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H.R. 3448 (104th): Small Business Job Protection Act of 1996


The text of the bill below is as of May 22, 1996 (Passed the House).


HR 3448 EH

104th CONGRESS

2d Session

H. R. 3448


AN ACT

To provide tax relief for small businesses, to protect jobs, to create opportunities, to increase the take home pay of workers, to amend the Portal-to-Portal Act of 1947 relating to the payment of wages to employees who use employer owned vehicles, and to amend the Fair Labor Standards Act of 1938 to increase the minimum wage rate and to prevent job loss by providing flexibility to employers in complying with minimum wage and overtime requirements under that Act.

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) SHORT TITLE- This Act may be cited as the ‘Small Business Job Protection Act of 1996’.

    (b) TABLE OF CONTENTS-

TITLE I--SMALL BUSINESS AND OTHER TAX PROVISIONS

      Sec. 1101. Amendment of 1986 Code.

      Sec. 1102. Underpayments of estimated tax.

Subtitle A--Expensing; Etc.

      Sec. 1111. Increase in expense treatment for small businesses.

      Sec. 1112. Treatment of employee tips.

      Sec. 1113. Treatment of storage of product samples.

      Sec. 1114. Treatment of certain charitable risk pools.

      Sec. 1115. Treatment of dues paid to agricultural or horticultural organizations.

      Sec. 1116. Clarification of employment tax status of certain fishermen; information reporting.

Subtitle B--Extension of Certain Expiring Provisions

      Sec. 1201. Work opportunity tax credit.

      Sec. 1202. Employer-provided educational assistance programs.

      Sec. 1203. FUTA exemption for alien agricultural workers.

Subtitle C--Provisions Relating to S Corporations

      Sec. 1301. S corporations permitted to have 75 shareholders.

      Sec. 1302. Electing small business trusts.

      Sec. 1303. Expansion of post-death qualification for certain trusts.

      Sec. 1304. Financial institutions permitted to hold safe harbor debt.

      Sec. 1305. Rules relating to inadvertent terminations and invalid elections.

      Sec. 1306. Agreement to terminate year.

      Sec. 1307. Expansion of post-termination transition period.

      Sec. 1308. S corporations permitted to hold subsidiaries.

      Sec. 1309. Treatment of distributions during loss years.

      Sec. 1310. Treatment of S corporations under subchapter C.

      Sec. 1311. Elimination of certain earnings and profits.

      Sec. 1312. Carryover of disallowed losses and deductions under at-risk rules allowed.

      Sec. 1313. Adjustments to basis of inherited S stock to reflect certain items of income.

      Sec. 1314. S corporations eligible for rules applicable to real property subdivided for sale by noncorporate taxpayers.

      Sec. 1315. Effective date.

Subtitle D--Pension Simplification

Chapter 1--Simplified Distribution Rules

      Sec. 1401. Repeal of 5-year income averaging for lump-sum distributions.

      Sec. 1402. Repeal of $5,000 exclusion of employees’ death benefits.

      Sec. 1403. Simplified method for taxing annuity distributions under certain employer plans.

      Sec. 1404. Required distributions.

Chapter 2--Increased Access to Pension Plans

SUBCHAPTER A--SIMPLE SAVINGS PLANS

      Sec. 1421. Establishment of savings incentive match plans for employees of small employers.

      Sec. 1422. Extension of simple plan to 401(k) arrangements.

SUBCHAPTER B--OTHER PROVISIONS

      Sec. 1426. Tax-exempt organizations eligible under section 401(k).

Chapter 3--Nondiscrimination Provisions

      Sec. 1431. Definition of highly compensated employees; repeal of family aggregation.

      Sec. 1432. Modification of additional participation requirements.

      Sec. 1433. Nondiscrimination rules for qualified cash or deferred arrangements and matching contributions.

      Sec. 1434. Definition of compensation for section 415 purposes.

Chapter 4--Miscellaneous Provisions

      Sec. 1441. Plans covering self-employed individuals.

      Sec. 1442. Elimination of special vesting rule for multiemployer plans.

      Sec. 1443. Distributions under rural cooperative plans.

      Sec. 1444. Treatment of governmental plans under section 415.

      Sec. 1445. Uniform retirement age.

      Sec. 1446. Contributions on behalf of disabled employees.

      Sec. 1447. Treatment of deferred compensation plans of State and local governments and tax-exempt organizations.

      Sec. 1448. Trust requirement for deferred compensation plans of State and local governments.

      Sec. 1449. Transition rule for computing maximum benefits under section 415 limitations.

      Sec. 1450. Modifications of section 403(b).

      Sec. 1451. Waiver of minimum period for joint and survivor annuity explanation before annuity starting date.

      Sec. 1452. Repeal of limitation in case of defined benefit plan and defined contribution plan for same employee; excess distributions.

      Sec. 1453. Tax on prohibited transactions.

      Sec. 1454. Treatment of leased employees.

      Sec. 1455. Uniform penalty provisions to apply to certain pension reporting requirements.

      Sec. 1456. Retirement benefits of ministers not subject to tax on net earnings from self-employment.

      Sec. 1457. Date for adoption of plan amendments.

Subtitle E--Foreign Simplification

      Sec. 1501. Repeal of inclusion of certain earnings invested in excess passive assets.

Subtitle F--Revenue Offsets

      Sec. 1601. Termination of Puerto Rico and possession tax credit.

      Sec. 1602. Repeal of exclusion for interest on loans used to acquire employer securities.

      Sec. 1603. Certain amounts derived from foreign corporations treated as unrelated business taxable income.

      Sec. 1604. Depreciation under income forecast method.

      Sec. 1605. Repeal of exclusion for punitive damages and for damages not attributable to physical injuries or sickness.

      Sec. 1606. Repeal of diesel fuel tax rebate to purchasers of diesel-powered automobiles and light trucks.

Subtitle G--Technical Corrections

      Sec. 1701. Coordination with other subtitles.

      Sec. 1702. Amendments related to Revenue Reconciliation Act of 1990.

      Sec. 1703. Amendments related to Revenue Reconciliation Act of 1993.

      Sec. 1704. Miscellaneous provisions.

TITLE II--PAYMENT OF WAGES

      Section 1. Short title.

      Sec. 2. Proper compensation for use of employer vehicles.

      Sec. 3. Effective date.

      Sec. 4. Minimum wage increase.

      Sec. 5. Fair Labor Standards Act Amendments.

TITLE I--SMALL BUSINESS AND OTHER TAX PROVISIONS

SEC. 1101. AMENDMENT OF 1986 CODE.

    Except as otherwise expressly provided, whenever in this title 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.

SEC. 1102. UNDERPAYMENTS OF ESTIMATED TAX.

    No addition to the tax shall be made under section 6654 or 6655 of the Internal Revenue Code of 1986 (relating to failure to pay estimated tax) with respect to any underpayment of an installment required to be paid before the date of the enactment of this Act to the extent such underpayment was created or increased by any provision of this title.

Subtitle A--Expensing; Etc.

SEC. 1111. INCREASE IN EXPENSE TREATMENT FOR SMALL BUSINESSES.

    (a) GENERAL RULE- Paragraph (1) of section 179(b) (relating to dollar limitation) is amended to read as follows:

      ‘(1) DOLLAR LIMITATION- The aggregate cost which may be taken into account under subsection (a) for any taxable year shall not exceed the following applicable amount:

‘If the taxable year

--The applicable

begins in:

--amount is:

1996

--$18,500

1997

-- 19,000

1998

-- 20,000

1999

-- 21,000

2000

-- 22,000

2001

-- 23,000

2002

-- 23,500

2003 or thereafter

-- 25,000.’.

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1995.

SEC. 1112. TREATMENT OF EMPLOYEE TIPS.

    (a) EMPLOYEE CASH TIPS-

      (1) REPORTING REQUIREMENT NOT CONSIDERED- Subparagraph (A) of section 45B(b)(1) (relating to excess employer social security tax) is amended by inserting ‘(without regard to whether such tips are reported under section 6053)’ after ‘section 3121(q)’.

      (2) TAXES PAID- Subsection (d) of section 13443 of the Revenue Reconciliation Act of 1993 is amended by inserting ‘, with respect to services performed before, on, or after such date’ after ‘1993’.

      (3) EFFECTIVE DATE- The amendments made by this subsection shall take effect as if included in the amendments made by, and the provisions of, section 13443 of the Revenue Reconciliation Act of 1993.

    (b) TIPS FOR EMPLOYEES DELIVERING FOOD OR BEVERAGES-

      (1) IN GENERAL- Paragraph (2) of section 45B(b) is amended to read as follows:

      ‘(2) ONLY TIPS RECEIVED FOR FOOD OR BEVERAGES TAKEN INTO ACCOUNT- In applying paragraph (1), there shall be taken into account only tips received from customers in connection with the delivering or serving of food or beverages for consumption if the tipping of employees delivering or serving food or beverages by customers is customary.’

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply to tips received for services performed after December 31, 1996.

SEC. 1113. TREATMENT OF STORAGE OF PRODUCT SAMPLES.

    (a) IN GENERAL- Paragraph (2) of section 280A(c) is amended by striking ‘inventory’ and inserting ‘inventory or product samples’.

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1995.

SEC. 1114. TREATMENT OF CERTAIN CHARITABLE RISK POOLS.

    (a) GENERAL RULE- Section 501 (relating to exemption from tax on corporations, certain trusts, etc.) is amended by redesignating subsection (n) as subsection (o) and by inserting after subsection (m) the following new subsection:

    ‘(n) CHARITABLE RISK POOLS-

      ‘(1) IN GENERAL- For purposes of this title--

        ‘(A) a qualified charitable risk pool shall be treated as an organization organized and operated exclusively for charitable purposes, and

        ‘(B) subsection (m) shall not apply to a qualified charitable risk pool.

      ‘(2) QUALIFIED CHARITABLE RISK POOL- For purposes of this subsection, the term ‘qualified charitable risk pool’ means any organization--

        ‘(A) which is organized and operated solely to pool insurable risks of its members (other than risks related to medical malpractice) and to provide information to its members with respect to loss control and risk management,

        ‘(B) which is comprised solely of members that are organizations described in subsection (c)(3) and exempt from tax under subsection (a), and

        ‘(C) which meets the organizational requirements of paragraph (3).

      ‘(3) ORGANIZATIONAL REQUIREMENTS- An organization (hereinafter in this subsection referred to as the ‘risk pool’) meets the organizational requirements of this paragraph if--

        ‘(A) such risk pool is organized as a nonprofit organization under State law provisions authorizing risk pooling arrangements for charitable organizations,

        ‘(B) such risk pool is exempt from any income tax imposed by the State (or will be so exempt after such pool qualifies as an organization exempt from tax under this title),

        ‘(C) such risk pool has obtained at least $1,000,000 in startup capital from nonmember charitable organizations,

        ‘(D) such risk pool is controlled by a board of directors elected by its members, and

        ‘(E) the organizational documents of such risk pool require that--

          ‘(i) each member of such pool shall at all times be an organization described in subsection (c)(3) and exempt from tax under subsection (a),

          ‘(ii) any member which receives a final determination that it no longer qualifies as an organization described in subsection (c)(3) shall immediately notify the pool of such determination and the effective date of such determination, and

          ‘(iii) each policy of insurance issued by the risk pool shall provide that such policy will not cover the insured with respect to events occurring after the date such final determination was issued to the insured.

      An organization shall not cease to qualify as a qualified charitable risk pool solely by reason of the failure of any of its members to continue to be an organization described in subsection (c)(3) if, within a reasonable period of time after such pool is notified as required under subparagraph (C)(ii), such pool takes such action as may be reasonably necessary to remove such member from such pool.

      ‘(4) OTHER DEFINITIONS- For purposes of this subsection--

        ‘(A) STARTUP CAPITAL- The term ‘startup capital’ means any capital contributed to, and any program-related investments (within the meaning of section 4944(c)) made in, the risk pool before such pool commences operations.

        ‘(B) NONMEMBER CHARITABLE ORGANIZATION- The term ‘nonmember charitable organization’ means any organization which is described in subsection (c)(3) and exempt from tax under subsection (a) and which is not a member of the risk pool and does not benefit (directly or indirectly) from the insurance coverage provided by the pool to its members.’

    (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. 1115. TREATMENT OF DUES PAID TO AGRICULTURAL OR HORTICULTURAL ORGANIZATIONS.

    (a) GENERAL RULE- Section 512 (defining unrelated business taxable income) is amended by adding at the end thereof the following new subsection:

    ‘(d) TREATMENT OF DUES OF AGRICULTURAL OR HORTICULTURAL ORGANIZATIONS-

      ‘(1) IN GENERAL- If--

        ‘(A) an agricultural or horticultural organization described in section 501(c)(5) requires annual dues to be paid in order to be a member of such organization, and

        ‘(B) the amount of such required annual dues does not exceed $100,

      in no event shall any portion of such dues be treated as derived by such organization from an unrelated trade or business by reason of any benefits or privileges to which members of such organization are entitled.

      ‘(2) INDEXATION OF $100 AMOUNT- In the case of any taxable year beginning in a calendar year after 1995, the $100 amount in paragraph (1) shall be increased by an amount equal to--

        ‘(A) $100, multiplied by

        ‘(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting ‘calendar year 1994’ for ‘calendar year 1992’ in subparagraph (B) thereof.

      ‘(3) DUES- For purposes of this subsection, the term ‘dues’ includes any payment required to be made in order to be recognized by the organization as a member of the organization.’.

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

SEC. 1116. CLARIFICATION OF EMPLOYMENT TAX STATUS OF CERTAIN FISHERMEN; INFORMATION REPORTING.

    (a) CLARIFICATION OF EMPLOYMENT TAX STATUS-

      (1) AMENDMENTS OF INTERNAL REVENUE CODE OF 1986-

        (A) DETERMINATION OF SIZE OF CREW- Subsection (b) of section 3121 (defining employment) is amended by adding at the end thereof the following new sentence:

    ‘For purposes of paragraph (20), the operating crew of a boat shall be treated as normally made up of fewer than 10 individuals if the average size of the operating crew on trips made during the preceding 4 calendar quarters consisted of fewer than 10 individuals.’.

        (B) CERTAIN CASH REMUNERATION PERMITTED- Subparagraph (A) of section 3121(b)(20) is amended to read as follows:

        ‘(A) such individual does not receive any cash remuneration other than as provided in subparagraph (B) and other than cash remuneration--

          ‘(i) which does not exceed $100 per trip;

          ‘(ii) which is contingent on a minimum catch; and

          ‘(iii) which is paid solely for additional duties (such as mate, engineer, or cook) for which additional cash remuneration is traditional in the industry,’.

        (C) CONFORMING AMENDMENT- Section 6050A(a) is amended by striking ‘and’ at the end of paragraph (3), by striking the period at the end of paragraph (4) and inserting ‘; and’, and by adding at the end thereof the following new paragraph:

      ‘(5) any cash remuneration described in section 3121(b)(20)(A).’.

      (2) AMENDMENT OF SOCIAL SECURITY ACT-

        (A) DETERMINATION OF SIZE OF CREW- Subsection (a) of section 210 of the Social Security Act is amended by adding at the end thereof the following new sentence:

    ‘For purposes of paragraph (20), the operating crew of a boat shall be treated as normally made up of fewer than 10 individuals if the average size of the operating crew on trips made during the preceding 4 calendar quarters consisted of fewer than 10 individuals.’.

        (B) CERTAIN CASH REMUNERATION PERMITTED- Subparagraph (A) of section 210(a)(20) of such Act is amended to read as follows:

        ‘(A) such individual does not receive any additional compensation other than as provided in subparagraph (B) and other than cash remuneration--

          ‘(i) which does not exceed $100 per trip;

          ‘(ii) which is contingent on a minimum catch; and

          ‘(iii) which is paid solely for additional duties (such as mate, engineer, or cook) for which additional cash remuneration is traditional in the industry,’.

      (3) EFFECTIVE DATE-

        (A) IN GENERAL- The amendments made by this subsection shall apply to remuneration paid after December 31, 1996.

        (B) SPECIAL RULE- The amendments made by this subsection (other than paragraph (1)(C)) shall also apply to remuneration paid after December 31, 1984, and before January 1, 1997, unless the payor treated such remuneration (when paid) as being subject to tax under chapter 21 of the Internal Revenue Code of 1986.

    (b) INFORMATION REPORTING-

      (1) IN GENERAL- Subpart B of part III of subchapter A of chapter 68 (relating to information concerning transactions with other persons) is amended by adding at the end the following new section:

‘SEC. 6050Q. RETURNS RELATING TO CERTAIN PURCHASES OF FISH.

    ‘(a) REQUIREMENT OF REPORTING- Every person--

      ‘(1) who is engaged in the trade or business of purchasing fish for resale from any person engaged in the trade or business of catching fish; and

      ‘(2) who makes payments in cash in the course of such trade or business to such a person of $600 or more during any calendar year for the purchase of fish,

    shall make a return (at such times as the Secretary may prescribe) described in subsection (b) with respect to each person to whom such a payment was made during such calendar year.

    ‘(b) RETURN- A return is described in this subsection if such return--

      ‘(1) is in such form as the Secretary may prescribe, and

      ‘(2) contains--

        ‘(A) the name, address, and TIN of each person to whom a payment described in subsection (a)(2) was made during the calendar year;

        ‘(B) the aggregate amount of such payments made to such person during such calendar year and the date and amount of each such payment, and

        ‘(C) such other information as the Secretary may require.

    ‘(c) STATEMENT TO BE FURNISHED WITH RESPECT TO WHOM INFORMATION IS REQUIRED- Every person required to make a return under subsection (a) shall furnish to each person whose name is required to be set forth in such return a written statement showing--

      ‘(1) the name and address of the person required to make such a return, and

      ‘(2) the aggregate amount of payments to the person required to be shown on the return.

    The written statement required under the preceding sentence shall be furnished to the person on or before January 31 of the year following the calendar year for which the return under subsection (a) is required to be made.

    ‘(d) DEFINITIONS- For purposes of this section:

      ‘(1) CASH- The term ‘cash’ has the meaning given such term by section 6050I(d).

      ‘(2) FISH- The term ‘fish’ includes other forms of aquatic life.’.

      (2) TECHNICAL AMENDMENTS-

        (A) Subparagraph (A) of section 6724(d)(1) is amended by striking ‘or’ at the end of clause (vi), by striking ‘and’ at the end of clause (vii) and inserting ‘or’, and by adding at the end the following new clause:

          ‘(viii) section 6050Q (relating to returns relating to certain purchases of fish), and’.

        (B) Paragraph (2) of section 6724(d) is amended by redesignating subparagraphs (Q) through (T) as subparagraphs (R) through (U), respectively, and by inserting after subparagraph (P) the following new subparagraph:

        ‘(Q) section 6050Q(c) (relating to returns relating to certain purchases of fish),’.

        (C) The table of sections for subpart B of part III of subchapter A of chapter 68 is amended by adding at the end the following new item:

      ‘Sec. 6050Q. Returns relating to certain purchases of fish.’.

      (3) EFFECTIVE DATE- The amendments made by this subsection shall apply to payments made after December 31, 1996.

Subtitle B--Extension of Certain Expiring Provisions

SEC. 1201. WORK OPPORTUNITY TAX CREDIT.

    (a) AMOUNT OF CREDIT- Subsection (a) of section 51 (relating to amount of credit) is amended by striking ‘40 percent’ and inserting ‘35 percent’.

    (b) MEMBERS OF TARGETED GROUPS- Subsection (d) of section 51 is amended to read as follows:

    ‘(d) MEMBERS OF TARGETED GROUPS- For purposes of this subpart--

      ‘(1) IN GENERAL- An individual is a member of a targeted group if such individual is--

        ‘(A) a qualified IV-A recipient,

        ‘(B) a qualified veteran,

        ‘(C) a qualified ex-felon,

        ‘(D) a high-risk youth,

        ‘(E) a vocational rehabilitation referral, or

        ‘(F) a qualified summer youth employee.

      ‘(2) QUALIFIED IV-A RECIPIENT-

        ‘(A) IN GENERAL- The term ‘qualified IV-A recipient’ means any individual who is certified by the designated local agency as being a member of a family receiving assistance under a IV-A program for at least a 9-month period ending during the 9-month period ending on the hiring date.

        ‘(B) IV-A PROGRAM- For purposes of this paragraph, the term ‘IV-A program’ means any program providing assistance under a State plan approved under part A of title IV of the Social Security Act (relating to assistance for needy families with minor children) and any successor of such program.

      ‘(3) QUALIFIED VETERAN-

        ‘(A) IN GENERAL- The term ‘qualified veteran’ means any veteran who is certified by the designated local agency as being--

          ‘(i) a member of a family receiving assistance under a IV-A program (as defined in paragraph (2)(B)) for at least a 9-month period ending during the 12-month period ending on the hiring date, or

          ‘(ii) a member of a family receiving assistance under a food stamp program under the Food Stamp Act of 1977 for at least a 3-month period ending during the 12-month period ending on the hiring date.

        ‘(B) VETERAN- For purposes of subparagraph (A), the term ‘veteran’ means any individual who is certified by the designated local agency as--

          ‘(i)(I) having served on active duty (other than active duty for training) in the Armed Forces of the United States for a period of more than 180 days, or

          ‘(II) having been discharged or released from active duty in the Armed Forces of the United States for a service-connected disability, and

          ‘(ii) not having any day during the 60-day period ending on the hiring date which was a day of extended active duty in the Armed Forces of the United States.

        For purposes of clause (ii), the term ‘extended active duty’ means a period of more than 90 days during which the individual was on active duty (other than active duty for training).

      ‘(4) QUALIFIED EX-FELON- The term ‘qualified ex-felon’ means any individual who is certified by the designated local agency--

        ‘(A) as having been convicted of a felony under any statute of the United States or any State,

        ‘(B) as having a hiring date which is not more than 1 year after the last date on which such individual was so convicted or was released from prison, and

        ‘(C) as being a member of a family which had an income during the 6 months immediately preceding the earlier of the month in which such income determination occurs or the month in which the hiring date occurs, which, on an annual basis, would be 70 percent or less of the Bureau of Labor Statistics lower living standard.

      Any determination under subparagraph (C) shall be valid for the 45-day period beginning on the date such determination is made.

      ‘(5) HIGH-RISK YOUTH-

        ‘(A) IN GENERAL- The term ‘high-risk youth’ means any individual who is certified by the designated local agency--

          ‘(i) as having attained age 18 but not age 25 on the hiring date, and

          ‘(ii) as having his principal place of abode within an empowerment zone or enterprise community.

        ‘(B) YOUTH MUST CONTINUE TO RESIDE IN ZONE- In the case of a high-risk youth, the term ‘qualified wages’ shall not include wages paid or incurred for services performed while such youth’s principal place of abode is outside an empowerment zone or enterprise community.

      ‘(6) VOCATIONAL REHABILITATION REFERRAL- The term ‘vocational rehabilitation referral’ means any individual who is certified by the designated local agency as--

        ‘(A) having a physical or mental disability which, for such individual, constitutes or results in a substantial handicap to employment, and

        ‘(B) having been referred to the employer upon completion of (or while receiving) rehabilitative services pursuant to--

          ‘(i) an individualized written rehabilitation plan under a State plan for vocational rehabilitation services approved under the Rehabilitation Act of 1973, or

          ‘(ii) a program of vocational rehabilitation carried out under chapter 31 of title 38, United States Code.

      ‘(7) QUALIFIED SUMMER YOUTH EMPLOYEE-

        ‘(A) IN GENERAL- The term ‘qualified summer youth employee’ means any individual--

          ‘(i) who performs services for the employer between May 1 and September 15,

          ‘(ii) who is certified by the designated local agency as having attained age 16 but not 18 on the hiring date (or if later, on May 1 of the calendar year involved),

          ‘(iii) who has not been an employee of the employer during any period prior to the 90-day period described in subparagraph (B)(i), and

          ‘(iv) who is certified by the designated local agency as having his principal place of abode within an empowerment zone or enterprise community.

        ‘(B) SPECIAL RULES FOR DETERMINING AMOUNT OF CREDIT- For purposes of applying this subpart to wages paid or incurred to any qualified summer youth employee--

          ‘(i) subsection (b)(2) shall be applied by substituting ‘any 90-day period between May 1 and September 15’ for ‘the 1-year period beginning with the day the individual begins work for the employer’, and

          ‘(ii) subsection (b)(3) shall be applied by substituting ‘$3,000’ for ‘$6,000’.

        The preceding sentence shall not apply to an individual who, with respect to the same employer, is certified as a member of another targeted group after such individual has been a qualified summer youth employee.

        ‘(C) YOUTH MUST CONTINUE TO RESIDE IN ZONE- Paragraph (5)(B) shall apply for purposes of this paragraph.

      ‘(8) HIRING DATE- The term ‘hiring date’ means the day the individual is hired by the employer.

      ‘(9) DESIGNATED LOCAL AGENCY- The term ‘designated local agency’ means a State employment security agency established in accordance with the Act of June 6, 1933, as amended (29 U.S.C. 49-49n).

      ‘(10) SPECIAL RULES FOR CERTIFICATIONS-

        ‘(A) IN GENERAL- An individual shall not be treated as a member of a targeted group unless--

          ‘(i) on or before the day on which such individual begins work for the employer, the employer has received a certification from a designated local agency that such individual is a member of a targeted group, or

          ‘(ii)(I) on or before the day the individual is offered employment with the employer, a pre-screening notice is completed by the employer with respect to such individual, and

          ‘(II) not later than the 14th day after the individual begins work for the employer, the employer submits such notice, signed by the employer and the individual under penalties of perjury, to the designated local agency as part of a written request for such a certification from such agency.

        For purposes of this paragraph, the term ‘pre-screening notice’ means a document (in such form as the Secretary shall prescribe) which contains information provided by the individual on the basis of which the employer believes that the individual is a member of a targeted group.

        ‘(B) INCORRECT CERTIFICATIONS- If--

          ‘(i) an individual has been certified by a designated local agency as a member of a targeted group, and

          ‘(ii) such certification is incorrect because it was based on false information provided by such individual,

        the certification shall be revoked and wages paid by the employer after the date on which notice of revocation is received by the employer shall not be treated as qualified wages.

        ‘(C) EXPLANATION OF DENIAL OF REQUEST- If a designated local agency denies a request for certification of membership in a targeted group, such agency shall provide to the person making such request a written explanation of the reasons for such denial.’.

    (c) MINIMUM EMPLOYMENT PERIOD- Paragraph (3) of section 51(i) (relating to certain individuals ineligible) is amended to read as follows:

      ‘(3) INDIVIDUALS NOT MEETING MINIMUM EMPLOYMENT PERIOD- No wages shall be taken into account under subsection (a) with respect to any individual unless such individual either--

        ‘(A) is employed by the employer at least 180 days (20 days in the case of a qualified summer youth employee), or

        ‘(B) has completed at least 500 hours (120 hours in the case of a qualified summer youth employee) of services performed for the employer.’.

    (d) TERMINATION- Paragraph (4) of section 51(c) (relating to wages defined) is amended to read as follows:

      ‘(4) TERMINATION- The term ‘wages’ shall not include any amount paid or incurred to an individual who begins work for the employer--

        ‘(A) after December 31, 1994, and before July 1, 1996, or

        ‘(B) after June 30, 1997.’.

    (e) REDESIGNATION OF CREDIT-

      (1) Sections 38(b)(2) and 51(a) are each amended by striking ‘targeted jobs credit’ and inserting ‘work opportunity credit’.

      (2) The subpart heading for subpart F of part IV of subchapter A of chapter 1 is amended by striking ‘Targeted Jobs Credit’ and inserting ‘Work Opportunity Credit’.

      (3) The table of subparts for such part IV is amended by striking ‘targeted jobs credit’ and inserting ‘work opportunity credit’.

      (4) The heading for paragraph (3) of section 1396(c) is amended by striking ‘TARGETED JOBS CREDIT’ and inserting ‘WORK OPPORTUNITY CREDIT’.

    (f) TECHNICAL AMENDMENT- Paragraph (1) of section 51(c) is amended by striking ‘, subsection (d)(8)(D),’.

    (g) EFFECTIVE DATE- The amendments made by this section shall apply to individuals who begin work for the employer after June 30, 1996.

SEC. 1202. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE PROGRAMS.

    (a) EXTENSION- Subsection (d) of section 127 (relating to educational assistance programs) is amended by striking ‘December 31, 1994’ and inserting ‘December 31, 1996’.

    (b) LIMITATION TO EDUCATION BELOW GRADUATE LEVEL- The last sentence of section 127(c)(1) is amended by inserting before the period ‘or at the graduate level’.

    (c) EFFECTIVE DATES-

      (1) EXTENSION- The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1994.

      (2) LIMITATION- The amendment made by subsection (b) shall apply to taxable years beginning after December 31, 1995.

      (3) EXPEDITED PROCEDURES- The Secretary of the Treasury shall establish expedited procedures for the refund of any overpayment of taxes imposed by chapter 24 of the Internal Revenue Code of 1986 which is attributable to amounts excluded from gross income during 1995 or 1996 under section 127 of such Code, including procedures waiving the requirement that an employer obtain an employee’s signature where the employer demonstrates to the satisfaction of the Secretary that any refund collected by the employer on behalf of the employee will be paid to the employee.

SEC. 1203. FUTA EXEMPTION FOR ALIEN AGRICULTURAL WORKERS.

    (a) IN GENERAL- Subparagraph (B) of section 3306(c)(1) (defining employment) is amended by striking ‘before January 1, 1995,’.

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

Subtitle C--Provisions Relating to S Corporations

SEC. 1301. S CORPORATIONS PERMITTED TO HAVE 75 SHAREHOLDERS.

    Subparagraph (A) of section 1361(b)(1) (defining small business corporation) is amended by striking ‘35 shareholders’ and inserting ‘75 shareholders’.

SEC. 1302. 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’.

SEC. 1303. EXPANSION OF POST-DEATH QUALIFICATION FOR CERTAIN TRUSTS.

    Subparagraph (A) of section 1361(c)(2) (relating to certain trusts permitted as shareholders) is amended--

      (1) by striking ‘60-day period’ each place it appears in clauses (ii) and (iii) and inserting ‘2-year period’, and

      (2) by striking the last sentence in clause (ii).

SEC. 1304. FINANCIAL INSTITUTIONS PERMITTED TO HOLD SAFE HARBOR DEBT.

    Clause (iii) of section 1361(c)(5)(B) (defining straight debt) is amended by striking ‘or a trust described in paragraph (2)’ and inserting ‘a trust described in paragraph (2), or a person which is actively and regularly engaged in the business of lending money’.

SEC. 1305. RULES RELATING TO INADVERTENT TERMINATIONS AND 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, ETC- Subsection (b) of section 1362 is amended by adding at the end the following new paragraph:

      ‘(5) AUTHORITY TO TREAT LATE ELECTIONS, ETC., 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 or no such election is made for any 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 an election as timely made for such taxable year (and paragraph (3) shall not apply).’.

    (c) EFFECTIVE DATE- The amendments made by subsection (a) and (b) shall apply with respect to elections for taxable years beginning after December 31, 1982.

SEC. 1306. AGREEMENT TO TERMINATE YEAR.

    Paragraph (2) of section 1377(a) (relating to pro rata share) is amended to read as follows:

      ‘(2) ELECTION TO TERMINATE YEAR-

        ‘(A) IN GENERAL- Under regulations prescribed by the Secretary, if any shareholder terminates the shareholder’s interest in the corporation during the taxable year and all affected shareholders and the corporation agree to the application of this paragraph, paragraph (1) shall be applied to the affected shareholders as if the taxable year consisted of 2 taxable years the first of which ends on the date of the termination.

        ‘(B) AFFECTED SHAREHOLDERS- For purposes of subparagraph (A), the term ‘affected shareholders’ means the shareholder whose interest is terminated and all shareholders to whom such shareholder has transferred shares during the taxable year. If such shareholder has transferred shares to the corporation, the term ‘affected shareholders’ shall include all persons who are shareholders during the taxable year.’.

SEC. 1307. EXPANSION OF POST-TERMINATION TRANSITION PERIOD.

    (a) IN GENERAL- Paragraph (1) of section 1377(b) (relating to post-termination transition period) is amended by striking ‘and’ at the end of subparagraph (A), by redesignating subparagraph (B) as subparagraph (C), and by inserting after subparagraph (A) the following new subparagraph:

        ‘(B) the 120-day period beginning on the date of any determination pursuant to an audit of the taxpayer which follows the termination of the corporation’s election and which adjusts a subchapter S item of income, loss, or deduction of the corporation arising during the S period (as defined in section 1368(e)(2)), and’.

    (b) DETERMINATION DEFINED- Paragraph (2) of section 1377(b) is amended by striking subparagraphs (A) and (B), by redesignating subparagraph (C) as subparagraph (B), and by inserting before subparagraph (B) (as so redesignated) the following new subparagraph:

        ‘(A) a determination as defined in section 1313(a), or’.

    (c) REPEAL OF SPECIAL AUDIT PROVISIONS FOR SUBCHAPTER S ITEMS-

      (1) GENERAL RULE- Subchapter D of chapter 63 (relating to tax treatment of subchapter S items) is hereby repealed.

      (2) CONSISTENT TREATMENT REQUIRED- Section 6037 (relating to return of S corporation) is amended by adding at the end 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.’.

      (3) CONFORMING AMENDMENTS-

        (A) Section 1366 is amended by striking subsection (g).

        (B) 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.’.

        (C) The table of subchapters for chapter 63 is amended by striking the item relating to subchapter D.

SEC. 1308. S CORPORATIONS PERMITTED TO HOLD SUBSIDIARIES.

    (a) 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.

    (b) TREATMENT OF CERTAIN WHOLLY OWNED S CORPORATION SUBSIDIARIES- Section 1361(b) (defining small business corporation) is amended by adding at the end the following new paragraph:

      ‘(3) TREATMENT OF CERTAIN WHOLLY OWNED SUBSIDIARIES-

        ‘(A) IN GENERAL- For purposes of this title--

          ‘(i) a corporation which is a qualified subchapter S subsidiary shall not be treated as a separate corporation, and

          ‘(ii) all assets, liabilities, and items of income, deduction, and credit of a qualified subchapter S subsidiary shall be treated as assets, liabilities, and such items (as the case may be) of the S corporation.

        ‘(B) QUALIFIED SUBCHAPTER S SUBSIDIARY- For purposes of this paragraph, the term ‘qualified subchapter S subsidiary’ means any domestic corporation which is not an ineligible corporation (as defined in paragraph (2)), if--

          ‘(i) 100 percent of the stock of such corporation is held by the S corporation, and

          ‘(ii) the S corporation elects to treat such corporation as a qualified subchapter S subsidiary.

        ‘(C) TREATMENT OF TERMINATIONS OF QUALIFIED SUBCHAPTER S SUBSIDIARY STATUS- For purposes of this title, if any corporation which was a qualified subchapter S subsidiary ceases to meet the requirements of subparagraph (B), such corporation shall be treated as a new corporation acquiring all of its assets (and assuming all of its liabilities) immediately before such cessation from the S corporation in exchange for its stock.’.

    (c) CERTAIN DIVIDENDS NOT TREATED AS PASSIVE INVESTMENT INCOME- Paragraph (3) of section 1362(d) is amended by adding at the end the following new subparagraph:

        ‘(F) TREATMENT OF CERTAIN DIVIDENDS- If an S corporation holds stock in a C corporation meeting the requirements of section 1504(a)(2), the term ‘passive investment income’ shall not include dividends from such C corporation to the extent such dividends are attributable to the earnings and profits of such C corporation derived from the active conduct of a trade or business.’.

    (d) CONFORMING AMENDMENTS-

      (1) Subsection (c) of section 1361 is amended by striking paragraph (6).

      (2) Subsection (b) of section 1504 (defining includible corporation) is amended by adding at the end the following new paragraph:

      ‘(8) An S corporation.’.

SEC. 1309. TREATMENT OF DISTRIBUTIONS DURING LOSS YEARS.

    (a) ADJUSTMENTS FOR DISTRIBUTIONS TAKEN INTO ACCOUNT BEFORE LOSSES-

      (1) Subparagraph (A) of section 1366(d)(1) (relating to losses and deductions cannot exceed shareholder’s basis in stock and debt) is amended by striking ‘paragraph (1)’ and inserting ‘paragraphs (1) and (2)(A)’.

      (2) Subsection (d) of section 1368 (relating to certain adjustments taken into account) is amended by adding at the end 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 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)’.

SEC. 1310. 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.’.

SEC. 1311. ELIMINATION OF CERTAIN EARNINGS AND PROFITS.

    (a) IN GENERAL- If--

      (1) 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

      (2) such corporation is an S corporation under subchapter S of chapter 1 of such Code for its first taxable year beginning after December 31, 1996,

    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.

    (b) Conforming Amendments-

      (1) Paragraph (3) of section 1362(d), as amended by section 1308, is amended--

        (A) by striking ‘SUBCHAPTER C’ in the paragraph heading and inserting ‘ACCUMULATED’,

        (B) by striking ‘subchapter C’ in subparagraph (A)(i)(I) and inserting ‘accumulated’, and

        (C) by striking subparagraph (B) and redesignating the following subparagraphs accordingly.

      (2)(A) Subsection (a) of section 1375 is amended by striking ‘subchapter C’ in paragraph (1) and inserting ‘accumulated’.

      (B) 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).’.

      (C) The section heading for section 1375 is amended by striking ‘subchapter c’ and inserting ‘accumulated’.

      (D) 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’.

      (3) Clause (i) of section 1042(c)(4)(A) is amended by striking ‘section 1362(d)(3)(D)’ and inserting ‘section 1362(d)(3)(C)’.

SEC. 1312. CARRYOVER OF DISALLOWED LOSSES AND DEDUCTIONS UNDER AT-RISK RULES ALLOWED.

    Paragraph (3) of section 1366(d) (relating to carryover of disallowed losses and deductions to post-termination transition period) is amended by adding at the end the following new subparagraph:

        ‘(D) AT-RISK LIMITATIONS- To the extent that any increase in adjusted basis described in subparagraph (B) would have increased the shareholder’s amount at risk under section 465 if such increase had occurred on the day preceding the commencement of the post-termination transition period, rules similar to the rules described in subparagraphs (A) through (C) shall apply to any losses disallowed by reason of section 465(a).’.

SEC. 1313. ADJUSTMENTS TO BASIS OF INHERITED S STOCK TO REFLECT CERTAIN ITEMS OF INCOME.

    (a) IN GENERAL- Subsection (b) of section 1367 (relating to adjustments to basis of stock of shareholders, etc.) is amended by adding at the end 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.’.

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply in the case of decedents dying after the date of the enactment of this Act.

SEC. 1314. S CORPORATIONS ELIGIBLE FOR RULES APPLICABLE TO REAL PROPERTY SUBDIVIDED FOR SALE BY NONCORPORATE TAXPAYERS.

    (a) IN GENERAL- Subsection (a) of section 1237 (relating to real property subdivided for sale) is amended by striking ‘other than a corporation’ in the material preceding paragraph (1) and inserting ‘other than a C corporation’.

    (b) CONFORMING AMENDMENT- Subparagraph (A) of section 1237(a)(2) is amended by inserting ‘an S corporation which included the taxpayer as a shareholder,’ after ‘controlled by the taxpayer,’.

SEC. 1315. EFFECTIVE DATE.

    (a) IN GENERAL- Except as otherwise provided in this subtitle, the amendments made by this subtitle shall apply to taxable years beginning after December 31, 1996.

    (b) TREATMENT OF CERTAIN ELECTIONS UNDER PRIOR LAW- For purposes of section 1362(g) of the Internal Revenue Code of 1986 (relating to election after termination), any termination under section 1362(d) of such Code in a taxable year beginning before January 1, 1997, shall not be taken into account.

Subtitle D--Pension Simplification

CHAPTER 1--SIMPLIFIED DISTRIBUTION RULES

SEC. 1401. 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’ has the meaning given such term by section 402(e)(4)(D) (without regard to subclauses (I), (II), (III), and (IV) of clause (i) thereof).’.

      (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, 1998.

      (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. 1402. REPEAL OF $5,000 EXCLUSION OF EMPLOYEES’ DEATH BENEFITS.

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

    (b) CONFORMING AMENDMENTS-

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

      (2) Sections 406(e) and 407(e) are each amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2).

      (3) Section 7701(a)(20) is amended by striking ‘, for the purpose of applying the provisions of section 101(b) with respect to employees’ death benefits’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply with respect to decedents dying after the date of the enactment of this Act.

SEC. 1403. 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

--360

More than 55 but not more than 60

--310

More than 60 but not more than 65

--260

More than 65 but not more than 70

--210

More than 70

--160.

        ‘(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 this section shall apply in cases where the annuity starting date is after the 90th day after the date of the enactment of this Act.

SEC. 1404. 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, 1996.

CHAPTER 2--INCREASED ACCESS TO PENSION PLANS

Subchapter A--Simple Savings Plans

SEC. 1421. ESTABLISHMENT OF SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES OF SMALL EMPLOYERS.

    (a) IN GENERAL- Section 408 (relating to individual retirement accounts) is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection:

    ‘(p) SIMPLE RETIREMENT ACCOUNTS-

      ‘(1) IN GENERAL- For purposes of this title, the term ‘simple retirement account’ means an individual retirement plan (as defined in section 7701(a)(37))--

        ‘(A) with respect to which the requirements of paragraphs (3), (4), and (5) are met; and

        ‘(B) with respect to which the only contributions allowed are contributions under a qualified salary reduction arrangement.

      ‘(2) QUALIFIED SALARY REDUCTION ARRANGEMENT-

        ‘(A) IN GENERAL- For purposes of this subsection, the term ‘qualified salary reduction arrangement’ means a written arrangement of an eligible employer under which--

          ‘(i) an employee eligible to participate in the arrangement may elect to have the employer make payments--

            ‘(I) as elective employer contributions to a simple retirement account on behalf of the employee, or

            ‘(II) to the employee directly in cash,

          ‘(ii) the amount which an employee may elect under clause (i) for any year is required to be expressed as a percentage of compensation and may not exceed a total of $6,000 for any year,

          ‘(iii) the employer is required to make a matching contribution to the simple retirement account for any year in an amount equal to so much of the amount the employee elects under clause (i)(I) as does not exceed the applicable percentage of compensation for the year, and

          ‘(iv) no contributions may be made other than contributions described in clause (i) or (iii).

        ‘(B) EMPLOYER MAY ELECT 2-PERCENT NONELECTIVE CONTRIBUTION- An employer shall be treated as meeting the requirements of subparagraph (A)(iii) for any year if, in lieu of the contributions described in such clause, the employer elects to make nonelective contributions of 2 percent of compensation for each employee who is eligible to participate in the arrangement and who has at least $5,000 of compensation from the employer for the year. If an employer makes an election under this subparagraph for any year, the employer shall notify employees of such election within a reasonable period of time before the 30-day period for such year under paragraph (5)(C).

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

          ‘(i) ELIGIBLE EMPLOYER- The term ‘eligible employer’ means an employer who employs 100 or fewer employees on any day during the year.

          ‘(ii) APPLICABLE PERCENTAGE-

            ‘(I) IN GENERAL- The term ‘applicable percentage’ means 3 percent.

            ‘(II) ELECTION OF LOWER PERCENTAGE- An employer may elect to apply a lower percentage (not less than 1 percent) for any year for all employees eligible to participate in the plan for such year if the employer notifies the employees of such lower percentage within a reasonable period of time before the 30-day election period for such year under paragraph (5)(C). An employer may not elect a lower percentage under this subclause for any year if that election would result in the applicable percentage being lower than 3 percent in more than 2 of the years in the 5-year period ending with such year.

            ‘(III) SPECIAL RULE FOR YEARS ARRANGEMENT NOT IN EFFECT- If any year in the 5-year period described in subclause (II) is a year prior to the first year for which any qualified salary reduction arrangement is in effect with respect to the employer (or any predecessor), the employer shall be treated as if the level of the employer matching contribution was at 3 percent of compensation for such prior year.

        ‘(D) ARRANGEMENT MAY BE ONLY PLAN OF EMPLOYER-

          ‘(i) IN GENERAL- An arrangement shall not be treated as a qualified salary reduction arrangement for any year if the employer (or any predecessor employer) maintained a qualified plan with respect to which contributions were made, or benefits were accrued, for service in any year in the period beginning with the year such arrangement became effective and ending with the year for which the determination is being made.

          ‘(ii) QUALIFIED PLAN- For purposes of this subparagraph, the term ‘qualified plan’ means a plan, contract, pension, or trust described in subparagraph (A) or (B) of section 219(g)(5).

        ‘(E) COST-OF-LIVING ADJUSTMENT- The Secretary shall adjust the $6,000 amount under subparagraph (A)(ii) at the same time and in the same manner as under section 415(d), except that the base period taken into account shall be the calendar quarter ending September 30, 1995, and any increase under this subparagraph which is not a multiple of $500 shall be rounded to the next lower multiple of $500.

      ‘(3) VESTING REQUIREMENTS- The requirements of this paragraph are met with respect to a simple retirement account if the employee’s rights to any contribution to the simple retirement account are nonforfeitable. For purposes of this paragraph, rules similar to the rules of subsection (k)(4) shall apply.

      ‘(4) PARTICIPATION REQUIREMENTS-

        ‘(A) IN GENERAL- The requirements of this paragraph are met with respect to any simple retirement account for a year only if, under the qualified salary reduction arrangement, all employees of the employer who--

          ‘(i) received at least $5,000 in compensation from the employer during any 2 preceding years, and

          ‘(ii) are reasonably expected to receive at least $5,000 in compensation during the year,

        are eligible to make the election under paragraph (2)(A)(i) or receive the nonelective contribution described in paragraph (2)(B).

        ‘(B) EXCLUDABLE EMPLOYEES- An employer may elect to exclude from the requirement under subparagraph (A) employees described in section 410(b)(3).

      ‘(5) ADMINISTRATIVE REQUIREMENTS- The requirements of this paragraph are met with respect to any simplified retirement account if, under the qualified salary reduction arrangement--

        ‘(A) an employer must--

          ‘(i) make the elective employer contributions under paragraph (2)(A)(i) not later than the close of the 30-day period following the last day of the month with respect to which the contributions are to be made, and

          ‘(ii) make the matching contributions under paragraph (2)(A)(iii) or the nonelective contributions under paragraph (2)(B) not later than the date described in section 404(m)(2)(B),

        ‘(B) an employee may elect to terminate participation in such arrangement at any time during the year, except that if an employee so terminates, the arrangement may provide that the employee may not elect to resume participation until the beginning of the next year, and

        ‘(C) each employee eligible to participate may elect, during the 30-day period before the beginning of any year (and the 30-day period before the first day such employee is eligible to participate), to participate in the arrangement, or to modify the amounts subject to such arrangement, for such year.

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

        ‘(A) COMPENSATION-

          ‘(i) IN GENERAL- The term ‘compensation’ means amounts described in paragraphs (3) and (8) of section 6051(a).

          ‘(ii) SELF-EMPLOYED- In the case of an employee described in subparagraph (B), the term ‘compensation’ means net earnings from self-employment determined under section 1402(a) without regard to any contribution under this subsection.

        ‘(B) EMPLOYEE- The term ‘employee’ includes an employee as defined in section 401(c)(1).

        ‘(C) YEAR- The term ‘year’ means the calendar year.’.

    (b) TAX TREATMENT OF SIMPLE RETIREMENT ACCOUNTS-

      (1) DEDUCTIBILITY OF CONTRIBUTIONS BY EMPLOYEES-

        (A) Section 219(b) (relating to maximum amount of deduction) is amended by adding at the end the following new paragraph:

      ‘(4) SPECIAL RULE FOR SIMPLE RETIREMENT ACCOUNTS- This section shall not apply with respect to any amount contributed to a simple retirement account established under section 408(p).’.

        (B) Section 219(g)(5)(A) (defining active participant) is amended by striking ‘or’ at the end of clause (iv) and by adding at the end the following new clause:

          ‘(vi) any simple retirement account (within the meaning of section 408(p)), or’.

      (2) DEDUCTIBILITY OF EMPLOYER CONTRIBUTIONS- Section 404 (relating to deductions for contributions of an employer to pension, etc. plans) is amended by adding at the end the following new subsection:

    ‘(m) SPECIAL RULES FOR SIMPLE RETIREMENT ACCOUNTS-

      ‘(1) IN GENERAL- Employer contributions to a simple retirement account shall be treated as if they are made to a plan subject to the requirements of this section.

      ‘(2) TIMING-

        ‘(A) DEDUCTION- Contributions described in paragraph (1) shall be deductible in the taxable year of the employer with or within which the calendar year for which the contributions were made ends.

        ‘(B) CONTRIBUTIONS AFTER END OF YEAR- For purposes of this subsection, contributions shall be treated as made for a taxable year if they are made on account of the taxable year and are made not later than the time prescribed by law for filing the return for the taxable year (including extensions thereof).’.

      (3) CONTRIBUTIONS AND DISTRIBUTIONS-

        (A) Section 402 (relating to taxability of beneficiary of employees’ trust) is amended by adding at the end the following new subsection:

    ‘(k) TREATMENT OF SIMPLE RETIREMENT ACCOUNTS- Rules similar to the rules of paragraphs (1)

and (3) of subsection (h) shall apply to contributions and distributions with respect to a simple retirement account under section 408(p).’.

        (B) Section 408(d)(3) is amended by adding at the end the following new subparagraph:

        ‘(G) SIMPLE RETIREMENT ACCOUNTS- This paragraph shall not apply to any amount paid or distributed out of a simple retirement account (as defined in section 408(p)) unless--

          ‘(i) it is paid into another simple retirement account, or

          ‘(ii) in the case of any payment or distribution to which section 72(t)(8) does not apply, it is paid into an individual retirement plan.’.

        (C) Clause (i) of section 457(c)(2)(B) is amended by striking ‘section 402(h)(1)(B)’ and inserting ‘section 402(h)(1)(B) or (k)’.

      (4) PENALTIES-

        (A) EARLY WITHDRAWALS- Section 72(t) (relating to additional tax in early distributions), as amended by this Act, is amended by adding at the end the following new paragraph:

      ‘(6) SPECIAL RULES FOR SIMPLE RETIREMENT ACCOUNTS- In the case of any amount received from a simple retirement account (within the meaning of section 408(p)) during the 2-year period beginning on the date such individual first participated in any qualified salary reduction arrangement maintained by the individual’s employer under section 408(p)(2), paragraph (1) shall be applied by substituting ‘25 percent’ for ‘10 percent’.’.

        (B) FAILURE TO REPORT- Section 6693 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:

    ‘(c) PENALTIES RELATING TO SIMPLE RETIREMENT ACCOUNTS-

      ‘(1) EMPLOYER PENALTIES- An employer who fails to provide 1 or more notices required by section 408(l)(2)(C) shall pay a penalty of $50 for each day on which such failures continue.

      ‘(2) TRUSTEE PENALTIES- A trustee who fails--

        ‘(A) to provide 1 or more statements required by the last sentence of section 408(i) shall pay a penalty of $50 for each day on which such failures continue, or

        ‘(B) to provide 1 or more summary descriptions required by section 408(l)(2)(B) shall pay a penalty of $50 for each day on which such failures continue.

      ‘(3) REASONABLE CAUSE EXCEPTION- No penalty shall be imposed under this subsection with respect to any failure which the taxpayer shows was due to reasonable cause.’.

      (5) REPORTING REQUIREMENTS-

        (A) Section 408(l) is amended by adding at the end the following new paragraph:

      ‘(2) SIMPLE RETIREMENT ACCOUNTS-

        ‘(A) NO EMPLOYER REPORTS- Except as provided in this paragraph, no report shall be required under this section by an employer maintaining a qualified salary reduction arrangement under subsection (p).

        ‘(B) SUMMARY DESCRIPTION- The trustee of any simple retirement account established pursuant to a qualified salary reduction arrangement under subsection (p) shall provide to the employer maintaining the arrangement, each year a description containing the following information:

          ‘(i) The name and address of the employer and the trustee.

          ‘(ii) The requirements for eligibility for participation.

          ‘(iii) The benefits provided with respect to the arrangement.

          ‘(iv) The time and method of making elections with respect to the arrangement.

          ‘(v) The procedures for, and effects of, withdrawals (including rollovers) from the arrangement.

        ‘(C) EMPLOYEE NOTIFICATION- The employer shall notify each employee immediately before the period for which an election described in subsection (p)(5)(C) may be made of the employee’s opportunity to make such election. Such notice shall include a copy of the description described in subparagraph (B).’.

        (B) Section 408(l) is amended by striking ‘An employer’ and inserting the following:

      ‘(1) IN GENERAL- An employer’.

      (6) REPORTING REQUIREMENTS- Section 408(i) is amended by adding at the end the following new flush sentence:

    ‘In the case of a simple retirement account under subsection (p), only one report under this subsection shall be required to be submitted each calendar year to the Secretary

(at the time provided under paragraph (2)) but, in addition to the report under this subsection, there shall be furnished, within 30 days after each calendar year, to the individual on whose behalf the account is maintained a statement with respect to the account balance as of the close of, and the account activity during, such calendar year.’.

      (7) EXEMPTION FROM TOP-HEAVY PLAN RULES- Section 416(g)(4) (relating to special rules for top-heavy plans) is amended by adding at the end the following new subparagraph:

        ‘(G) SIMPLE RETIREMENT ACCOUNTS- The term ‘top-heavy plan’ shall not include a simple retirement account under section 408(p).’.

      (8) EMPLOYMENT TAXES-

        (A) Paragraph (5) of section 3121(a) is amended by striking ‘or’ at the end of subparagraph (F), by inserting ‘or’ at the end of subparagraph (G), and by adding at the end the following new subparagraph:

        ‘(H) under an arrangement to which section 408(p) applies, other than any elective contributions under paragraph (2)(A)(i) thereof,’.

      (B) Section 209(a)(4) of the Social Security Act is amended by inserting ‘, or (J) under an arrangement to which section 408(p) of such Code applies, other than any elective contributions under paragraph (2)(A)(i) thereof’ before the semicolon at the end thereof.

      (C) Paragraph (5) of section 3306(b) is amended by striking ‘or’ at the end of subparagraph (F), by inserting ‘or’ at the end of subparagraph (G), and by adding at the end the following new subparagraph:

        ‘(H) under an arrangement to which section 408(p) applies, other than any elective contributions under paragraph (2)(A)(i) thereof,’.

      (D) Paragraph (12) of section 3401(a) is amended by adding the following new subparagraph:

        ‘(D) under an arrangement to which section 408(p) applies; or’.

      (9) CONFORMING AMENDMENTS-

        (A) Section 280G(b)(6) is amended by striking ‘or’ at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting ‘, or’ and by adding after subparagraph (C) the following new subparagraph:

        ‘(D) a simple retirement account described in section 408(p).’.

        (B) Section 402(g)(3) is amended by striking ‘and’ at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting ‘, and’, and by adding after subparagraph (C) the following new subparagraph:

        ‘(D) any elective employer contribution under section 408(p)(2)(A)(i).’.

        (C) Subsections (b), (c), (m)(4)(B), and (n)(3)(B) of section 414 are each amended by inserting ‘408(p),’ after ‘408(k),’.

        (D) Section 4972(d)(1)(A) is amended by striking ‘and’ at the end of clause (ii), by striking the period at the end of clause (iii) and inserting ‘, and’, and by adding after clause (iii) the following new clause:

          ‘(iv) any simple retirement account (within the meaning of section 408(p)).’.

    (c) REPEAL OF SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSIONS- Section 408(k)(6) is amended by adding at the end the following new subparagraph:

        ‘(H) TERMINATION- This paragraph shall not apply to years beginning after December 31, 1996. The preceding sentence shall not apply to a simplified employee pension if the terms of such pension, as in effect on December 31, 1996, provide that an employee may make the election described in subparagraph (A).’.

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1996.

SEC. 1422. EXTENSION OF SIMPLE PLAN TO 401(k) ARRANGEMENTS.

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

      ‘(11) ADOPTION OF SIMPLE PLAN TO MEET NONDISCRIMINATION TESTS-

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

          ‘(i) the contribution requirements of subparagraph (B),

          ‘(ii) the exclusive benefit requirements of subparagraph (C), and

          ‘(iii) the vesting requirements of section 408(p)(3).

        ‘(B) CONTRIBUTION REQUIREMENTS-

          ‘(i) IN GENERAL- The requirements of this subparagraph are met if, under the arrangement--

            ‘(I) an employee may elect to have the employer make elective contributions for the year on behalf of the employee to a trust under the plan in an amount which is expressed as a percentage of compensation of the employee but which in no event exceeds $6,000,

            ‘(II) the employer is required to make a matching contribution to the trust for the year in an amount equal to so much of the amount the employee elects under subclause (I) as does not exceed 3 percent of compensation for the year, and

            ‘(III) no other contributions may be made other than contributions described in subclause (I) or (II).

          ‘(ii) EMPLOYER MAY ELECT 2-PERCENT NONELECTIVE CONTRIBUTION- An employer shall be treated as meeting the requirements of clause (i)(II) for any year if, in lieu of the contributions described in such clause, the employer elects (pursuant to the terms of the arrangement) to make nonelective contributions of 2 percent of compensation for each employee who is eligible to participate in the arrangement and who has at least $5,000 of compensation from the employer for the year. If an employer makes an election under this subparagraph for any year, the employer shall notify employees of such election within a reasonable period of time before the 30th day before the beginning of such year.

        ‘(C) EXCLUSIVE BENEFIT- The requirements of this subparagraph are met for any year to which this paragraph applies if no contributions were made, or benefits were accrued, for services during such year under any qualified plan of the employer on behalf of any employee eligible to participate in the cash or deferred arrangement, other than contributions described in subparagraph (B).

        ‘(D) DEFINITIONS AND SPECIAL RULE-

          ‘(i) DEFINITIONS- For purposes of this paragraph, any term used in this paragraph which is also used in section 408(p) shall have the meaning given such term by such section.

          ‘(ii) COORDINATION WITH TOP-HEAVY RULES- A plan meeting the requirements of this paragraph for any year shall not be treated as a top-heavy plan under section 416 for such year.’.

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

        ‘(A) meets the contribution requirements of subparagraph (B) of subsection (k)(11),

        ‘(B) meets the exclusive benefit requirements of subsection (k)(11)(C), and

        ‘(C) meets the vesting requirements of section 408(p)(3).’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to plan years beginning after December 31, 1996.

Subchapter B--Other Provisions

SEC. 1426. TAX-EXEMPT ORGANIZATIONS ELIGIBLE UNDER SECTION 401(k).

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

        ‘(B) ELIGIBILITY OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS-

          ‘(i) TAX-EXEMPTS ELIGIBLE- Except as provided in clause (ii), any organization exempt from tax under this subtitle may include a qualified cash or deferred arrangement as part of a plan maintained by it.

          ‘(ii) GOVERNMENTS INELIGIBLE- 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 clause shall not apply to a rural cooperative plan or to a plan of an employer described in clause (iii).

          ‘(iii) TREATMENT OF INDIAN TRIBAL GOVERNMENTS- An employer which is an Indian tribal government (as defined in section 7701(a)(40)), a subdivision of an Indian tribal government (determined in accordance with section 7871(d)), an agency or instrumentality of an Indian tribal government or subdivision thereof, or a corporation chartered under Federal, State, or tribal law which is owned in whole or in part by any of the foregoing shall be treated as an organization exempt from tax under this subtitle for purposes of clause (i).’.

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to plan years beginning after December 31, 1996, 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.

CHAPTER 3--NONDISCRIMINATION PROVISIONS

SEC. 1431. DEFINITION OF HIGHLY COMPENSATED EMPLOYEES; REPEAL OF FAMILY AGGREGATION.

    (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) for the preceding year--

          ‘(i) had compensation from the employer in excess of $80,000, and

          ‘(ii) was in the top-paid group of the employer.

      The Secretary shall adjust the $80,000 amount under subparagraph (B) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter ending September 30, 1996.’.

    (b) REPEAL OF FAMILY AGGREGATION RULES-

      (1) IN GENERAL- Paragraph (6) of section 414(q) is hereby repealed.

      (2) COMPENSATION LIMIT- Paragraph (17)(A) of section 401(a) is amended by striking the last sentence.

      (3) DEDUCTION- Subsection (l) of section 404 is amended by striking the last sentence.

    (c) CONFORMING AMENDMENTS-

      (1)(A) Subsection (q) of section 414 is amended by striking paragraphs (2), (5), (8), and (12) and by redesignating paragraphs (3), (4), (7), (9), (10), and (11) as paragraphs (2) through (7), respectively.

      (B) Sections 129(d)(8)(B), 401(a)(5)(D)(ii), 408(k)(2)(C), and 416(i)(1)(D) are each amended by striking ‘section 414(q)(7)’ and inserting ‘section 414(q)(4)’.

      (C) Section 416(i)(1)(A) is amended by striking ‘section 414(q)(8)’ and inserting ‘section 414(r)(9)’.

      (2)(A) Section 414(r) is amended by adding at the end 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) 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 on the day before the date of the enactment of the Small Business Job Protection Act of 1996.’.

    (d) EFFECTIVE DATE-

      (1) IN GENERAL- The amendments made by this section shall apply to years beginning after December 31, 1996, except that in determining whether an employee is a highly compensated employee for years beginning in 1997, such amendments shall be treated as having been in effect for years beginning in 1996.

      (2) FAMILY AGGREGATION- The amendments made by subsection (b) shall apply to years beginning after December 31, 1996.

SEC. 1432. 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 amendments made by this section shall apply to years beginning after December 31, 1996.

SEC. 1433. 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), as amended by section 1422, is amended by adding at the end the following new paragraph:

      ‘(12) 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 rate of matching contribution with respect to any elective contribution of a highly compensated employee at any rate of elective contribution is greater than that with respect to an employee who is not a highly compensated employee.

          ‘(iii) ALTERNATIVE PLAN DESIGNS- If the rate of any matching contribution with respect to any rate of elective contribution 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 rate of an employer’s matching contribution does not increase as an employee’s rate of elective contributions increase, and

            ‘(II) the aggregate amount of matching contributions at such rate of elective contribution is at least equal to the aggregate 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) of this paragraph unless the requirements of subparagraphs (B) and (C) of paragraph (2) are met with respect to all employer contributions (including matching contributions) taken into account in determining whether the requirements of subparagraphs (B) and (C) of this paragraph are met.

          ‘(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), as amended by this Act, is amended by redesignating paragraph (11) as paragraph (12) and by adding after paragraph (10) the following new paragraph:

      ‘(11) 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)(12),

          ‘(ii) meets the notice requirements of subsection (k)(12)(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 rate of an employer’s matching contribution does not increase as the rate of an employee’s contributions or elective deferrals increase, and

          ‘(iii) the matching contribution with respect to any highly compensated employee at any rate of an employee contribution or rate of elective deferral 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’,

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

        (C) by adding at the end the following new sentence: ‘An arrangement may apply this clause by using the plan year rather than the preceding plan year if the employer so elects, except that if such an election is made, it may not be changed except as provided by the Secretary.’.

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

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

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

        (C) by adding at the end the following flush sentence: ‘This subparagraph may be applied by using the plan year rather than the preceding plan year if the employer so elects, except that if such an election is made, it may not be changed except as provided the Secretary.’.

    (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 the following new subparagraph:

        ‘(E) For purposes of this paragraph, in the case of the first plan year of any plan (other than a successor 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 the following: ‘Rules similar to the rules of subsection (k)(3)(E) shall apply for purposes of this subsection.’.

    (e) DISTRIBUTION OF EXCESS CONTRIBUTIONS AND EXCESS AGGREGATE 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 DATES-

      (1) IN GENERAL- The amendments made by this section shall apply to years beginning after December 31, 1998.

      (2) EXCEPTIONS- The amendments made by subsections (c), (d), and (e) shall apply to years beginning after December 31, 1996.

SEC. 1434. DEFINITION OF COMPENSATION FOR SECTION 415 PURPOSES.

    (a) GENERAL RULE- Section 415(c)(3) (defining participant’s compensation) is amended by adding at the end the following new subparagraph:

        ‘(D) CERTAIN DEFERRALS INCLUDED- The term ‘participant’s compensation’ shall include--

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

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

    (b) CONFORMING AMENDMENTS-

      (1) Section 414(q)(4), as redesignated by section 1431, is amended to read as follows:

      ‘(4) COMPENSATION- For purposes of this subsection, the term ‘compensation’ has the meaning given such term by section 415(c)(3).’.

      (2) Section 414(s)(2) is amended by inserting ‘not’ after ‘elect’ in the text and heading thereof.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 1997.

CHAPTER 4--MISCELLANEOUS PROVISIONS

SEC. 1441. 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, 1996.

SEC. 1442. 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, 1997, 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, 1999.

    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. 1443. DISTRIBUTIONS UNDER RURAL COOPERATIVE PLANS.

    (a) DISTRIBUTIONS FOR HARDSHIP OR AFTER A CERTAIN AGE- Section 401(k)(7) is amended by adding at the end 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) or of paragraph (2) merely by reason of a hardship distribution or a distribution to a participant after attainment of age 59 1/2 . For purposes of this section, the term ‘hardship distribution’ means a distribution described in paragraph (2)(B)(i)(IV) (without regard to the limitation of its application to profit-sharing or stock bonus plans).’.

    (b) PUBLIC UTILITY DISTRICTS- Clause (i) of section 401(k)(7)(B) (defining rural cooperative) is amended to read as follows:

          ‘(i) any organization which--

            ‘(I) is engaged primarily in providing electric service on a mutual or cooperative basis, or

            ‘(II) is engaged primarily in providing electric service to the public in its area of service and which is exempt from tax under this subtitle or which is a State or local government (or an agency or instrumentality thereof), other than a municipality (or an agency or instrumentality thereof),’.

    (c) EFFECTIVE DATES-

      (1) DISTRIBUTIONS- The amendments made by subsection (a) shall apply to distributions after the date of the enactment of this Act.

      (2) RURAL COOPERATIVE- The amendments made by subsection (b) shall apply to plan years beginning after December 31, 1996.

SEC. 1444. TREATMENT OF GOVERNMENTAL PLANS UNDER SECTION 415.

    (a) 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.’.

    (b) TREATMENT OF CERTAIN EXCESS BENEFIT PLANS-

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

      ‘(14) 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 ‘and’ at the end of subparagraph (C), by striking the period at the end of subparagraph (D) and inserting ‘, and’, and by inserting immediately thereafter the following new subparagraph:

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

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

        ‘(I) EXEMPTION FOR SURVIVOR AND DISABILITY BENEFITS PROVIDED UNDER GOVERNMENTAL PLANS- 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.’.

    (d) REVOCATION OF GRANDFATHER ELECTION-

      (1) IN GENERAL- Subparagraph (C) of section 415(b)(10) is amended by adding at the end the following new clause:

          ‘(ii) REVOCATION OF ELECTION- An election under clause (i) may be revoked not later than the last day of the third plan year beginning after the date of the enactment of this clause. The revocation shall apply to all plan years to which the election applied and to all subsequent plan years. Any amount paid by a plan in a taxable year ending after the revocation shall be includible in income in such taxable year under the rules of this chapter in effect for such taxable year, except that, for purposes of applying the limitations imposed by this section, any portion of such amount which is attributable to any taxable year during which the election was in effect shall be treated as received in such taxable year.’.

      (2) CONFORMING AMENDMENT- Subparagraph (C) of section 415(b)(10) is amended by striking ‘This’ and inserting:

          ‘(i) IN GENERAL- This’.

    (e) EFFECTIVE DATE-

      (1) IN GENERAL- The amendments made by subsections (a), (b), and (c) shall apply to years beginning after December 31, 1994. The amendments made by subsection (d) shall apply with respect to revocations adopted after the date of the enactment of this Act.

      (2) TREATMENT FOR YEARS BEGINNING BEFORE JANUARY 1, 1995- Nothing in the amendments made by this section shall be construed to infer that a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986) fails to satisfy the requirements of section 415 of such Code for any taxable year beginning before January 1, 1995.

SEC. 1445. 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 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 amendment made by this section shall apply to years beginning after December 31, 1996.

SEC. 1446. CONTRIBUTIONS ON BEHALF OF DISABLED EMPLOYEES.

    (a) ALL DISABLED PARTICIPANTS RECEIVING CONTRIBUTIONS- Section 415(c)(3)(C) is amended by adding at the end 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 amendment made by this section shall apply to years beginning after December 31, 1996.

SEC. 1447. 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, as amended by section 1444(b)(2) (relating to governmental plans), is amended by adding at the end the following new paragraph:

      ‘(15) 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 period shall be the calendar quarter ending September 30, 1994, and any increase under this paragraph which is not a multiple of $500 shall be rounded to the next lowest multiple of $500.’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1996.

SEC. 1448. TRUST REQUIREMENT FOR DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS.

    (a) IN GENERAL- Section 457 is amended by adding at the end the following new subsection:

    ‘(g) GOVERNMENTAL PLANS MUST MAINTAIN SET-ASIDES FOR EXCLUSIVE BENEFIT OF PARTICIPANTS-

      ‘(1) IN GENERAL- A plan maintained by an eligible employer described in subsection (e)(1)(A) shall not be treated as an eligible deferred compensation plan unless all assets and income of the plan described in subsection (b)(6) are held in trust for the exclusive benefit of participants and their beneficiaries.

      ‘(2) TAXABILITY OF TRUSTS AND PARTICIPANTS- For purposes of this title--

        ‘(A) a trust described in paragraph (1) shall be treated as an organization exempt from taxation under section 501(a), and

        ‘(B) notwithstanding any other provision of this title, amounts in the trust shall be includible in the gross income of participants and beneficiaries only to the extent, and at the time, provided in this section.

      ‘(3) CUSTODIAL ACCOUNTS AND CONTRACTS- For purposes of this subsection, custodial accounts and contracts described in section 401(f) shall be treated as trusts under rules similar to the rules under section 401(f).’.

    (b) CONFORMING AMENDMENT- Paragraph (6) of section 457(b) is amended by inserting ‘except as provided in subsection (g),’ before ‘which provides that’.

    (c) EFFECTIVE DATES-

      (1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to assets and income described in section 457(b)(6) of the Internal Revenue Code of 1986 held by a plan on and after the date of the enactment of this Act.

      (2) TRANSITION RULE- In the case of assets and income described in paragraph (1) held by a plan on

the date of the enactment of this Act, a trust need not be established by reason of the amendments made by this section before January 1, 1999.

SEC. 1449. TRANSITION RULE FOR COMPUTING MAXIMUM BENEFITS UNDER SECTION 415 LIMITATIONS.

    (a) IN GENERAL- Subparagraph (A) of section 767(d)(3) of the Uruguay Round Agreements Act is amended to read as follows:

        ‘(A) EXCEPTION- A plan that was adopted and in effect before December 8, 1994, shall not be required to apply the amendments made by subsection (b) with respect to benefits accrued before the earlier of--

          ‘(i) the later of the date a plan amendment applying such amendment is adopted or made effective, or

          ‘(ii) the first day of the first limitation year beginning after December 31, 1999.

        Determinations under section 415(b)(2)(E) of the Internal Revenue Code of 1986 before such earlier date shall be made with respect to such benefits on the basis of such section as in effect on December 7, 1994 (except that the modification made by section 1449(b) of the Small Business Job Protection Act of 1996 shall be taken into account), and the provisions of the plan as in effect on December 7, 1994, but only if such provisions of the plan meet the requirements of such section (as so in effect).’.

    (b) MODIFICATION OF CERTAIN ASSUMPTIONS FOR ADJUSTING BENEFITS OF DEFINED BENEFIT PLANS FOR EARLY RETIREES- Subparagraph (E) of section 415(b)(2) (relating to limitation on certain assumptions) is amended--

      (1) by striking ‘Except as provided in clause (ii), for purposes of adjusting any benefit or limitation under subparagraph (B) or (C),’ in clause (i) and inserting ‘For purposes of adjusting any limitation under subparagraph (C) and, except as provided in clause (ii), for purposes of adjusting any benefit under subparagraph (B),’, and

      (2) by striking ‘For purposes of adjusting the benefit or limitation of any form of benefit subject to section 417(e)(3),’ in clause (ii) and inserting ‘For purposes of adjusting any benefit under subparagraph (B) for any form of benefit subject to section 417(e)(3),’.

    (c) EFFECTIVE DATE- The amendments made by this section shall take effect as if included in the provisions of section 767 of the Uruguay Round Agreements Act.

    (d) TRANSITIONAL RULE- In the case of a plan that was adopted and in effect before December 8, 1994, if--

      (1) a plan amendment was adopted or made effective on or before the date of the enactment of this Act applying the amendments made by section 767 of the Uruguay Round Agreements Act, and

      (2) within 1 year after the date of the enactment of this Act, a plan amendment is adopted which repeals the amendment referred to in paragraph (1),

    the amendment referred to in paragraph (1) shall not be taken into account in applying section 767(d)(3)(A) of the Uruguay Round Agreements Act, as amended by subsection (a).

SEC. 1450. MODIFICATIONS OF SECTION 403(b).

    (a) MULTIPLE SALARY REDUCTION AGREEMENTS PERMITTED-

      (1) GENERAL RULE- For purposes of section 403(b) of the Internal Revenue Code of 1986, the frequency that an employee is permitted to enter into a salary reduction agreement, the salary to which such an agreement may apply, and the ability to revoke such an agreement shall be determined under the rules applicable to cash or deferred elections under section 401(k) of such Code.

      (2) EFFECTIVE DATE- This subsection shall apply to taxable years beginning after December 31, 1995.

    (b) TREATMENT OF INDIAN TRIBAL GOVERNMENTS-

      (1) IN GENERAL- In the case of any contract purchased in a plan year beginning before January 1, 1995, section 403(b) of the Internal Revenue Code of 1986 shall be applied as if any reference to an employer described in section 501(c)(3) of the Internal Revenue Code of 1986 which is exempt from tax under section 501 of such Code included a reference to an employer which is an Indian tribal government (as defined by section 7701(a)(40) of such Code), a subdivision of an Indian tribal government (determined in accordance with section 7871(d) of such Code), an agency or instrumentality of an Indian tribal government or subdivision thereof, or a corporation chartered under Federal, State, or tribal law which is owned in whole or in part by any of the foregoing.

      (2) ROLLOVERS- Solely for purposes of applying section 403(b)(8) of such Code to a contract to which paragraph (1) applies, a qualified cash or deferred arrangement under section 401(k) of such Code shall be treated as if it were a plan or contract described in clause (ii) of section 403(b)(8)(A) of such Code.

    (c) ELECTIVE DEFERRALS-

      (1) IN GENERAL- Subparagraph (E) of section 403(b)(1) is amended to read as follows:

        ‘(E) in the case of a contract purchased under a salary reduction agreement, the contract meets the requirements of section 401(a)(30),’.

      (2) EFFECTIVE DATE- The amendment made by this subsection shall apply to years beginning after December 31, 1995, except a contract shall not be required to meet any change in any requirement by reason of such amendment before the 90th day after the date of the enactment of this Act.

SEC. 1451. WAIVER OF MINIMUM PERIOD FOR JOINT AND SURVIVOR ANNUITY EXPLANATION BEFORE ANNUITY STARTING DATE.

    (a) GENERAL RULE- For purposes of section 417(a)(3)(A) of the Internal Revenue Code of 1986 (relating to plan to provide written explanations), the minimum period prescribed by the Secretary of the Treasury between the date that the explanation referred to in such section is provided and the annuity starting date shall not apply if

waived by the participant and, if applicable, the participant’s spouse.

    (b) EFFECTIVE DATE- Subsection (a) shall apply to plan years beginning after December 31, 1996.

SEC. 1452. REPEAL OF LIMITATION IN CASE OF DEFINED BENEFIT PLAN AND DEFINED CONTRIBUTION PLAN FOR SAME EMPLOYEE; EXCESS DISTRIBUTIONS.

    (a) IN GENERAL- Section 415(e) is repealed.

    (b) EXCESS DISTRIBUTIONS- Section 4980A is amended by adding at the end the following new subsection:

    ‘(g) LIMITATION ON APPLICATION- This section shall not apply to distributions during years beginning after December 31, 1995, and before January 1, 1999, and such distributions shall be treated as made first from amounts not described in subsection (f).’.

    (c) CONFORMING AMENDMENTS-

      (1) Paragraph (1) of section 415(a) is amended--

        (A) by adding ‘or’ at the end of subparagraph (A),

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

        (C) by striking subparagraph (C).

      (2) Subparagraph (B) of section 415(b)(5) is amended by striking ‘and subsection (e)’.

      (3) Paragraph (1) of section 415(f) is amended by striking ‘subsections (b), (c), and (e)’ and inserting ‘subsections (b) and (c)’.

      (4) Subsection (g) of section 415 is amended by striking ‘subsections (e) and (f)’ in the last sentence and inserting ‘subsection (f)’.

      (5) Clause (i) of section 415(k)(2)(A) is amended to read as follows:

          ‘(i) any contribution made directly by an employee under such an arrangement shall not be treated as an annual addition for purposes of subsection (c), and’.

      (6) Clause (ii) of section 415(k)(2)(A) is amended by striking ‘subsections (c) and (e)’ and inserting ‘subsection (c)’.

      (7) Section 416 is amended by striking subsection (h).

    (d) EFFECTIVE DATE-

      (1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to limitation years beginning after December 31, 1998.

      (2) EXCESS DISTRIBUTIONS- The amendment made by subsection (b) shall apply to years beginning after December 31, 1995.

SEC. 1453. TAX ON PROHIBITED TRANSACTIONS.

    (a) IN GENERAL- Section 4975(a) is amended by striking ‘5 percent’ and inserting ‘10 percent’.

    (b) EFFECTIVE DATE- The amendment made by this section shall apply to prohibited transactions occurring after the date of the enactment of this Act.

SEC. 1454. 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 primary direction or control by the recipient.’.

    (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to years beginning after December 31, 1996, 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. 1455. UNIFORM PENALTY PROVISIONS TO APPLY TO CERTAIN PENSION REPORTING REQUIREMENTS.

    (a) PENALTIES-

      (1) STATEMENTS- 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) REPORTS- Paragraph (2) of section 6724(d), as amended by section 1116, is amended by striking ‘or’ at the end of subparagraph (T), by striking the period at the end of subparagraph (U) and inserting a comma, and by inserting after subparagraph (U) the following new subparagraphs:

        ‘(V) 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

        ‘(W) 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 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 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)(W).’.

      (3) Subsection (a) of section 6693 is amended by adding at the end 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)(V).’.

    (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, 1996.

SEC. 1456. RETIREMENT BENEFITS OF MINISTERS NOT SUBJECT TO TAX ON NET EARNINGS FROM SELF-EMPLOYMENT.

    (a) IN GENERAL- Section 1402(a)(8) (defining net earning from self-employment) is amended by inserting ‘, but shall not include in such net earnings from self-employment the rental value of any parsonage (whether or not excludable under section 107) provided after the individual retires, or any other retirement benefit received by such individual from a church plan (as defined in section 414(e)) after the individual retires’ before the semicolon at the end.

    (b) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning before, on, or after December 31, 1994.

SEC. 1457. DATE FOR ADOPTION OF PLAN AMENDMENTS.

    If any amendment made by this subtitle requires an amendment to any plan or annuity contract, such amendment shall not be required to be made before the first day of the first plan year beginning on or after January 1, 1997, if--

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

      (2) such amendment applies retroactively to such period.

    In the case of a governmental plan (as defined in section 414(d) of the Internal Revenue Code of 1986), this section shall be applied by substituting ‘1999’ for ‘1997’.

Subtitle E--Foreign Simplification

SEC. 1501. REPEAL OF INCLUSION OF CERTAIN EARNINGS INVESTED IN EXCESS PASSIVE ASSETS.

    (a) IN GENERAL-

      (1) REPEAL OF INCLUSION- Paragraph (1) of section 951(a) (relating to amounts included in gross income of United States shareholders) is amended by striking subparagraph (C), by striking ‘; and’ at the end of subparagraph (B) and inserting a period, and by adding ‘and’ at the end of subparagraph (A).

      (2) REPEAL OF INCLUSION AMOUNT- Section 956A (relating to earnings invested in excess passive assets) is repealed.

    (b) CONFORMING AMENDMENTS-

      (1) Paragraph (1) of section 956(b) is amended to read as follows:

      ‘(1) APPLICABLE EARNINGS- For purposes of this section, the term ‘applicable earnings’ means, with respect to any controlled foreign corporation, the sum of--

        ‘(A) the amount (not including a deficit) referred to in section 316(a)(1), and

        ‘(B) the amount referred to in section 316(a)(2),

      but reduced by distributions made during the taxable year.’.

      (2) Paragraph (3) of section 956(b) is amended to read as follows:

      ‘(3) SPECIAL RULE WHERE CORPORATION CEASES TO BE CONTROLLED FOREIGN CORPORATION- If any foreign corporation ceases to be a controlled foreign corporation during any taxable year--

        ‘(A) the determination of any United States shareholder’s pro rata share shall be made on the basis of stock owned (within the meaning of section 958(a)) by such shareholder on the last day during the taxable year on which the foreign corporation is a controlled foreign corporation,

        ‘(B) the average referred to in subsection (a)(1)(A) for such taxable year shall be determined by only taking into account quarters ending on or before such last day, and

        ‘(C) in determining applicable earnings, the amount taken into account by reason of being described in paragraph (2) of section 316(a) shall be the portion of the amount so described which is allocable (on a pro rata basis) to the part of such year during which the corporation is a controlled foreign corporation.’.

      (3) Subsection (a) of section 959 (relating to exclusion from gross income of previously taxed earnings and profits) is amended by adding ‘or’ at the end of paragraph (1), by striking ‘or’ at the end of paragraph (2), and by striking paragraph (3).

      (4) Subsection (a) of section 959 is amended by striking ‘paragraphs (2) and (3)’ in the last sentence and inserting ‘paragraph (2)’.

      (5) Subsection (c) of section 959 is amended by adding at the end the following flush sentence:

    ‘References in this subsection to section 951(a)(1)(C) and subsection (a)(3) shall be treated as references to such provisions as in effect on the day before the date of the enactment of the Small Business Job Protection Act of 1996.’.

      (6) Paragraph (1) of section 959(f) is amended to read as follows:

      ‘(1) IN GENERAL- For purposes of this section, amounts that would be included under subparagraph (B) of section 951(a)(1) (determined without regard to this section) shall be treated as attributable first to earnings described in subsection (c)(2), and then to earnings described in subsection (c)(3).’.

      (7) Paragraph (2) of section 959(f) is amended by striking ‘subparagraphs (B) and (C) of section 951(a)(1)’ and inserting ‘section 951(a)(1)(B)’.

      (8) Subsection (b) of section 989 is amended by striking ‘subparagraph (B) or (C) of section 951(a)(1)’ and inserting ‘section 951(a)(1)(B)’.

      (9) Paragraph (9) of section 1297(b) is amended by striking ‘subparagraph (B) or (C) of section 951(a)(1)’ and inserting ‘section 951(a)(1)(B)’.

      (10) Subsections (d)(3)(B) and (e)(2)(B)(ii) of section 1297 are each amended by striking ‘or section 956A’.

    (c) CLERICAL AMENDMENT- The table of sections for subpart F of part III of subchapter N of chapter 1 is amended by striking the item relating to section 956A.

    (d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years of foreign corporations beginning after December 31, 1996, and to taxable years of United States shareholders within which or with which such taxable years of foreign corporations end.

Subtitle F--Revenue Offsets

SEC. 1601. TERMINATION OF PUERTO RICO AND POSSESSION TAX CREDIT.

    (a) IN GENERAL- Section 936 is amended by adding at the end the following new subsection:

    ‘(j) TERMINATION-

      ‘(1) IN GENERAL- Except as otherwise provided in this subsection, this section shall not apply to any taxable year beginning after December 31, 1995.

      ‘(2) TRANSITION RULES FOR ACTIVE BUSINESS INCOME CREDIT- Except as provided in paragraph (3)--

        ‘(A) ECONOMIC ACTIVITY CREDIT- In the case of an existing credit claimant--

          ‘(i) with respect to a possession other than Puerto Rico, and

          ‘(ii) to which subsection (a)(4)(B) does not apply,

        the credit determined under subsection (a)(1)(A) shall be allowed for taxable years beginning after December 31, 1995, and before January 1, 2002.

        ‘(B) SPECIAL RULE FOR REDUCED CREDIT-

          ‘(i) IN GENERAL- In the case of an existing credit claimant to which subsection (a)(4)(B) applies, the credit determined under subsection (a)(1)(A) shall be allowed for taxable years beginning after December 31, 1995, and before January 1, 1998.

          ‘(ii) ELECTION IRREVOCABLE AFTER 1997- An election under subsection (a)(4)(B)(iii) which is in effect for the taxpayer’s last taxable year beginning before 1997 may not be revoked unless it is revoked for the taxpayer’s first taxable year beginning in 1997 and all subsequent taxable years.

        ‘(C) ECONOMIC ACTIVITY CREDIT FOR PUERTO RICO-

‘For economic activity credit for Puerto Rico, see section 30A.

      ‘(3) ADDITIONAL RESTRICTED CREDIT-

        ‘(A) IN GENERAL- In the case of an existing credit claimant--

          ‘(i) the credit under subsection (a)(1)(A) shall be allowed for the period beginning with the first taxable year after the last taxable year to which subparagraph (A) or (B) of paragraph (2), whichever is appropriate, applied and ending with the last taxable year beginning before January 1, 2006, except that

          ‘(ii) the aggregate amount of taxable income taken into account under subsection (a)(1)(A) for any such taxable year shall not exceed the adjusted base period income of such claimant.

        ‘(B) COORDINATION WITH SUBSECTION (a)(4)- The amount of income described in subsection (a)(1)(A) which is taken into account in applying subsection (a)(4) shall be such income as reduced under this paragraph.

      ‘(4) ADJUSTED BASE PERIOD INCOME- For purposes of paragraph (3)--

        ‘(A) IN GENERAL- The term ‘adjusted base period income’ means the average of the inflation-adjusted possession incomes of the corporation for each base period year.

        ‘(B) INFLATION-ADJUSTED POSSESSION INCOME- For purposes of subparagraph (A), the inflation-adjusted possession income of any corporation for any base period year shall be an amount equal to the sum of--

          ‘(i) the possession income of such corporation for such base period year, plus

          ‘(ii) such possession income multiplied by the inflation adjustment percentage for such base period year.

        ‘(C) INFLATION ADJUSTMENT PERCENTAGE- For purposes of subparagraph (B), the inflation adjustment percentage for any base period year means the percentage (if any) by which--

          ‘(i) the CPI for 1995, exceeds

          ‘(ii) the CPI for the calendar year in which the base period year for which the determination is being made ends.

        For purposes of the preceding sentence, the CPI for any calendar year is the CPI (as defined in section 1(f)(5)) for such year under section 1(f)(4).

        ‘(D) INCREASE IN INFLATION ADJUSTMENT PERCENTAGE FOR GROWTH DURING BASE YEARS- The inflation adjustment percentage (determined under subparagraph (C) without regard to this subparagraph) for each of the 5 taxable years referred to in paragraph (5)(A) shall be increased by--

          ‘(i) 5 percentage points in the case of a taxable year ending during the 1-year period ending on October 13, 1995;

          ‘(ii) 10.25 percentage points in the case of a taxable year ending during the 1-year period ending on October 13, 1994;

          ‘(iii) 15.76 percentage points in the case of a taxable year ending during the 1-year period ending on October 13, 1993;

          ‘(iv) 21.55 percentage points in the case of a taxable year ending during the 1-year period ending on October 13, 1992; and

          ‘(v) 27.63 percentage points in the case of a taxable year ending during the 1-year period ending on October 13, 1991.

      ‘(5) BASE PERIOD YEAR- For purposes of this subsection--

        ‘(A) IN GENERAL- The term ‘base period year’ means each of 3 taxable years which are among the 5 most recent taxable years of the corporation ending before October 14, 1995, determined by disregarding--

          ‘(i) one taxable year for which the corporation had the largest inflation-adjusted possession income, and

          ‘(ii) one taxable year for which the corporation had the smallest inflation-adjusted possession income.

        ‘(B) CORPORATIONS NOT HAVING SIGNIFICANT POSSESSION INCOME THROUGHOUT 5-YEAR PERIOD-

          ‘(i) IN GENERAL- If a corporation does not have significant possession income for each of the most recent 5 taxable years ending before October 14, 1995, then, in lieu of applying subparagraph (A), the term ‘base period year’ means only those taxable years (of such 5 taxable years) for which the corporation has significant possession income; except that, if such corporation has significant possession income for 4 of such 5 taxable years, the rule of subparagraph (A)(ii) shall apply.

          ‘(ii) SPECIAL RULE- If there is no year (of such 5 taxable years) for which a corporation has significant possession income--

            ‘(I) the term ‘base period year’ means the first taxable year ending on or after October 14, 1995, but

            ‘(II) the amount of possession income for such year which is taken into account under paragraph (4) shall be the amount which would be determined if such year were a short taxable year ending on September 30, 1995.

          ‘(iii) SIGNIFICANT POSSESSION INCOME- For purposes of this subparagraph, the term ‘significant possession income’ means possession income which exceeds 2 percent of the possession income of the taxpayer for the taxable year (of the period of 6 taxable years ending with the first taxable year ending on or after October 14, 1995) having the greatest possession income.

        ‘(C) ELECTION TO USE ONE BASE PERIOD YEAR-

          ‘(i) IN GENERAL- At the election of the taxpayer, the term ‘base period year’ means--

            ‘(I) only the last taxable year of the corporation ending in calendar year 1992, or

            ‘(II) a deemed taxable year which includes the first ten months of calendar year 1995.

          ‘(ii) BASE PERIOD INCOME FOR 1995- In determining the adjusted base period income of the corporation for the deemed taxable year under clause (i)(II), the possession income shall be annualized and shall be determined without regard to any extraordinary item.

          ‘(iii) ELECTION- An election under this subparagraph by any possession corporation may be made only for the corporation’s first taxable year beginning after December 31, 1995, for which it is a possession corporation. The rules of subclauses (II) and (III) of subsection (a)(4)(B)(iii) shall apply to the election under this subparagraph.

        ‘(D) ACQUISITIONS AND DISPOSITIONS- Rules similar to the rules of subparagraphs (A) and (B) of section 41(f)(3) shall apply for purposes of this subsection.

      ‘(6) POSSESSION INCOME- For purposes of this subsection, the term ‘possession income’ means, with respect to any possession, the income referred to in subsection (a)(1)(A) determined with respect to that possession. In no event shall possession income be treated as being less than zero.

      ‘(7) SHORT YEARS- If the current year or a base period year is a short taxable year, the application of this subsection shall be made with such annualizations as the Secretary shall prescribe.

      ‘(8) SPECIAL RULES FOR CERTAIN POSSESSIONS-

        ‘(A) IN GENERAL- In the case of an existing credit claimant with respect to an applicable possession, this section (other than the preceding paragraphs of this subsection) shall apply to such claimant with respect to such applicable possession for taxable years beginning after December 31, 1995, and before January 1, 2006.

        ‘(B) APPLICABLE POSSESSION- For purposes of this paragraph, the term ‘applicable possession’ means Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands.

      ‘(9) EXISTING CREDIT CLAIMANT- For purposes of this subsection--

        ‘(A) IN GENERAL- The term ‘existing credit claimant’ means a corporation--

          ‘(i) which was actively conducting a trade or business in a possession on October 13, 1995, and

          ‘(ii) with respect to which an election under this section is in effect for the corporation’s taxable year which includes October 13, 1995.

        ‘(B) NEW LINES OF BUSINESS PROHIBITED- If, after October 13, 1995, a corporation which would (but for this subparagraph) be an existing credit claimant adds a substantial new line of business, such corporation shall cease to be treated as an existing credit claimant as of the close of the taxable year ending before the date of such addition.

        ‘(C) BINDING CONTRACT EXCEPTION- If, on October 13, 1995, and at all times thereafter, there is in effect with respect to a corporation a binding contract for the acquisition of assets to be used in, or for the sale of assets to be produced from, a trade or business, the corporation shall be treated for purposes of this paragraph as actively conducting such trade or business on October 13, 1995. The preceding sentence shall not apply if such trade or business is not actively conducted before January 1, 1996.

      ‘(10) SEPARATE APPLICATION TO EACH POSSESSION- For purposes of determining--

        ‘(A) whether a taxpayer is an existing credit claimant, and

        ‘(B) the amount of the credit allowed under this section,

      this subsection (and so much of this section as relates to this subsection) shall be applied separately with respect to each possession.’.

    (b) ECONOMIC ACTIVITY CREDIT FOR PUERTO RICO-

      (1) IN GENERAL- Subpart B of part IV of subchapter A of chapter 1 is amended by adding at the end the following new section:

‘SEC. 30A. PUERTO RICAN ECONOMIC ACTIVITY CREDIT.

    ‘(a) ALLOWANCE OF CREDIT-

      ‘(1) IN GENERAL- Except as otherwise provided in this section, if the conditions of both paragraph (1) and paragraph (2) of subsection (b) are satisfied with respect to a qualified domestic corporation, there shall be allowed as a credit against the tax imposed by this chapter an amount equal to the portion of the tax which is attributable to the taxable income, from sources without the United States, from--

        ‘(A) the active conduct of a trade or business within Puerto Rico, or

        ‘(B) the sale or exchange of substantially all of the assets used by the taxpayer in the active conduct of such trade or business.

      In the case of any taxable year beginning after December 31, 2001, the aggregate amount of taxable income taken into account under the preceding sentence (and in applying subsection (d)) shall not exceed the adjusted base period income of such corporation, as determined in the same manner as under section 936(j).

      ‘(2) QUALIFIED DOMESTIC CORPORATION- For purposes of paragraph (1), the term ‘qualified domestic corporation’ means a domestic corporation--

        ‘(A) which is an existing credit claimant with respect to Puerto Rico, and

        ‘(B) with respect to which section 936(a)(4)(B) does not apply for the taxable year.

      ‘(3) SEPARATE APPLICATION- For purposes of determining--

        ‘(A) whether a taxpayer is an existing credit claimant with respect to Puerto Rico, and

        ‘(B) the amount of the credit allowed under this section,

      this section (and so much of section 936 as relates to this section) shall be applied separately with respect to Puerto Rico.

    ‘(b) CONDITIONS WHICH MUST BE SATISFIED- The conditions referred to in subsection (a) are--

      ‘(1) 3-YEAR PERIOD- If 80 percent or more of the gross income of the qualified domestic corporation for the 3-year period immediately preceding the close of the taxable year (or for such part of such period immediately preceding the close of such taxable year as may be applicable) was derived from sources within a possession (determined without regard to section 904(f)).

      ‘(2) TRADE OR BUSINESS- If 75 percent or more of the gross income of the qualified domestic corporation for such period or such part thereof was derived from the active conduct of a trade or business within a possession.

    ‘(c) CREDIT NOT ALLOWED AGAINST CERTAIN TAXES- The credit provided by subsection (a) shall not be allowed against the tax imposed by--

      ‘(1) section 59A (relating to environmental tax),

      ‘(2) section 531 (relating to the tax on accumulated earnings),

      ‘(3) section 541 (relating to personal holding company tax), or

      ‘(4) section 1351 (relating to recoveries of foreign expropriation losses).

    ‘(d) LIMITATIONS ON CREDIT FOR ACTIVE BUSINESS INCOME- The amount of the credit determined under subsection (a) for any taxable year shall not exceed the sum of the following amounts:

      ‘(1) 60 percent of the sum of--

        ‘(A) the aggregate amount of the qualified domestic corporation’s qualified possession wages for such taxable year, plus

        ‘(B) the allocable employee fringe benefit expenses of the qualified domestic corporation for such taxable year.

      ‘(2) The sum of--

        ‘(A) 15 percent of the deprecation allowances for the taxable year with respect to short-life qualified tangible property,

        ‘(B) 40 percent of the depreciation allowances for the taxable year with respect to medium-life qualified tangible property, and

        ‘(C) 65 percent of the depreciation allowances for the taxable year with respect to long-life qualified tangible property.

      ‘(3) If the qualified domestic corporation does not have an election to use the method described in section 936(h)(5)(C)(ii) (relating to profit split) in effect for the taxable year, the amount of the qualified possession income taxes for the taxable year allocable to nonsheltered income.

    ‘(e) ADMINISTRATIVE PROVISIONS- For purposes of this title--

      ‘(1) the provisions of section 936 (including any applicable election thereunder) shall apply in the same manner as if the credit under this section were a credit under section 936(a)(1)(A) for a domestic corporation to which section 936(a)(4)(A) applies,

      ‘(2) the credit under this section shall be treated in the same manner as the credit under section 936, and

      ‘(3) a corporation to which this section applies shall be treated in the same manner as if it were a corporation electing the application of section 936.

    ‘(f) DEFINITIONS- For purposes of this section, any term used in this section which is also used in section 936 shall have the same meaning given such term by section 936.

    ‘(g) APPLICATION OF SECTION- This section shall apply to taxable years beginning after December 31, 1995, and before January 1, 2006.’.

      (2) CONFORMING AMENDMENTS-

        (A) Paragraph (1) of section 55(c) is amended by striking ‘and the section 936 credit allowable under section 27(b)’ and inserting ‘, the section 936 credit allowable under section 27(b), and the Puerto Rican economic activity credit under section 30A’.

        (B) Subclause (I) of section 56(g)(4)(C)(ii) is amended--

          (i) by inserting ‘30A,’ before ‘936’, and

          (ii) by striking ‘and (i)’ and inserting ‘, (i), and (j)’.

        (C) Clause (iii) of section 56(g)(4)(C) is amended by adding at the end the following new subclause:

            ‘(VI) APPLICATION TO SECTION 30A CORPORATIONS- References in this clause to section 936 shall be treated as including references to section 30A.’.

        (D) Subsection (b) of section 59 is amended by striking ‘section 936,’ and all that follows and inserting ‘section 30A or 936, alternative minimum taxable income shall not include any income with respect to which a credit is determined under section 30A or 936.’.

        (E) The table of sections for subpart B of part IV of subchapter A of chapter 1 is amended by adding at the end the following new item:

      ‘Sec. 30A. Puerto Rican economic activity credit.’.

        (F)(i) The heading for subpart B of part IV of subchapter A of chapter 1 is amended to read as follows:

‘Subpart B--Other Credits’.

        (ii) The table of subparts for part IV of subchapter A of chapter 1 is amended by striking the item relating to subpart B and inserting the following new item:

      ‘Subpart B. Other credits.’.

    (c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1995.

SEC. 1602. REPEAL OF EXCLUSION FOR INTEREST ON LOANS USED TO ACQUIRE EMPLOYER SECURITIES.

    (a) IN GENERAL- Section 133 (relating to interest on certain loans used to acquire employer securities) is hereby repealed.

    (b) CONFORMING AMENDMENTS-

      (1) Subparagraph (B) of section 291(e)(1) is amended by striking clause (iv) and by redesignating clause (v) as clause (iv).

      (2) Section 812 is amended by striking subsection (g).

      (3) Paragraph (5) of section 852(b) is amended by striking subparagraph (C).

      (4) Paragraph (2) of section 4978(b) is amended by striking subparagraph (A) and all that follows and inserting the following:

        ‘(A) first from qualified securities to which section 1042 applied acquired during the 3-year period ending on the date of the disposition, beginning with the securities first so acquired, and

        ‘(B) then from any other employer securities.

      If subsection (d) applies to a disposition, the disposition shall be treated as made from employer securities in the opposite order of the preceding sentence.’.

      (5)(A) Section 4978B (relating to tax on disposition of employer securities to which section 133 applied) is hereby repealed.

      (B) The table of sections for chapter 43 is amended by striking the item relating to section 4978B.

      (6) Subsection (e) of section 6047 is amended by striking paragraphs (1), (2), and (3) and inserting the following new paragraphs:

      ‘(1) any employer maintaining, or the plan administrator (within the meaning of section 414(g)) of, an employee stock ownership plan which holds stock with respect to which section 404(k) applies to dividends paid on such stock, or

      ‘(2) both such employer or plan administrator,’.

      (7) Subsection (f) of section 7872 is amended by striking paragraph (12).

      (8) The table of sections for part III of subchapter B of chapter 1 is amended by striking the item relating to section 133.

    (c) EFFECTIVE DATE-

      (1) IN GENERAL- The amendments made by this section shall apply to loans made after October 13, 1995.

      (2) REFINANCINGS- The amendments made by this section shall not apply to loans made after October 13, 1995, to refinance securities acquisition loans (determined without regard to section 133(b)(1)(B) of the Internal Revenue Code of 1986, as in effect on the day before the date of the enactment of this Act) made on or before such date or to refinance loans described in this paragraph if--

        (A) the refinancing loans meet the requirements of section 133 of such Code (as so in effect),

        (B) immediately after the refinancing the principal amount of the loan resulting from the refinancing does not exceed the principal amount of the refinanced loan (immediately before the refinancing), and

        (C) the term of such refinancing loan does not extend beyond the last day of the term of the original securities acquisition loan.

      For purposes of this paragraph, the term ‘securities acquisition loan’ includes a loan from a corporation to an employee stock ownership plan described in section 133(b)(3) of such Code (as so in effect).

      (3) EXCEPTION- Any loan made pursuant to a binding written contract in effect on October 13, 1995, and at all times thereafter before such loan is made, shall be treated for purposes of paragraphs (1) and (2) as a loan made before such date.

SEC. 1603. 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 the following new paragraph:

      ‘(17) TREATMENT OF CERTAIN AMOUNTS DERIVED FROM FOREIGN CORPORATIONS-

        ‘(A) IN GENERAL- Notwithstanding paragraph (1), any amount included in gross income under section 951(a)(1)(A) shall be included as an item of gross income derived from an unrelated trade or business to the extent the amount so included is attributable to insurance income (as defined in section 953) which, if derived directly by the organization, would be treated as gross income 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) EXCEPTION- Subparagraph (A) shall not apply to income attributable to a policy of insurance or reinsurance with respect to which the person (directly or indirectly) insured is--

          ‘(i) such organization,

          ‘(ii) an affiliate of such organization which is exempt from tax under section 501(a), or

          ‘(iii) a director or officer of, or an individual who (directly or indirectly) performs services for, such organization or affiliate but only if the insurance covers primarily risks associated with the performance of services in connection with such organization or affiliate.

        For purposes of this subparagraph, the determination as to whether an entity is an affiliate of an organization shall be made under rules similar to the rules of section 168(h)(4)(B).

        ‘(C) 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 amendment made by this section shall apply to amounts included in gross income in any taxable year beginning after December 31, 1995.

SEC. 1604. DEPRECIATION UNDER INCOME FORECAST METHOD.

    (a) GENERAL RULE- Section 167 (relating to depreciation) is amended by redesignating subsection (g) as subsection (h) and by inserting after subsection (f) the following new subsection:

    ‘(g) DEPRECIATION UNDER INCOME FORECAST METHOD-

      ‘(1) IN GENERAL- If the depreciation deduction allowable under this section to any taxpayer with respect to any property is determined under the income forecast method or any similar method--

        ‘(A) the income from the property to be taken into account in determining the depreciation deduction under such method shall be equal to the amount of income earned in connection with the property before the close of the 10th taxable year following the taxable year in which the property was placed in service,

        ‘(B) the adjusted basis of the property shall only include amounts with respect to which the requirements of section 461(h) are satisfied,

        ‘(C) the depreciation deduction under such method for the 10th taxable year beginning after the taxable year in which the property was placed in service shall be equal to the adjusted basis of such property as of the beginning of such 10th taxable year, and

        ‘(D) such taxpayer shall pay (or be entitled to receive) interest computed under the look-back method of paragraph (2) for any recomputation year.

      ‘(2) LOOK-BACK METHOD- The interest computed under the look-back method of this paragraph for any recomputation year shall be determined by--

        ‘(A) first determining the depreciation deductions under this section with respect to such property which would have been allowable for prior taxable years if the determination of the amounts so allowable had been made on the basis of the sum of the following (instead of the estimated income from such property)--

          ‘(i) the actual income earned in connection with such property for periods before the close of the recomputation year, and

          ‘(ii) an estimate of the future income to be earned in connection with such property for periods after the recomputation year and before the close of the 10th taxable year following the taxable year in which the property was placed in service,

        ‘(B) second, determining (solely for purposes of computing such interest) the overpayment or underpayment of tax for each such prior taxable year which would result solely from the application of subparagraph (A), and

        ‘(C) then using the adjusted overpayment rate (as defined in section 460(b)(7)), compounded daily, on the overpayment or underpayment determined under subparagraph (B).

      For purposes of the preceding sentence, any cost incurred after the property is placed in service (which is not treated as a separate property under paragraph (5)) shall be taken into account by discounting (using the Federal mid-term rate determined under section 1274(d) as of the time such cost is incurred) such cost to its value as of the date the property is placed in service. The taxpayer may elect with respect to any property to have the preceding sentence not apply to such property.

      ‘(3) EXCEPTION FROM LOOK-BACK METHOD- Paragraph (1)(D) shall not apply with respect to any property which, when placed in service by the taxpayer, had a basis of $100,000 or less.

      ‘(4) RECOMPUTATION YEAR- For purposes of this subsection, except as provided in regulations, the term ‘recomputation year’ means, with respect to any property, the 3d and the 10th taxable years beginning after the taxable year in which the property was placed in service, unless the actual income earned in connection with the property for the period before the close of such 3d or 10th taxable year is within 10 percent of the income earned in connection with the property for such period which was taken into account under paragraph (1)(A).

      ‘(5) SPECIAL RULES-

        ‘(A) CERTAIN COSTS TREATED AS SEPARATE PROPERTY- For purposes of this subsection, the following costs shall be treated as separate properties:

          ‘(i) Any costs incurred with respect to any property after the 10th taxable year beginning after the taxable year in which the property was placed in service.

          ‘(ii) Any costs incurred after the property is placed in service and before the close of such 10th taxable year if such costs are significant and give rise to a significant increase in the income from the property which was not included in the estimated income from the property.

        ‘(B) SYNDICATION INCOME FROM TELEVISION SERIES- In the case of property which is an episode in a television series, income from syndicating such series shall not be required to be taken into account under this subsection before the earlier of--

          ‘(i) the 4th taxable year beginning after the date the first episode in such series is placed in service, or

          ‘(ii) the earliest taxable year in which the taxpayer has an arrangement relating to the future syndication of such series.

        ‘(C) SPECIAL RULES FOR FINANCIAL EXPLOITATION OF CHARACTERS, ETC- For purposes of this subsection, in the case of television and motion picture films, the income from the property shall include income from the exploitation of characters, designs, scripts, scores, and other incidental income associated with such films, but only to the extent that such income is earned in connection with the ultimate use of such items by, or the ultimate sale of merchandise to, persons who are not related persons (within the meaning of section 267(b)) to the taxpayer.

        ‘(D) COLLECTION OF INTEREST- For purposes of subtitle F (other than sections 6654 and 6655), any interest required to be paid by the taxpayer under paragraph (1) for any recomputation year shall be treated as an increase in the tax imposed by this chapter for such year.

        ‘(E) DETERMINATIONS- For purposes of paragraph (2), determinations of the amount of income earned in connection with any property shall be made in the same manner as for purposes of applying the income forecast method; except that any income from the disposition of such property shall be taken into account.

        ‘(F) TREATMENT OF PASS-THRU ENTITIES- Rules similar to the rules of section 460(b)(4) shall apply for purposes of this subsection.’.

    (b) EFFECTIVE DATE-

      (1) IN GENERAL- The amendment made by subsection (a) shall apply to property placed in service after September 13, 1995.

      (2) BINDING CONTRACTS- The amendment made by subsection (a) shall not apply to any property produced or acquired by the taxpayer pursuant to a written contract which was binding on September 13, 1995, and at all times thereafter before such production or acquisition.

SEC. 1605. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES AND FOR DAMAGES NOT ATTRIBUTABLE TO PHYSICAL INJURIES OR SICKNESS.

    (a) IN GENERAL- Paragraph (2) of section 104(a) (relating to compensation for injuries or sickness) is amended to read as follows:

      ‘(2) the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness;’.

    (b) EMOTIONAL DISTRESS AS SUCH TREATED AS NOT PHYSICAL INJURY OR PHYSICAL SICKNESS- Section 104(a) is amended by striking the last sentence and inserting the following new sentence: ‘For purposes of paragraph (2), emotional distress shall not be treated as a physical injury or physical sickness. The preceding sentence shall not apply to an amount of damages not in excess of the amount paid for medical care (described in subparagraph (A) or (B) of section 213(d)(1)) attributable to emotional distress.’.

    (c) APPLICATION OF PRIOR LAW FOR STATES IN WHICH ONLY PUNITIVE DAMAGES MAY BE AWARDED IN WRONGFUL DEATH ACTIONS- Section 104 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:

    ‘(c) APPLICATION OF PRIOR LAW IN CERTAIN CASES- The phrase ‘(other than punitive damages)’ shall not apply to punitive damages awarded in a civil action--

      ‘(1) which is a wrongful death action, and

      ‘(2) with respect to which applicable State law (as in effect on September 13, 1995 and without regard to any modification after such date) provides, or has been construed to provide by a court of competent jurisdiction pursuant to a decision issued on or before September 13, 1995, that only punitive damages may be awarded in such an action.

    This subsection shall cease to apply to any civil action filed on or after the first date on which the applicable State law ceases to provide (or is no longer construed to provide) the treatment described in paragraph (2).’.

    (d) EFFECTIVE DATE-

      (1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to amounts received after June 30, 1996, in taxable years ending after such date.

      (2) EXCEPTION- The amendments made by this section shall not apply to any amount received under a written binding agreement, court decree, or mediation award in effect on (or issued on or before) September 13, 1995.

SEC. 1606. REPEAL OF DIESEL FUEL TAX REBATE TO PURCHASERS OF DIESEL-POWERED AUTOMOBILES AND LIGHT TRUCKS.

    (a) IN GENERAL- Section 6427 (relating to fuels not used for taxable purposes) is amended by striking subsection (g).

    (b) CONFORMING AMENDMENTS-

      (1) Paragraph (3) of section 34(a) is amended to read as follows:

      ‘(3) under section 6427 with respect to fuels used for nontaxable purposes or resold during the taxable year (determined without regard to section 6427(k)).’.

      (2) Paragraphs (1) and (2)(A) of section 6427(i) are each amended--

        (A) by striking ‘(g),’, and

        (B) by striking ‘(or a qualified diesel powered highway vehicle purchased)’ each place it appears.

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

Subtitle G--Technical Corrections

SEC. 1701. COORDINATION WITH OTHER SUBTITLES.

    For purposes of applying the amendments made by any subtitle of this title other than this subtitle, the provisions of this subtitle shall be treated as having been enacted immediately before the provisions of such other subtitles.

SEC. 1702. 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’.

    (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’.

    (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 flush 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 (B) of section 168(e)(3) (relating to 5-year property) is amended by adding at the end the following flush sentence:

        ‘Nothing in any provision of law shall be construed to treat property as not being described in clause (vi)(I) (or the corresponding provisions of prior law) by reason of being public utility property (within the meaning of section 48(a)(3)).’.

      (C) 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(a), 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 by striking ‘in a trade or business’ and inserting ‘a trade or business’.

      (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.

    (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. 1703. 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- 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 the calendar year in which the vehicle is sold, 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 the date of the enactment of this Act.

    (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:

      ‘(3) 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 13221- Sections 1201(a) and 1561(a) are each amended by striking ‘last sentence’ each place it appears and inserting ‘last 2 sentences’.

    (g) 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’.

    (h) 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.’.

    (i) AMENDMENTS RELATED TO SECTION 13231-

      (1) Subparagraph (G) of section 904(d)(3) is amended by striking ‘section 951(a)(1)(B)’ and inserting ‘subparagraph (B) or (C) of section 951(a)(1)’.

      (2) 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’.

      (3) 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)’.

      (4) Subsection (b) of section 958 is amended by striking ‘956(b)(2)’ each place it appears and inserting ‘956(c)(2)’.

      (5)(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- ’.

      (6) Subsection (e) of section 1297 is amended by inserting ‘For purposes of this part--’ after the subsection heading.

    (j) 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.’.

    (k) 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’.

    (l) AMENDMENT RELATED TO SECTION 13301- Subparagraph (B) of section 1397B(d)(5) is amended by striking ‘preceding’.

    (m) 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 1602) 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) Subsection (a)(3) of section 13206 of the Revenue Reconciliation Act of 1993 is 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)’.

    (n) 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. 1704. 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) 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) Subsection (j) of section 163 is amended by redesignating paragraph (7) as paragraph (8) and by inserting after paragraph (6) the following new paragraph:

      ‘(7) COORDINATION WITH PASSIVE LOSS RULES, ETC- This subsection shall be applied before sections 465 and 469.’.

        (C) The amendments made by this paragraph 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).

      (3) Subparagraph (E) of section 6724(d)(3) is amended by striking ‘section 6109(f)’ and inserting ‘section 6109(h)’.

      (4)(A) Subsection (d) of section 30 is amended--

        (i) by inserting ‘(determined without regard to subsection (b)(3))’ before the period at the end of paragraph (1) thereof, and

        (ii) by adding at the end thereof the following new paragraph:

      ‘(4) ELECTION TO NOT TAKE CREDIT- No credit shall be allowed under subsection (a) for any vehicle if the taxpayer elects to not have this section apply to such vehicle.’.

      (B) Subsection (m) of section 6501 (as redesignated by section 1602) is amended by striking ‘section 40(f)’ and inserting ‘section 30(d)(4), 40(f)’.

      (5) Subclause (III) of section 501(c)(21)(D)(ii) is amended by striking ‘section 101(6)’ and inserting ‘section 101(7)’ and by striking ‘1752(6)’ and inserting ‘1752(7)’.

      (6) Paragraph (1) of section 1917(b) of the Energy Policy Act of 1992 shall be applied as if ‘at a rate’ appeared instead of ‘at the rate’ in the material proposed to be stricken.

      (7) Paragraph (2) of section 1921(b) of the Energy Policy Act of 1992 shall be applied as if a comma appeared after ‘(2)’ in the material proposed to be stricken.

      (8) Subsection (a) of section 1937 of the Energy Policy Act of 1992 shall be applied as if ‘Subpart B’ appeared instead of ‘Subpart C’.

    (l) TREATMENT OF QUALIFIED FOOTBALL COACHES PLAN-

      (1) IN GENERAL- Subparagraph (F) of section 3(37) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1002(37)(F)) is amended by redesignating clause (ii) as clause (iii) and by inserting after clause (i) the following new clause:

    ‘(ii) For purposes of the Internal Revenue Code of 1986--

      ‘(I) clause (i) shall apply, and

      ‘(II) a qualified football coaches plan shall be treated as a multiemployer collectively bargained plan.’.

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply to years beginning after December 22, 1987.

    (m) DETERMINATION OF UNRECOVERED INVESTMENT IN ANNUITY CONTRACT-

      (1) IN GENERAL- Subparagraph (A) of section 72(b)(4) is amended by inserting ‘(determined without regard to subsection (c)(2))’ after ‘contract’.

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall take effect as if included in the amendments made by section 1122(c) of the Tax Reform Act of 1986.

    (n) MODIFICATIONS TO ELECTION TO INCLUDE CHILD’S INCOME ON PARENT’S RETURN-

      (1) 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,’.

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

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

        (B) 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’.

      (3) 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)’.

      (4) EFFECTIVE DATE- The amendments made by this subsection shall apply to taxable years beginning after December 31, 1995.

    (o) TREATMENT OF CERTAIN VETERANS’ REEMPLOYMENT RIGHTS-

      (1) IN GENERAL- Section 414 is amended by adding at the end the following new subsection:

    ‘(u) SPECIAL RULES RELATING TO VETERANS’ REEMPLOYMENT RIGHTS UNDER USERRA-

      ‘(1) TREATMENT OF CERTAIN CONTRIBUTIONS MADE PURSUANT TO VETERANS’ REEMPLOYMENT RIGHTS- If any contribution is made by an employer or an employee under an individual account plan with respect to an employee, or by an employee to a defined benefit plan that provides for employee contributions, and such contribution is required by reason of such employee’s rights under chapter 43 of title 38, United States Code, resulting from qualified military service, then--

        ‘(A) such contribution shall not be subject to any otherwise applicable limitation contained in section 402(g), 402(h), 403(b), 404(a), 404(h), 408, 415, or 457, and shall not be taken into account in applying such limitations to other contributions or benefits under such plan or any other plan, with respect to the year in which the contribution is made,

        ‘(B) such contribution shall be subject to the limitations referred to in subparagraph (A) with respect to the year to which the contribution relates (in accordance with rules prescribed by the Secretary), and

        ‘(C) such plan shall not be treated as failing to meet the requirements of section 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12), 401(m), 403(b)(12), 408(k)(3), 408(k)(6), 408(p), 410(b), or 416 by reason of the making of (or the right to make) such contribution.

      For purposes of the preceding sentence, any elective deferral or employee contribution made under paragraph (2) shall be treated as required by reason of the employee’s rights under such chapter 43.

      ‘(2) REEMPLOYMENT RIGHTS UNDER USERRA WITH RESPECT TO ELECTIVE DEFERRALS-

        ‘(A) IN GENERAL- For purposes of this subchapter and section 457, if an employee is entitled to the benefits of chapter 43 of title 38, United States Code, with respect to any plan which provides for elective deferrals, the employer sponsoring the plan shall be treated as meeting the requirements of such chapter 43 with respect to such elective deferrals only if such employer--

          ‘(i) permits such employee to make additional elective deferrals under such plan (in the amount determined under subparagraph (B) or such lesser amount as is

elected by the employee) during the period which begins on the date of the reemployment of such employee with such employer and has the same length as the lesser of--

            ‘(I) the product of 3 and the period of qualified military service which resulted in such rights, and

            ‘(II) 5 years, and

          ‘(ii) makes a matching contribution with respect to any additional elective deferral made pursuant to clause (i) which would have been required had such deferral actually been made during the period of such qualified military service.

        ‘(B) AMOUNT OF MAKEUP REQUIRED- The amount determined under this subparagraph with respect to any plan is the maximum amount of the elective deferrals that the individual would have been permitted to make under the plan in accordance with the limitations referred to in paragraph (1)(A) during the period of qualified military service if the individual had continued to be employed by the employer during such period and received compensation as determined under paragraph (7). Proper adjustment shall be made to the amount determined under the preceding sentence for any elective deferrals actually made during the period of such qualified military service.

        ‘(C) ELECTIVE DEFERRAL- For purposes of this paragraph, the term ‘elective deferral’ has the meaning given such term by section 402(g)(3); except that such term shall include any deferral of compensation under an eligible deferred compensation plan (as defined in section 457(b)).

        ‘(D) AFTER-TAX EMPLOYEE CONTRIBUTIONS- References in subparagraphs (A) and (B) to elective deferrals shall be treated as including references to employee contributions.

      ‘(3) CERTAIN RETROACTIVE ADJUSTMENTS NOT REQUIRED- For purposes of this subchapter and subchapter E, no provision of chapter 43 of title 38, United States Code, shall be construed as requiring--

        ‘(A) any crediting of earnings to an employee with respect to any contribution before such contribution is actually made, or

        ‘(B) any allocation of any forfeiture with respect to the period of qualified military service.

      ‘(4) LOAN REPAYMENT SUSPENSIONS PERMITTED- If any plan suspends the obligation to repay any loan made to an employee from such plan for any part of any period during which such employee is performing service in the uniformed services (as defined in chapter 43 of title 38, United States Code), whether or not qualified military service, such suspension shall not be taken into account for purposes of section 72(p), 401(a), or 4975(d)(1).

      ‘(5) QUALIFIED MILITARY SERVICE- For purposes of this subsection, the term ‘qualified military service’ means any service in the uniformed services (as defined in chapter 43 of title 38, United States Code) by any individual if such individual is entitled to reemployment rights under such chapter with respect to such service.

      ‘(6) INDIVIDUAL ACCOUNT PLAN- For purposes of this subsection, the term ‘individual account plan’ means any defined contribution plan (including any tax-sheltered annuity plan under section 403(b), any simplified employee pension under section 408(k), any qualified salary reduction arrangement under section 408(p), and any eligible deferred compensation plan (as defined in section 457(b)).

      ‘(7) COMPENSATION- For purposes of sections 403(b)(3), 415(c)(3), and 457(e)(5), an employee who is in qualified military service shall be treated as receiving compensation from the employer during such period of qualified military service equal to--

        ‘(A) the compensation the employee would have received during such period if the employee were not in qualified military service, determined based on the rate of pay the employee would have received from the employer but for absence during the period of qualified military service, or

        ‘(B) if the compensation the employee would have received during such period was not reasonably certain, the employee’s average compensation from the employer during the 12-month period immediately preceding the qualified military service (or, if shorter, the period of employment immediately preceding the qualified military service).

      ‘(8) USERRA REQUIREMENTS FOR QUALIFIED RETIREMENT PLANS- For purposes of this subchapter and section 457, an employer sponsoring a retirement plan shall be treated as meeting the requirements of chapter 43 of title 38, United States Code, only if each of the following requirements is met:

        ‘(A) An individual reemployed under such chapter is treated with respect to such plan as not having incurred a break in service with the employer maintaining the plan by reason of such individual’s period of qualified military service.

        ‘(B) Each period of qualified military service served by an individual is, upon reemployment under such chapter, deemed with respect to such plan to constitute service with the employer maintaining the plan for the purpose of determining the nonforfeitability of the individual’s accrued benefits under such plan and for the purpose of determining the accrual of benefits under such plan.

        ‘(C) An individual reemployed under such chapter is entitled to accrued benefits that are contingent on the making of, or derived from, employee contributions or elective deferrals only to the extent the individual makes payment to the plan with respect to such contributions or deferrals. No such payment may exceed the amount the individual would have been permitted or required to contribute had the individual remained continuously employed by the employer throughout the period of qualified military service. Any payment to such plan shall be made during the period beginning with the date of reemployment and whose duration is 3 times the period of the qualified military service (but not greater than 5 years).

      ‘(9) PLANS NOT SUBJECT TO TITLE 38- This subsection shall not apply to any retirement plan to which chapter 43 of title 38, United States Code, does not apply.

      ‘(10) REFERENCES- For purposes of this section, any reference to chapter 43 of title 38, United States Code, shall be treated as a reference to such chapter as in effect on December 12, 1994 (without regard to any subsequent amendment).’.

      (2) EFFECTIVE DATE- The amendment made by this subsection shall be effective as of December 12, 1994.

    (p) REPORTING OF REAL ESTATE TRANSACTIONS-

      (1) IN GENERAL- Paragraph (3) of section 6045(e) (relating to prohibition of separate charge for filing return) is amended by adding at the end the following new sentence: ‘Nothing in this paragraph shall be construed to prohibit the real estate reporting person from taking into account its cost of complying with such requirement in establishing its charge (other than a separate charge for complying with such requirement) to any customer for performing services in the case of a real estate transaction.’.

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall take effect as if included in section 1015(e)(2)(A) of the Technical and Miscellaneous Revenue Act of 1988.

    (q) Clarification of Denial of Deduction for Stock Redemption Expenses.

      (1) IN GENERAL- Paragraph (1) of section 162(k) is amended by striking ‘the redemption of its stock’ and inserting ‘the reacquisition of its stock or of the stock of any related person (as defined in section 465(b)(3)(C))’.

      (2) CERTAIN DEDUCTIONS PERMITTED- Subparagraph (A) of section 162(k)(2) is amended by striking ‘or’ at the end of clause (i), by redesignating clause (ii) as clause (iii), and by inserting after clause (i) the following new clause:

          ‘(ii) deduction for amounts which are properly allocable to indebtedness and amortized over the term of such indebtedness, or’.

      (3) CLERICAL AMENDMENT- The subsection heading for subsection (k) of section 162 is amended by striking ‘REDEMPTION’ and inserting ‘REACQUISITION’.

      (4) EFFECTIVE DATE-

        (A) IN GENERAL- Except as provided in subparagraph (B), the amendments made by this subsection shall apply to amounts paid or incurred after September 13, 1995, in taxable years ending after such date.

        (B) PARAGRAPH (2)- The amendment made by paragraph (2) shall take effect as if included in the amendment made by section 613 of the Tax Reform Act of 1986.

    (r) CLERICAL AMENDMENT TO SECTION 404-

      (1) IN GENERAL- Paragraph (1) of section 404(j) is amended by striking ‘(10)’ and inserting ‘(9)’.

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall take effect as if included in the amendments made by section 713(d)(4)(A) of the Deficit Reduction Act of 1984.

    (s) PASSIVE INCOME NOT TO INCLUDE FSC INCOME, ETC-

      (1) IN GENERAL- Paragraph (2) of section 1296(b) is amended by striking ‘or’ at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting ‘, or’, and by inserting after subparagraph (C) the following new subparagraph:

        ‘(D) which is foreign trade income of a FSC or export trade income of an export trade corporation (as defined in section 971).’.

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall take effect as if included in the amendments made by section 1235 of the Tax Reform Act of 1986.

    (t) 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 (3) of section 5134(c) is amended by striking ‘section 6662(a)’ and inserting ‘section 6665(a)’.

      (13) Paragraph (2) of section 5206(f) is amended by striking ‘section 5(e)’ and inserting ‘section 105(e)’.

      (14) Paragraph (1) of section 6050B(c) is amended by striking ‘section 85(c)’ and inserting ‘section 85(b)’.

      (15) Subsection (k) of section 6166 is amended by striking paragraph (6).

      (16) 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).’.

      (17) The section heading for section 6043 is amended by striking the semicolon and inserting a comma.

      (18) 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.

      (19) The table of sections for part I of subchapter A of chapter 68 is amended by striking the item relating to section 6662.

      (20)(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.

      (21) Paragraph (1) of section 6701(a) of the Omnibus Budget Reconciliation Act of 1989 is amended by striking ‘subclause (IV)’ and inserting ‘subclause (V)’.

      (22) Clause (ii) of section 7304(a)(2)(D) of such Act is amended by striking ‘subsection (c)(2)’ and inserting ‘subsection (c)’.

      (23) Paragraph (1) of section 7646(b) of such Act is amended by striking ‘section 6050H(b)(1)’ and inserting ‘section 6050H(b)(2)’.

      (24) 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)’.

      (25) Subparagraph (A) of section 7811(i)(3) of such Act is amended by inserting ‘the first place it appears’ before ‘in clause (i)’.

      (26) Paragraph (10) of section 7841(d) of such Act is amended by striking ‘section 381(a)’ and inserting ‘section 381(c)’.

      (27) Paragraph (2) of section 7861(c) of such Act is amended by inserting ‘the second place it appears’ before ‘and inserting’.

      (28) 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)’.

      (29) Subparagraph (C) of section 50(a)(2) is amended by striking ‘subsection (c)(4)’ and inserting ‘subsection (d)(5)’.

      (30) 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)--’.

      (31) Subparagraph (A) of section 355(d)(7) is amended by inserting ‘section’ before ‘267(b)’.

      (32) Subparagraph (C) of section 420(e)(1) is amended by striking ‘mean’ and inserting ‘means’.

      (33) Paragraph (4) of section 537(b) is amended by striking ‘section 172(i)’ and inserting ‘section 172(f)’.

      (34) Subparagraph (B) of section 613(e)(1) is amended by striking the comma at the end thereof and inserting a period.

      (35) Paragraph (4) of section 856(a) is amended by striking ‘section 582(c)(5)’ and inserting ‘section 582(c)(2)’.

      (36) 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)’.

      (37) Subsection (b) of section 936 is amended by striking ‘subparagraphs (D)(ii)(I)’ and inserting ‘subparagraphs (D)(ii)’.

      (38) 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)’.

      (39) Subparagraph (A) of section 280A(c)(1) is amended to read as follows:

        ‘(A) as the principal place of business for any trade or business of the taxpayer,’.

      (40) Section 6038 is amended by redesignating the subsection relating to cross references as subsection (f).

      (41) 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);’.

      (42) 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).

      (43) Subsection (b) of section 7454 is amended by striking ‘section 4955(e)(2)’ and inserting ‘section 4955(f)(2)’.

      (44) 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.

      (45) 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.

      (46) Subsection (f) of section 11701 of the Revenue Reconciliation Act of 1990 is amended by inserting ‘(relating to definitions)’ after ‘section 6038(e)’.

      (47) 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.

      (48) 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)’.

      (49) 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.

      (50) 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)’.

      (51) 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)’.

      (52) 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.

      (53) 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).

      (54) 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.

      (55) 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.

      (56) 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)’.

      (57) 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)’.

      (58) 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’.

      (59) Paragraph (7) of section 7611(h) is amended by striking ‘approporiate’ and inserting ‘appropriate’.

      (60) The heading of paragraph (3) of section 419A(c) is amended by striking ‘SEVERENCE’ and inserting ‘SEVERANCE’.

      (61) Clause (ii) of section 807(d)(3)(B) is amended by striking ‘Commissoners’ ’ and inserting ‘Commissioners’ ’.

      (62) Subparagraph (B) of section 1274A(c)(1) is amended by striking ‘instument’ and inserting ‘instrument’.

      (63) Subparagraph (B) of section 724(d)(3) by striking ‘Subparagaph’ and inserting ‘Subparagraph’.

      (64) The last sentence of paragraph (2) of section 42(c) is amended by striking ‘of 1988’.

      (65) Paragraph (1) of section 9707(d) is amended by striking ‘diligence,’ and inserting ‘diligence’.

      (66) Subsection (c) of section 4977 is amended by striking ‘section 132(i)(2)’ and inserting ‘section 132(h)’.

      (67) The last sentence of section 401(a)(20) is amended by striking ‘section 211’ and inserting ‘section 521’.

      (68) Subparagraph (A) of section 402(g)(3) is amended by striking ‘subsection (a)(8)’ and inserting ‘subsection (e)(3)’.

      (69) The last sentence of section 403(b)(10) is amended by striking ‘an direct’ and inserting ‘a direct’.

      (70) Subparagraph (A) of section 4973(b)(1) is amended by striking ‘sections 402(c)’ and inserting ‘section 402(c)’.

      (71) Paragraph (12) of section 3405(e) is amended by striking ‘(b)(3)’ and inserting ‘(b)(2)’.

      (72) 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.

      (73) 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)’.

      (74) Paragraph (5) of section 860F(a) is amended by striking ‘paragraph (1)’ and inserting ‘paragraph (2)’.

      (75) Paragraph (1) of section 415(k) is amended by adding ‘or’ at the end of subparagraph (C), by striking subparagraphs (D) and (E), and by redesignating subparagraph (F) as subparagraph (D).

      (76) Paragraph (2) of section 404(a) is amended by striking ‘(18),’.

      (77) Clause (ii) of section 72(p)(4)(A) is amended to read as follows:

          ‘(ii) SPECIAL RULE- The term ‘qualified employer plan’ shall not include any plan which was (or was determined to be) a qualified employer plan or a government plan.’.

      (78) Sections 461(i)(3)(C) and 1274(b)(3)(B)(i) are each amended by striking ‘section 6662(d)(2)(C)(ii)’ and inserting ‘section 6662(d)(2)(C)(iii)’.

      (79) Subsection (a) of section 164 is amended by striking the paragraphs relating to the generation-skipping tax and the environmental tax imposed by section 59A and by inserting after paragraph (3) the following new paragraphs:

      ‘(4) The GST tax imposed on income distributions.

      ‘(5) The environmental tax imposed by section 59A.’.

    (u) CERTAIN PROPERTY NOT TREATED AS SECTION 179 PROPERTY-

      (1) IN GENERAL- Paragraph (1) of section 179(d) is amended 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.’.

      (2) EFFECTIVE DATE- The amendment made by paragraph (1) shall apply to property placed in service after May 14, 1996.

TITLE II--PAYMENT OF WAGES

SECTION 1. SHORT TITLE.

    This Act may be cited as the ‘Employee Commuting Flexibility Act of 1996’.

SEC. 2. PROPER COMPENSATION FOR USE OF EMPLOYER VEHICLES.

    Section 4(a) of the Portal-to-Portal Act of 1947 (29 U.S.C. 254(a)) is amended by adding at the end the following: ‘For purposes of this subsection, the use of an employer’s vehicle for travel by an employee and activities performed by an employee which are incidental to the use of such vehicle for commuting shall not be considered part of the employee’s principal activities if the use of such vehicle for travel is within the normal commuting area for the employer’s business or establishment and the use of the employer’s vehicle is subject to an agreement on the part of the employer and the employee or representative of such employee.’.

SEC. 3. EFFECTIVE DATE.

    The amendment made by section 1 shall take effect on the date of the enactment of this Act and shall apply in determining the application of section 4 of the Portal-to-Portal Act of 1947 to an employee in any civil action brought before such date of enactment but pending on such date.

SEC. 4. MINIMUM WAGE INCREASE.

    (a) SHORT TITLE- This section may be cited as the ‘Minimum Wage Increase Act of 1996’.

    (b) AMENDMENT- Paragraph (1) of section 6(a) of the Fair Labor Standards Act of 1938 (29 U.S.C. 206(a)) is amended to read as follows:

      ‘(1) except as otherwise provided in this section, not less than $4.25 an hour during the period ending on June 30, 1996, not less than $4.75 an hour during the year beginning on July 1, 1996, and not less than $5.15 an hour after the expiration of such year;’.

SEC. 5. FAIR LABOR STANDARDS ACT AMENDMENTS.

    (a) COMPUTER PROFESSIONALS- Section 13(a) of the Fair Labor Standards Act of 1938 (29 U.S.C. 213(a)) is amended by striking the period at the end of paragraph (16) and inserting ‘; or’ and by adding after that paragraph the following:

      ‘(17) any employee who is a computer systems analyst, computer programmer, software engineer, or other similarly skilled worker, whose primary duty is--

        ‘(A) the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications;

        ‘(B) the design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;

        ‘(C) the design, documentation, testing, creation, or modification of computer programs related to machine operating systems; or

        ‘(D) a combination of duties described in subparagraphs (A), (B), and (C) the performance of which requires the same level of skills, and

      who, in the case of an employee who is compensated on an hourly basis, is compensated at a rate of not less than $27.63 an hour.’.

    (b) TIP CREDIT- The next to last sentence of section 3(m) of the Fair Labor Standards Act of 1938 (29 U.S.C. 203(m)) is amended to read as follows: ‘In determining the wage an employer is required to pay a tipped employee, the amount paid such employee by the employee’s employer shall be an amount equal to--

      ‘(1) the cash wage paid such employee which for purposes of such determination shall be not less than the cash wage required to be paid such an employee on the date of the enactment of this paragraph; and

      ‘(2) an additional amount on account of the tips received by such employee which amount is equal to the difference between the wage specified in paragraph (1) and the cash wage in effect under section 6(a)(1).

    The additional amount on account of tips may not exceed the value of the tips actually received by an employee.’.

    (c) OPPORTUNITY WAGE- Section 6 of the Fair Labor Standards Act of 1938 (29 U.S.C. 206) is amended by adding at the end the following:

    ‘(g)(1) In lieu of the rate prescribed by subsection (a)(1), any employer may pay any employee of such employer, during the first 90 consecutive calendar days after such employee is initially employed by such employer, a wage which is not less than $4.25 an hour.

    ‘(2) No employer may take any action to displace employees (including partial displacements such as reduction in hours, wages, or employment benefits) for purposes of hiring individuals at the wage authorized in paragraph (1).

    ‘(3) Any employer who violates this subsection shall be considered to have violated section 15(a)(3).

    ‘(4) This subsection shall only apply to an employee who has not attained the age of 20 years.’.

Passed the House of Representatives May 22, 1996.

Attest:

Clerk.