)(1) of the Caribbean Basin Economic Recovery Act (19 U.S.C. 2703(h)(1)) is amended by adding at the end thereof the following flush sentence:

      ‘The duty reductions provided for under this paragraph shall not apply to textile and apparel articles which are subject to textile agreements.’

    (b) ANDEAN TRADE PREFERENCE ACT- Section 204(c)(1) of the Andean Trade Preference Act (19 U.S.C. 3203(c)(1)) is amended by adding at the end thereof the following flush sentence:

      ‘The duty reductions provided for under this paragraph shall not apply to textile and apparel articles which are subject to textile agreements.’

    (c) EFFECTIVE DATE- The amendments made by this section apply with respect to--

      (1) articles entered, or withdrawn from warehouse for consumption, on or after the 15th day after the date of the enactment of this Act, and

      (2) articles entered after December 31, 1991, and before such 15th day, which are not liquidated before such 15th day.

SEC. 1026. CLARIFICATION OF FEES FOR CERTAIN CUSTOMS SERVICES.

    (a) IN GENERAL- Section 13031(b)(9)(A) of the Consolidated Omnibus Budget Reconciliation Act of 1985 (19 U.S.C. 58c(b)(9)(A)) is amended--

      (1) by striking ‘centralized hub facility or’ in clause (i); and

      (2) in clause (ii)--

        (A) by striking ‘facility--’ and inserting ‘facility or centralized hub facility--’,

        (B) by striking ‘customs inspectional’ in subclause (I), and

        (C) by striking ‘at the facility’ in subclause (I) and inserting ‘for the facility’.

    (b) DEFINITIONS- Section 13031(b)(9)(B)(i) of the Consolidated Omnibus Budget Reconciliation Act of 1985 (19 U.S.C. 58c(b)(9)(B)(i)) is amended--

      (1) by striking ‘, as in effect on July 30, 1990’, and

      (2) by adding at the end thereof the following new sentence: ‘Nothing in this paragraph shall be construed as prohibiting the Secretary of the Treasury from processing merchandise that is informally entered or released at any centralized hub facility or express consignment carrier facility during the normal operating hours of the Customs Service, subject to reimbursement and payment under subparagraph (A).’.

    (c) CITATION- Section 13031(b)(9)(B)(ii) of the Consolidated Omnibus Budget Reconciliation Act of 1985 (19 U.S.C. 58c(b)(9)(B)(ii)) is amended by striking ‘section 236 of the Tariff and Trade Act of 1984’ and inserting ‘section 236 of the Trade and Tariff Act of 1984’.

SEC. 1027. CONFORMING AMENDMENT TO SECTION 337 OF THE TARIFF ACT OF 1930.

    (a) IN GENERAL- The second sentence of section 337(b)(3) of the Tariff Act of 1930 is amended by striking ‘section 303, 671, or 673’ and inserting ‘section 303, 701, or 731’.

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall take effect October 28, 1992.

Passed the House of Representatives May 17, 1994.

Attest:

DONNALD K. ANDERSON,

Clerk.

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