[House Report 105-220]
[From the U.S. Government Printing Office]




   105th Congress                                       Report
     1st Session        HOUSE OF REPRESENTATIVES       105-220
_______________________________________________________________________

                                    



 
                      TAXPAYER RELIEF ACT OF 1997

                               ----------                              

                           CONFERENCE REPORT

                              to accompany

                               H.R. 2014






                 July 30, 1997.--Ordered to be printed




105th Congress                                         Report
  1st Session             HOUSE OF REPRESENTATIVES     105-220
_______________________________________________________________________

                                    



                      TAXPAYER RELIEF ACT OF 1997

                               ----------                              

                           CONFERENCE REPORT

                              to accompany

                               H.R. 2014






                 July 30, 1997.--Ordered to be printed

                               ----------                              

                    U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 1997



                            C O N T E N T S

                               ----------                              
                                                                   Page
I. CHILD AND DEPENDENT CARE TAX CREDIT; HEALTH CARE FOR CHILDREN.   330
    A. Child Tax Credit (sec. 101 (a), (c), and (d) of the House 
      bill and sec. 101 of the Senate amendment).................   330
    B. Expand Definition of High-Risk Individuals With Respect to 
      Tax-Exempt State-Sponsored Organizations Providing Health 
      Coverage (sec. 101(b) of the House bill)...................   334
    C. Indexing of the Dependent Care Credit; Phase Out for High-
      Income Taxpayers (sec. 102 of the House bill)..............   335
    D. Tax Credit for Employer Expenses for Child Care Facilities 
      (sec. 103 of the Senate amendment).........................   336
    E. Expansion of Coordinated Enforcement Efforts Between the 
      Internal Revenue Service and the Health and Human Services 
      Office of Child Support Enforcement (sec. 104 of the Senate 
      amendment).................................................   337
    F. Penalty-Free Withdrawals From IRAs for Adoption Expenses 
      (sec. 105 of the Senate amendment).........................   338
II. EDUCATION TAX INCENTIVES.....................................   339
    A. Tax Benefits Relating to Education Expenses...............   339
        1. HOPE tax credit and Lifetime Learning tax credit for 
          higher education tuition expenses (sec. 201 of the 
          House bill)............................................   339
        2. Tax treatment of qualified State tuition programs and 
          education IRAs; exclusion for certain distributions 
          from education IRAs used to pay qualified higher 
          education expenses (secs. 202 (a), (b), and (d) and 
          211-212 of the House bill and secs. 211-213 of the 
          Senate amendment)......................................   348
        3. Phase out qualified tuition reduction exclusion (sec. 
          202(c) of the House bill)..............................   365
        4. Deduction for student loan interest (sec. 202 of the 
          Senate amendment)......................................   366
        5. Penalty-free withdrawals from IRAs for higher 
          education expenses (sec. 203 of the House bill and sec. 
          203 of the Senate amendment)...........................   368
        6. Tax credit for expenses for education which 
          supplements elementary and secondary education (sec. 
          204 of the House bill).................................   369
        7. Certain teacher education expenses not subject to 2-
          percent floor on miscellaneous itemized deductions 
          (sec. 224 of the Senate amendment).....................   370
    B. Other Education-Related Tax Provisions....................   371
        1. Extension of exclusion for employer-provided 
          educational assistance (sec. 221 of the House bill and 
          sec. 221 of the Senate amendment)......................   371
        2. Modification of $150 million limit on qualified 
          501(c)(3) bonds other than hospital bonds (sec. 222 of 
          the House bill and sec. 222 of the Senate amendment)...   372
        3. Enhanced deduction for corporate contributions of 
          computer technology and equipment (sec. 223 of the 
          House bill)............................................   373
        4. Expansion of arbitrage rebate exception for certain 
          bonds (sec. 223 of the Senate amendment)...............   374
        5. Treatment of cancellation of certain student loans 
          (sec. 224 of the House bill and sec. 225 of the Senate 
          amendment).............................................   375
        6. Tax credit for holders of qualified zone academy bonds   376
III. SAVINGS AND INVESTMENT TAX INCENTIVES.......................   378
    A. Individual Retirement Arrangements........................   378
        1. Increase deductible IRA phase-out range and modify 
          active participant rule (sec. 301 of the Senate 
          amendment).............................................   378
        2. Tax-free nondeductible IRAs (sec. 301 of the House 
          bill and sec. 302 of the Senate amendment).............   379
        3. Modifications to early withdrawal tax (sec. 301 of the 
          House bill and sec. 303 of the Senate amendment).......   381
        4. IRA investments in coins and bullion (sec. 304 of the 
          Senate amendment)......................................   381
    B. Capital Gains Provisions..................................   382
        1. Maximum rate of tax on net capital gains of 
          individuals (sec. 311 of the House bill and sec. 311 of 
          the Senate amendment)..................................   382
        2. Small business stock (sec. 311 of the House bill and 
          secs. 312-313 of the Senate amendment).................   383
        3. Indexing of certain assets for purposes of determining 
          gain (sec. 312 of the House bill)......................   385
        4. Exclusion of gain from sale of principal residence 
          (sec. 313 of the House bill and sec. 314 of the Senate 
          amendment).............................................   386
        5. Corporate capital gains (sec. 321 of the House bill)..   387
IV. ALTERNATIVE MINIMUM TAX PROVISIONS...........................   389
    A. Increase Exemption Amount Applicable to Individual 
      Alternative Minimum Tax (sec. 401 of the House bill and 
      sec. 102 of the Senate amendment)..........................   389
    B. Repeal Alternative Minimum Tax for Small Businesses and 
      Repeal the Depreciation Adjustment (secs. 402-403 of the 
      House bill and secs. 55-56 of the Senate amendment)........   390
    C. Repeal AMT Installment Method Adjustment for Famers (sec. 
      404 of the House bill and sec. 732 of the Senate amendment)   391
V. ESTATE, GIFT, AND GENERATION-SKIPPING TAX PROVISIONS..........   393
    A. Estate and Gift Tax Provisions............................   393
        1. Increase in estate and gift tax unified credit (sec. 
          501(a) of the House bill and sec. 401(a) of the Senate 
          amendment).............................................   393
        2. Indexing of certain other estate and gift tax 
          provisions (sec. 501(b)-(e) of the House bill and sec. 
          401(b)-(e) of the Senate amendment)....................   394
        3. Estate tax exclusion for qualified family-owned 
          businesses (sec. 402 of the Senate amendment)..........   395
        4. Reduction in estate tax for certain land subject to 
          permanent conservation easement (sec. 403 of the Senate 
          amendment).............................................   401
        5. Installment payments of estate tax attributable to 
          closely held businesses (secs. 502-503 of the House 
          bill and (secs. 404-405 of the Senate amendment).......   403
        6. Estate tax recapture from cash leases of specially-
          valued property (sec. 504 of the House bill and sec. 
          406 of the Senate amendment)...........................   405
        7. Clarify eligibility for extension of time for payment 
          of estate tax (sec. 505 of the House bill).............   406
        8. Gifts may not be revalued for estate tax purposes 
          after expiration of statute of limitations (sec. 506 of 
          the House bill)........................................   407
        9. Repeal of throwback rules applicable to domestic 
          trusts (sec. 507 of the House bill)....................   408
        10. Unified credit of decedent increased by unified 
          credit of spouse used on split gift included in 
          decedent's gross estate (sec. 508 of the House bill)...   410
        11. Reformation of defective bequests to spouse of 
          decedent (sec. 509 of the House bill)..................   411
    B. Generation-Skipping Tax Provisions........................   412
        1. Severing of trusts holding property having an 
          inclusion ratio of greater than zero (sec. 511 of the 
          House bill)............................................   412
        2. Modification of generation-skipping transfer tax for 
          transfers to individuals with deceased parents (sec. 
          512 of the House bill and sec. 407 of the Senate 
          amendment).............................................   413
VI. EXTENSION OF CERTAIN EXPIRING TAX PROVISIONS.................   415
    A. Research Tax Credit (sec. 601 of the House bill and sec. 
      501 of the Senate amendment)...............................   415
    B. Contributions of Stock to Private Foundations (sec. 602 of 
      the House bill and sec. 502 of the Senate amendment).......   419
    C. Work Opportunity Tax Credit (sec. 603 of the House bill 
      and sec. 503 of the Senate amendment)......................   421
    D. Orphan Drug Tax Credit (sec. 604 of the House bill and 
      sec. 504 of the Senate amendment)..........................   425
VII. DISTRICT OF COLUMBIA TAX INCENTIVES (secs. 701-702 of the 
  House bill and sec. 601 of the Senate amendment)...............   426
VIII. WELFARE-TO-WORK TAX CREDIT (sec. 801 of the House bill)....   440
IX. MISCELLANEOUS PROVISIONS.....................................   442
    A. Excise Tax Provisions.....................................   442
        1. Repeal excise tax on diesel fuel used in recreational 
          motorboats (sec. 901 of the House bill and sec. 701 of 
          the Senate amendment)..................................   442
        2. Continued application of tax on imported recycled 
          Halon-1211 (sec. 902 of the House bill)................   442
        3. Transfer of General Fund highway fuels tax revenues to 
          the Highway Trust Fund (sec. 704 of the Senate 
          amendment).............................................   443
        4. Tax certain alternative fuels based on energy 
          equivalency to gasoline (sec. 705 of the Senate 
          amendment).............................................   444
        5. Extend and modify tax benefits for ethanol (sec. 605 
          of the House bill and sec. 707 of the Senate amendment)   445
        6. Treat certain gasoline ``chain retailers'' as 
          wholesale distributors under the gasoline excise tax 
          refunds rules (sec. 904 of the House bill).............   445
        7. Exemption of electric and other clean-fuel motor 
          vehicles from luxury automobile classification (sec. 
          905 of the House bill).................................   446
        8. Reduce rate of alcohol excise tax on certain hard 
          ciders (sec. 703 of the Senate amendment)..............   447
        9. Study feasibility of moving collection point for 
          distilled spirits excise tax (sec. 706 of the Senate 
          amendment).............................................   448
        10. Codify Treasury Department regulations regulating 
          wine labels (sec. 708 of the Senate amendment).........   449
        11. Uniform rate of excise tax on vaccines (sec. 903 of 
          the House bill and sec. 844 of the Senate amendment)...   449
    B. Disaster Relief Provisions................................   451
        1. Authority to postpone certain tax-related deadlines by 
          reason of Presidentially declared disaster (sec. 921 of 
          the House bill)........................................   451
        2. Use of certain appraisals to establish amount of 
          disaster loss (sec. 922 of the House bill).............   451
        3. Treatment of livestock sold on account of weather-
          related conditions (sec. 923 of the House bill and sec. 
          721 of the Senate amendment)...........................   452
        4. Mortgage bond financing for residences located in 
          Presidentially declared disaster areas (sec. 924 of the 
          House bill and sec. 723 of the Senate amendment).......   453
        5. Rules relating to denial of earned income credit on 
          basis of disqualified income (sec. 722 of the Senate 
          amendment).............................................   454
        6. Penalty-free withdrawals from IRAs for disaster-
          related expenses (sec. 724 of the Senate amendment)....   454
        7. Elimination of 10-percent floor for casualty losses 
          resulting from Presidentially declared disaster (sec. 
          725 of the Senate amendment)...........................   455
        8. Requirement to abate interest by reason of 
          Presidentially declared disaster (sec. 726 of the 
          Senate amendment)......................................   456
    C. Provisions Relating to Employment Taxes...................   456
        1. Employment tax status of distributors of bakery 
          products (sec. 931 of the House bill...................   456
        2. Clarification of standard to be used in determining 
          tax status of retail securities brokers (sec. 932 of 
          the House bill and sec. 779 of the Senate amendment)...   457
        3. Clarification of exemption from self-employment tax 
          for certain termination payments received by former 
          insurance salesmen (sec. 933 of the House bill)........   457
        4. Safe harbor for independent contractors (sec. 934 of 
          the House bill)........................................   459
        5. Combined employment tax reporting demonstration 
          project (sec. 769 of the Senate amendment).............   460
    D. Provisions Relating to Small Businesses...................   461
        1. Delay imposition of penalties for failure to make 
          payments electronically through EFTPS (sec. 941 of the 
          House bill and sec. 731 of the Senate amendment).......   461
        2. Home office deduction: clarification of definition of 
          principal place of business (sec. 942 of the House 
          bill)..................................................   463
        3. Increase deduction for health insurance costs of self-
          employed individuals (sec. 733 of the Senate amendment)   465
    E. Other Provisions..........................................   466
        1. Shrinkage estimates for inventory accounting (sec. 951 
          of the House bill and sec. 1013 of the Senate 
          amendment).............................................   466
        2. Treatment of workmen's compensation lability under 
          rules for certain personal injury liability assignments 
          (sec. 952 of the House bill)...........................   468
        3. Tax-exempt status for certain state workmen's 
          compensation act companies (sec. 953 of the House bill 
          and sec. 761 of the Senate amendments).................   469
        4. Election for 1987 partnerships to continue exception 
          from treatment of publicly traded partnerships as 
          corporations (sec. 954 of the House bill and sec. 762 
          of the Senate amendment)...............................   471
        5. Exclusion from UBIT for certain corporate sponsorship 
          payments (sec. 955 of the House bill and sec. 763 of 
          the Senate amendment)..................................   473
        6. Timeshare associations (sec. 956 of the House bill and 
          sec. 764 of the Senate amendments).....................   476
        7. Deferral of gain on certain sales of farm product 
          refiners and processors (sec. 958 of the House bill)...   478
        8. Exception from real estate reporting requirements for 
          sales of principal residences (sec. 959 of the House 
          bill and secs. 314(c) and 601(d) of the Senate 
          amendment).............................................   479
        9. Increased deduction for business meals while operating 
          under Department of Transportation hours of service 
          limitations (sec. 960 of the House bill and sec. 765 of 
          the Senate amendment)..................................   480
        10. Deductibility of meals provided for the convenience 
          of the employer and provided by remote seafood 
          processors (secs. 765 and 778 of the Senate amendment).   481
        11. Deduction of traveling expenses while working away 
          from home on qualified construction projects (sec. 775 
          of the Senate amendment)...............................   483
        12. Provide above-the-line-deduction for certain business 
          expenses (sec. 766 of the Senate amendment)............   484
        13. Increase in standard mileage rate for purposes of 
          computing charitable deduction (sec. 767 of the Senate 
          amendment).............................................   484
        14. Expensing of environmental remediation costs 
          (``brownfields'') (sec. 768 of the Senate amendment)...   485
        15. Treatment of consolidation of certain mutual savings 
          bank life insurance departments (sec. 962 of the House 
          bill)..................................................   488
        16. Offset of past-due, legally enforceable State tax 
          obligations against Federal overpayments (sec. 963 of 
          the House bill)........................................   490
        17. Modify limits on depreciation of luxury automobiles 
          for certain clean-burning fuel and electric vehicles 
          (sec. 964 of the House bill)...........................   491
        18. Survivor benefits of public safety officers killed in 
          the line of duty (sec. 965 of the House bill and sec. 
          784 of the Senate amendment)...........................   492
        19. Temporary suspension of income limitations on 
          percentage depletion for production from marginal wells 
          (sec. 966 of the House bill and sec. 772 of the Senate 
          amendment).............................................   493
        20. Extend production credit for electricity produced 
          from wind and ``closed loop'' biomass (sec. 771 of the 
          Senate amendment)......................................   494
        21. Modification of advance refunding rules for certain 
          tax-exempt bonds issued by the Virgin Islands (sec. 957 
          of the House bill).....................................   494
        22. Qualified small-issue bonds (sec. 770 of the Senate 
          amendment).............................................   495
        23. Treatment of bonds issued by the Federal Home Loan 
          Bank Board under the Federal guarantee rules (sec. 774 
          of the Senate amendment)...............................   496
        24. Current refundings of certain bonds issued by Indian 
          Tribal governments (sec. 789 of the Senate amendment)..   496
        25. Purchasing of receivables by tax-exempt hospital 
          cooperative service organizations (sec. 773 of the 
          Senate amendment)......................................   497
        26. Charitable contribution deduction for certain 
          expenses incurred in support of Native Alaskan 
          subsistence whaling (sec. 776 of the Senate amendment).   498
        27. Designation of additional empowerment zones; 
          modification of empowerment zone and enterprise 
          community criteria (sec. 777 of the Senate amendment)..   499
        28. Conducting of certain qualified games of chance not 
          treated as unrelated trade or business (sec. 783 of the 
          Senate amendment)......................................   505
        29. Exclusion from income of certain severance payments 
          (sec. 788(a) of the Senate amendment)..................   507
        30. Special rule for thrift institutions that became 
          large banks (sec. 790 of the Senate amendment).........   507
        31. Income averaging for farmers (sec. 792 of the Senate 
          amendment).............................................   508
        32. Intercity Passenger Rail Fund; elective carryback of 
          existing net operating losses of the National Railroad 
          Passenger Corporation (Amtrak) (sec. 702 of the Senate 
          amendment).............................................   509
X. REVENUE-INCREASE PROVISIONS...................................   512
    A. Financial Products........................................   512
        1. Require recognition of gain on certain appreciated 
          positions in personal property (sec. 1001(a) of the 
          House bill and sec. 801(a) of the Senate amendment)....   512
        2. Election of mark-to-market for securities traders and 
          for traders and dealers in commodities (sec. 1001(b) of 
          the House bill and sec. 801(b) of the Senate amendment)   515
        3. Limitation on exception for investment companies under 
          section 351 (sec. 1002 of the House bill and sec. 802 
          of the Senate amendment)...............................   516
        4. Disallowance of interest on indebtedness allocable to 
          tax-exempt obligations (sec. 1003 of the House bill)...   517
        5. Gains and losses from certain terminations with 
          respect to property (sec. 1004 of the House bill and 
          sec. 803 of the Senate amendment)......................   520
        6. Determination of original issue discount where pooled 
          debt obligations subject to acceleration (sec. 1005 of 
          the House bill)........................................   522
        7. Deny interest deduction on certain debt instruments 
          (sec. 1006 of the House bill)..........................   523
    B. Corporate Organizations and Reorganizations...............   524
        1. Require gain recognition for certain extraordinary 
          dividends (sec. 1011 of the House bill and sec. 811 of 
          the Senate amendment)..................................   524
        2. Require gain recognition on certain distributions of 
          controlled corporation stock (sec. 1012 of the House 
          bill and sec. 812 of the Senate amendment).............   527
        3. Reform tax treatment of certain corporate stock 
          transfers (sec. 1013 of the House bill and sec. 813 of 
          the Senate amendment)..................................   537
        4. Modify holding period for dividends-received deduction 
          (sec. 1014 of the House bill and sec. 814 of the Senate 
          amendment).............................................   538
    C. Other Corporate Provisions................................   539
        1. Registration of confidential corporate tax shelters 
          and substantial understatement penalty (sec. 1021 of 
          the House bill and sec. 821 of the Senate amendment)...   539
        2. Treat certain preferred stock as ``boot'' (sec. 1022 
          of the House bill and sec. 822 of the Senate amendment)   543
    D. Administrative Provisions.................................   545
        1. Reporting of certain payments made to attorneys (sec. 
          1031 of the House bill)................................   545
        2. Information reporting on persons receiving contract 
          payments from certain Federal agencies (sec. 1032 of 
          the House bill and sec. 831 of the Senate amendment)...   547
        3. Disclosure of tax return information for 
          administration of certain veterans programs (sec. 1033 
          of the House bill and sec. 832 of the Senate amendment)   548
        4. Establish IRS continuous levy and improve debt 
          collection.............................................   549
            A. Continuous levy (sec. 1034 of the House bill and 
              sec. 834 of the Senate amendment)..................   549
            B. Modifications of levy exemptions (secs. 1035-1036 
              of the House bill and secs. 835-836 of the Senate 
              amendment).........................................   550
        5. Consistency rule for beneficiaries of trusts and 
          estates (sec. 1037 of the House bill and sec. 833 of 
          the Senate amendment)..................................   551
    E. Excise Tax Provisions.....................................   551
        1. Extension and modification of Airport and Airway Trust 
          Fund excise taxes (sec. 1041 of the House bill and sec. 
          841 of the Senate amendment)...........................   551
        2. Extend diesel fuel excise tax rules to kerosene (sec. 
          1042 of the House bill)................................   556
        3. Reinstate Leaking Underground Storage Tank Trust Fund 
          excise tax (sec. 1043 of the House bill and sec. 842 of 
          the Senate amendment)..................................   557
        4. Application of communications excise tax to prepaid 
          telephone cards (sec. 1044 of the House bill and sec. 
          843 of the Senate amendment)...........................   557
        5. Modify treatment of tires under the heavy vehicle 
          retail excise tax on trucks (sec. 1402 of the House 
          bill and sec. 845 of the Senate amendment).............   559
        6. Increase tobacco excise taxes (sec. 846 of the Senate 
          amendment).............................................   560
    F. Provisions Relating to Tax-Exempt Organizations...........   561
        1. Extend UBIT rules to second-tier subsidiaries and 
          amend control test (sec. 1051 of the House bill and 
          sec. 851 of the Senate amendment)......................   561
        2. Limitation on increase in basis of property resulting 
          from sale by tax-exempt entity to related person (sec. 
          1052 of the House bill and sec. 852 of the Senate 
          amendment).............................................   563
        3. Reporting and proxy tax requirements for political and 
          lobbying expenditures of certain tax-exempt 
          organizations (sec. 1053 of the House bill)............   564
        4. Repeal grandfather rule with respect to pension 
          business of certain insurers (sec. 1054 of the House 
          bill and sec. 853 of the Senate amendment).............   565
    G. Foreign Provisions........................................   567
        1. Inclusion of income from notional principal contracts 
          and stock lending transactions under Subpart F (sec. 
          1171 of the House bill and sec. 861 of the Senate 
          amendment).............................................   567
        2. Restrict like-kind exchange rules for certain personal 
          property (sec 1172 of the House bill and sec. 862 of 
          the Senate amendment)..................................   568
        3. Impose holding period requirement for claiming foreign 
          tax credits with respect to dividends (sec. 1173 of the 
          House bill and sec. 863 of the Senate amendment).......   569
        4. Penalties for failure to file disclosure of exemption 
          for income from the international operation of ships or 
          aircraft by foreign persons (sec. 1174 of the House 
          bill)..................................................   570
        5. Limitation on treaty benefits for payments to hybrid 
          entities (sec. 1175 of the House bill and sec. 742 of 
          the Senate amendment)..................................   572
        6. Interest on underpayments that are reduced by foreign 
          tax credit carrybacks (sec. 1176 of the House bill and 
          sec. 865 of the Senate amendment)......................   575
        7. Determination of period of limitations relating to 
          foreign tax credits (sec. 1177 of the House bill and 
          sec. 866 of the Senate amendment)......................   576
        8. Treatment of income from certain sales of inventory as 
          U.S. source (sec. 864 of the Senate amendment).........   577
        9. Modify foreign tax credit carryover rules (sec. 867 of 
          the Senate amendment)..................................   578
        10. Repeal special exception to foreign tax credit 
          limitation for alternative minimum tax purposes (sec. 
          868 of the Senate amendment)...........................   578
    H. Pension and Employee Benefit Provisions...................   579
        1. Cashout of certain accrued benefits (sec. 917 of the 
          House bill and sec. 879 of the Senate amendment).......   579
        2. Election to receive taxable cash compensation in lieu 
          of nontaxable parking benefits (sec. 880 of the Senate 
          amendment).............................................   580
        3. Repeal of excess distribution and excess retirement 
          accumulation taxes (sec. 882 of the Senate amendment)..   581
        4. Tax on prohibited transactions (sec. 884 of the Senate 
          amendment).............................................   581
        5. Basis recovery rules (sec. 885 of the Senate 
          amendment).............................................   582
    I. Other Revenue-Increase Provisions.........................   583
        1. Phase out suspense accounts for certain large farm 
          corporations (sec. 1061 of the House bill and sec. 871 
          of the Senate amendment)...............................   583
        2. Modify net operating loss carryback and carryforward 
          rules (sec. 1062 of the House bill and sec. 872 of the 
          Senate amendment)......................................   584
        3. Expand the limitations on deductibility of interest 
          and premiums with respect to life insurance, endowment, 
          and annuity contracts (sec. 1063 of the House bill and 
          sec. 873 of the Senate amendment)......................   585
        4. Allocation of basis of properties distributed to a 
          partner by a partnership (sec. 1064 of the House bill 
          and sec. 874 of the Senate amendment)..................   591
        5. Treatment of inventory items of a partnership (sec. 
          1065 of the House bill and sec. 875 of the Senate 
          amendment).............................................   593
        6. Treatment of appreciated property contributed to a 
          partnership (sec. 1066 of the House bill)..............   594
        7. Earned income credit compliance provisions (sec. 1067 
          of the House bill and sec. 5851 of the Senate amendment 
          to H.R. 2015)..........................................   596
            a. Deny EIC eligibility for prior acts of 
              recklessness or fraud..............................   597
            b. Recertification required when taxpayer found to be 
              ineligible for EIC in past.........................   598
            c. Due diligence requirements for paid preparers.....   599
            d. Modify the definition of AGI used to phase out the 
              EIC................................................   600
        8. Eligibility for income forecast method (sec. 1068 of 
          the House bill and sec. 876 of the Senate amendment)...   601
        9. Require taxpayers to include rental value of residence 
          in income without regard to period of rental (sec. 1069 
          of the House bill).....................................   602
        10. Modify the exception to the related-party rule of 
          section 1033 for individuals to only provide an 
          exception for de minimis amounts (sec. 1070 of the 
          House bill and sec. 877 of the Senate amendment).......   603
        11. Repeal of exception for certain sales by 
          manufacturers to dealers (sec. 1071 of the House bill 
          and sec. 878 of the Senate amendment)..................   603
        12. Extension of Federal unemployment surtax (sec. 881 of 
          the Senate amendment)..................................   604
        13. Treatment of charitable remainder trusts (sec. 883 of 
          the Senate amendment)..................................   605
        14. Modify general business credit carryback and 
          carryforward rules (sec. 788(b) of the Senate 
          amendment).............................................   608
        15. Using Federal case registry of child support orders 
          for tax enforcement purposes...........................   609
        16. Expanded SSA records for tax enforcement.............   609
        17. Treatment of amounts received under the work 
          requirements of the Personal Responsibility and Work 
          Opportunity Act of 1996................................   610
XI. FOREIGN TAX PROVISIONS.......................................   612
    A. General Provisions........................................   612
        1. Simplify foreign tax credit limitation for individuals 
          (sec. 1103 of the House bill and sec. 901 of the Senate 
          amendment).............................................   612
        2. Simplify translation of foreign taxes (sec. 1104 of 
          the House bill and sec. 902 of the Senate amendment)...   613
        3. Election to use simplified foreign tax credit 
          limitation for alternative minimum tax purposes (sec. 
          1105 of the House bill and sec. 903 of the Senate 
          amendment).............................................   615
        4. Simplify treatment of personal transactions in foreign 
          currency (sec. 1106 of the House bill and sec. 904 of 
          the Senate amendment)..................................   616
        5. Simplify foreign tax credit limitation for dividends 
          from 10/50 companies (sec. 1107 of the House bill).....   617
    B. General Provisions Affecting Treatment of Controlled 
      Foreign Corporations (secs. 1111-1113 of the House bill and 
      secs. 911-913 of the Senate amendment).....................   618
    C. Modification of Passive Foreign Investment Company 
      Provisions to Eliminate Overlap With Subpart F, to Allow 
      Mark-to-Market Election, and to Require Measurement Based 
      on Value for PFIC Asset Test (secs. 1121-1123 of the House 
      bill and secs. 751-753 of the Senate amendment)............   623
    D. Simplify Formation and Operation of International Joint 
      Ventures (secs. 1131, 1141-1145, and 1151 of the House bill 
      and secs. 921, 931-935, and 941 of the Senate amendment)...   628
    E. Modification of Reporting Threshold for Stock Ownership of 
      a Foreign Corporation (sec. 1146 of the House bill and sec. 
      936 of the Senate amendment)...............................   632
    F. Other Foreign Simplification Provisions...................   633
        1. Transition rules for certain trusts (sec. 1161 of the 
          House bill and sec. 951 of the Senate amendment).......   633
         2. Simplify stock and securities trading safe harbor 
          (sec. 1162 of the House bill and sec. 952 of the Senate 
          amendment).............................................   633
        3. Clarification of determination of foreign taxes deemed 
          paid (sec. 1178(a) of the House bill and sec. 953(a) of 
          the Senate amendment)..................................   633
        4. Clarification of foreign tax credit limitation for 
          financial services income (sec. 1178(b) of the House 
          bill and sec. 953(b) of the Senate amendment)..........   635
    G. Other Foreign Provisions..................................   636
        1. Eligibility of licenses of computer software for 
          foreign sales corporation benefits (sec. 1101 of the 
          House bill and sec. 741 of the Senate amendment).......   636
        2. Increase dollar limitation on section 911 exclusion 
          (sec. 1102 of the House bill)..........................   637
        3. Treatment of certain securities positions under the 
          subpart F investment in U.S. property rules (sec. 743 
          of the Senate amendment)...............................   638
        4. Exception from foreign personal holding company income 
          under subpart F for active financing income (sec. 744 
          of the Senate amendment)...............................   639
        5. Treat service income of nonresident alien individuals 
          earned on foreign ships as foreign source income and 
          disregard the U.S. presence of such individuals (sec. 
          745 of the Senate amendment)...........................   645
XII. SIMPLIFICATION PROVISIONS RELATING TO INDIVIDUALS AND 
  BUSINESSES.....................................................   647
    A. Provisions Relating to Individuals........................   647
        1. Modifications to standard deduction of dependents; AMT 
          treatment of certain minor children (sec. 1201 of the 
          House bill and sec. 1001 of the Senate amendment)......   647
        2. Increase de minimis threshold for estimated tax to 
          $1,000 for individuals (sec. 1202 of the House bill and 
          sec. 1002 of the Senate amendment).....................   648
        3. Optional methods for computing SECA tax combined (sec. 
          1203 of the House bill)................................   649
        4. Treatment of certain reimbursed expenses of rural 
          letter carrier's vehicles (sec. 1204 of the House bill 
          and sec. 1003 of the Senate amendment).................   650
        5. Travel expenses of Federal employees participating in 
          a Federal criminal investigation (sec. 1205 of the 
          House bill and sec. 1004 of the Senate amendment)......   651
        6. Payment of taxes by commercially acceptable means 
          (sec. 1206 of the House bill)..........................   652
    B. Provisions Relating to Businesses Generally...............   655
        1. Modifications to look-back method for long-term 
          contracts (sec. 1211 of the House bill and sec. 1011 of 
          the Senate amendment)..................................   655
        2. Minimum tax treatment of certain property and casualty 
          insurance companies (sec. 1212 of the House bill and 
          sec. 1012 of the Senate amendment).....................   657
        3. Treatment of construction allowances provided to 
          lessees (sec. 961 of the House bill and sec. 1014 of 
          the Senate amendment)..................................   657
    C. Partnership Simplification Provisions.....................   659
        1. General provisions....................................   659
            a. Simplified flow-through for electing large 
              partnerships (sec. 1221 of the House bill and sec. 
              1021 of the Senate amendment)......................   659
            b. Simplified audit procedures for electing large 
              partnerships (sec. 1222 of the House bill and sec. 
              1022 of the Senate amendment)......................   670
            c. Due date for furnishing information to partners of 
              electing large partnerships (sec. 1223 of the House 
              bill and sec. 1023 of the Senate amendment)........   674
            d. Partnership returns required on magnetic media 
              (sec. 1224 of the House bill and sec. 1024 of the 
              Senate amendment)..................................   675
            e. Treatment of partnership items of individual 
              retirement arrangements (sec. 1225 of the House 
              bill and sec. 1025 of the Senate amendment)........   676
        2. Other partnership audit rules.........................   677
            a. Treatment of partnership items in deficiency 
              proceedings (sec. 1231 of the House bill and sec. 
              1031 of the Senate amendment)......................   677
            b. Partnership return to be determinative of audit 
              procedures to be followed (sec. 1232 of the House 
              bill and sec. 1032 of the Senate amendment)........   679
            c. Provisions relating to statute of limitations 
              (sec. 1233 of the House bill and sec. 1033 of the 
              Senate amendment)..................................   679
            d. Expansion of small partnership exception (sec. 
              1234 of the House bill and sec. 1034 of the Senate 
              amendment).........................................   682
            e. Exclusion of partial settlements from 1-year 
              limitation on assessment (sec. 1235 of the House 
              bill and sec. 1035 of the Senate amendment)........   682
            f. Extension of time for filing a request for 
              administrative adjustment (sec. 1236 of the House 
              bill and sec. 1036 of the Senate amendment)........   683
            g. Availability of innocent spouse relief in context 
              of partnership proceedings (sec. 1237 of the House 
              bill and sec. 1037 of the Senate amendment)........   684
            h. Determination of penalties at partnership level 
              (sec. 1238 of the House bill and sec. 1038 of the 
              Senate amendment)..................................   685
            i. Provisions relating to Tax Court jurisdiction 
              (sec. 1239 of the House bill and sec. 1039 of the 
              Senate amendment)..................................   685
            j. Treatment of premature petitions filed by notice 
              partners or 5-percent groups (sec. 1240 of the 
              House bill and sec. 1040 of the Senate amendment)..   686
            k. Bonds in case of appeals from certain proceedings 
              (sec. 1241 of the House bill and sec. 1041 of the 
              Senate amendment)..................................   686
            l. Suspension of interest where delay in 
              computational adjustment resulting from certain 
              settlements (sec. 1242 of the House bill and sec. 
              1042 of the Senate amendment)......................   687
            m. Special rules for administrative adjustment 
              requests with respect to bad debts or worthless 
              securities (sec. 1243 of the House bill and sec. 
              1043 of the Senate amendment)......................   688
        3. Closing of partnership taxable year with respect to 
          deceased partner (sec. 1246 of the House bill and sec. 
          1046 of the Senate amendment)..........................   688
    D. Modifications of Rules for Real Estate Investment Trusts 
      (secs. 1251-1263 of the House bill and secs. 1051-1063 of 
      the Senate amendment)......................................   689
    E. Repeal the ``Short-Short'' Test for Regulated Investment 
      Companies (sec. 1271 of the House bill and sec. 1071 of the 
      Senate amendment)..........................................   699
    F. Taxpayer Protections......................................   700
        1. Provide reasonable cause exception for additional 
          penalties (sec. 1281 of the House bill and sec. 1081 of 
          the Senate amendment)..................................   700
        2. Clarification of period for filing claims for refunds 
          (sec. 1282 of the House bill and sec. 1082 of the 
          Senate amendment)......................................   700
        3. Repeal of authority to disclose whether a prospective 
          juror has been audited (sec. 1283 of the House bill and 
          sec. 1083 of the Senate amendment).....................   701
        4. Clarify statute of limitations for items from pass-
          through entities (sec. 1284 of the House bill and sec. 
          1084 of the Senate amendment)..........................   702
        5. Awarding of administrative costs and attorneys fees 
          (sec. 1285 of the House bill)..........................   703
        6. Prohibition on browsing (secs. 1286-1287 of the House 
          bill and secs. 1085-1086 of the Senate amendment)......   704
XIII. ESTATE, GIFT, AND TRUST SIMPLIFICATION PROVISIONS..........   706
        1. Eliminate gift tax filing requirements for gifts to 
          charities (sec. 1301 of the House bill and secs. 1101 
          of the Senate amendment)...............................   706
        2. Clarification of waiver of certain rights of recovery 
          (sec. 1302 of the House bill and sec. 1102 of the 
          Senate amendment)......................................   707
        3. Transitional rule under section 2056A (sec. 1303 of 
          the House bill and sec. 1103 of the Senate amendment)..   707
        4. Clarifications relating to disclaimers (sec. 1304 of 
          the House bill)........................................   708
        5. Amend ``5 or 5 power'' (sec. 1305 of the House bill)..   709
        6. Treatment of estate tax purposes of short-term 
          obligations held by nonresident aliens (sec. 1306 of 
          the House bill and sec. 1104 of the Senate amendment)..   710
        7. Certain revocable trusts treated as part of estate 
          (sec. 1307 of the House bill)..........................   711
        8. Distributions during first 65 days of taxable year of 
          estate (sec. 1308 of the House bill and sec. 1105 of 
          the Senate amendment)..................................   712
        9. Separate share rules available to estates (sec. 1309 
          of the House bill and sec. 1106 of the Senate 
          amendment).............................................   712
        10. Executor of estate and beneficiaries treated as 
          related persons for disallowance of losses (sec. 1310 
          of the House bill and sec. 1107 of the Senate 
          amendment).............................................   714
        11. Limitation on taxable year of estates (sec. 1311 of 
          the House bill)........................................   714
        12. Simplified taxation of earnings of pre-need funeral 
          trusts (sec. 1312 of the House bill and sec. 1108 of 
          the Senate amendment)..................................   715
        13. Adjustments for gifts within 3 years of decedent's 
          death (sec. 1313 of the House bill and sec. 1109 of the 
          Senate amendment.......................................   717
        14. Clarify relationship between community property 
          rights and retirement benefits (sec. 1314 of the House 
          bill and sec. 1110 of the Senate amendment)............   717
        15. Treatment under qualified domestic trust rules of 
          forms of ownership which are not trusts (sec. 1315 of 
          the House bill and sec. 1111 of the Senate amendment)..   719
        16. Opportunity to correct certain failures under section 
          2032A (sec. 1316 of the House bill and sec. 1112 of the 
          Senate amendment)......................................   719
        17. Authority to waive requirement of U.S. trustee for 
          qualified domestic trusts (sec. 1317 of the House bill 
          and sec. 1113 of the Senate amendment).................   720
XIV. EXCISE TAX AND OTHER SIMPLIFICATION PROVISIONS..............   722
    A. Excise Tax Simplification Provisions......................   722
        1. Increase de minimis limit for after-market 
          alternations subject to heavy truck and luxury 
          automobile excise taxes (sec. 1401 of the House bill 
          and sec. 1201 of the Senate amendment).................   722
        2. Simplification of excise taxes on distilled spirits, 
          wine, and beer (secs. 1411-1422 of the House bill and 
          secs. 1211-1222 of the Senate amendment)...............   723
        3. Authority for Internal Revenue Service to grant 
          exemptions from excise tax registration requirements 
          (sec. 1431 of the House bill and sec. 1231 of the 
          Senate amendment)......................................   725
        4. Repeal of expired excise tax provisions (sec. 1432 of 
          the House bill and sec. 1232 of the Senate amendment)..   725
        5. Modifications to the excise tax on arrows (sec. 1233 
          of the Senate amendment)...............................   726
        6. Modifications to heavy highway vehicle retail excise 
          tax (sec. 1234 of the Senate amendment)................   726
        7. Treatment of skydiving flights as noncommercial 
          aviation (sec. 1235 of the Senate amendment)...........   727
        8. Eliminate double taxation of certain aviation fuels 
          sold to producers by ``fixed base operators'' (sec. 
          1236 of the Senate amendment)..........................   728
    B. Tax-Exempt Bond Provisions................................   728
        1. Repeal of $100,000 limitation on unspent proceeds 
          under 1-year exception from rebate (sec. 1441 of the 
          House bill and sec. 1241 of the Senate amendment)......   729
        2. Exception from rebate for earnings on bona fide debt 
          service fund under construction bond rules (sec. 1442 
          of the House bill and sec. 1242 of the Senate 
          amendment).............................................   730
        3. Repeal of debt service-based limitation on investment 
          in certain nonpurpose investments (sec. 1443 of the 
          House bill and sec. 1243 of the Senate amendment)......   730
        4. Repeal of expired provisions relating to student loan 
          bonds (sec. 1444 of the House bill and sec. 1244 of the 
          Senate amendment)......................................   731
    C. Tax Court Procedures......................................   732
        1. Overpayment determinations of Tax Court (sec. 1451 of 
          the House bill and sec. 1251 of the Senate amendment)..   732
        2. Redetermination of interest pursuant to motion (sec. 
          1452 of the House bill and sec. 1252 of the Senate 
          amendment).............................................   732
        3. Application of net worth requirement for awards of 
          litigation costs (sec. 1453 of the House bill and sec. 
          1253 of the Senate amendment)..........................   733
        4. Tax Court jurisdiction for determination of employment 
          status (sec. 1454 of the House bill and sec. 1254 of 
          the Senate amendment)..................................   734
    D. Other Provisions..........................................   735
        1. Due date for first quarter estimated tax payments by 
          private foundations (sec. 1461 of the House bill and 
          sec. 1261 of the Senate amendment).....................   735
        2. Withholding of Commonwealth income taxes from wages of 
          Federal employees (sec. 1462 of the House bill and sec. 
          1262 of the Senate amendment)..........................   735
        3. Certain notices disregarded under provision increasing 
          interest rate on large corporate underpayments (sec. 
          1463 of the House bill and sec. 1263 of the Senate 
          amendment).............................................   736
XV. PENSION AND EMPLOYEE BENEFIT PROVISIONS......................   738
    A. Miscellaneous Provisions Relating to Pensions and Other 
      Benefits...................................................   738
        1. Cash or deferred arrangements for irrigation and 
          drainage entities (sec. 911 of the House bill).........   738
        2. Permanent moratorium on application of 
          nondiscrimination rules to State and local governmental 
          plans (sec. 912 of the House bill and sec. 1308 of the 
          Senate amendment)......................................   738
        3. Treatment of certain disability payments to public 
          safety employees (sec. 913 of the House bill and sec. 
          785 of the Senate amendment)...........................   740
        4. Portability of permissive service credit under 
          governmental pension plans (sec. 914 of the House bill)   740
        5. Gratuitous transfers for the benefit of employees 
          (sec. 915 of the House bill)...........................   742
        6. Treatment of certain transportation on noncommercially 
          operated aircraft as a fringe benefit (sec. 916 of the 
          House bill)............................................   743
        7. Clarification of certain rules relating to ESOPs of S 
          corporations (sec. 918 of the House bill and sec. 1309 
          of the Senate amendment)...............................   744
        8. Repeal application of UBIT to ESOPs of S corporations 
          (sec. 716 of the Senate amendment).....................   745
        9. Treatment of multiemployer plans under section 415 
          (sec. 711 of the Senate amendment).....................   746
        10. Modification of partial termination rules (sec. 712 
          of the House amendment)................................   746
        11. Increase in full funding limit (sec. 713 of the 
          Senate amendment)......................................   747
        12. Spousal consent required for distributions from 
          section 401(k) plans (sec. 714 of the Senate amendment)   748
        13. Contributions on behalf of a minister to a church 
          plan (sec. 715 of the Senate amendment)................   749
        14. Exclusion of ministers from discrimination testing of 
          certain non-church retirement plans (sec. 715 of the 
          Senate amendment)......................................   749
        15. Diversification in section 401(k) plan investments 
          (sec. 717 of the Senate amendments)....................   750
        16. Removal of dollar limitation on benefit payments from 
          a defined benefit plan for police and fire employees 
          (sec. 786 of the Senate amendment).....................   751
        17. Church plan exception to prohibition on 
          discrimination against individuals based on health 
          status.................................................   752
        18. Newborns' and mothers' health protection, mental 
          health parity..........................................   753
    B. Pension Simplification Provisions.........................   754
        1. Matching contributions of self-employed individuals 
          not treated as elective deferrals (sec. 1301 of the 
          Senate amendment)......................................   754
        2. Contributions to IRAs through payroll deductions (sec. 
          1302 of the Senate amendment)..........................   755
        3. Plans not disqualified merely by accepting rollover 
          contributions (sec. 1303 of the Senate amendment)......   756
        4. Modification of prohibition on assignment or 
          alienation (sec. 1304 of the Senate amendment).........   756
        5. Elimination of paperwork burdens on plans (sec. 1305 
          of the Senate amendment)...............................   757
        6. Modification of section 403(b) exclusion allowance to 
          conform to section 415 modifications (sec. 1306 of the 
          Senate amendment)......................................   758
        7. New technologies in retirement plans (sec. 1307 of the 
          Senate amendment)......................................   759
        8. Modification of 10-percent tax on nondeductible 
          contributions (sec. 1310 of the Senate amendment)......   760
        9. Modify funding requirements for certain plans (sec. 
          1311 of the Senate amendment)..........................   760
        10. Date for adoption of plan amendments.................   761
XVI. SENSE OF THE SENATE RESOLUTIONS.............................   763
    A. Sense of the Senate Regarding Reform of the Internal 
      Revenue Code of 1986 (sec. 780 of the Senate amendment)....   763
    B. Sense of the Senate Regarding Tax Treatment of Stock 
      options (sec. 781 of the Senate amendment).................   763
    C. Sense of the Senate Regarding Estate Taxes (sec. 782 of 
      the Senate amendments).....................................   764
    D. Sense of the Senate Regarding Who Should Benefit From Tax 
      Cuts (sec. 791 of the Senate amendment)....................   764
    E. Sense of the Senate Regarding Self-Employment Taxes of 
      Limited Partners (sec. 734 of the Senate amendment)........   765
XVII. TECHNICAL CORRECTIONS PROVISIONS...........................   766
XVIII. OTHER TAX PROVISION.......................................   768
    A. Estimated Tax Requirements of Individuals for 1997 and 
      1998 (sec. 311(d) of the House bill).......................   768
XIX. TRADE PROVISIONS............................................   769
    A. Extension of Duty-Free Treatment Under the Generalized 
      System of Preferences (sec. 971 of the House bill).........   769
    B. Temporary Suspension of Vessel Repair Duty (sec. 972 of 
      the House bill)............................................   769
    C. United States-Caribbean Basin Trade Partnership Act (secs. 
      981-988 of the House bill).................................   770
XX. LIMITED TAX BENEFITS SUBJECT TO THE LINE ITEM VETO ACT.......   771



105th Congress                                                Report
 1st Session           HOUSE OF REPRESENTATIVES               105-220
                                     
_______________________________________________________________________


                      TAXPAYER RELIEF ACT OF 1997

                                _______
                                

                 July 30, 1997.--Ordered to be printed

_______________________________________________________________________


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

                           CONFERENCE REPORT

                        [To accompany H.R. 2014]

      The committee of conference on the disagreeing votes of 
the two Houses on the amendment of the Senate to the bill (H.R. 
2014) to provide for reconciliation pursuant to subsections 
(b)(2) and (d) of section 105 of the concurrent resolution on 
the budget for fiscal year 1998, having met, after full and 
free conference, have agreed to recommend and do recommend to 
their respective Houses as follows:
      That the House recede from its disagreement to the 
amendment of the Senate and agree to the same with an amendment 
as follows:
      In lieu of the matter proposed to be inserted by the 
Senate amendment, insert the following:

SECTION 1. SHORT TITLE; ETC.

    (a) Short Title.--This Act may be cited as the ``Taxpayer 
Relief Act of 1997''.
    (b) Amendment of 1986 Code.--Except as otherwise expressly 
provided, whenever in this Act an amendment or repeal is 
expressed in terms of an amendment to, or repeal of, a section 
or other provision, the reference shall be considered to be 
made to a section or other provision of the Internal Revenue 
Code of 1986.
    (c) Section 15 Not To Apply.--No amendment made by this Act 
shall be treated as a change in a rate of tax for purposes of 
section 15 of the Internal Revenue Code of 1986.
    (d) Waiver of Estimated Tax Penalties.--No addition to tax 
shall be made under section 6654 or 6655 of the Internal 
Revenue Code of 1986 for any period before January 1, 1998, for 
any payment the due date of which is before January 16, 1998, 
with respect to any underpayment attributable to such period to 
the extent such underpayment was created or increased by any 
provision of this Act.
    (e) Table of Contents.--The table of contents for this Act 
is as follows:

Sec. 1. Short title; etc.

                        TITLE I--CHILD TAX CREDIT

Sec. 101. Child tax credit.

                     TITLE II--EDUCATION INCENTIVES

         Subtitle A--Tax Benefits Relating to Education Expenses

Sec. 201. Hope and lifetime learning credits.
Sec. 202. Deduction for interest on education loans.
Sec. 203. Penalty-free withdrawals from individual retirement plans for 
          higher education expenses.

     Subtitle B--Expanded Education Investment Savings Opportunities

                   Part I--Qualified Tuition Programs

Sec. 211. Modifications of qualified State tuition programs.

            Part II--Education Individual Retirement Accounts

Sec. 213. Education individual retirement accounts.

                 Subtitle C--Other Education Initiatives

Sec. 221. Extension of exclusion for employer-provided educational 
          assistance.
Sec. 222. Repeal of limitation on qualified 501(c)(3) bonds other than 
          hospital bonds.
Sec. 223. Increase in arbitrage rebate exception for governmental bonds 
          used to finance education facilities.
Sec. 224. Contributions of computer technology and equipment for 
          elementary or secondary school purposes.
Sec. 225. Treatment of cancellation of certain student loans.
Sec. 226. Incentives for education zones.

              TITLE III--SAVINGS AND INVESTMENT INCENTIVES

                     Subtitle A--Retirement Savings

Sec. 301. Restoration of IRA deduction for certain taxpayers.
Sec. 302. Establishment of nondeductible tax-free individual retirement 
          accounts.
Sec. 303. Distributions from certain plans may be used without penalty 
          to purchase first homes.
Sec. 304. Certain bullion not treated as collectibles.

                        Subtitle B--Capital Gains

Sec. 311. 20 percent maximum capital gains rate for individuals.
Sec. 312. Exemption from tax for gain on sale of principal residence.
Sec. 313. Rollover of gain from sale of qualified stock.
Sec. 314. Amount of net capital gain taken into account in computing 
          alternative tax on capital gains for corporations not to 
          exceed taxable income of the corporation.

                TITLE IV--ALTERNATIVE MINIMUM TAX REFORM

Sec. 401. Exemption from alternative minimum tax for small corporations.
Sec. 402. Repeal of separate depreciation lives for minimum tax 
          purposes.
Sec. 403. Minimum tax not to apply to farmers' installment sales.

      TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TAX PROVISIONS

               Subtitle A--Estate and Gift Tax Provisions

Sec. 501. Cost-of-living adjustments relating to estate and gift tax 
          provisions.
Sec. 502. Family-owned business exclusion.
Sec. 503. Modifications to rate of interest on portion of estate tax 
          extended under section 6166.
Sec. 504. Extension of treatment of certain rents under section 2032A to 
          lineal descendants.
Sec. 505. Clarification of judicial review of eligibility for extension 
          of time for payment of estate tax.
Sec. 506. Gifts may not be revalued for estate tax purposes after 
          expiration of statute of limitations.
Sec. 507. Repeal of throwback rules applicable to certain domestic 
          trusts.
Sec. 508. Treatment of land subject to a qualified conservation 
          easement.

              Subtitle B--Generation-Skipping Tax Provision

Sec. 511. Expansion of exception from generation-skipping transfer tax 
          for transfers to individuals with deceased parents.

                          TITLE VI--EXTENSIONS

Sec. 601. Research tax credit.
Sec. 602. Contributions of stock to private foundations.
Sec. 603. Work opportunity tax credit.
Sec. 604. Orphan drug tax credit.

  TITLE VII--INCENTIVES FOR REVITALIZATION OF THE DISTRICT OF COLUMBIA

Sec. 701. Tax incentives for revitalization of the District of Columbia.

                 TITLE VIII--WELFARE-TO-WORK INCENTIVES

Sec. 801. Incentives for employing long-term family assistance 
          recipients.

                   TITLE IX--MISCELLANEOUS PROVISIONS

             Subtitle A--Provisions Relating to Excise Taxes

Sec. 901. General revenue portion of highway motor fuels taxes deposited 
          into Highway Trust Fund.
Sec. 902. Repeal of tax on diesel fuel used in recreational boats.
Sec. 903. Continued application of tax on imported recycled Halon-1211.
Sec. 904. Uniform rate of tax on vaccines.
Sec. 905. Operators of multiple gasoline retail outlets treated as 
          wholesale distributor for refund purposes.
Sec. 906. Exemption of electric and other clean-fuel motor vehicles from 
          luxury automobile classification.
Sec. 907. Rate of tax on certain special fuels determined on basis of 
          BTU equivalency with gasoline.
Sec. 908. Modification of tax treatment of hard cider.
Sec. 909. Study of feasibility of moving collection point for distilled 
          spirits excise tax.
Sec. 910. Clarification of authority to use semi-generic designations on 
          wine labels.

               Subtitle B--Revisions Relating to Disasters

Sec. 911. Authority to postpone certain tax-related deadlines by reason 
          of presidentially declared disaster.
Sec. 912. Use of certain appraisals to establish amount of disaster 
          loss.
Sec. 913. Treatment of livestock sold on account of weather-related 
          conditions.
Sec. 914. Mortgage financing for residences located in disaster areas.
Sec. 915. Abatement of interest on underpayments by taxpayers in 
          presidentially declared disaster areas.

           Subtitle C--Provisions Relating to Employment Taxes

Sec. 921. Clarification of standard to be used in determining employment 
          tax status of securities brokers.
Sec. 922. Clarification of exemption from self-employment tax for 
          certain termination payments received by former insurance 
          salesmen.

           Subtitle D--Provisions Relating to Small Businesses

Sec. 931. Waiver of penalty through June 30, 1998, on small businesses 
          failing to make electronic fund transfers of taxes.
Sec. 932. Clarification of treatment of home office use for 
          administrative and management activities.
Sec. 933. Averaging of farm income over 3 years.
Sec. 934. Increase in deduction for health insurance costs of self-
          employed individuals.
Sec. 935. Moratorium on certain regulations.

                         Subtitle E--Brownfields

Sec. 941. Expensing of environmental remediation costs.

Subtitle F--Empowerment Zones, Enterprise Communities, Brownfields, and 
              Community Development Financial Institutions

                 Chapter 1--Additional Empowerment Zones

Sec. 951. Additional empowerment zones.

                    Chapter 2--New Empowerment Zones

Sec. 952. Designation of new empowerment zones.
Sec. 953. Volume cap not to apply to enterprise zone facility bonds with 
          respect to new empowerment zones.
Sec. 954. Modification to eligibility criteria for designation of future 
          enterprise zones in Alaska or Hawaii.

  Chapter 3--Treatment Of Empowerment Zones and Enterprise Communities

Sec. 955. Modifications to enterprise zone facility bond rules for all 
          empowerment zones and enterprise communities.
Sec. 956. Modifications to enterprise zone business definition for all 
          empowerment zones and enterprise communities.

                      Subtitle G--Other Provisions

Sec. 961. Use of estimates of shrinkage for inventory accounting.
Sec. 962. Assignment of workmen's compensation liability eligible for 
          exclusion relating to personal injury liability assignments.
Sec. 963. Tax-exempt status for certain State worker's compensation act 
          companies.
Sec. 964. Election for 1987 partnerships to continue exception from 
          treatment of publicly traded partnerships as corporations.
Sec. 965. Exclusion from unrelated business taxable income for certain 
          sponsorship payments.
Sec. 966. Associations of holders of timeshare interests to be taxed 
          like other homeowners associations.
Sec. 967. Additional advance refunding of certain Virgin Island bonds.
Sec. 968. Nonrecognition of gain on sale of stock to certain farmers' 
          cooperatives.
Sec. 969. Increased deductibility of business meal expenses for 
          individuals subject to Federal hours of service.
Sec. 970. Clarification of de minimis fringe benefit rules to no-charge 
          employee meals.
Sec. 971. Exemption of the incremental cost of a clean fuel vehicle from 
          the limits on depreciation for vehicles.
Sec. 972. Temporary suspension of taxable income limit on percentage 
          depletion for marginal production.
Sec. 973. Increase in standard mileage rate expense deduction for 
          charitable use of passenger automobile.
Sec. 974. Clarification of treatment of certain receivables purchased by 
          cooperative hospital service organizations.
Sec. 975. Deduction in computing adjusted gross income for expenses in 
          connection with service performed by certain officials.
Sec. 976. Combined employment tax reporting demonstration project.
Sec. 977. Elective carryback of existing carryovers of National Railroad 
          Passenger Corporation.

Subtitle H--Extension of Duty-Free Treatment Under Generalized System of 
                               Preferences

Sec. 981. Generalized System of Preferences.

                            TITLE X--REVENUES

                     Subtitle A--Financial Products

Sec. 1001. Constructive sales treatment for appreciated financial 
          positions.
Sec. 1002. Limitation on exception for investment companies under 
          section 351.
Sec. 1003. Gains and losses from certain terminations with respect to 
          property.
Sec. 1004. Determination of original issue discount where pooled debt 
          obligations subject to acceleration.
Sec. 1005. Denial of interest deductions on certain debt instruments.

         Subtitle B--Corporate Organizations and Reorganizations

Sec. 1011. Tax treatment of certain extraordinary dividends.
Sec. 1012. Application of section 355 to distributions in connection 
          with acquisitions and to intragroup transactions.
Sec. 1013. Tax treatment of redemptions involving related corporations.
Sec. 1014. Certain preferred stock treated as boot.
Sec. 1015. Modification of holding period applicable to dividends 
          received deduction.

                  Subtitle C--Administrative Provisions

Sec. 1021. Reporting of certain payments made to attorneys.
Sec. 1022. Decrease of threshold for reporting payments to corporations 
          performing services for Federal agencies.
Sec. 1023. Disclosure of return information for administration of 
          certain veterans programs.
Sec. 1024. Continuous levy on certain payments.
Sec. 1025. Modification of levy exemption.
Sec. 1026. Confidentiality and disclosure of returns and return 
          information.
Sec. 1027. Returns of beneficiaries of estates and trusts required to 
          file returns consistent with estate or trust return or to 
          notify Secretary of inconsistency.
Sec. 1028. Registration and other provisions relating to confidential 
          corporate tax shelters.

            Subtitle D--Excise and Employment Tax Provisions

Sec. 1031. Extension and modification of taxes funding Airport and 
          Airway Trust Fund; increased deposits into such Fund.
Sec. 1032. Kerosene taxed as diesel fuel.
Sec. 1033. Restoration of Leaking Underground Storage Tank Trust Fund 
          taxes.
Sec. 1034. Application of communications tax to prepaid telephone cards.
Sec. 1035. Extension of temporary unemployment tax.

         Subtitle E--Provisions Relating to Tax-Exempt Entities

Sec. 1041. Expansion of look-thru rule for interest, annuities, 
          royalties, and rents derived by subsidiaries of tax-exempt 
          organizations.
Sec. 1042. Termination of certain exceptions from rules relating to 
          exempt organizations which provide commercial-type insurance.

                     Subtitle F--Foreign Provisions

Sec. 1051. Definition of foreign personal holding company income.
Sec. 1052. Personal property used predominantly in the United States 
          treated as not property of a like kind with respect to 
          property used predominantly outside the United States.
Sec. 1053. Holding period requirement for certain foreign taxes.
Sec. 1054. Denial of treaty benefits for certain payments through hybrid 
          entities.
Sec. 1055. Interest on underpayments not reduced by foreign tax credit 
          carrybacks.
Sec. 1056. Clarification of period of limitations on claim for credit or 
          refund attributable to foreign tax credit carryforward.
Sec. 1057. Repeal of exception to alternative minimum foreign tax credit 
          limit.

                   Subtitle G--Partnership Provisions

Sec. 1061. Allocation of basis among properties distributed by 
          partnership.
Sec. 1062. Repeal of requirement that inventory be substantially 
          appreciated with respect to sale or exchange of partnership 
          interest.
Sec. 1063. Extension of time for taxing precontribution gain.

                     Subtitle H--Pension Provisions

Sec. 1071. Pension accrued benefit distributable without consent 
          increased to $5,000.
Sec. 1072. Election to receive taxable cash compensation in lieu of 
          nontaxable parking benefits.
Sec. 1073. Repeal of excess distribution and excess retirement 
          accumulation tax.
Sec. 1074. Increase in tax on prohibited transactions.
Sec. 1075. Basis recovery rules for annuities over more than one life.

                  Subtitle I--Other Revenue Provisions

Sec. 1081. Termination of suspense accounts for family corporations 
          required to use accrual method of accounting.
Sec. 1082. Modification of taxable years to which net operating losses 
          may be carried.
Sec. 1083. Modifications to taxable years to which unused credits may be 
          carried.
Sec. 1084. Expansion of denial of deduction for certain amounts paid in 
          connection with insurance.
Sec. 1085. Improved enforcement of the application of the earned income 
          credit.
Sec. 1086. Limitation on property for which income forecast method may 
          be used.
Sec. 1087. Expansion of requirement that involuntarily converted 
          property be replaced with property acquired from an unrelated 
          person.
Sec. 1088. Treatment of exception from installment sales rules for sales 
          of property by a manufacturer to a dealer.
Sec. 1089. Limitations on charitable remainder trust eligibility for 
          certain trusts.
Sec. 1090. Expanded SSA records for tax enforcement.
Sec. 1091. Modification of estimated tax safe harbors.

      TITLE XI--SIMPLIFICATION AND OTHER FOREIGN-RELATED PROVISIONS

                     Subtitle A--General Provisions

Sec. 1101. Certain individuals exempt from foreign tax credit 
          limitation.
Sec. 1102. Exchange rate used in translating foreign taxes.
Sec. 1103. Election to use simplified section 904 limitation for 
          alternative minimum tax.
Sec. 1104. Treatment of personal transactions by individuals under 
          foreign currency rules.
Sec. 1105. Foreign tax credit treatment of dividends from noncontrolled 
          section 902 corporations.

        Subtitle B--Treatment of Controlled Foreign Corporations

Sec. 1111. Gain on certain stock sales by controlled foreign 
          corporations treated as dividends.
Sec. 1112. Miscellaneous modifications to subpart F.
Sec. 1113. Indirect foreign tax credit allowed for certain lower tier 
          companies.

      Subtitle C--Treatment of Passive Foreign Investment Companies

Sec. 1121. United States shareholders of controlled foreign corporations 
          not subject to PFIC inclusion.
Sec. 1122. Election of mark to market for marketable stock in passive 
          foreign investment company.
Sec. 1123. Valuation of assets for passive foreign investment company 
          determination.
Sec. 1124. Effective date.

    Subtitle D--Repeal of Excise Tax on Transfers to Foreign Entities

Sec. 1131. Repeal of excise tax on transfers to foreign entities; 
          recognition of gain on certain transfers to foreign trusts and 
          estates.

                    Subtitle E--Information Reporting

Sec. 1141. Clarification of application of return requirement to foreign 
          partnerships.
Sec. 1142. Controlled foreign partnerships subject to information 
          reporting comparable to information reporting for controlled 
          foreign corporations.
Sec. 1143. Modifications relating to returns required to be filed by 
          reason of changes in ownership interests in foreign 
          partnership.
Sec. 1144. Transfers of property to foreign partnerships subject to 
          information reporting comparable to information reporting for 
          such transfers to foreign corporations.
Sec. 1145. Extension of statute of limitations for foreign transfers.
Sec. 1146. Increase in filing thresholds for returns as to organization 
          of foreign corporations and acquisitions of stock in such 
          corporations.

 Subtitle F--Determination of Foreign or Domestic Status of Partnerships

Sec. 1151. Determination of foreign or domestic status of partnerships.

               Subtitle G--Other Simplification Provisions

Sec. 1161. Transition rule for certain trusts.
Sec. 1162. Repeal of stock and securities safe harbor requirement that 
          principal office be outside the United States.
Sec. 1163. Miscellaneous clarifications.

                      Subtitle H--Other Provisions

Sec. 1171. Treatment of computer software as FSC export property.
Sec. 1172. Adjustment of dollar limitation on section 911 exclusion.
Sec. 1173. United States property not to include certain assets acquired 
          by dealers in ordinary course of trade or business.
Sec. 1174. Treatment of nonresident aliens engaged in international 
          transportation services.
Sec. 1175. Exemption for active financing income.

    TITLE XII--SIMPLIFICATION PROVISIONS RELATING TO INDIVIDUALS AND 
                               BUSINESSES

             Subtitle A--Provisions Relating to Individuals

Sec. 1201. Basic standard deduction and minimum tax exemption amount for 
          certain dependents.
Sec. 1202. Increase in amount of tax exempt from estimated tax 
          requirements.
Sec. 1203. Treatment of certain reimbursed expenses of rural mail 
          carriers.
Sec. 1204. Treatment of traveling expenses of certain Federal employees 
          engaged in criminal investigations.
Sec. 1205. Payment of tax by commercially acceptable means.

         Subtitle B--Provisions Relating to Businesses Generally

Sec. 1211. Modifications to look-back method for long-term contracts.
Sec. 1212. Minimum tax treatment of certain property and casualty 
          insurance companies.
Sec. 1213. Qualified lessee construction allowances for short-term 
          leases.

   Subtitle C--Simplification Relating to Electing Large Partnerships

                       Part I--General Provisions

Sec. 1221. Simplified flow-through for electing large partnerships.
Sec. 1222. Simplified audit procedures for electing large partnerships.
Sec. 1223. Due date for furnishing information to partners of electing 
          large partnerships.
Sec. 1224. Returns required on magnetic media.
Sec. 1225. Treatment of partnership items of individual retirement 
          accounts.
Sec. 1226. Effective date.

      Part II--Provisions Related to TEFRA Partnership Proceedings

Sec. 1231. Treatment of partnership items in deficiency proceedings.
Sec. 1232. Partnership return to be determinative of audit procedures to 
          be followed.
Sec. 1233. Provisions relating to statute of limitations.
Sec. 1234. Expansion of small partnership exception.
Sec. 1235. Exclusion of partial settlements from 1-year limitation on 
          assessment.
Sec. 1236. Extension of time for filing a request for administrative 
          adjustment.
Sec. 1237. Availability of innocent spouse relief in context of 
          partnership proceedings.
Sec. 1238. Determination of penalties at partnership level.
Sec. 1239. Provisions relating to court jurisdiction, etc.
Sec. 1240. Treatment of premature petitions filed by notice partners or 
          5-percent groups.
Sec. 1241. Bonds in case of appeals from certain proceeding.
Sec. 1242. Suspension of interest where delay in computational 
          adjustment resulting from certain settlements.
Sec. 1243. Special rules for administrative adjustment requests with 
          respect to bad debts or worthless securities.

Part III--Provision Relating to Closing of Partnership Taxable Year With 
                    Respect to Deceased Partner, Etc.

Sec. 1246. Closing of partnership taxable year with respect to deceased 
          partner, etc.

    Subtitle D--Provisions Relating to Real Estate Investment Trusts

Sec. 1251. Clarification of limitation on maximum number of 
          shareholders.
Sec. 1252. De minimis rule for tenant services income.
Sec. 1253. Attribution rules applicable to stock ownership.
Sec. 1254. Credit for tax paid by REIT on retained capital gains.
Sec. 1255. Repeal of 30-percent gross income requirement.
Sec. 1256. Modification of earnings and profits rules for determining 
          whether REIT has earnings and profits from non-REIT year.
Sec. 1257. Treatment of foreclosure property.
Sec. 1258. Payments under hedging instruments.
Sec. 1259. Excess noncash income.
Sec. 1260. Prohibited transaction safe harbor.
Sec. 1261. Shared appreciation mortgages.
Sec. 1262. Wholly owned subsidiaries.
Sec. 1263. Effective date.

    Subtitle E--Provisions Relating to Regulated Investment Companies

Sec. 1271. Repeal of 30-percent gross income limitation.

                    Subtitle F--Taxpayer Protections

Sec. 1281. Reasonable cause exception for certain penalties.
Sec. 1282. Clarification of period for filing claims for refunds.
Sec. 1283. Repeal of authority to disclose whether prospective juror has 
          been audited.
Sec. 1284. Clarification of statute of limitations.
Sec. 1285. Awarding of administrative costs.

 TITLE XIII--SIMPLIFICATION PROVISIONS RELATING TO ESTATE AND GIFT TAXES

Sec. 1301. Gifts to charities exempt from gift tax filing requirements.
Sec. 1302. Clarification of waiver of certain rights of recovery.
Sec. 1303. Transitional rule under section 2056A.
Sec. 1304. Treatment for estate tax purposes of short-term obligations 
          held by nonresident aliens.
Sec. 1305. Certain revocable trusts treated as part of estate.
Sec. 1306. Distributions during first 65 days of taxable year of estate.
Sec. 1307. Separate share rules available to estates.
Sec. 1308. Executor of estate and beneficiaries treated as related 
          persons for disallowance of losses, etc.
Sec. 1309. Treatment of funeral trusts.
Sec. 1310. Adjustments for gifts within 3 years of decedent's death.
Sec. 1311. Clarification of treatment of survivor annuities under 
          qualified terminable interest rules.
Sec. 1312. Treatment under qualified domestic trust rules of forms of 
          ownership which are not trusts.
Sec. 1313. Opportunity to correct certain failures under section 2032A.
Sec. 1314. Authority to waive requirement of United States trustee for 
          qualified domestic trusts.

   TITLE XIV--SIMPLIFICATION PROVISIONS RELATING TO EXCISE TAXES, TAX-
                     EXEMPT BONDS, AND OTHER MATTERS

                  Subtitle A--Excise Tax Simplification

          Part I--Excise Taxes on Heavy Trucks and Luxury Cars

Sec. 1401. Increase in de minimis limit for after-market alterations for 
          heavy trucks and luxury cars.
Sec. 1402. Credit for tire tax in lieu of exclusion of value of tires in 
          computing price.

    Part II--Provisions Related to Distilled Spirits, Wines, and Beer

Sec. 1411. Credit or refund for imported bottled distilled spirits 
          returned to distilled spirits plant.
Sec. 1412. Authority to cancel or credit export bonds without submission 
          of records.
Sec. 1413. Repeal of required maintenance of records on premises of 
          distilled spirits plant.
Sec. 1414. Fermented material from any brewery may be received at a 
          distilled spirits plant.
Sec. 1415. Repeal of requirement for wholesale dealers in liquors to 
          post sign.
Sec. 1416. Refund of tax to wine returned to bond not limited to 
          unmerchantable wine.
Sec. 1417. Use of additional ameliorating material in certain wines.
Sec. 1418. Domestically produced beer may be withdrawn free of tax for 
          use of foreign embassies, legations, etc.
Sec. 1419. Beer may be withdrawn free of tax for destruction.
Sec. 1420. Authority to allow drawback on exported beer without 
          submission of records.
Sec. 1421. Transfer to brewery of beer imported in bulk without payment 
          of tax.
Sec. 1422. Transfer to bonded wine cellars of wine imported in bulk 
          without payment of tax.

                  Part III--Other Excise Tax Provisions

Sec. 1431. Authority to grant exemptions from registration requirements.
Sec. 1432. Repeal of expired provisions.
Sec. 1433. Simplification of imposition of excise tax on arrows.
Sec. 1434. Modifications to retail tax on heavy trucks.
Sec. 1435. Skydiving flights exempt from tax on transportation of 
          persons by air.
Sec. 1436. Allowance or credit of refund for tax-paid aviation fuel 
          purchased by registered producer of aviation fuel.

                 Subtitle B--Tax-Exempt Bond Provisions

Sec. 1441. Repeal of $100,000 limitation on unspent proceeds under 1-
          year exception from rebate.
Sec. 1442. Exception from rebate for earnings on bona fide debt service 
          fund under construction bond rules.
Sec. 1443. Repeal of debt service-based limitation on investment in 
          certain nonpurpose investments.
Sec. 1444. Repeal of expired provisions.
Sec. 1445. Effective date.

                    Subtitle C--Tax Court Procedures

Sec. 1451. Overpayment determinations of Tax Court.
Sec. 1452. Redetermination of interest pursuant to motion.
Sec. 1453. Application of net worth requirement for awards of litigation 
          costs.
Sec. 1454. Proceedings for determination of employment status.

                      Subtitle D--Other Provisions

Sec. 1461. Extension of due date of first quarter estimated tax payment 
          by private foundations.
Sec. 1462. Clarification of authority to withhold Puerto Rico income 
          taxes from salaries of Federal employees.
Sec. 1463. Certain notices disregarded under provision increasing 
          interest rate on large corporate underpayments.

                TITLE XV--PENSIONS AND EMPLOYEE BENEFITS

                       Subtitle A--Simplification

Sec. 1501. Matching contributions of self-employed individuals not 
          treated as elective employer contributions.
Sec. 1502. Modification of prohibition of assignment or alienation.
Sec. 1503. Elimination of paperwork burdens on plans.
Sec. 1504. Modification of 403(b) exclusion allowance to conform to 415 
          modifications.
Sec. 1505. Extension of moratorium on application of certain 
          nondiscrimination rules to State and local governments.
Sec. 1506. Clarification of certain rules relating to employee stock 
          ownership plans of S corporations.
Sec. 1507. Modification of 10-percent tax for nondeductible 
          contributions.
Sec. 1508. Modification of funding requirements for certain plans.
Sec. 1509. Clarification of disqualification rules relating to 
          acceptance of rollover contributions.
Sec. 1510. New technologies in retirement plans.

 Subtitle B--Other Provisions Relating to Pensions and Employee Benefits

Sec. 1521. Increase in current liability funding limit.
Sec. 1522. Special rules for church plans.
Sec. 1523. Repeal of application of unrelated business income tax to 
          ESOPs.
Sec. 1524. Diversification of section 401(k) plan investments.
Sec. 1525. Section 401(k) plans for certain irrigation and drainage 
          entities.
Sec. 1526. Portability of permissive service credit under governmental 
          pension plans.
Sec. 1527. Removal of dollar limitation on benefit payments from a 
          defined benefit plan maintained for certain police and fire 
          employees.
Sec. 1528. Survivor benefits for public safety officers killed in the 
          line of duty.
Sec. 1529. Treatment of certain disability benefits received by former 
          police officers or firefighters.
Sec. 1530. Gratuitous transfers for the benefit of employees.

         Subtitle C--Provisions Relating to Certain Health Acts

Sec. 1531. Amendments to the Internal Revenue Code of 1986 to implement 
          the Newborns' and Mothers' Health Protection Act of 1996 and 
          the Mental Health Parity Act of 1996.
Sec. 1532. Special rules relating to church plans.

           Subtitle D--Provisions Relating to Plan Amendments

Sec. 1541. Provisions relating to plan amendments.

TITLE XVI--TECHNICAL AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION 
                    ACT OF 1996 AND OTHER LEGISLATION

Sec. 1600. Coordination with other titles.
Sec. 1601. Amendments related to Small Business Job Protection Act of 
          1996.
Sec. 1602. Amendments related to Health Insurance Portability and 
          Accountability Act of 1996.
Sec. 1603. Amendments related to Taxpayer Bill of Rights 2.
Sec. 1604. Miscellaneous provisions.

TITLE XVII--IDENTIFICATION OF LIMITED TAX BENEFITS SUBJECT TO LINE ITEM 
                                  VETO

Sec. 1701. Identification of limited tax benefits subject to line item 
          veto.

                       TITLE I--CHILD TAX CREDIT

SEC. 101. CHILD TAX CREDIT.

    (a) In General.--Subpart A of part IV of subchapter A of 
chapter 1 (relating to nonrefundable personal credits) is 
amended by inserting after section 23 the following new 
section:

``SEC. 24. CHILD TAX CREDIT.

    ``(a) Allowance of Credit.--There shall be allowed as a 
credit against the tax imposed by this chapter for the taxable 
year with respect to each qualifying child of the taxpayer an 
amount equal to $500 ($400 in the case of taxable years 
beginning in 1998).
    ``(b) Limitation Based on Adjusted Gross Income.--
            ``(1) In general.--The amount of the credit 
        allowable under subsection (a) shall be reduced (but 
        not below zero) by $50 for each $1,000 (or fraction 
        thereof) by which the taxpayer's modified adjusted 
        gross income exceeds the threshold amount. For purposes 
        of the preceding sentence, the term `modified adjusted 
        gross income' means adjusted gross income increased by 
        any amount excluded from gross income under section 
        911, 931, or 933.
            ``(2) Threshold amount.--For purposes of paragraph 
        (1), the term `threshold amount' means--
                    ``(A) $110,000 in the case of a joint 
                return,
                    ``(B) $75,000 in the case of an individual 
                who is not married, and
                    ``(C) $55,000 in the case of a married 
                individual filing a separate return.
        For purposes of this paragraph, marital status shall be 
        determined under section 7703.
    ``(c) Qualifying Child.--For purposes of this section--
            ``(1) In general.--The term `qualifying child' 
        means any individual if--
                    ``(A) the taxpayer is allowed a deduction 
                under section 151 with respect to such 
                individual for the taxable year,
                    ``(B) such individual has not attained the 
                age of 17 as of the close of the calendar year 
                in which the taxable year of the taxpayer 
                begins, and
                    ``(C) such individual bears a relationship 
                to the taxpayer described in section 
                32(c)(3)(B).
            ``(2) Exception for certain noncitizens.--The term 
        `qualifying child' shall not include any individual who 
        would not be a dependent if the first sentence of 
        section 152(b)(3) were applied without regard to all 
        that follows `resident of the United States'.
    ``(d) Additional Credit for Families With 3 or More 
Children.--
            ``(1) In general.--In the case of a taxpayer with 3 
        or more qualifying children for any taxable year, the 
        amount of the credit allowed under this section shall 
        be equal to the greater of--
                    ``(A) the amount of the credit allowed 
                under this section (without regard to this 
                subsection and after application of the 
                limitation under section 26), or
                    ``(B) the alternative credit amount 
                determined under paragraph (2).
            ``(2) Alternative credit amount.--For purposes of 
        this subsection, the alternative credit amount is the 
        amount of the credit which would be allowed under this 
        section if the limitation under paragraph (3) were 
        applied in lieu of the limitation under section 26.
            ``(3) Limitation.--The limitation under this 
        paragraph for any taxable year is the limitation under 
        section 26 (without regard to this subsection)--
                    ``(A) increased by the taxpayer's social 
                security taxes for such taxable year, and
                    ``(B) reduced by the sum of--
                            ``(i) the credits allowed under 
                        this part other than under subpart C or 
                        this section, and
                            ``(ii) the credit allowed under 
                        section 32 without regard to subsection 
                        (m) thereof.
            ``(4) Unused credit to be refundable.--If the 
        amount of the credit under paragraph (1)(B) exceeds the 
        amount of the credit under paragraph (1)(A), such 
        excess shall be treated as a credit to which subpart C 
        applies. The rule of section 32(h) shall apply to such 
        excess.
            ``(5) Social security taxes.--For purposes of 
        paragraph (3)--
                    ``(A) In general.--The term `social 
                security taxes' means, with respect to any 
                taxpayer for any taxable year--
                            ``(i) the amount of the taxes 
                        imposed by sections 3101 and 3201(a) on 
                        amounts received by the taxpayer during 
                        the calendar year in which the taxable 
                        year begins,
                            ``(ii) 50 percent of the taxes 
                        imposed by section 1401 on the self-
                        employment income of the taxpayer for 
                        the taxable year, and
                            ``(iii) 50 percent of the taxes 
                        imposed by section 3211(a)(1) on 
                        amounts received by the taxpayer during 
                        the calendar year in which the taxable 
                        year begins.
                    ``(B) Coordination with special refund of 
                social security taxes.--The term `social 
                security taxes' shall not include any taxes to 
                the extent the taxpayer is entitled to a 
                special refund of such taxes under section 
                6413(c).
                    ``(C) Special rule.--Any amounts paid 
                pursuant to an agreement under section 3121(l) 
                (relating to agreements entered into by 
                American employers with respect to foreign 
                affiliates) which are equivalent to the taxes 
                referred to in subparagraph (A)(i) shall be 
                treated as taxes referred to in such 
                subparagraph.
    ``(e) Identification Requirement.--No credit shall be 
allowed under this section to a taxpayer with respect to any 
qualifying child unless the taxpayer includes the name and 
taxpayer identification number of such qualifying child on the 
return of tax for the taxable year.
    ``(f) Taxable Year Must Be Full Taxable Year.--Except in 
the case of a taxable year closed by reason of the death of the 
taxpayer, no credit shall be allowable under this section in 
the case of a taxable year covering a period of less than 12 
months.''.
    (b) Supplemental Credit.--Section 32 is amended by adding 
at the end the following new subsection:
    ``(m) Supplemental Child Credit.--
            ``(1) In general.--In the case of a taxpayer with 
        respect to whom a credit is allowed under section 24 
        for the taxable year, there shall be allowed as a 
        credit under this section an amount equal to the 
        supplemental child credit (if any) determined for such 
        taxpayer for such taxable year under paragraph (2). 
        Such credit shall be in addition to the credit allowed 
        under subsection (a).
            ``(2) Supplemental child credit.--For purposes of 
        this subsection, the supplemental child credit is an 
        amount equal to the excess (if any) of--
                    ``(A) the amount determined under section 
                24(d)(1)(A), over
                    ``(B) the amount determined under section 
                24(d)(1)(B).
        The amounts referred to in subparagraphs (A) and (B) 
        shall be determined as if section 24(d) applied to all 
        taxpayers.
            ``(3) Coordination with section 24.--The amount of 
        the credit under section 24 shall be reduced by the 
        amount of the credit allowed under this subsection.''
    (c) High Risk Pools Permitted To Cover Spouses and 
Dependents of High Risk Individuals.--Paragraph (26) of section 
501(c) is amended by adding at the end the following flush 
sentence:
        ``A spouse and any qualifying child (as defined in 
        section 24(c)) of an individual described in 
        subparagraph (B) (without regard to this sentence) 
        shall be treated as described in subparagraph (B).''.
    (d) Conforming Amendments.--
            (1) Section 1324(b)(2) of title 31, United States 
        Code, is amended by inserting before the period at the 
        end ``, or enacted by the Taxpayer Relief Act of 
        1997''.
            (2) Paragraph (2) of section 6213(g) (relating to 
        the definition of mathematical or clerical errors) is 
        amended by striking ``and'' at the end of subparagraph 
        (G), by striking the period at the end of subparagraph 
        (H) and inserting ``, and'', and by inserting after 
        subparagraph (H) the following new subparagraph:
                    ``(I) an omission of a correct TIN required 
                under section 24(e) (relating to child tax 
                credit) to be included on a return.''.
            (3) The table of sections for subpart A of part IV 
        of subchapter A of chapter 1 is amended by inserting 
        after the item relating to section 23 the following new 
        item:

        ``Sec. 24. Child tax credit.''.

    (e) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1997.

                     TITLE II--EDUCATION INCENTIVES

        Subtitle A--Tax Benefits Relating to Education Expenses

SEC. 201. HOPE AND LIFETIME LEARNING CREDITS.

    (a) In General.--Subpart A of part IV of subchapter A of 
chapter 1 (relating to nonrefundable personal credits) is 
amended by inserting after section 25 the following new 
section:

``SEC. 25A. HOPE AND LIFETIME LEARNING CREDITS.

    ``(a) Allowance of Credit.--In the case of an individual, 
there shall be allowed as a credit against the tax imposed by 
this chapter for the taxable year the amount equal to the sum 
of--
            ``(1) the Hope Scholarship Credit, plus
            ``(2) the Lifetime Learning Credit.
    ``(b) Hope Scholarship Credit.--
            ``(1) Per student credit.--In the case of any 
        eligible student for whom an election is in effect 
        under this section for any taxable year, the Hope 
        Scholarship Credit is an amount equal to the sum of--
                    ``(A) 100 percent of so much of the 
                qualified tuition and related expenses paid by 
                the taxpayer during the taxable year (for 
                education furnished to the eligible student 
                during any academic period beginning in such 
                taxable year) as does not exceed $1,000, plus
                    ``(B) 50 percent of such expenses so paid 
                as exceeds $1,000 but does not exceed the 
                applicable limit.
            ``(2) Limitations applicable to hope scholarship 
        credit.--
                    ``(A) Credit allowed only for 2 taxable 
                years.--An election to have this section apply 
                with respect to any eligible student for 
                purposes of the Hope Scholarship Credit under 
                subsection (a)(1) may not be made for any 
                taxable year if such an election (by the 
                taxpayer or any other individual) is in effect 
                with respect to such student for any 2 prior 
                taxable years.
                    ``(B) Credit allowed for year only if 
                individual is at least \1/2\ time student for 
                portion of year.--The Hope Scholarship Credit 
                under subsection (a)(1) shall not be allowed 
                for a taxable year with respect to the 
                qualified tuition and related expenses of an 
                individual unless such individual is an 
                eligible student for at least one academic 
                period which begins during such year.
                    ``(C) Credit allowed only for first 2 years 
                of postsecondary education.--The Hope 
                Scholarship Credit under subsection (a)(1) 
                shall not be allowed for a taxable year with 
                respect to the qualified tuition and related 
                expenses of an eligible student if the student 
                has completed (before the beginning of such 
                taxable year) the first 2 years of 
                postsecondary education at an eligible 
                educational institution.
                    ``(D) Denial of credit if student convicted 
                of a felony drug offense.--The Hope Scholarship 
                Credit under subsection (a)(1) shall not be 
                allowed for qualified tuition and related 
                expenses for the enrollment or attendance of a 
                student for any academic period if such student 
                has been convicted of a Federal or State felony 
                offense consisting of the possession or 
                distribution of a controlled substance before 
                the end of the taxable year with or within 
                which such period ends.
            ``(3) Eligible student.--For purposes of this 
        subsection, the term `eligible student' means, with 
        respect to any academic period, a student who--
                    ``(A) meets the requirements of section 
                484(a)(1) of the Higher Education Act of 1965 
                (20 U.S.C. 1091(a)(1)), as in effect on the 
                date of the enactment of this section, and
                    ``(B) is carrying at least \1/2\ the normal 
                full-time work load for the course of study the 
                student is pursuing.
            ``(4) Applicable limit.--For purposes of paragraph 
        (1)(B), the applicable limit for any taxable year is an 
        amount equal to 2 times the dollar amount in effect 
        under paragraph (1)(A) for such taxable year.
    ``(c) Lifetime Learning Credit.--
            ``(1) Per taxpayer credit.--The Lifetime Learning 
        Credit for any taxpayer for any taxable year is an 
        amount equal to 20 percent of so much of the qualified 
        tuition and related expenses paid by the taxpayer 
        during the taxable year (for education furnished during 
        any academic period beginning in such taxable year) as 
        does not exceed $10,000 ($5,000 in the case of taxable 
        years beginning before January 1, 2003).
            ``(2) Special rules for determining expenses.--
                    ``(A) Coordination with hope scholarship.--
                The qualified tuition and related expenses with 
                respect to an individual who is an eligible 
                student for whom a Hope Scholarship Credit 
                under subsection (a)(1) is allowed for the 
                taxable year shall not be taken into account 
                under this subsection.
                    ``(B) Expenses eligible for lifetime 
                learning credit.--For purposes of paragraph 
                (1), qualified tuition and related expenses 
                shall include expenses described in subsection 
                (f)(1) with respect to any course of 
                instruction at an eligible educational 
                institution to acquire or improve job skills of 
                the individual.
    ``(d) Limitation Based on Modified Adjusted Gross Income.--
            ``(1) In general.--The amount which would (but for 
        this subsection) be taken into account under subsection 
        (a) for the taxable year shall be reduced (but not 
        below zero) by the amount determined under paragraph 
        (2).
            ``(2) Amount of reduction.--The amount determined 
        under this paragraph is the amount which bears the same 
        ratio to the amount which would be so taken into 
        account as--
                    ``(A) the excess of--
                            ``(i) the taxpayer's modified 
                        adjusted gross income for such taxable 
                        year, over
                            ``(ii) $40,000 ($80,000 in the case 
                        of a joint return), bears to
                    ``(B) $10,000 ($20,000 in the case of a 
                joint return).
            ``(3) Modified adjusted gross income.--The term 
        `modified adjusted gross income' means the adjusted 
        gross income of the taxpayer for the taxable year 
        increased by any amount excluded from gross income 
        under section 911, 931, or 933.
    ``(e) Election To Have Section Apply.--
            ``(1) In general.--No credit shall be allowed under 
        subsection (a) for a taxable year with respect to the 
        qualified tuition and related expenses of an individual 
        unless the taxpayer elects to have this section apply 
        with respect to such individual for such year.
            ``(2) Coordination with exclusions.--An election 
        under this subsection shall not take effect with 
        respect to an individual for any taxable year if any 
        portion of any distribution during such taxable year 
        from an education individual retirement account is 
        excluded from gross income under section 530(d)(2).
    ``(f) Definitions.--For purposes of this section--
            ``(1) Qualified tuition and related expenses.--
                    ``(A) In general.--The term `qualified 
                tuition and related expenses' means tuition and 
                fees required for the enrollment or attendance 
                of--
                            ``(i) the taxpayer,
                            ``(ii) the taxpayer's spouse, or
                            ``(iii) any dependent of the 
                        taxpayer with respect to whom the 
                        taxpayer is allowed a deduction under 
                        section 151,
                at an eligible educational institution for 
                courses of instruction of such individual at 
                such institution.
                    ``(B) Exception for education involving 
                sports, etc.--Such term does not include 
                expenses with respect to any course or other 
                education involving sports, games, or hobbies, 
                unless such course or other education is part 
                of the individual's degree program.
                    ``(C) Exception for nonacademic fees.--Such 
                term does not include student activity fees, 
                athletic fees, insurance expenses, or other 
                expenses unrelated to an individual's academic 
                course of instruction.
            ``(2) Eligible educational institution.--The term 
        `eligible educational institution' means an 
        institution--
                    ``(A) which is described in section 481 of 
                the Higher Education Act of 1965 (20 U.S.C. 
                1088), as in effect on the date of the 
                enactment of this section, and
                    ``(B) which is eligible to participate in a 
                program under title IV of such Act.
    ``(g) Special Rules.--
            ``(1) Identification requirement.--No credit shall 
        be allowed under subsection (a) to a taxpayer with 
        respect to the qualified tuition and related expenses 
        of an individual unless the taxpayer includes the name 
        and taxpayer identification number of such individual 
        on the return of tax for the taxable year.
            ``(2) Adjustment for certain scholarships, etc.--
        The amount of qualified tuition and related expenses 
        otherwise taken into account under subsection (a) with 
        respect to an individual for an academic period shall 
        be reduced (before the application of subsections (b), 
        (c), and (d)) by the sum of any amounts paid for the 
        benefit of such individual which are allocable to such 
        period as--
                    ``(A) a qualified scholarship which is 
                excludable from gross income under section 117,
                    ``(B) an educational assistance allowance 
                under chapter 30, 31, 32, 34, or 35 of title 
                38, United States Code, or under chapter 1606 
                of title 10, United States Code, and
                    ``(C) a payment (other than a gift, 
                bequest, devise, or inheritance within the 
                meaning of section 102(a)) for such 
                individual's educational expenses, or 
                attributable to such individual's enrollment at 
                an eligible educational institution, which is 
                excludable from gross income under any law of 
                the United States.
            ``(3) Treatment of expenses paid by dependent.--If 
        a deduction under section 151 with respect to an 
        individual is allowed to another taxpayer for a taxable 
        year beginning in the calendar year in which such 
        individual's taxable year begins--
                    ``(A) no credit shall be allowed under 
                subsection (a) to such individual for such 
                individual's taxable year, and
                    ``(B) qualified tuition and related 
                expenses paid by such individual during such 
                individual's taxable year shall be treated for 
                purposes of this section as paid by such other 
                taxpayer.
            ``(4) Treatment of certain prepayments.--If 
        qualified tuition and related expenses are paid by the 
        taxpayer during a taxable year for an academic period 
        which begins during the first 3 months following such 
        taxable year, such academic period shall be treated for 
        purposes of this section as beginning during such 
        taxable year.
            ``(5) Denial of double benefit.--No credit shall be 
        allowed under this section for any expense for which a 
        deduction is allowed under any other provision of this 
        chapter.
            ``(6) No credit for married individuals filing 
        separate returns.--If the taxpayer is a married 
        individual (within the meaning of section 7703), this 
        section shall apply only if the taxpayer and the 
        taxpayer's spouse file a joint return for the taxable 
        year.
            ``(7) Nonresident aliens.--If the taxpayer is a 
        nonresident alien individual for any portion of the 
        taxable year, this section shall apply only if such 
        individual is treated as a resident alien of the United 
        States for purposes of this chapter by reason of an 
        election under subsection (g) or (h) of section 6013.
    ``(h) Inflation Adjustments.--
            ``(1) Dollar limitation on amount of credit.--
                    ``(A) In general.--In the case of a taxable 
                year beginning after 2001, each of the $1,000 
                amounts under subsection (b)(1) shall be 
                increased by an amount equal to--
                            ``(i) such dollar amount, 
                        multiplied by
                            ``(ii) the cost-of-living 
                        adjustment determined under section 
                        1(f)(3) for the calendar year in which 
                        the taxable year begins, determined by 
                        substituting `calendar year 2000' for 
                        `calendar year 1992' in subparagraph 
                        (B) thereof.
                    ``(B) Rounding.--If any amount as adjusted 
                under subparagraph (A) is not a multiple of 
                $1,000 such amount shall be rounded to the next 
                lowest multiple of $1,000.
            ``(2) Income limits.--
                    ``(A) In general.--In the case of a taxable 
                year beginning after 2001, the $40,000 and 
                $80,000 amounts in subsection (d)(2) shall each 
                be increased by an amount equal to--
                            ``(i) such dollar amount, 
                        multiplied by
                            ``(ii) the cost-of-living 
                        adjustment determined under section 
                        1(f)(3) for the calendar year in which 
                        the taxable year begins, determined by 
                        substituting `calendar year 2000' for 
                        `calendar year 1992' in subparagraph 
                        (B) thereof.
                    ``(B) Rounding.--If any amount as adjusted 
                under subparagraph (A) is not a multiple of 
                $1,000, such amount shall be rounded to the 
                next lowest multiple of $1,000.
    ``(i) Regulations.--The Secretary may prescribe such 
regulations as may be necessary or appropriate to carry out 
this section, including regulations providing for a recapture 
of the credit allowed under this section in cases where there 
is a refund in a subsequent taxable year of any amount which 
was taken into account in determining the amount of such 
credit.''.
    (b) Extension of Procedures Applicable to Mathematical or 
Clerical Errors.--Paragraph (2) of section 6213(g) (relating to 
the definition of mathematical or clerical errors), as amended 
by section 101, is amended by striking ``and'' at the end of 
subparagraph (H), by striking the period at the end of 
subparagraph (I) and inserting ``, and'', and by inserting 
after subparagraph (I) the following new subparagraph:
                    ``(J) an omission of a correct TIN required 
                under section 25A(g)(1) (relating to higher 
                education tuition and related expenses) to be 
                included on a return.''.
    (c) Returns Relating to Tuition and Related Expenses.--
            (1) In general.--Subpart B of part III of 
        subchapter A of chapter 61 (relating to information 
        concerning transactions with other persons) is amended 
        by inserting after section 6050R the following new 
        section:

``SEC. 6050S. RETURNS RELATING TO HIGHER EDUCATION TUITION AND RELATED 
                    EXPENSES.

    ``(a) In General.--Any person--
            ``(1) which is an eligible educational institution 
        which receives payments for qualified tuition and 
        related expenses with respect to any individual for any 
        calendar year, or
            ``(2) which is engaged in a trade or business and 
        which, in the course of such trade or business, makes 
        payments during any calendar year to any individual 
        which constitute reimbursements or refunds (or similar 
        amounts) of qualified tuition and related expenses of 
        such individual,
shall make the return described in subsection (b) with respect 
to the individual at such time as the Secretary may by 
regulations prescribe.
    ``(b) Form and Manner of Returns.--A return is described in 
this subsection if such return--
            ``(1) is in such form as the Secretary may 
        prescribe,
            ``(2) contains--
                    ``(A) the name, address, and TIN of the 
                individual with respect to whom payments 
                described in subsection (a) were received from 
                (or were paid to),
                    ``(B) the name, address, and TIN of any 
                individual certified by the individual 
                described in subparagraph (A) as the taxpayer 
                who will claim the individual as a dependent 
                for purposes of the deduction allowable under 
                section 151 for any taxable year ending with or 
                within the calendar year, and
                    ``(C) the--
                            ``(i) aggregate amount of payments 
                        for qualified tuition and related 
                        expenses received with respect to the 
                        individual described in subparagraph 
                        (A) during the calendar year, and
                            ``(ii) aggregate amount of 
                        reimbursements or refunds (or similar 
                        amounts) paid to such individual during 
                        the calendar year, and
                    ``(D) such other information as the 
                Secretary may prescribe.
    ``(c) Application to Governmental Units.--For purposes of 
this section--
            ``(1) a governmental unit or any agency or 
        instrumentality thereof shall be treated as a person, 
        and
            ``(2) any return required under subsection (a) by 
        such governmental entity shall be made by the officer 
        or employee appropriately designated for the purpose of 
        making such return.
    ``(d) Statements To Be Furnished to Individuals With 
Respect to Whom Information Is Required.--Every person required 
to make a return under subsection (a) shall furnish to each 
individual whose name is required to be set forth in such 
return under subparagraph (A) or (B) of subsection (b)(2) a 
written statement showing--
            ``(1) the name, address, and phone number of the 
        information contact of the person required to make such 
        return, and
            ``(2) the aggregate amounts described in 
        subparagraph (C) of subsection (b)(2).
The written statement required under the preceding sentence 
shall be furnished on or before January 31 of the year 
following the calendar year for which the return under 
subsection (a) was required to be made.
    ``(e) Definitions.--For purposes of this section, the terms 
`eligible educational institution' and `qualified tuition and 
related expenses' have the meanings given such terms by section 
25A.
    ``(f) Returns Which Would Be Required To Be Made by 2 or 
More Persons.--Except to the extent provided in regulations 
prescribed by the Secretary, in the case of any amount received 
by any person on behalf of another person, only the person 
first receiving such amount shall be required to make the 
return under subsection (a).
    ``(g) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary to carry out the provisions of 
this section. No penalties shall be imposed under part II of 
subchapter B of chapter 68 with respect to any return or 
statement required under this section until such time as such 
regulations are issued.''.
            (2) Assessable penalties.--
                    (A) Subparagraph (B) of section 6724(d)(1) 
                (relating to definitions) is amended by 
                redesignating clauses (ix) through (xiv) as 
                clauses (x) through (xv), respectively, and by 
                inserting after clause (viii) the following new 
                clause:
                            ``(ix) section 6050S (relating to 
                        returns relating to payments for 
                        qualified tuition and related 
                        expenses),''.
                    (B) Paragraph (2) of section 6724(d) is 
                amended by striking ``or'' at the end of the 
                next to last subparagraph, by striking the 
                period at the end of the last subparagraph and 
                inserting ``, or'', and by adding at the end 
                the following new subparagraph:
                    ``(Z) section 6050S(d) (relating to returns 
                relating to qualified tuition and related 
                expenses).''.
            (3) Clerical amendment.--The table of sections for 
        subpart B of part III of subchapter A of chapter 61 is 
        amended by inserting after the item relating to section 
        6050R the following new item:

        ``Sec. 6050S. Returns relating to higher education tuition and 
                  related expenses.''.

    (d) Coordination With Section 135.--Subsection (d) of 
section 135 is amended by redesignating paragraphs (2) and (3) 
as paragraphs (3) and (4), respectively, and by inserting after 
paragraph (1) the following new paragraph:
            ``(2) Coordination with higher education credit.--
        The amount of the qualified higher education expenses 
        otherwise taken into account under subsection (a) with 
        respect to the education of an individual shall be 
        reduced (before the application of subsection (b)) by 
        the amount of such expenses which are taken into 
        account in determining the credit allowable to the 
        taxpayer or any other person under section 25A with 
        respect to such expenses.''.
    (e) Clerical Amendment.--The table of sections for subpart 
A of part IV of subchapter A of chapter 1 is amended by 
inserting after the item relating to section 25 the following 
new item:

        ``Sec. 25A. Higher education tuition and related expenses.''.

    (f) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to expenses paid after December 31, 
        1997 (in taxable years ending after such date), for 
        education furnished in academic periods beginning after 
        such date.
            (2) Lifetime learning credit.--Section 25A(a)(2) of 
        the Internal Revenue Code of 1986 shall apply to 
        expenses paid after June 30, 1998 (in taxable years 
        ending after such date), for education furnished in 
        academic periods beginning after such dates.

SEC. 202. DEDUCTION FOR INTEREST ON EDUCATION LOANS.

    (a) In General.--Part VII of subchapter B of chapter 1 
(relating to additional itemized deductions for individuals) is 
amended by redesignating section 221 as section 222 and by 
inserting after section 220 the following new section:

``SEC. 221. INTEREST ON EDUCATION LOANS.

    ``(a) Allowance of Deduction.--In the case of an 
individual, there shall be allowed as a deduction for the 
taxable year an amount equal to the interest paid by the 
taxpayer during the taxable year on any qualified education 
loan.
    ``(b) Maximum Deduction.--
            ``(1) In general.--Except as provided in paragraph 
        (2), the deduction allowed by subsection (a) for the 
        taxable year shall not exceed the amount determined in 
        accordance with the following table:

    ``In the case of taxable                                  The dollar
      years beginning in:                                     amount is:
          1998..........................................         $1,000 
          1999..........................................         $1,500 
          2000..........................................         $2,000 
          2001 or thereafter............................         $2,500.

            ``(2) Limitation based on modified adjusted gross 
        income.--
                    ``(A) In general.--The amount which would 
                (but for this paragraph) be allowable as a 
                deduction under this section shall be reduced 
                (but not below zero) by the amount determined 
                under subparagraph (B).
                    ``(B) Amount of reduction.--The amount 
                determined under this subparagraph is the 
                amount which bears the same ratio to the amount 
                which would be so taken into account as--
                            ``(i) the excess of--
                                    ``(I) the taxpayer's 
                                modified adjusted gross income 
                                for such taxable year, over
                                    ``(II) $40,000 ($60,000 in 
                                the case of a joint return), 
                                bears to
                            ``(ii) $15,000.
                    ``(C) Modified adjusted gross income.--The 
                term `modified adjusted gross income' means 
                adjusted gross income determined--
                            ``(i) without regard to this 
                        section and sections 135, 137, 911, 
                        931, and 933, and
                            ``(ii) after application of 
                        sections 86, 219, and 469.
                For purposes of sections 86, 135, 137, 219, and 
                469, adjusted gross income shall be determined 
                without regard to the deduction allowed under 
                this section.
    ``(c) Dependents Not Eligible for Deduction.--No deduction 
shall be allowed by this section to an individual for the 
taxable year if a deduction under section 151 with respect to 
such individual is allowed to another taxpayer for the taxable 
year beginning in the calendar year in which such individual's 
taxable year begins.
    ``(d) Limit on Period Deduction Allowed.--A deduction shall 
be allowed under this section only with respect to interest 
paid on any qualified education loan during the first 60 months 
(whether or not consecutive) in which interest payments are 
required. For purposes of this paragraph, any loan and all 
refinancings of such loan shall be treated as 1 loan.
    ``(e) Definitions.--For purposes of this section--
            ``(1) Qualified education loan.--The term 
        `qualified education loan' means any indebtedness 
        incurred to pay qualified higher education expenses--
                    ``(A) which are incurred on behalf of the 
                taxpayer, the taxpayer's spouse, or any 
                dependent of the taxpayer as of the time the 
                indebtedness was incurred,
                    ``(B) which are paid or incurred within a 
                reasonable period of time before or after the 
                indebtedness is incurred, and
                    ``(C) which are attributable to education 
                furnished during a period during which the 
                recipient was an eligible student.
        Such term includes indebtedness used to refinance 
        indebtedness which qualifies as a qualified education 
        loan. The term `qualified education loan' shall not 
        include any indebtedness owed to a person who is 
        related (within the meaning of section 267(b) or 
        707(b)(1)) to the taxpayer.
            ``(2) Qualified higher education expenses.--The 
        term `qualified higher education expenses' means the 
        cost of attendance (as defined in section 472 of the 
        Higher Education Act of 1965, 20 U.S.C. 1087ll, as in 
        effect on the day before the date of the enactment of 
        this Act) at an eligible educational institution, 
        reduced by the sum of--
                    ``(A) the amount excluded from gross income 
                under section 127, 135, or 530 by reason of 
                such expenses, and
                    ``(B) the amount of any scholarship, 
                allowance, or payment described in section 
                25A(g)(2).
        For purposes of the preceding sentence, the term 
        `eligible educational institution' has the same meaning 
        given such term by section 25A(f)(2), except that such 
        term shall also include an institution conducting an 
        internship or residency program leading to a degree or 
        certificate awarded by an institution of higher 
        education, a hospital, or a health care facility which 
        offers postgraduate training.
            ``(3) Eligible student.--The term `eligible 
        student' has the meaning given such term by section 
        25A(b)(3).
            ``(4) Dependent.--The term `dependent' has the 
        meaning given such term by section 152.
    ``(f) Special Rules.--
            ``(1) Denial of double benefit.--No deduction shall 
        be allowed under this section for anyamount for which a 
deduction is allowable under any other provision of this chapter.
            ``(2) Married couples must file joint return.--If 
        the taxpayer is married at the close of the taxable 
        year, the deduction shall be allowed under subsection 
        (a) only if the taxpayer and the taxpayer's spouse file 
        a joint return for the taxable year.
            ``(3) Marital status.--Marital status shall be 
        determined in accordance with section 7703.
    ``(g) Inflation Adjustments.--
            ``(1) In general.--In the case of a taxable year 
        beginning after 2002, the $40,000 and $60,000 amounts 
        in subsection (b)(2) shall each be increased by an 
        amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for the 
                calendar year in which the taxable year begins, 
                determined by substituting `calendar year 2001' 
                for `calendar year 1992' in subparagraph (B) 
                thereof.
            ``(2) Rounding.--If any amount as adjusted under 
        paragraph (1) is not a multiple of $5,000, such amount 
        shall be rounded to the next lowest multiple of 
        $5,000.''.
    (b) Deduction Allowed Whether or Not Taxpayer Itemizes 
Other Deductions.--Subsection (a) of section 62 is amended by 
inserting after paragraph (16) the following new paragraph:
            ``(17) Interest on education loans.--The deduction 
        allowed by section 221.''.
    (c) Reporting Requirement.--
            (1) In general.--Section 6050S(a)(2) (relating to 
        returns relating to higher education tuition and 
        related expenses) is amended to read as follows:
            ``(2) which is engaged in a trade or business and 
        which, in the course of such trade or business--
                    ``(A) makes payments during any calendar 
                year to any individual which constitutes 
                reimbursements or refunds (or similar amounts) 
                of qualified tuition and related expenses of 
                such individual, or
                    ``(B) except as provided in regulations, 
                receives from any individual interest 
                aggregating $600 or more for any calendar year 
                on 1 or more qualified education loans,''.
            (2) Information.--Section 6050S(b)(2) is amended--
                    (A) by inserting ``or interest'' after 
                ``payments'' in subparagraph (A), and
                    (B) in subparagraph (C), by striking 
                ``and'' at the end of clause (i), by inserting 
                ``and'' at the end of clause (ii), and by 
                inserting after clause (ii) the following:
                            ``(iii) aggregate amount of 
                        interest received for the calendar year 
                        from such individual,''.
            (3) Definition.--Section 6050S(e) is amended by 
        inserting ``, and except as provided in regulations, 
        the term `qualified education loan' has the meaning 
        given such term by section 221(e)(1)'' after ``section 
        25A''.
    (d) Clerical Amendment.--The table of sections for part VII 
of subchapter B of chapter 1 is amended by striking the last 
item and inserting the following new items:

        ``Sec. 221. Interest on education loans.
        ``Sec. 222. Cross reference.''.

    (e) Effective Date.--The amendments made by this section 
shall apply to any qualified education loan (as defined in 
section 221(e)(1) of the Internal Revenue Code of 1986, as 
added by this section) incurred on, before, or after the date 
of the enactment of this Act, but only with respect to--
            (1) any loan interest payment due and paid after 
        December 31, 1997, and
            (2) the portion of the 60-month period referred to 
        in section 221(d) of the Internal Revenue Code of 1986 
        (as added by this section) after December 31, 1997.

SEC. 203. PENALTY-FREE WITHDRAWALS FROM INDIVIDUAL RETIREMENT PLANS FOR 
                    HIGHER EDUCATION EXPENSES.

    (a) In General.--Paragraph (2) of section 72(t) (relating 
to exceptions to 10-percent additional tax on early 
distributions from qualified retirement plans) is amended by 
adding at the end the following new subparagraph:
                    ``(E) Distributions from individual 
                retirement plans for higher education 
                expenses.--Distributions to an individual from 
                an individual retirement plan to the extent 
                such distributions do not exceed the qualified 
                higher education expenses (as defined in 
                paragraph (7)) of the taxpayer for the taxable 
                year. Distributions shall not be taken into 
                account under the preceding sentence if such 
                distributions are described in subparagraph 
                (A), (C), or (D) or to the extent paragraph (1) 
                does not apply to such distributions by reason 
                of subparagraph (B).''.
    (b) Definition.--Section 72(t) is amended by adding at the 
end the following new paragraph:
            ``(7) Qualified higher education expenses.--For 
        purposes of paragraph (2)(E)--
                    ``(A) In general.--The term `qualified 
                higher education expenses' means qualified 
                higher education expenses (as defined in 
                section 529(e)(3)) for education furnished to--
                            ``(i) the taxpayer,
                            ``(ii) the taxpayer's spouse, or
                            ``(iii) any child (as defined in 
                        section 151(c)(3)) or grandchild of the 
                        taxpayer or the taxpayer's spouse,
                at an eligible educational institution (as 
                defined in section 529(e)(5)).
                    ``(B) Coordination with other benefits.--
                The amount of qualified higher education 
                expenses for any taxable year shall be reduced 
                as provided in section 25A(g)(2).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to distributions after December 31, 1997, with 
respect to expenses paid after such date (intaxable years 
ending after such date), for education furnished in academic periods 
beginning after such date.

    Subtitle B--Expanded Education Investment Savings Opportunities

                   PART I--QUALIFIED TUITION PROGRAMS

SEC. 211. MODIFICATIONS OF QUALIFIED STATE TUITION PROGRAMS.

    (a) Qualified Higher Education Expenses To Include Room and 
Board.--Paragraph (3) of section 529(e) (defining qualified 
higher education expenses) is amended to read as follows:
            ``(3) Qualified higher education expenses.--
                    ``(A) In general.--The term `qualified 
                higher education expenses' means tuition, fees, 
                books, supplies, and equipment required for the 
                enrollment or attendance of a designated 
                beneficiary at an eligible educational 
                institution.
                    ``(B) Room and board included for students 
                under guaranteed plans who are at least half-
                time.--
                            ``(i) In general.--In the case of 
                        an individual who is an eligible 
                        student (as defined in section 
                        25A(b)(3)) for any academic period, 
                        such term shall also include reasonable 
                        costs for such period (as determined 
                        under the qualified State tuition 
                        program) incurred by the designated 
                        beneficiary for room and board while 
                        attending such institution. For 
                        purposes of subsection (b)(7), a 
                        designated beneficiary shall be treated 
                        as meeting the requirements of this 
                        clause.
                            ``(ii) Limitation.--The amount 
                        treated as qualified higher education 
                        expenses by reason of the preceding 
                        sentence shall not exceed the minimum 
                        amount (applicable to the student) 
                        included for room and board for such 
                        period in the cost of attendance (as 
                        defined in section 472 of the Higher 
                        Education Act of 1965, 20 U.S.C. 
                        1087ll, as in effect on the date of the 
                        enactment of this paragraph) for the 
                        eligible educational institution for 
                        such period.''
    (b) Additional Modifications.--
            (1) Member of family.--Paragraph (2) of section 
        529(e) (relating to other definitions and special 
        rules) is amended to read as follows:
            ``(2) Member of family.--The term `member of the 
        family' means--
                    ``(A) an individual who bears a 
                relationship to another individual which is a 
                relationship described in paragraphs (1) 
                through (8) of section 152(a), and
                    ``(B) the spouse of any individual 
                described in subparagraph (A).''.
            (2) Eligible educational institution.--Section 
        529(e) is amended by adding at the end the following:
            ``(5) Eligible educational institution.--The term 
        `eligible educational institution' means an 
        institution--
                    ``(A) which is described in section 481 of 
                the Higher Education Act of 1965 (20 U.S.C. 
                1088), as in effect on the date of the 
                enactment of this paragraph, and
                    ``(B) which is eligible to participate in a 
                program under title IV of such Act.''.
            (3) Estate and gift tax treatment.--
                    (A) Gift tax treatment.--
                            (i) Paragraph (2) of section 529(c) 
                        is amended to read as follows:
            ``(2) Gift tax treatment of contributions.--For 
        purposes of chapters 12 and 13--
                    ``(A) In general.--Any contribution to a 
                qualified tuition program on behalf of any 
                designated beneficiary--
                            ``(i) shall be treated as a 
                        completed gift to such beneficiary 
                        which is not a future interest in 
                        property, and
                            ``(ii) shall not be treated as a 
                        qualified transfer under section 
                        2503(e).
                    ``(B) Treatment of excess contributions.--
                If the aggregate amount of contributions 
                described in subparagraph (A) during the 
                calendar year by a donor exceeds the limitation 
                for such year under section 2503(b), such 
                aggregate amount shall, at the election of the 
                donor, be taken into account for purposes of 
                such section ratably over the 5-year period 
                beginning with such calendar year.''
                            (ii) Paragraph (5) of section 
                        529(c) is amended to read as follows:
            ``(5) Other gift tax rules.--For purposes of 
        chapters 12 and 13--
                    ``(A) Treatment of distributions.--Except 
                as provided in subparagraph (B), in no event 
                shall a distribution from a qualified tuition 
                program be treated as a taxable gift.
                    ``(B) Treatment of designation of new 
                beneficiary.--The taxes imposed by chapters 12 
                and 13 shall apply to a transfer by reason of a 
                change in the designated beneficiary under the 
                program (or a rollover to the account of a new 
                beneficiary) only if the new beneficiary is a 
                generation below the generation of the old 
                beneficiary (determined in accordance with 
                section 2651).''.
                    (B) Estate tax treatment.--Paragraph (4) of 
                section 529(c) is amended to read as follows:
            ``(4) Estate tax treatment.--
                    ``(A) In general.--No amount shall be 
                includible in the gross estate of any 
                individual for purposes of chapter 11 by reason 
                of an interest in a qualified tuition program.
                    ``(B) Amounts includible in estate of 
                designated beneficiary in certain cases.--
                Subparagraph (A) shall not apply to amounts 
                distributed on account of the death of a 
                beneficiary.
                    ``(C) Amounts includible in estate of donor 
                making excess contributions.--In the case of a 
                donor who makes the election described in 
                paragraph (2)(B) and who dies before the close 
                of the 5-year period referred to in such 
                paragraph, notwithstanding subparagraph (A), 
                the gross estate of the donor shall include the 
                portion of such contributions properly 
                allocable to periods after the date of death of 
                the donor.''
            (4) Prohibition against investment direction.--
        Section 529(b)(5) is amended by inserting ``directly or 
        indirectly'' after ``may not''.
    (c) Coordination With Education Savings Bond.--Section 
135(c)(2) (defining qualified higher education expenses) is 
amended by adding at the end the following:
                    ``(C) Contributions to qualified state 
                tuition program.--Such term shall include any 
                contribution to a qualified State tuition 
                program (as defined in section 529) on behalf 
                of a designated beneficiary (as defined in such 
                section) who is an individual described in 
                subparagraph (A); but there shall be no 
                increase in the investment in the contract for 
                purposes of applying section 529(c)(3)(A) by 
                reason of any portion of such contributionwhich 
is not includible in gross income by reason of this subparagraph.''.
    (d) Clarification of Taxation of Distributions.--
Subparagraph (A) of section 529(c)(3) is amended by striking 
``section 72'' and inserting ``section 72(b)''.
    (e) Technical Amendments.--
            (1)(A) The heading for part VIII of subchapter F of 
        chapter 1 is amended to read as follows:

           ``PART VIII--HIGHER EDUCATION SAVINGS ENTITIES''.

            (B) The table of parts for subchapter F of chapter 
        1 is amended by striking the item relating to part VIII 
        and inserting:

        ``Part VIII. Higher education savings entities.''.

            (2)(A) Section 529(d) is amended to read as 
        follows:
    ``(d) Reports.--Each officer or employee having control of 
the qualified State tuition program or their designee shall 
make such reports regarding such program to the Secretary and 
to designated beneficiaries with respect to contributions, 
distributions, and such other matters as the Secretary may 
require. The reports required by this subsection shall be filed 
at such time and in such manner and furnished to such 
individuals at such time and in such manner as may be required 
by the Secretary.''.
            (B) Paragraph (2) of section 6693(a) (relating to 
        failure to provide reports on individual retirement 
        accounts or annuities) is amended by striking ``and'' 
        at the end of subparagraph (A), by striking the period 
        at the end of subparagraph (B) and inserting ``, and'', 
        and by adding at the end the following new 
        subparagraph:
                    ``(C) Section 529(d) (relating to qualified 
                State tuition programs).''.
            (C) The section heading for section 6693 is amended 
        by striking ``INDIVIDUAL RETIREMENT'' and inserting 
        ``CERTAIN TAX-FAVORED''.
            (D) The item relating to section 6693 in the table 
        of sections for part I of subchapter B of chapter 68 is 
        amended by striking ``individual retirement'' and 
        inserting ``certain tax-favored''.
    (f) Effective Dates.--
            (1) In general.--Except as otherwise provided in 
        this subsection, the amendments made by this section 
        shall take effect on January 1, 1998.
            (2) Expenses to include room and board.--The 
        amendment made by subsection (a) shall take effect as 
        if included in the amendments made by section 1806 of 
        the Small Business Job Protection Act of 1996.
            (3) Eligible educational institution.--The 
        amendment made by subsection (b)(2) shall apply to 
        distributions after December 31, 1997, with respect to 
        expenses paid after such date (in taxable years ending 
        after such date), for education furnished in academic 
        periods beginning after such date.
            (4) Coordination with education savings bonds.--The 
        amendment made by subsection (c) shall apply to taxable 
        years beginning after December 31, 1997.
            (5) Estate and gift tax changes.--
                    (A) Gift tax changes.--Paragraphs (2) and 
                (5) of section 529(c) of the Internal Revenue 
                Code of 1986, as amended by this section, shall 
                apply to transfers (including designations of 
                new beneficiaries) made after the date of the 
                enactment of this Act.
                    (B) Estate tax changes.--Paragraph (4) of 
                such section 529(c) shall apply to estates of 
                decedents dying after June 8, 1997.
            (6) Transition rule for pre-august 20, 1996 
        contracts.--In the case of any contract issued prior to 
        August 20, 1996, section 529(c)(3)(C) of the Internal 
        Revenue Code of 1986 shall be applied for taxable years 
        ending after August 20, 1996, without regard to the 
        requirement that a distribution be transferred to a 
        member of the family or the requirement that a change 
        in beneficiaries may be made only to a member of the 
        family.

           PART II--EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS

SEC. 213. EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.

    (a) In General.--Part VIII of subchapter F of chapter 1 
(relating to qualified State tuition programs) is amended by 
adding at the end the following new section:

``SEC. 530. EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.

    ``(a) General Rule.--An education individual retirement 
account shall be exempt from taxation under this subtitle. 
Notwithstanding the preceding sentence, the education 
individual retirement account shall be subject to the taxes 
imposed by section 511 (relating to imposition of tax on 
unrelated business income of charitable organizations).
    ``(b) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Education individual retirement account.--The 
        term `education individual retirement account' means a 
        trust created or organized in the United States 
        exclusively for the purpose of paying the qualified 
        higher education expenses of the designated beneficiary 
        of the trust (and designated as an education individual 
        retirement account at the time created or organized), 
        but only if the written governing instrument creating 
        the trust meets the following requirements:
                    ``(A) No contribution will be accepted--
                            ``(i) unless it is in cash,
                            ``(ii) after the date on which such 
                        beneficiary attains age 18, or
                            ``(iii) except in the case of 
                        rollover contributions, if such 
                        contribution would result in aggregate 
                        contributions for the taxable year 
                        exceeding $500.
                    ``(B) The trustee is a bank (as defined in 
                section 408(n)) or another person who 
                demonstrates to the satisfaction of the 
                Secretary that the manner in which that person 
                will administer the trust will be consistent 
                with the requirements of this section or who 
                has so demonstrated with respect to any 
                individual retirement plan.
                    ``(C) No part of the trust assets will be 
                invested in life insurance contracts.
                    ``(D) The assets of the trust shall not be 
                commingled with other property except in a 
                common trust fund or common investment fund.
                    ``(E) Upon the death of the designated 
                beneficiary, any balance to the credit of the 
                beneficiary shall be distributed within 30 days 
                after the date of death to the estate of such 
                beneficiary.
            ``(2) Qualified higher education expenses.--
                    ``(A) In general.--The term `qualified 
                higher education expenses' has the meaning 
                given such term by section 529(e)(3), reduced 
                as provided in section 25A(g)(2).
                    ``(B) Qualified state tuition programs.--
                Such term shall include amounts paid or 
                incurred to purchase tuition credits or 
                certificates, or to make contributions to an 
                account, under a qualified State tuition 
                program (as defined in section 529(b)) for the 
                benefit of the beneficiary of the account.
            ``(3) Eligible educational institution.--The term 
        `eligible educational institution' has the meaning 
        given such term by section 529(e)(5).
    ``(c) Reduction in Permitted Contributions Based on 
Adjusted Gross Income.--
            ``(1) In general.--The maximum amount which a 
        contributor could otherwise make to an account under 
        this section shall be reduced by an amount which bears 
        the same ratio to such maximum amount as--
                    ``(A) the excess of--
                            ``(i) the contributor's modified 
                        adjusted gross income for such taxable 
                        year, over
                            ``(ii) $95,000 ($150,000 in the 
                        case of a joint return), bears to
                    ``(B) $15,000 ($10,000 in the case of a 
                joint return).
            ``(2) Modified adjusted gross income.--For purposes 
        of paragraph (1), the term `modified adjusted gross 
        income' means the adjusted gross income of the taxpayer 
        for the taxable year increased by any amount excluded 
        from gross income under section 911, 931, or 933.
    ``(d) Tax Treatment of Distributions.--
            ``(1) In general.--Any distribution shall be 
        includible in the gross income of the distributee in 
        the manner as provided in section 72(b).
            ``(2) Distributions for qualified higher education 
        expenses.--
                    ``(A) In general.--No amount shall be 
                includible in gross income under paragraph (1) 
                if the qualified higher education expenses of 
                the designated beneficiary during the taxable 
                year are not less than the aggregate 
                distributions during the taxable year.
                    ``(B) Distributions in excess of 
                expenses.--If such aggregate distributions 
                exceed such expenses during the taxable year, 
                the amount otherwise includible in gross income 
                under paragraph (1) shall be reduced by the 
                amount which bears the same ratio to the amount 
                which would be includible in gross income under 
                paragraph (1) (without regard to this 
                subparagraph) as the qualified higher education 
                expenses bear to such aggregate distributions.
                    ``(C) Election to waive exclusion.--A 
                taxpayer may elect to waive the application of 
                this paragraph for any taxable year.
            ``(3) Special rules for applying estate and gift 
        taxes with respect to account.--Rules similar to the 
        rules of paragraphs (2), (4), and (5) of section 529(c) 
        shall apply for purposes of this section.
            ``(4) Additional tax for distributions not used for 
        educational expenses.--
                    ``(A) In general.--The tax imposed by this 
                chapter for any taxable year on any taxpayer 
                who receives a payment or distribution from an 
                education individual retirement account which 
                is includible in gross income shall be 
                increased by 10 percent of the amount which is 
                so includible.
                    ``(B) Exceptions.--Subparagraph (A) shall 
                not apply if the payment or distribution is--
                            ``(i) made to a beneficiary (or to 
                        the estate of the designated 
                        beneficiary) on or after the death of 
                        the designated beneficiary,
                            ``(ii) attributable to the 
                        designated beneficiary's being disabled 
                        (within the meaning of section 
                        72(m)(7)), or
                            ``(iii) made on account of a 
                        scholarship, allowance, or payment 
                        described in section 25A(g)(2) received 
                        by the account holder to the extent the 
                        amount of the payment or distribution 
                        does not exceed the amount of the 
                        scholarship, allowance, or payment.
                    ``(C) Excess contributions returned before 
                due date of return.--Subparagraph (A) shall not 
                apply to the distribution of any contribution 
                made during a taxable year on behalf of a 
                designated beneficiary to the extent that such 
                contribution exceeds $500 if--
                            ``(i) such distribution is received 
                        on or before the day prescribed by law 
                        (including extensions of time) for 
                        filing such contributor's return for 
                        such taxable year, and
                            ``(ii) such distribution is 
                        accompanied by the amount of net income 
                        attributable to such excess 
                        contribution.
                Any net income described in clause (ii) shall 
                be included in gross income for the taxable 
                year in which such excess contribution was 
                made.
            ``(5) Rollover contributions.--Paragraph (1) shall 
        not apply to any amount paid or distributed from an 
        education individual retirement account to the extent 
        that the amount received is paid into another education 
        individual retirement account for the benefit of the 
        same beneficiary or a member of the family (within the 
        meaning of section 529(e)(2)) of such beneficiary not 
        later than the 60th day after the date of such payment 
        or distribution. The preceding sentence shall not apply 
        to any payment or distribution if it applied to any 
        prior payment or distribution during the 12-month 
        period ending on the date of the payment or 
        distribution.
            ``(6) Change in beneficiary.--Any change in the 
        beneficiary of an education individual retirement 
        account shall not be treated as a distribution for 
        purposes of paragraph (1) if the new beneficiary is a 
        member of the family (as so defined) of the old 
        beneficiary.
            ``(7) Special rules for death and divorce.--Rules 
        similar to the rules of paragraphs (7) and (8) of 
        section 220(f) shall apply.
    ``(e) Tax Treatment of Accounts.--Rules similar to the 
rules of paragraphs (2) and (4) of section 408(e) shall apply 
to any education individual retirement account.
    ``(f) Community Property Laws.--This section shall be 
applied without regard to any community property laws.
    ``(g) Custodial Accounts.--For purposes of this section, a 
custodial account shall be treated as a trust if the assets of 
such account are held by a bank (as defined in section 408(n)) 
or another person who demonstrates, to the satisfaction of the 
Secretary, that the manner in which he will administer the 
account will be consistent with the requirements of this 
section, and if the custodial account would, except for the 
fact that it is not a trust, constitute an account described in 
subsection (b)(1). For purposes of this title, in the case of a 
custodial account treated as a trust by reason of the preceding 
sentence, the custodian of such account shall be treated as the 
trustee thereof.
    ``(h) Reports.--The trustee of an education individual 
retirement account shall make such reports regarding such 
account to the Secretary and to the beneficiary of the account 
with respect to contributions, distributions, and such other 
matters as the Secretary may require. The reports required by 
this subsection shall be filed at such time and in such manner 
and furnished to such individuals at such time and in such 
manner as may be required.''.
    (b) Tax on Prohibited Transactions.--
            (1) In general.--Paragraph (1) of section 4975(e) 
        (relating to prohibited transactions) is amended by 
        striking ``or'' at the end of subparagraph (D), by 
        redesignating subparagraph (E) as subparagraph (F), and 
        by inserting after subparagraph (D) the following new 
        subparagraph:
                    ``(E) an education individual retirement 
                account described in section 530, or''.
            (2) Special rule.--Subsection (c) of section 4975 
        is amended by adding at the end of subsection (c) the 
        following new paragraph:
            ``(5) Special rule for education individual 
        retirement accounts.--An individual for whose benefit 
        an education individual retirement account is 
        established and any contributor to such account shall 
        be exempt from the tax imposed by this section with 
        respect to any transaction concerning such account 
        (which would otherwise be taxable under this section) 
        if section 530(d) applies with respect to such 
        transaction.''.
    (c) Failure To Provide Reports on Education Individual 
Retirement Accounts.--Paragraph (2) of section 6693(a) 
(relating to failure to provide reports on individual 
retirement accounts or annuities) 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 at the end the following new subparagraph:
                    ``(D) Section 530(h) (relating to education 
                individual retirement accounts).''.
    (d) Tax on Excess Contributions.--
            (1) In general.--Subsection (a) of section 4973 is 
        amended by striking ``or'' at the end of paragraph (2), 
        by adding ``or'' at the end of paragraph (3), and by 
        inserting after paragraph (3) the following new 
        paragraph:
            ``(4) an education individual retirement account 
        (as defined in section 530),''.
            (2) Excess contributions defined.--Section 4973 is 
        amended by adding at the end the following new 
        subsection:
    ``(e) Excess Contributions to Education Individual 
Retirement Accounts.--For purposes of this section--
            ``(1) In general.--In the case of education 
        individual retirement accounts maintained for the 
        benefit of any 1 beneficiary, the term `excess 
        contributions' means--
                    ``(A) the amount by which the amount 
                contributed for the taxable year to such 
                accounts exceeds $500, and
                    ``(B) any amount contributed to such 
                accounts for any taxable year if any amount is 
                contributed during such year to a qualified 
                State tuition program for the benefit of such 
                beneficiary.
            ``(2) Special rules.--For purposes of paragraph 
        (1), the following contributions shall not be taken 
        into account:
                    ``(A) Any contribution which is distributed 
                out of the education individual retirement 
                account in a distribution to which section 
                530(d)(4)(C) applies.
                    ``(B) Any contribution described in section 
                530(b)(2)(B) to a qualified State tuition 
                program.
                    ``(C) Any rollover contribution.''.
    (e) Technical Amendments.--
            (1) Section 26(b)(2) is amended by redesignating 
        subparagraphs (E) through (P) as subparagraphs (F) 
        through (Q), respectively, and by inserting after 
        subparagraph (D) the following new subparagraph:
                    ``(E) section 530(d)(3) (relating to 
                additional tax on certain distributions from 
                education individual retirement accounts),''.
            (2) Subparagraph (C) of section 135(c)(2), as added 
        by the preceding section, is amended by inserting ``, 
        or to an education individual retirement account (as 
        defined in section 530) on behalf of an account 
        beneficiary,'' after ``(as defined in such section)''.
            (3) The table of sections for part VIII of 
        subchapter F of chapter 1 is amended by adding at the 
        end the following new item:

        ``Sec. 530. Education individual retirement accounts.''.

    (f) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1997.

                Subtitle C--Other Education Initiatives

SEC. 221. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDUCATIONAL 
                    ASSISTANCE.

    (a) In General.--Subsection (d) of section 127 (relating to 
educational assistance programs) is amended to read as follows:
    ``(d) Termination.--This section shall not apply to 
expenses paid with respect to courses beginning after May 31, 
2000.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1996.

SEC. 222. REPEAL OF LIMITATION ON QUALIFIED 501(C)(3) BONDS OTHER THAN 
                    HOSPITAL BONDS.

    Section 145(b) (relating to qualified 501(c)(3) bond) is 
amended by adding at the end the following new paragraph:
            ``(5) Termination of limitation.--This subsection 
        shall not apply with respect to bonds issued after the 
        date of the enactment of this paragraph as part of an 
        issue 95 percent or more of the net proceeds of which 
        are to be used to finance capital expenditures incurred 
        after such date.''.

SEC. 223. INCREASE IN ARBITRAGE REBATE EXCEPTION FOR GOVERNMENTAL BONDS 
                    USED TO FINANCE EDUCATION FACILITIES.

    (a) In General.--Section 148(f)(4)(D) (relating to 
exception for governmental units issuing $5,000,000 or less of 
bonds) is amended by adding at the end the following new 
clause:
                            ``(vii) Increase in exception for 
                        bonds financing public school capital 
                        expenditures.--Each of the $5,000,000 
                        amounts in the preceding provisions of 
                        this subparagraph shall be increased by 
                        the lesser of $5,000,000 or so much of 
                        the aggregate face amount of the bonds 
                        as are attributable to financing the 
                        construction (within the meaning of 
                        subparagraph (C)(iv)) of public school 
                        facilities.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to bonds issued after December 31, 1997.

SEC. 224. CONTRIBUTIONS OF COMPUTER TECHNOLOGY AND EQUIPMENT FOR 
                    ELEMENTARY OR SECONDARY SCHOOL PURPOSES.

    (a) Contributions of Computer Technology and Equipment for 
Elementary or Secondary School Purposes.--Subsection (e) of 
section 170 is amended by adding at the end the following new 
paragraph:
            ``(6) Special rule for contributions of computer 
        technology and equipment for elementary or secondary 
        school purposes.--
                    ``(A) Limit on reduction.--In the case of a 
                qualified elementary or secondary educational 
                contribution, the reduction under paragraph 
                (1)(A) shall be no greater than the amount 
                determined under paragraph (3)(B).
                    ``(B) Qualified elementary or secondary 
                educational contribution.--For purposes of this 
                paragraph, the term `qualified elementary or 
                secondary educational contribution' means a 
                charitable contribution by a corporation of any 
                computer technology or equipment, but only if--
                            ``(i) the contribution is to--
                                    ``(I) an educational 
                                organization described in 
                                subsection (b)(1)(A)(ii), or
                                    ``(II) an entity described 
                                in section 501(c)(3) and exempt 
                                from tax under section 501(a) 
                                (other than an entity described 
                                in subclause (I)) that is 
                                organized primarily for 
                                purposes of supporting 
                                elementary and secondary 
                                education,
                            ``(ii) the contribution is made not 
                        later than 2 years after the date the 
                        taxpayer acquired the property (or in 
                        the case of property constructed by the 
                        taxpayer,the date the construction of 
the property is substantially completed),
                            ``(iii) the original use of the 
                        property is by the donor or the donee,
                            ``(iv) substantially all of the use 
                        of the property by the donee is for use 
                        within the United States for 
                        educational purposes in any of the 
                        grades K-12 that are related to the 
                        purpose or function of the organization 
                        or entity,
                            ``(v) the property is not 
                        transferred by the donee in exchange 
                        for money, other property, or services, 
                        except for shipping, installation and 
                        transfer costs,
                            ``(vi) the property will fit 
                        productively into the entity's 
                        education plan, and
                            ``(vii) the entity's use and 
                        disposition of the property will be in 
                        accordance with the provisions of 
                        clauses (iv) and (v).
                    ``(C) Contribution to private foundation.--
                A contribution by a corporation of any computer 
                technology or equipment to a private foundation 
                (as defined in section 509) shall be treated as 
                a qualified elementary or secondary educational 
                contribution for purposes of this paragraph 
                if--
                            ``(i) the contribution to the 
                        private foundation satisfies the 
                        requirements of clauses (ii) and (v) of 
                        subparagraph (B), and
                            ``(ii) within 30 days after such 
                        contribution, the private foundation--
                                    ``(I) contributes the 
                                property to an entity described 
                                in clause (i) of subparagraph 
                                (B) that satisfies the 
                                requirements of clauses (iv) 
                                through (vii) of subparagraph 
                                (B), and
                                    ``(II) notifies the donor 
                                of such contribution.
                    ``(D) Special rule relating to construction 
                of property.--For the purposes of this 
                paragraph, the rules of paragraph (4)(C) shall 
                apply.
                    ``(E) Definitions.--For the purposes of 
                this paragraph--
                            ``(i) Computer technology or 
                        equipment.--The term `computer 
                        technology or equipment' means computer 
                        software (as defined by section 
                        197(e)(3)(B)), computer or peripheral 
                        equipment (as defined by section 
                        168(i)(2)(B)), and fiber optic cable 
                        related to computer use.
                            ``(ii) Corporation.--The term 
                        `corporation' has the meaning given to 
                        such term by paragraph (4)(D).
                    ``(F) Termination.--This paragraph shall 
                not apply to any contribution made during any 
                taxable year beginning after December 31, 
                1999.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 1997.

SEC. 225. TREATMENT OF CANCELLATION OF CERTAIN STUDENT LOANS.

    (a) Certain Loans by Exempt Organizations.--
            (1) In general.--Paragraph (2) of section 108(f) 
        (defining student loan) is amended by striking ``or'' 
        at the end of subparagraph (B) and by striking 
        subparagraph (D) and inserting the following:
                    ``(D) any educational organization 
                described in section 170(b)(1)(A)(ii) if such 
                loan is made--
                            ``(i) pursuant to an agreement with 
                        any entity described in subparagraph 
                        (A), (B), or (C) under which the funds 
                        from which the loan was made were 
                        provided to such educational 
                        organization, or
                            ``(ii) pursuant to a program of 
                        such educational organization which is 
                        designed to encourage its students to 
                        serve in occupations with unmet needs 
                        or in areas with unmet needs and under 
                        which the services provided by the 
                        students (or former students) are for 
                        or under the direction of a 
                        governmental unit or an organization 
                        described in section 501(c)(3) and 
                        exempt from tax under section 501(a).
        The term `student loan' includes any loan made by an 
        educational organization so described or by an 
        organization exempt from tax under section 501(a) to 
        refinance a loan meeting the requirements of the 
        preceding sentence.''.
            (2) Exception for discharges on account of services 
        performed for certain lenders.--Subsection (f) of 
        section 108 is amended by adding at the end the 
        following new paragraph:
            ``(3) Exception for discharges on account of 
        services performed for certain lenders.--Paragraph (1) 
        shall not apply to the discharge of a loan made by an 
        organization described in paragraph (2)(D) (or by an 
        organization described in paragraph (2)(E) from funds 
        provided by an organization described in paragraph 
        (2)(D)) if the discharge is on account of services 
        performed for either such organization.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to discharges of indebtedness after the date of the 
enactment of this Act.

SEC. 226. INCENTIVES FOR EDUCATION ZONES.

    (a) In General.--Subchapter U of chapter 1 (relating to 
additional incentives for empowerment zones) is amended by 
redesignating part IV as part V, by redesignating section 1397E 
as section 1397F, and by inserting after part III the following 
new part:

               ``PART IV--INCENTIVES FOR EDUCATION ZONES

        ``Sec. 1397E. Credit to holders of qualified zone academy 
                  bonds.''

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

    ``(a) Allowance of Credit.--In the case of an eligible 
taxpayer who holds a qualified zone academy bond on the credit 
allowance date of such bond which occurs during the taxable 
year, there shall be allowed as a credit against the tax 
imposed by this chapter for such taxable year the amount 
determined under subsection (b).
    ``(b) Amount of Credit.--
            ``(1) In general.--The amount of the credit 
        determined under this subsection with respect to any 
        qualified zone academy bond is the amount equal to the 
        product of--
                    ``(A) the credit rate determined by the 
                Secretary under paragraph (2) for the month in 
                which such bond was issued, multiplied by
                    ``(B) the face amount of the bond held by 
                the taxpayer on the credit allowance date.
            ``(2) Determination.--During each calendar month, 
        the Secretary shall determine a credit rate which shall 
        apply to bonds issued during the following calendar 
        month. The credit rate for any month is the percentage 
        which the Secretary estimates will permit the issuance 
        of qualified zone academy bonds without discount and 
        without interest cost to the issuer.
    ``(c) Limitation Based on Amount of Tax.--The credit 
allowed under subsection (a) for any taxable year shall not 
exceed the excess of--
            ``(1) the sum of the regular tax liability (as 
        defined in section 26(b)) plus the tax imposed by 
        section 55, over
            ``(2) the sum of the credits allowable under part 
        IV of subchapter A (other than subpart C thereof, 
        relating to refundable credits).
    ``(d) Qualified Zone Academy Bond.--For purposes of this 
section--
            ``(1) In general.--The term `qualified zone academy 
        bond' means any bond issued as part of an issue if--
                    ``(A) 95 percent or more of the proceeds of 
                such issue are to be used for a qualified 
                purpose with respect to a qualified zone 
                academy established by an eligible local 
                education agency,
                    ``(B) the bond is issued by a State or 
                local government within the jurisdiction of 
                which such academy is located,
                    ``(C) the issuer--
                            ``(i) designates such bond for 
                        purposes of this section,
                            ``(ii) certifies that it has 
                        written assurances that the private 
                        business contribution requirement of 
                        paragraph (2) will be met with respect 
                        to such academy, and
                            ``(iii) certifies that it has the 
                        written approval of the eligible local 
                        education agency for such bond 
                        issuance, and
                    ``(D) the term of each bond which is part 
                of such issue does not exceed the maximum term 
                permitted under paragraph (3).
            ``(2) Private business contribution requirement.--
                    ``(A) In general.--For purposes of 
                paragraph (1), the private business 
                contribution requirement of this paragraph is 
                met with respect to any issue if the eligible 
                local education agency that established the 
                qualified zone academy has written commitments 
                from private entities to make qualified 
                contributions having a present value (as of the 
                date of issuance of the issue) of not less than 
                10 percent of the proceeds of the issue.
                    ``(B) Qualified contributions.--For 
                purposes of subparagraph (A), the term 
                `qualified contribution' means any contribution 
                (of a type and quality acceptable to the 
                eligible local education agency) of--
                            ``(i) equipment for use in the 
                        qualified zone academy (including 
                        state-of-the-art technology and 
                        vocational equipment),
                            ``(ii) technical assistance in 
                        developing curriculum or in training 
                        teachers in order to promote 
                        appropriate market driven technology in 
                        the classroom,
                            ``(iii) services of employees as 
                        volunteer mentors,
                            ``(iv) internships, field trips, or 
                        other educational opportunities outside 
                        the academy for students, or
                            ``(v) any other property or service 
                        specified by the eligible local 
                        education agency.
            ``(3) Term requirement.--During each calendar 
        month, the Secretary shall determine the maximum term 
        permitted under this paragraph for bonds issued during 
        the following calendar month. Such maximum term shall 
        be the term which the Secretary estimates will result 
        in the present value of the obligation to repay the 
        principal on the bond being equal to 50 percent of the 
        face amount of the bond. Such present value shall be 
        determined using as a discount rate the average annual 
        interest rate of tax-exempt obligations having a term 
        of 10 years or more which are issued during the month. 
        If the term as so determined is not a multiple of a 
        whole year, such term shall be rounded to the next 
        highest whole year.
            ``(4) Qualified zone academy.--
                    ``(A) In general.--The term `qualified zone 
                academy' means any public school (or academic 
                program within a public school) which is 
                established by and operated under the 
                supervision of an eligible local education 
                agency to provide education or training below 
                the postsecondary level if--
                            ``(i) such public school or program 
                        (as the case may be) is designed in 
                        cooperation with business to enhance 
                        the academic curriculum, increase 
                        graduation and employment rates, and 
                        better prepare students for the rigors 
                        of college and the increasingly complex 
                        workforce,
                            ``(ii) students in such public 
                        school or program (as the case may be) 
                        will be subject to the same academic 
                        standards and assessments as other 
                        students educated by the eligible local 
                        education agency,
                            ``(iii) the comprehensive education 
                        plan of such public school or program 
                        is approved by the eligible local 
                        education agency, and
                            ``(iv)(I) such public school is 
                        located in an empowerment zone or 
                        enterprise community (including any 
                        such zone or community designated after 
                        the date of the enactment of this 
                        section), or
                            ``(II) there is a reasonable 
                        expectation (as of the date of issuance 
                        of the bonds) that at least 35 percent 
                        of the students attending such school 
                        or participating in such program (as 
                        the case may be) will be eligible for 
                        free or reduced-cost lunches under the 
                        school lunch program established under 
                        the National School Lunch Act.
                    ``(B) Eligible local education agency.--The 
                term `eligible local education agency' means 
                any local education agency as defined in 
                section 14101 of the Elementary and Secondary 
                Education Act of 1965.
            ``(5) Qualified purpose.--The term `qualified 
        purpose' means, with respect to any qualified zone 
        academy--
                    ``(A) rehabilitating or repairing the 
                public school facility in which the academy is 
                established,
                    ``(B) providing equipment for use at such 
                academy,
                    ``(C) developing course materials for 
                education to be provided at such academy, and
                    ``(D) training teachers and other school 
                personnel in such academy.
            ``(6) Eligible taxpayer.--The term `eligible 
        taxpayer' means--
                    ``(A) a bank (within the meaning of section 
                581),
                    ``(B) an insurance company to which 
                subchapter L applies, and
                    ``(C) a corporation actively engaged in the 
                business of lending money.
    ``(e) Limitation on Amount of Bonds Designated.--
            ``(1) National limitation.--There is a national 
        zone academy bond limitation for each calendar year. 
        Such limitation is $400,000,000 for 1998 and 1999, and, 
        except as provided in paragraph (4), zero thereafter.
            ``(2) Allocation of limitation.--The national zone 
        academy bond limitation for a calendar year shall be 
        allocated by the Secretary among the States on the 
        basis of their respective populations of individuals 
        below the poverty line (as defined by the Office of 
        Management and Budget). The limitation amount allocated 
        to a State under the preceding sentence shall be 
        allocated by the State education agency to qualified 
        zone academies within such State.
            ``(3) Designation subject to limitation amount.--
        The maximum aggregate face amount of bonds issued 
        during any calendar year which may be designated under 
        subsection (d)(1) with respect to any qualified zone 
        academy shall not exceed the limitation amount 
        allocated to such academy under paragraph (2) for such 
        calendar year.
            ``(4) Carryover of unused limitation.--If for any 
        calendar year--
                    ``(A) the limitation amount for any State, 
                exceeds
                    ``(B) the amount of bonds issued during 
                such year which are designated under subsection 
                (d)(1) with respect to qualified zone academies 
                within such State,
        the limitation amount for such State for the following 
        calendar year shall be increased by the amount of such 
        excess.
    ``(f) Other Definitions.--For purposes of this section--
            ``(1) Credit allowance date.--The term `credit 
        allowance date' means, with respect to any issue, the 
        last day of the 1-year period beginning on the date of 
        issuance of such issue and the last day of each 
        successive 1-year period thereafter.
            ``(2) Bond.--The term `bond' includes any 
        obligation.
            ``(3) State.--The term `State' includes the 
        District of Columbia and any possession of the United 
        States.
    ``(g) Credit Included in Gross Income.--Gross income 
includes the amount of the credit allowed to the taxpayer under 
this section.''
    (b) Conforming Amendments.--
            (1) The table of parts for subchapter U of chapter 
        1 is amended by striking the last item and inserting 
        the following:

        ``Part IV. Incentives for education zones.
        ``Part V. Regulations.''

            (2) The table of sections for part V, as so 
        redesignated, is amended to read as follows:

        ``Sec. 1397F. Regulations.''

    (c) Effective Date.--The amendments made by this section 
shall apply to obligations issued after December 31, 1997.

              TITLE III--SAVINGS AND INVESTMENT INCENTIVES

                     Subtitle A--Retirement Savings

SEC. 301. RESTORATION OF IRA DEDUCTION FOR CERTAIN TAXPAYERS.

    (a) Increase in Income Limits Applicable to Active 
Participants.--
            (1) In general.--Subparagraph (B) of section 
        219(g)(3) (relating to applicable dollar amount) is 
        amended to read as follows:
                    ``(B) Applicable dollar amount.--The term 
                `applicable dollar amount' means the following:
                            ``(i) In the case of a taxpayer 
                        filing a joint return:

    ``For taxable years be-                               The applicable
      ginning in:                                      dollar amount is:
    1998......................................................  $50,000 
    1999......................................................  $51,000 
    2000......................................................  $52,000 
    2001......................................................  $53,000 
    2002......................................................  $54,000 
    2003......................................................  $60,000 
    2004......................................................  $65,000 
    2005......................................................  $70,000 
    2006......................................................  $75,000 
    2007 and thereafter.......................................  $80,000.

                            ``(ii) In the case of any other 
                        taxpayer (other than a married 
                        individual filing a separate return):

    ``For taxable years be-                               The applicable
      ginning in:                                      dollar amount is:
    1998......................................................  $30,000 
    1999......................................................  $31,000 
    2000......................................................  $32,000 
    2001......................................................  $33,000 
    2002......................................................  $34,000 
    2003......................................................  $40,000 
    2004......................................................  $45,000 
    2005 and thereafter.......................................  $50,000.

                            ``(iii) In the case of a married 
                        individual filing a separate return, 
                        zero.''.
            (2) Increase in phase-out range for joint 
        returns.--Clause (ii) of section 219(g)(2)(A) is 
        amended by inserting ``($20,000 in the case of a joint 
        return for a taxable year beginning after December 31, 
        2006)''.
    (b) Limitations for Active Participation Not Based on 
Spouse's Participation.--Section 219(g) (relating to limitation 
on deduction for active participants in certain pension plans) 
is amended--
            (1) by striking ``or the individual's spouse'' in 
        paragraph (1), and
            (2) by adding at the end the following new 
        paragraph:
            ``(7) Special rule for certain spouses.--In the 
        case of an individual who is an active participant at 
        no time during any plan year ending with or within the 
        taxable year but whose spouse is an active participant 
        for any part of any such plan year--
                    ``(A) the applicable dollar amount under 
                paragraph (3)(B)(i) with respect to the 
                taxpayer shall be $150,000, and
                    ``(B) the amount applicable under paragraph 
                (2)(A)(ii) shall be $10,000.''
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1997.

SEC. 302. ESTABLISHMENT OF NONDEDUCTIBLE TAX-FREE INDIVIDUAL RETIREMENT 
                    ACCOUNTS.

    (a) In General.--Subpart A of part I of subchapter D of 
chapter 1 (relating to pension, profit-sharing, stock bonus 
plans, etc.) is amended by inserting after section 408 the 
following new section:

``SEC. 408A. ROTH IRAS.

    ``(a) General Rule.--Except as provided in this section, a 
Roth IRA shall be treated for purposes of this title in the 
same manner as an individual retirement plan.
    ``(b) Roth IRA.--For purposes of this title, the term `Roth 
IRA' means an individual retirement plan (as defined in section 
7701(a)(37)) which is designated (in such manner as the 
Secretary may prescribe) at the time of establishment of the 
plan as a Roth IRA. Such designation shall be made in such 
manner as the Secretary may prescribe.
    ``(c) Treatment of Contributions.--
            ``(1) No deduction allowed.--No deduction shall be 
        allowed under section 219 for a contribution to a Roth 
        IRA.
            ``(2) Contribution limit.--The aggregate amount of 
        contributions for any taxable year to all Roth IRAs 
        maintained for the benefit of an individual shall not 
        exceed the excess (if any) of--
                    ``(A) the maximum amount allowable as a 
                deduction under section 219 with respect to 
                such individual for such taxable year (computed 
                without regard to subsection (d)(1) or (g) of 
                such section), over
                    ``(B) the aggregate amount of contributions 
                for such taxable year to all other individual 
                retirement plans (other than Roth IRAs) 
                maintained for the benefit of the individual.
            ``(3) Limits based on modified adjusted gross 
        income.--
                    ``(A) Dollar limit.--The amount determined 
                under paragraph (2) for any taxable year shall 
                be reduced (but not below zero) by the amount 
                which bears the same ratio to such amount as--
                            ``(i) the excess of--
                                    ``(I) the taxpayer's 
                                adjusted gross income for such 
                                taxable year, over
                                    ``(II) the applicable 
                                dollar amount, bears to
                            ``(ii) $15,000 ($10,000 in the case 
                        of a joint return).
                The rules of subparagraphs (B) and (C) of 
                section 219(g)(2) shall apply to any reduction 
                under this subparagraph.
                    ``(B) Rollover from ira.--A taxpayer shall 
                not be allowed to make a qualified rollover 
                contribution to a Roth IRA from an individual 
                retirement plan other than a Roth IRA during 
                any taxable year if--
                            ``(i) the taxpayer's adjusted gross 
                        income for such taxable year exceeds 
                        $100,000, or
                            ``(ii) the taxpayer is a married 
                        individual filing a separate return.
                    ``(C) Definitions.--For purposes of this 
                paragraph--
                            ``(i) adjusted gross income shall 
                        be determined in the same manner as 
                        under section 219(g)(3), except that 
                        any amount included in gross income 
                        under subsection (d)(3) shall not be 
                        taken into account and the deduction 
                        under section 219 shall be taken into 
                        account, and
                            ``(ii) the applicable dollar amount 
                        is--
                                    ``(I) in the case of a 
                                taxpayer filing a joint return, 
                                $150,000,
                                    ``(II) in the case of any 
                                other taxpayer (other than a 
                                married individual filing a 
                                separate return), $95,000, and
                                    ``(III) in the case of a 
                                married individual filing a 
                                separate return, zero.
                    ``(D) Marital status.--Section 219(g)(4) 
                shall apply for purposes of this paragraph.
            ``(4) Contributions permitted after age 70\1/2\.--
        Contributions to a Roth IRA may be made even after the 
        individual for whom the account is maintained has 
        attained age 70\1/2\.
            ``(5) Mandatory distribution rules not to apply 
        before death.--Notwithstanding subsections (a)(6) and 
        (b)(3) of section 408 (relating torequired 
distributions), the following provisions shall not apply to any Roth 
IRA:
                    ``(A) Section 401(a)(9)(A).
                    ``(B) The incidental death benefit 
                requirements of section 401(a).
            ``(6) Rollover contributions.--
                    ``(A) In general.--No rollover contribution 
                may be made to a Roth IRA unless it is a 
                qualified rollover contribution.
                    ``(B) Coordination with limit.--A qualified 
                rollover contribution shall not be taken into 
                account for purposes of paragraph (2).
            ``(7) Time when contributions made.--For purposes 
        of this section, the rule of section 219(f)(3) shall 
        apply.
    ``(d) Distribution Rules.--For purposes of this title--
            ``(1) General rules.--
                    ``(A) Exclusions from gross income.--Any 
                qualified distribution from a Roth IRA shall 
                not be includible in gross income.
                    ``(B) Nonqualified distributions.--In 
                applying section 72 to any distribution from a 
                Roth IRA which is not a qualified distribution, 
                such distribution shall be treated as made from 
                contributions to the Roth IRA to the extent 
                that such distribution, when added to all 
                previous distributions from the Roth IRA, does 
                not exceed the aggregate amount of 
                contributions to the Roth IRA.
            ``(2) Qualified distribution.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `qualified 
                distribution' means any payment or 
                distribution--
                            ``(i) made on or after the date on 
                        which the individual attains age 59\1/
                        2\,
                            ``(ii) made to a beneficiary (or to 
                        the estate of the individual) on or 
                        after the death of the individual,
                            ``(iii) attributable to the 
                        individual's being disabled (within the 
                        meaning of section 72(m)(7)), or
                            ``(iv) which is a qualified special 
                        purpose distribution.
                    ``(B) Certain distributions within 5 
                years.--A payment or distribution shall not be 
                treated as a qualified distribution under 
                subparagraph (A) if--
                            ``(i) it is made within the 5-
                        taxable year period beginning with the 
                        1st taxable year for which the 
                        individual made a contribution to a 
                        Roth IRA (or such individual's spouse 
                        made a contribution to a Roth IRA) 
                        established for such individual, or
                            ``(ii) in the case of a payment or 
                        distribution properly allocable (as 
                        determined in the manner prescribed by 
                        the Secretary) to a qualified rollover 
                        contribution from an individual 
                        retirement plan other than a Roth IRA 
                        (or income allocable thereto), it is 
                        made within the 5-taxable year period 
                        beginning with the taxable year in 
                        which the rollover contribution was 
                        made.
            ``(3) Rollovers from an ira other than a roth 
        ira.--
                    ``(A) In general.--Notwithstanding section 
                408(d)(3), in the case of any distribution to 
                which this paragraph applies--
                            ``(i) there shall be included in 
                        gross income any amount which would be 
                        includible were it not part of a 
                        qualified rollover contribution,
                            ``(ii) section 72(t) shall not 
                        apply, and
                            ``(iii) in the case of a 
                        distribution before January 1, 1999, 
                        any amount required to be included in 
                        gross income by reason of this 
                        paragraph shall be so included ratably 
                        over the 4-taxable year period 
                        beginning with the taxable year in 
                        which the payment or distribution is 
                        made.
                    ``(B) Distributions to which paragraph 
                applies.--This paragraph shall apply to a 
                distribution from an individual retirement plan 
                (other than a Roth IRA) maintained for the 
                benefit of an individual which is contributed 
                to a Roth IRA maintained for the benefit of 
                such individual in a qualified rollover 
                contribution.
                    ``(C) Conversions.--The conversion of an 
                individual retirement plan (other than a Roth 
                IRA) to a Roth IRA shall be treated for 
                purposes of this paragraph as a distribution to 
                which this paragraph applies.
                    ``(D) Conversion of excess contributions.--
                If, no later than the due date for filing the 
                return of tax for any taxable year (without 
                regard to extensions), an individual transfers, 
                from an individual retirement plan (other than 
                a Roth IRA), contributions for such taxable 
                year (and any earnings allocable thereto) to a 
                Roth IRA, no such amount shall be includible in 
                gross income to the extent no deduction was 
                allowed with respect to such amount.
                    ``(E) Additional reporting requirements.--
                Trustees of Roth IRAs, trustees of individual 
                retirement plans, or both, whichever is 
                appropriate, shall include such additional 
                information in reports required under section 
                408(i) as the Secretary may require to ensure 
                that amounts required to be included in gross 
                income under subparagraph (A) are so included.
            ``(4) Coordination with individual retirement 
        accounts.--Section 408(d)(2) shall be applied 
        separately with respect to Roth IRAs and other 
        individual retirement plans.
            ``(5) Qualified special purpose distribution.--For 
        purposes of this section, the term `qualified special 
        purpose distribution' means any distribution to which 
        subparagraph (F) of section 72(t)(2) applies.
    ``(e) Qualified Rollover Contribution.--For purposes of 
this section, the term `qualified rollover contribution' means 
a rollover contribution to a Roth IRAfrom another such account, 
or from an individual retirement plan, but only if such rollover 
contribution meets the requirements of section 408(d)(3). For purposes 
of section 408(d)(3)(B), there shall be disregarded any qualified 
rollover contribution from an individual retirement plan (other than a 
Roth IRA) to a Roth IRA.''.
    (b) Excess Contributions.--Section 4973(b), as amended by 
title II, is amended by adding at the end the following new 
subsection:
    ``(f) Excess Contributions to Roth IRAs.--For purposes of 
this section, in the case of contributions to a Roth IRA 
(within the meaning of section 408A(b)), the term `excess 
contributions' means the sum of--
            ``(1) the excess (if any) of--
                    ``(A) the amount contributed for the 
                taxable year to such accounts (other than a 
                qualified rollover contribution described in 
                section 408A(e)), over
                    ``(B) the amount allowable as a 
                contribution under sections 408A (c)(2) and 
                (c)(3), and
            ``(2) the amount determined under this subsection 
        for the preceding taxable year, reduced by the sum of--
                    ``(A) the distributions out of the accounts 
                for the taxable year, and
                    ``(B) the excess (if any) of the maximum 
                amount allowable as a contribution under 
                sections 408A (c)(2) and (c)(3) for the taxable 
                year over the amount contributed to the 
                accounts for the taxable year.
For purposes of this subsection, any contribution which is 
distributed from a Roth IRA in a distribution described in 
section 408(d)(4) shall be treated as an amount not 
contributed.''
    (c) Spousal IRA.--Clause (ii) of section 219(c)(1)(B) is 
amended to read as follows:
                            ``(ii) the compensation includible 
                        in the gross income of such 
                        individual's spouse for the taxable 
                        year reduced by--
                                    ``(I) the amount allowed as 
                                a deduction under subsection 
                                (a) to such spouse for such 
                                taxable year, and
                                    ``(II) the amount of any 
                                contribution on behalf of such 
                                spouse to a Roth IRA under 
                                section 408A for such taxable 
                                year.''.
    (d) Authority To Prescribe Necessary Reporting.--Section 
408(i) is amended--
            (1) by striking ``under regulations'', and
            (2) by striking ``in such regulations'' each place 
        it appears.
    (e) Conforming Amendment.--The table of sections for 
subpart A of part I of subchapter D of chapter 1 is amended by 
inserting after the item relating to section 408 the following 
new item:

        ``Sec. 408A. Roth IRAs.''.

    (f) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1997.

SEC. 303. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED WITHOUT PENALTY 
                    TO PURCHASE FIRST HOMES.

    (a) In General.--Paragraph (2) of section 72(t) (relating 
to exceptions to 10-percent additional tax on early 
distributions from qualified retirement plans), as amended by 
section 203, is amended by adding at the end the following new 
subparagraph:
                    ``(F) Distributions from certain plans for 
                first home purchases.--Distributions to an 
                individual from an individual retirement plan 
                which are qualified first-time homebuyer 
                distributions (as defined in paragraph (8)). 
                Distributions shall not be taken into account 
                under the preceding sentence if such 
                distributions are described in subparagraph 
                (A),(C), (D), or (E) or to the extent paragraph 
(1) does not apply to such distributions by reason of subparagraph 
(B).''.
    (b) Definitions.--Section 72(t), as amended by section 203, 
is amended by adding at the end the following new paragraphs:
            ``(8) Qualified first-time homebuyer 
        distributions.--For purposes of paragraph (2)(F)--
                    ``(A) In general.--The term `qualified 
                first-time homebuyer distribution' means any 
                payment or distribution received by an 
                individual to the extent such payment or 
                distribution is used by the individual before 
                the close of the 120th day after the day on 
                which such payment or distribution is received 
                to pay qualified acquisition costs with respect 
                to a principal residence of a first-time 
                homebuyer who is such individual, the spouse of 
                such individual, or any child, grandchild, or 
                ancestor of such individual or the individual's 
                spouse.
                    ``(B) Lifetime dollar limitation.--The 
                aggregate amount of payments or distributions 
                received by an individual which may be treated 
                as qualified first-time homebuyer distributions 
                for any taxable year shall not exceed the 
                excess (if any) of--
                            ``(i) $10,000, over
                            ``(ii) the aggregate amounts 
                        treated as qualified first-time 
                        homebuyer distributions with respect to 
                        such individual for all prior taxable 
                        years.
                    ``(C) Qualified acquisition costs.--For 
                purposes of this paragraph, the term `qualified 
                acquisition costs' means the costs of 
                acquiring, constructing, or reconstructing a 
                residence. Such term includes any usual or 
                reasonable settlement, financing, or other 
                closing costs.
                    ``(D) First-time homebuyer; other 
                definitions.--For purposes of this paragraph--
                            ``(i) First-time homebuyer.--The 
                        term `first-time homebuyer' means any 
                        individual if--
                                    ``(I) such individual (and 
                                if married, such individual's 
                                spouse) had no present 
                                ownership interest in a 
                                principal residence during the 
                                2-year period ending on the 
                                date of acquisition of the 
                                principal residence to which 
                                this paragraph applies, and
                                    ``(II) subsection (h) or 
                                (k) of section 1034 (as in 
                                effect on the day before the 
                                date of the enactment of this 
                                paragraph) did not suspend the 
                                running of any period of time 
                                specified in section 1034 (as 
                                so in effect) with respect to 
                                such individual on the day 
                                before the date the 
                                distribution is applied 
                                pursuant to subparagraph (A).
                            ``(ii) Principal residence.--The 
                        term `principal residence' has the same 
                        meaning as when used in section 121.
                            ``(iii) Date of acquisition.--The 
                        term `date of acquisition' means the 
                        date--
                                    ``(I) on which a binding 
                                contract to acquire the 
                                principal residence to which 
                                subparagraph (A) applies is 
                                entered into, or
                                    ``(II) on which 
                                construction or reconstruction 
                                of such a principal residence 
                                is commenced.
                    ``(E) Special rule where delay in 
                acquisition.--If any distribution from any 
                individualretirement plan fails to meet the 
requirements of subparagraph (A) solely by reason of a delay or 
cancellation of the purchase or construction of the residence, the 
amount of the distribution may be contributed to an individual 
retirement plan as provided in section 408(d)(3)(A)(i) (determined by 
substituting `120 days' for `60 days' in such section), except that--
                            ``(i) section 408(d)(3)(B) shall 
                        not be applied to such contribution, 
                        and
                            ``(ii) such amount shall not be 
                        taken into account in determining 
                        whether section 408(d)(3)(B) applies to 
                        any other amount.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to payments and distributions in taxable years 
beginning after December 31, 1997.

SEC. 304. CERTAIN BULLION NOT TREATED AS COLLECTIBLES.

    (a) In General.--Paragraph (3) of section 408(m) (relating 
to exception for certain coins) is amended to read as follows:
            ``(3) Exception for certain coins and bullion.--For 
        purposes of this subsection, the term `collectible' 
        shall not include--
                    ``(A) any coin which is--
                            ``(i) a gold coin described in 
                        paragraph (7), (8), (9), or (10) of 
                        section 5112(a) of title 31, United 
                        States Code,
                            ``(ii) a silver coin described in 
                        section 5112(e) of title 31, United 
                        States Code,
                            ``(iii) a platinum coin described 
                        in section 5112(k) of title 31, United 
                        States Code, or
                            ``(iv) a coin issued under the laws 
                        of any State, or
                    ``(B) any gold, silver, platinum, or 
                palladium bullion of a fineness equal to or 
                exceeding the minimum fineness that a contract 
                market (as described in section 7 of the 
                Commodity Exchange Act, 7 U.S.C. 7) requires 
                for metals which may be delivered in 
                satisfaction of a regulated futures contract,
        if such bullion is in the physical possession of a 
        trustee described under subsection (a) of this 
        section.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 1997.

                       Subtitle B--Capital Gains

SEC. 311. MAXIMUM CAPITAL GAINS RATES FOR INDIVIDUALS.

    (a) In General.--Subsection (h) of section 1 (relating to 
maximum capital gains rate) is amended to read as follows:
    ``(h) Maximum Capital Gains Rate.--
            ``(1) In general.--If a taxpayer has a net capital 
        gain for any taxable year, the tax imposed by this 
        section for such taxable year shall not exceed the sum 
        of--
                    ``(A) a tax computed at the rates and in 
                the same manner as if this subsection had not 
                been enacted on the greater of--
                            ``(i) taxable income reduced by the 
                        net capital gain, or
                            ``(ii) the lesser of--
                                    ``(I) the amount of taxable 
                                income taxed at a rate below 28 
                                percent, or
                                    ``(II) taxable income 
                                reduced by the adjusted net 
                                capital gain, plus
                    ``(B) 25 percent of the excess (if any) 
                of--
                            ``(i) the unrecaptured section 1250 
                        gain (or, if less, the net capital 
                        gain), over
                            ``(ii) the excess (if any) of--
                                    ``(I) the sum of the amount 
                                on which tax is determined 
                                under subparagraph (A) plus the 
                                net capital gain, over
                                    ``(II) taxable income, plus
                    ``(C) 28 percent of the amount of taxable 
                income in excess of the sum of--
                            ``(i) the adjusted net capital 
                        gain, plus
                            ``(ii) the sum of the amounts on 
                        which tax is determined under 
                        subparagraphs (A) and (B), plus
                    ``(D) 10 percent of so much of the 
                taxpayer's adjusted net capital gain (or, if 
                less, taxable income) as does not exceed the 
                excess (if any) of--
                            ``(i) the amount of taxable income 
                        which would (without regard to this 
                        paragraph) be taxed at a rate below 28 
                        percent, over
                            ``(ii) the taxable income reduced 
                        by the adjusted net capital gain, plus
                    ``(E) 20 percent of the taxpayer's adjusted 
                net capital gain (or, if less, taxable income) 
                in excess of the amount on which a tax is 
                determined under subparagraph (D).
            ``(2) Reduced capital gain rates for qualified 5-
        year gain.--
                    ``(A) Reduction in 10-percent rate.--In the 
                case of any taxable year beginning after 
                December 31, 2000, the rate under paragraph 
                (1)(D) shall be 8 percent with respect to so 
                much of the amount to which the 10-percent rate 
                would otherwise apply as does not exceed 
                qualified 5-year gain, and 10 percent with 
                respect to the remainder of such amount.
                    ``(B) Reduction in 20-percent rate.--The 
                rate under paragraph (1)(E) shall be 18 percent 
                with respect to so much of the amount to which 
                the 20-percent rate would otherwise apply as 
                does not exceed the lesser of--
                            ``(i) the excess of qualified 5-
                        year gain over the amount of such gain 
                        taken into account under subparagraph 
                        (A) of this paragraph, or
                            ``(ii) the amount of qualified 5-
                        year gain (determined by taking into 
                        account only property the holding 
                        period for which begins after December 
                        31, 2000),
                and 20 percent with respect to the remainder of 
                such amount. For purposes of determining under 
                the preceding sentence whether the holding 
                period of property begins after December 31, 
                2000, the holding period of property acquired 
                pursuant to the exercise of an option (or other 
                right or obligation to acquire property) shall 
                include the period such option (or other right 
                or obligation) was held.
            ``(3) Net capital gain taken into account as 
        investment income.--For purposes of this subsection, 
        the net capital gain for any taxable year shall be 
        reduced (but not below zero) by the amount which the 
        taxpayer takes into account as investment income under 
        section 163(d)(4)(B)(iii).
            ``(4) Adjusted net capital gain.--For purposes of 
        this subsection, the term `adjusted net capital gain' 
        means net capital gain determined without regard to--
                    ``(A) collectibles gain,
                    ``(B) unrecaptured section 1250 gain,
                    ``(C) section 1202 gain, and
                    ``(D) mid-term gain.
            ``(5) Collectibles gain.--For purposes of this 
        subsection--
                    ``(A) In general.--The term `collectibles 
                gain' means gain from the sale or exchange of a 
                collectible (as defined in section 408(m) 
                without regard to paragraph (3) thereof) which 
                is a capital asset held for more than 1 year 
                but only to the extent such gain is taken into 
                account in computing gross income.
                    ``(B) Partnerships, etc.--For purposes of 
                subparagraph (A), any gain from the sale of an 
                interest in a partnership, S corporation, or 
                trust which is attributable to unrealized 
                appreciation in the value of collectibles shall 
                be treated as gain from the sale or exchange of 
                a collectible. Rules similar to the rules of 
                section 751 shall apply for purposes of the 
                preceding sentence.
            ``(6) Unrecaptured section 1250 gain.--For purposes 
        of this subsection--
                    ``(A) In general.--The term `unrecaptured 
                section 1250 gain' means the amount of long-
                term capital gain which would be treated as 
                ordinary income if--
                            ``(i) section 1250(b)(1) included 
                        all depreciation and the applicable 
                        percentage under section 1250(a) were 
                        100 percent, and
                            ``(ii) in the case of gain properly 
                        taken into account after July 28, 1997, 
                        only gain from section 1250 property 
                        held for more than 18 months were taken 
                        into account.
                    ``(B) Limitation with respect to section 
                1231 property.--The amount of unrecaptured 
                section 1250 gain from sales, exchanges, and 
                conversions described in section 1231(a)(3)(A) 
                for any taxable year shall not exceed the 
                excess of the net section 1231 gain (as defined 
                in section 1231(c)(3)) for such year over the 
                amount treated as ordinary income under section 
                1231(c)(1) for such year.
                    ``(C) Pre-may 7, 1997, gain.--In the case 
                of a taxable year which includes May 7, 1997, 
                subparagraph (A) shall be applied by taking 
                into account only the gain properly taken into 
                account for the portion of the taxable year 
                after May 6, 1997.
            ``(7) Section 1202 gain.--For purposes of this 
        subsection, the term `section 1202 gain' means an 
        amount equal to the gain excluded from gross income 
        under section 1202(a).
            ``(8) Mid-term gain.--For purposes of this 
        subsection, the term `mid-term gain' means the amount 
        which would be adjusted net capital gain for the 
        taxable year if--
                    ``(A) adjusted net capital gain were 
                determined by taking into account only the gain 
                or loss properly taken into account after July 
                28, 1997, from property held for more than 1 
                year but not more than 18 months, and
                    ``(B) paragraph (3) and section 1212 did 
                not apply.
            ``(9) Qualified 5-year gain.--For purposes of this 
        subsection, the term `qualified 5-year gain' means the 
        amount of long-term capital gain which would be 
        computed for the taxable year if only gains from the 
        sale or exchange of property held by the taxpayer for 
        more than 5 years were taken into account. The 
        determination under the preceding sentence shall be 
        made without regard to collectibles gain, unrecaptured 
        section 1250 gain (determinedwithout regard to 
subparagraph (B) of paragraph (6)), section 1202 gain, or mid-term 
gain.
            ``(10) Pre-effective date gain.--
                    ``(A) In general.--In the case of a taxable 
                year which includes May 7, 1997, gains and 
                losses properly taken into account for the 
                portion of the taxable year before May 7, 1997, 
                shall be taken into account in determining mid-
                term gain as if such gains and losses were 
                described in paragraph (8)(A).
                    ``(B) Special rules for pass-thru 
                entities.--In applying subparagraph (A) with 
                respect to any pass-thru entity, the 
                determination of when gains and loss are 
                properly taken into account shall be made at 
                the entity level.
                    ``(C) Pass-thru entity defined.--For 
                purposes of subparagraph (B), the term `pass-
                thru entity' means--
                            ``(i) a regulated investment 
                        company,
                            ``(ii) a real estate investment 
                        trust,
                            ``(iii) an S corporation,
                            ``(iv) a partnership,
                            ``(v) an estate or trust, and
                            ``(vi) a common trust fund.
            ``(11) Treatment of pass-thru entities.--The 
        Secretary may prescribe such regulations as are 
        appropriate (including regulations requiring reporting) 
        to apply this subsection in the case of sales and 
        exchanges by pass-thru entities (as defined in 
        paragraph (10)(C)) and of interests in such 
        entities.''.
    (b) Minimum Tax.--
            (1) In general.--Subsection (b) of section 55 is 
        amended by adding at the end the following new 
        paragraph:
            ``(3) Maximum rate of tax on net capital gain of 
        noncorporate taxpayers.--The amount determined under 
        the first sentence of paragraph (1)(A)(i) shall not 
        exceed the sum of--
                    ``(A) the amount determined under such 
                first sentence computed at the rates and in the 
                same manner as if this paragraph had not been 
                enacted on the taxable excess reduced by the 
                lesser of--
                            ``(i) the net capital gain, or
                            ``(ii) the sum of--
                                    ``(I) the adjusted net 
                                capital gain, plus
                                    ``(II) the unrecaptured 
                                section 1250 gain, plus
                    ``(B) 25 percent of the lesser of--
                            ``(i) the unrecaptured section 1250 
                        gain, or
                            ``(ii) the amount of taxable excess 
                        in excess of the sum of--
                                    ``(I) the adjusted net 
                                capital gain, plus
                                    ``(II) the amount on which 
                                a tax is determined under 
                                subparagraph (A), plus
                    ``(C) 10 percent of so much of the 
                taxpayer's adjusted net capital gain (or, if 
                less, taxable excess) as does not exceed the 
                amount on which a tax is determined under 
                section 1(h)(1)(D), plus
                    ``(D) 20 percent of the taxpayer's adjusted 
                net capital gain (or, if less, taxable excess) 
                in excess of the amount on which tax is 
                determined under subparagraph (C).
        In the case of taxable years beginning after December 
        31, 2000, rules similar to the rules of section 1(h)(2) 
        shall apply for purposes of subparagraphs (C) and (D). 
        Terms used in this paragraph which are also used in 
        section 1(h) shall have the respective meanings given 
        such terms by section 1(h).''.
            (2) Conforming amendments.--
                    (A) Clause (ii) of section 55(b)(1)(A) is 
                amended by striking ``clause (i)'' and 
                inserting ``this subsection''.
                    (B) Paragraph (7) of section 57(a) is 
                amended by striking ``one-half'' and inserting 
                ``42 percent''.
    (c) Other Conforming Amendments.--
            (1) Paragraph (1) of section 1445(e) is amended by 
        striking ``28 percent'' and inserting ``20 percent''.
            (2) The second sentence of section 7518(g)(6)(A), 
        and the second sentence of section 607(h)(6)(A) of the 
        Merchant Marine Act, 1936, are each amended by striking 
        ``28 percent'' and inserting ``20 percent''.
            (3) Paragraph (2) of section 904(b) is amended by 
        adding at the end the following new subparagraph:
                    ``(C) Coordination with capital gains 
                rates.--The Secretary may by regulations modify 
                the application of this paragraph and paragraph 
                (3) to the extent necessary to properly reflect 
                any capital gain rate differential under 
                section 1(h) or 1201(a) and the computation of 
                net capital gain.''.
    (d) Effective Dates.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        taxable years ending after May 6, 1997.
            (2) Withholding.--The amendment made by subsection 
        (c)(1) shall apply only to amounts paid after the date 
        of the enactment of this Act.
    (e) Election To Recognize Gain on Assets Held on January 1, 
2001.--For purposes of the Internal Revenue Code of 1986--
            (1) In general.--A taxpayer other than a 
        corporation may elect to treat--
                    (A) any readily tradable stock (which is a 
                capital asset) held by such taxpayer on January 
                1, 2001, and not sold before the next business 
                day after such date, as having been sold on 
                such next business day for an amount equal to 
                its closing market price on such next business 
                day (and as having been reacquired on such next 
                business day for an amount equal to such 
                closing market price), and
                    (B) any other capital asset or property 
                used in the trade or business (as defined in 
                section 1231(b) of the Internal Revenue Code of 
                1986) held by the taxpayer on January 1, 2001, 
                as having been sold on such date for an amount 
                equal to its fair market value on such date 
                (and as having been reacquired on such date for 
                an amount equal to such fair market value).
            (2) Treatment of gain or loss.--
                    (A) Any gain resulting from an election 
                under paragraph (1) shall be treated as 
                received or accrued on the date the asset is 
                treated as sold under paragraph (1) and shall 
                be recognized notwithstanding any provision of 
                the Internal Revenue Code of 1986.
                    (B) Any loss resulting from an election 
                under paragraph (1) shall not be allowed for 
                any taxable year.
            (3) Election.--An election under paragraph (1) 
        shall be made in such manner as the Secretary of the 
        Treasury or his delegate may prescribe and shall 
        specify the assets for which such election is made. 
        Such an election, once made with respect to any asset, 
        shall be irrevocable.
            (4) Readily tradable stock.--For purposes of this 
        subsection, the term ``readily tradable stock'' means 
        any stock which, as of January 1, 2001, is readily 
        tradable on an established securities market or 
        otherwise.

SEC. 312. EXEMPTION FROM TAX FOR GAIN ON SALE OF PRINCIPAL RESIDENCE.

    (a) In General.--Section 121 (relating to one-time 
exclusion of gain from sale of principal residence by 
individual who has attained age 55) is amended to read as 
follows:

``SEC. 121. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE.

    ``(a) Exclusion.--Gross income shall not include gain from 
the sale or exchange of property if, during the 5-year period 
ending on the date of the sale or exchange, such property has 
been owned and used by the taxpayer as the taxpayer's principal 
residence for periods aggregating 2 years or more.
    ``(b) Limitations.--
            ``(1) In general.--The amount of gain excluded from 
        gross income under subsection (a) with respect to any 
        sale or exchange shall not exceed $250,000.
            ``(2) $500,000 limitation for certain joint 
        returns.--Paragraph (1) shall be applied by 
        substituting `$500,000' for `$250,000' if--
                    ``(A) a husband and wife make a joint 
                return for the taxable year of the sale or 
                exchange of the property,
                    ``(B) either spouse meets the ownership 
                requirements of subsection (a) with respect to 
                such property,
                    ``(C) both spouses meet the use 
                requirements of subsection (a) with respect to 
                such property, and
                    ``(D) neither spouse is ineligible for the 
                benefits of subsection (a) with respect to such 
                property by reason of paragraph (3).
            ``(3) Application to only 1 sale or exchange every 
        2 years.--
                    ``(A) In general.--Subsection (a) shall not 
                apply to any sale or exchange by the taxpayer 
                if, during the 2-year period ending on the date 
                of such sale or exchange, there was any other 
                sale or exchange by the taxpayer to which 
                subsection (a) applied.
                    ``(B) Pre-may 7, 1997, sales not taken into 
                account.--Subparagraph (A) shall be applied 
                without regard to any sale or exchange before 
                May 7, 1997.
    ``(c) Exclusion for Taxpayers Failing To Meet Certain 
Requirements.--
            ``(1) In general.--In the case of a sale or 
        exchange to which this subsection applies, the 
        ownership and use requirements of subsection (a) shall 
        not apply and subsection (b)(3) shall not apply; but 
        the amount of gain excluded from gross income under 
        subsection (a) with respect to such sale or exchange 
        shall not exceed--
                    ``(A) the amount which bears the same ratio 
                to the amount which would be so excluded under 
                this section if such requirements had been met, 
                as
                    ``(B) the shorter of--
                            ``(i) the aggregate periods, during 
                        the 5-year period ending on the date of 
                        such sale or exchange, such property 
                        has been owned and used by the taxpayer 
                        as the taxpayer's principal residence, 
                        or
                            ``(ii) the period after the date of 
                        the most recent prior sale or exchange 
                        by the taxpayer to which subsection (a) 
                        appliedand before the date of such sale 
or exchange,
                bears to 2 years.
            ``(2) Sales and exchanges to which subsection 
        applies.--This subsection shall apply to any sale or 
        exchange if--
                    ``(A) subsection (a) would not (but for 
                this subsection) apply to such sale or exchange 
                by reason of--
                            ``(i) a failure to meet the 
                        ownership and use requirements of 
                        subsection (a), or
                            ``(ii) subsection (b)(3), and
                    ``(B) such sale or exchange is by reason of 
                a change in place of employment, health, or, to 
                the extent provided in regulations, unforeseen 
                circumstances.
    ``(d) Special Rules.--
            ``(1) Joint returns.--If a husband and wife make a 
        joint return for the taxable year of the sale or 
        exchange of the property, subsections (a) and (c) shall 
        apply if either spouse meets the ownership and use 
        requirements of subsection (a) with respect to such 
        property.
            ``(2) Property of deceased spouse.--For purposes of 
        this section, in the case of an unmarried individual 
        whose spouse is deceased on the date of the sale or 
        exchange of property, the period such unmarried 
        individual owned and used such property shall include 
        the period such deceased spouse owned and used such 
        property before death.
            ``(3) Property owned by spouse or former spouse.--
        For purposes of this section--
                    ``(A) Property transferred to individual 
                from spouse or former spouse.--In the case of 
                an individual holding property transferred to 
                such individual in a transaction described in 
                section 1041(a), the period such individual 
                owns such property shall include the period the 
                transferor owned the property.
                    ``(B) Property used by former spouse 
                pursuant to divorce decree, etc.--Solely for 
                purposes of this section, an individual shall 
                be treated as using property as such 
                individual's principal residence during any 
                period of ownership while such individual's 
                spouse or former spouse is granted use of the 
                property under a divorce or separation 
                instrument (as defined in section 71(b)(2)).
            ``(4) Tenant-stockholder in cooperative housing 
        corporation.--For purposes of this section, if the 
        taxpayer holds stock as a tenant-stockholder (as 
        defined in section 216) in a cooperative housing 
        corporation (as defined in such section), then--
                    ``(A) the holding requirements of 
                subsection (a) shall be applied to the holding 
                of such stock, and
                    ``(B) the use requirements of subsection 
                (a) shall be applied to the house or apartment 
                which the taxpayer was entitled to occupy as 
                such stockholder.
            ``(5) Involuntary conversions.--
                    ``(A) In general.--For purposes of this 
                section, the destruction, theft, seizure, 
                requisition, or condemnation of property shall 
                be treated as the sale of such property.
                    ``(B) Application of section 1033.--In 
                applying section 1033 (relating to involuntary 
                conversions), the amount realized from the sale 
                or exchange of property shall be treated as 
                being the amount determined without regard to 
                this section, reduced by the amount of gain not 
                included in gross income pursuant to this 
                section.
                    ``(C) Property acquired after involuntary 
                conversion.--If the basis of the property sold 
                or exchanged is determined (in whole or in 
                part) under section 1033(b) (relating to basis 
                of property acquired through involuntary 
                conversion), then the holding and use by the 
                taxpayer of the converted property shall be 
                treated as holding and use by the taxpayer of 
                the property sold or exchanged.
            ``(6) Recognition of gain attributable to 
        depreciation.--Subsection (a) shall not apply to so 
        much of the gain from the sale of any property as does 
        not exceed the portion of the depreciation adjustments 
        (as defined in section 1250(b)(3)) attributable to 
        periods after May 6, 1997, in respect of such property.
            ``(7) Determination of use during periods of out-
        of-residence care.--In the case of a taxpayer who--
                    ``(A) becomes physically or mentally 
                incapable of self-care, and
                    ``(B) owns property and uses such property 
                as the taxpayer's principal residence during 
                the 5-year period described in subsection (a) 
                for periods aggregating at least 1 year,
        then the taxpayer shall be treated as using such 
        property as the taxpayer's principal residence during 
        any time during such 5-year period in which the 
        taxpayer owns the property and resides in any facility 
        (including a nursing home) licensed by a State or 
        political subdivision to care for an individual in the 
        taxpayer's condition.
            ``(8) Sales of remainder interests.--For purposes 
        of this section--
                    ``(A) In general.--At the election of the 
                taxpayer, this section shall not fail to apply 
                to the sale or exchange of an interest in a 
                principal residence by reason of such interest 
                being a remainder interest in such residence, 
                but this section shall not apply to any other 
                interest in such residence which is sold or 
                exchanged separately.
                    ``(B) Exception for sales to related 
                parties.--Subparagraph (A) shall not apply to 
                any sale to, or exchange with, any person who 
                bears a relationship to the taxpayer which is 
                described in section 267(b) or 707(b).
    ``(e) Denial of Exclusion for Expatriates.--This section 
shall not apply to any sale or exchange by an individual if the 
treatment provided by section 877(a)(1) applies to such 
individual.
    ``(f) Election To Have Section Not Apply.--This section 
shall not apply to any sale or exchange with respect to which 
the taxpayer elects not to have this section apply.
    ``(g) Residences Acquired in Rollovers Under Section 
1034.--For purposes of this section, in the case of property 
the acquisition of which by the taxpayer resulted under section 
1034 (as in effect on the day before the date of the enactment 
of this section) in the nonrecognition of any part of the gain 
realized on the sale or exchange of another residence, in 
determining the period for which the taxpayer has owned and 
used such property as the taxpayer's principal residence, there 
shall be included the aggregate periods for which such other 
residence (and each prior residence taken into account under 
section 1223(7) in determining the holding period of such 
property) had been so owned and used.''.
    (b) Repeal of Nonrecognition of Gain on Rollover of 
Principal Residence.--Section 1034 (relating to rollover of 
gain on sale of principal residence) is hereby repealed.
    (c) Exception From Reporting.--Subsection (e) of section 
6045 (relating to return required in the caseof real estate 
transactions) is amended by adding at the end the following new 
paragraph:
            ``(5) Exception for sales or exchanges of certain 
        principal residences.--
                    ``(A) In general.--Paragraph (1) shall not 
                apply to any sale or exchange of a residence 
                for $250,000 or less if the person referred to 
                in paragraph (2) receives written assurance in 
                a form acceptable to the Secretary from the 
                seller that--
                            ``(i) such residence is the 
                        principal residence (within the meaning 
                        of section 121) of the seller,
                            ``(ii) if the Secretary requires 
                        the inclusion on the return under 
                        subsection (a) of information as to 
                        whether there is federally subsidized 
                        mortgage financing assistance with 
                        respect to the mortgage on residences, 
                        that there is no such assistance with 
                        respect to the mortgage on such 
                        residence, and
                            ``(iii) the full amount of the gain 
                        on such sale or exchange is excludable 
                        from gross income under section 121.
                If such assurance includes an assurance that 
                the seller is married, the preceding sentence 
                shall be applied by substituting `$500,000' for 
                `$250,000'.
        The Secretary may by regulation increase the dollar 
        amounts under this subparagraph if the Secretary 
        determines that such an increase will not materially 
        reduce revenues to the Treasury.
                    ``(B) Seller.--For purposes of this 
                paragraph, the term `seller' includes the 
                person relinquishing the residence in an 
                exchange.''.
    (d) Conforming Amendments.--
            (1) The following provisions of the Internal 
        Revenue Code of 1986 are each amended by striking 
        ``section 1034'' and inserting ``section 121'': 
        sections 25(e)(7), 56(e)(1)(A), 56(e)(3)(B)(i), 
        143(i)(1)(C)(i)(I), 163(h)(4)(A)(i)(I), 280A(d)(4)(A), 
        464(f)(3)(B)(i), 1033(h)(4), 1274(c)(3)(B), 
        6334(a)(13), and 7872(f)(11)(A).
            (2) Paragraph (4) of section 32(c) is amended by 
        striking ``(as defined in section 1034(h)(3))'' and by 
        adding at the end the following new sentence: ``For 
        purposes of the preceding sentence, the term `extended 
        active duty' means any period of active duty pursuant 
        to a call or order to such duty for a period in excess 
        of 90 days or for an indefinite period.''.
            (3) Subparagraph (A) of 143(m)(6) is amended by 
        inserting ``(as in effect on the day before the date of 
        the enactment of the Taxpayer Relief Act of 1997)'' 
        after ``1034(e)''.
            (4) Subsection (e) of section 216 is amended by 
        striking ``such exchange qualifies for nonrecognition 
        of gain under section 1034(f)'' and inserting ``such 
        dwelling unit is used as his principal residence 
        (within the meaning of section 121)''.
            (5) Section 512(a)(3)(D) is amended by inserting 
        ``(as in effect on the day before the date of the 
        enactment of the Taxpayer Relief Act of 1997)'' after 
        ``1034''.
            (6) Paragraph (7) of section 1016(a) is amended by 
        inserting ``(as in effect on the day before the date of 
        the enactment of the Taxpayer Relief Act of 1997)'' 
        after ``1034'' and by inserting ``(as so in effect)'' 
        after ``1034(e)''.
            (7) Paragraph (3) of section 1033(k) is amended to 
        read as follows:
            ``(3) For exclusion from gross income of gain from 
        involuntary conversion of principal residence, see 
        section 121.''.
            (8) Subsection (e) of section 1038 is amended to 
        read as follows:
    ``(e) Principal Residences.--If--
            ``(1) subsection (a) applies to a reacquisition of 
        real property with respect to the sale of which gain 
        was not recognized under section 121 (relating to gain 
        on sale of principal residence); and
            ``(2) within 1 year after the date of the 
        reacquisition of such property by the seller, such 
        property is resold by him,
then, under regulations prescribed by the Secretary, 
subsections (b), (c), and (d) of this section shall not apply 
to the reacquisition of such property and, for purposes of 
applying section 121, the resale of such property shall be 
treated as a part of the transaction constituting the original 
sale of such property.''.
            (9) Paragraph (7) of section 1223 is amended by 
        inserting ``(as in effect on the day before the date of 
        the enactment of the Taxpayer Relief Act of 1997)'' 
        after ``1034''.
            (10)(A) Subsection (d) of section 1250 is amended 
        by striking paragraph (7) and by redesignating 
        paragraphs (9) and (10) as paragraphs (7) and (8), 
        respectively.
            (B) Subsection (e) of section 1250 is amended by 
        striking paragraph (3).
            (11) Subsection (c) of section 6012 is amended by 
        striking ``(relating to one-time exclusion of gain from 
        sale of principal residence by individual who has 
        attained age 55)'' and inserting ``(relating to gain 
        from sale of principal residence)''.
            (12) Paragraph (2) of section 6212(c) is amended by 
        striking subparagraph (C) and by redesignating the 
        succeeding subparagraphs accordingly.
            (13) Section 6504 is amended by striking paragraph 
        (4) and by redesignating the succeeding paragraphs 
        accordingly.
            (14) The item relating to section 121 in the table 
        of sections for part III of subchapter B of chapter 1 
        is amended to read as follows:


        ``Sec. 121. Exclusion of gain from sale of principal 
                  residence.''.

            (15) The table of sections for part III of 
        subchapter O of chapter 1 is amended by striking the 
        item relating to section 1034.
    (d) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to sales and exchanges after May 6, 
        1997.
            (2) Sales before date of enactment.--At the 
        election of the taxpayer, the amendments made by this 
        section shall not apply to any sale or exchange before 
        the date of the enactment of this Act.
            (3) Certain sales within 2 years after date of 
        enactment.--Section 121 of the Internal Revenue Code of 
        1986 (as amended by this section) shall be applied 
        without regard to subsection (c)(2)(B) thereof in the 
        case of any sale or exchange of property during the 2-
        year period beginning on the date of the enactment of 
        this Act if the taxpayer held such property on the date 
        of the enactment of this Act and fails to meet the 
        ownership and use requirements of subsection (a) 
        thereof with respect to such property.
            (4) Binding contracts.--At the election of the 
        taxpayer, the amendments made by this section shall not 
        apply to a sale or exchange after the date of the 
        enactment of this Act, if--
                    (A) such sale or exchange is pursuant to a 
                contract which was binding on such date, or
                    (B) without regard to such amendments, gain 
                would not be recognized under section 1034 of 
                the Internal Revenue Code of 1986 (as in effect 
                on the day before the date of the enactmentof 
this Act) on such sale or exchange by reason of a new residence 
acquired on or before such date or with respect to the acquisition of 
which by the taxpayer a binding contract was in effect on such date.
        This paragraph shall not apply to any sale or exchange 
        by an individual if the treatment provided by section 
        877(a)(1) of the Internal Revenue Code of 1986 applies 
        to such individual.

SEC. 313. ROLLOVER OF GAIN FROM SALE OF QUALIFIED STOCK.

    (a) In General.--Part III of subchapter O of chapter 1 is 
amended by adding at the end the following new section:

``SEC. 1045. ROLLOVER OF GAIN FROM QUALIFIED SMALL BUSINESS STOCK TO 
                    ANOTHER QUALIFIED SMALL BUSINESS STOCK.

    ``(a) Nonrecognition of Gain.--In the case of any sale of 
qualified small business stock held by an individual for more 
than 6 months and with respect to which such individual elects 
the application of this section, gain from such sale shall be 
recognized only to the extent that the amount realized on such 
sale exceeds--
            ``(1) the cost of any qualified small business 
        stock purchased by the taxpayer during the 60-day 
        period beginning on the date of such sale, reduced by
            ``(2) any portion of such cost previously taken 
        into account under this section.
This section shall not apply to any gain which is treated as 
ordinary income for purposes of this title.
    ``(b) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Qualified small business stock.--The term 
        `qualified small business stock' has the meaning given 
        such term by section 1202(c).
            ``(2) Purchase.--A taxpayer shall be treated as 
        having purchased any property if, but for paragraph 
        (3), the unadjusted basis of such property in the hands 
        of the taxpayer would be its cost (within the meaning 
        of section 1012).
            ``(3) Basis adjustments.--If gain from any sale is 
        not recognized by reason of subsection (a), such gain 
        shall be applied to reduce (in the order acquired) the 
        basis for determining gain or loss of any qualified 
        small business stock which is purchased by the taxpayer 
        during the 60-day period described in subsection (a).
            ``(4) Holding period.--For purposes of determining 
        whether the nonrecognition of gain under subsection (a) 
        applies to stock which is sold--
                    ``(A) the taxpayer's holding period for 
                such stock and the stock referred to in 
                subsection (a)(1) shall be determined without 
                regard to section 1223, and
                    ``(B) only the first 6 months of the 
                taxpayer's holding period for the stock 
                referred to in subsection (a)(1) shall be taken 
                into account for purposes of applying section 
                1202(c)(2).''.
    (b) Conforming Amendments.--
            (1) Section 1016(a)(23) is amended--
                    (A) by striking ``or 1044'' and inserting 
                ``, 1044, or 1045'', and
                    (B) by striking ``or 1044(d)'' and 
                inserting ``, 1044(d), or 1045(b)(4)''.
            (2) Section 1223 is amended by redesignating 
        paragraph (15) as paragraph (16) and by inserting after 
        paragraph (14) the following new paragraph:
            ``(15) In determining the period for which the 
        taxpayer has held property the acquisition of which 
        resulted under section 1045 in the nonrecognition of 
        any part of the gain realized on the sale of other 
        property, there shall be included the period for which 
        such other property has been held as of the date of 
        such sale.''.
            (3) The table of sections for part III of 
        subchapter O of chapter 1 is amended by adding at the 
        end the following new item:

        ``Sec. 1045. Rollover of gain from qualified small business 
                  stock to another qualified small business stock.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to sales after the date of enactment of this Act.

SEC. 314. AMOUNT OF NET CAPITAL GAIN TAKEN INTO ACCOUNT IN COMPUTING 
                    ALTERNATIVE TAX ON CAPITAL GAINS FOR CORPORATIONS 
                    NOT TO EXCEED TAXABLE INCOME OF THE CORPORATION.

    (a) In General.--Paragraph (2) of section 1201(a) is 
amended by inserting before the period ``(or, if less, taxable 
income)''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years ending after December 31, 1997.

                TITLE IV--ALTERNATIVE MINIMUM TAX REFORM

SEC. 401. EXEMPTION FROM ALTERNATIVE MINIMUM TAX FOR SMALL 
                    CORPORATIONS.

    (a) In General.--Section 55 (relating to alternative 
minimum tax imposed) is amended by adding at the end the 
following new subsection:
    ``(e) Exemption for Small Corporations.--
            ``(1) In general.--The tentative minimum tax of a 
        corporation shall be zero for any taxable year if--
                    ``(A) such corporation met the $5,000,000 
                gross receipts test of section 448(c) for its 
                first taxable year beginning after December 31, 
                1996, and
                    ``(B) such corporation would meet such test 
                for the taxable year and all prior taxable 
                years beginning after such first taxable year 
                if such test were applied by substituting 
                `$7,500,000' for `$5,000,000'.
            ``(2) Prospective application of minimum tax if 
        small corporation ceases to be small.--In the case of a 
        corporation whose tentative minimum tax is zero for any 
        prior taxable year by reason of paragraph (1), the 
        application of this part for taxable years beginning 
        with the first taxable year such corporation ceases to 
        be described in paragraph (1) shall be determined with 
        the following modifications:
                    ``(A) Section 56(a)(1) (relating to 
                depreciation) and section 56(a)(5) (relating to 
                pollution control facilities) shall apply only 
                to property placed in service on or after the 
                change date.
                    ``(B) Section 56(a)(2) (relating to mining 
                exploration and development costs) shall apply 
                only to costs paid or incurred on or after the 
                change date.
                    ``(C) Section 56(a)(3) (relating to 
                treatment of long-term contracts) shall apply 
                only to contracts entered into on or after the 
                change date.
                    ``(D) Section 56(a)(4) (relating to 
                alternative net operating loss deduction) shall 
                apply in the same manner as if, in section 
                56(d)(2), the change date were substituted for 
                `January 1, 1987' and the day before the change 
                date were substituted for `December 31, 1986' 
                each place it appears.
                    ``(E) Section 56(g)(2)(B) (relating to 
                limitation on allowance of negative adjustments 
                based on adjusted current earnings) shall apply 
                only to prior taxable years beginning on or 
                after the change date.
                    ``(F) Section 56(g)(4)(A) (relating to 
                adjustment for depreciation to adjusted current 
                earnings) shall not apply.
                    ``(G) Subparagraphs (D) and (F) of section 
                56(g)(4) (relating to other earnings and 
                profits adjustments and depletion) shall apply 
                in the same manner as if the day before the 
                change date were substituted for `December 31, 
                1989' each place it appears therein.
            ``(3) Exception.--The modifications in paragraph 
        (2) shall not apply to--
                    ``(A) any item acquired by the corporation 
                in a transaction to which section 381 applies, 
                and
                    ``(B) any property the basis of which in 
                the hands of the corporation is determined by 
                reference to the basis of the property in the 
                hands of the transferor,
        if such item or property was subject to any provision 
        referred to in paragraph (2) while held by the 
        transferor.
            ``(4) Change date.--For purposes of paragraph (2), 
        the change date is the first day of the first taxable 
        year for which the taxpayer ceases to be described in 
        paragraph (1).
            ``(5) Limitation on use of credit for prior year 
        minimum tax liability.--In the case of a taxpayer whose 
        tentative minimum tax for any taxable year is zero by 
        reason of paragraph (1), section 53(c) shall be applied 
        for such year by reducing the amount otherwise taken 
        into account under section 53(c)(1) by 25 percent of so 
        much of such amount as exceeds $25,000. Rules similar 
        to the rules of section 38(c)(3)(B) shall apply for 
        purposes of the preceding sentence.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 1997.

SEC. 402. REPEAL OF SEPARATE DEPRECIATION LIVES FOR MINIMUM TAX 
                    PURPOSES.

    (a) In General.--Clause (i) of section 56(a)(1)(A) is 
amended by adding at the end the following new sentence: ``In 
the case of property placed in service after December 31, 1998, 
the preceding sentence shall not apply but clause (ii) shall 
continue to apply.''
    (b) Pollution Control Facilities.--Paragraph (5) of section 
56(a) is amended by adding at the end the following new 
sentence: ``In the case of such a facility placed in service 
after December 31, 1998, such deduction shall be determined 
under section 168 using the straight line method.''.

SEC. 403. MINIMUM TAX NOT TO APPLY TO FARMERS' INSTALLMENT SALES.

    (a) In General.--Subsection (a) of section 56 is amended by 
striking paragraph (6) (relating to treatment of installment 
sales) and by redesignating paragraphs (7) and (8) as 
paragraphs (6) and (7), respectively.
    (b) Effective Dates.--
            (1) In general.--The amendment made by this section 
        shall apply to dispositions in taxable years beginning 
        after December 31, 1987.
            (2) Special rule for 1987.--In the case of taxable 
        years beginning in 1987, the last sentence of section 
        56(a)(6) of the Internal Revenue Code of 1986 (as in 
        effect for such taxable years) shall be applied by 
        inserting ``or in the case of a taxpayer using the cash 
        receipts and disbursements method of accounting, any 
        disposition described in section 453C(e)(1)(B)(ii)'' 
        after ``section 453C(e)(4)''.

     TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TAX PROVISIONS

               Subtitle A--Estate and Gift Tax Provisions

SEC. 501. COST-OF-LIVING ADJUSTMENTS RELATING TO ESTATE AND GIFT TAX 
                    PROVISIONS.

    (a) Increase in Unified Estate and Gift Tax Credit.--
            (1) Estate tax credit.--
                    (A) In general.--Subsection (a) of section 
                2010 (relating to unified credit against estate 
                tax) is amended by striking ``$192,800'' and 
                inserting ``the applicable credit amount''.
                    (B) Applicable credit amount.--Section 2010 
                is amended by redesignating subsection (c) as 
                subsection (d) and by inserting after 
                subsection (b) the following new subsection:
    ``(c) Applicable Credit Amount.--For purposes of this 
section, the applicable credit amount is the amount of the 
tentative tax which would be determined under the rate schedule 
set forth in section 2001(c) if the amount with respect to 
which such tentative tax is to be computed were the applicable 
exclusion amount determined in accordance with the following 
table:

``In the case of estates                                                
  of decedents dying,                                     The applicable
  and gifts made,                                              exclusion
  during:                                                     amount is:
          1998..........................................      $ 625,000 
          1999..........................................      $ 650,000 
          2000 and 2001.................................      $ 675,000 
          2002 and 2003.................................      $ 700,000 
          2004..........................................      $ 850,000 
          2005..........................................      $ 950,000 
          2006 or thereafter............................   $1,000,000.''

                    (C) Estate tax returns.--Paragraph (1) of 
                section 6018(a) is amended by striking 
                ``$600,000'' and inserting ``the applicable 
                exclusion amount in effect under section 
                2010(c) for the calendar year which includes 
                the date of death''.
                    (D) Phaseout of graduated rates and unified 
                credit.--Paragraph (2) of section 2001(c) is 
                amended by striking ``$21,040,000'' and 
                inserting ``the amount at which the average tax 
                rate under this section is 55 percent''.
                    (E) Estates of nonresidents not citizens.--
                Subparagraph (A) of section 2102(c)(3) is 
                amended by striking ``$192,800'' and inserting 
                ``the applicable credit amount in effect under 
                section 2010(c) for the calendar year which 
                includes the date of death''.
            (2) Unified gift tax credit.--Paragraph (1) of 
        section 2505(a) is amended by striking ``$192,800'' and 
        inserting ``the applicable credit amount in effect 
        under section 2010(c) for such calendar year''.
    (b) Alternate Valuation of Certain Farm, Etc., Real 
Property.--Subsection (a) of section 2032A is amended by adding 
at the end the following new paragraph:
            ``(3) Inflation adjustment.--In the case of estates 
        of decedents dying in a calendar year after 1998, the 
        $750,000 amount contained in paragraph (2) shall be 
        increased by an amount equal to--
                    ``(A) $750,000, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for such 
                calendar year by substituting `calendar year 
                1997' for `calendar year 1992' in subparagraph 
                (B) thereof.
        If any amount as adjusted under the preceding sentence 
        is not a multiple of $10,000, such amount shall be 
        rounded to the next lowest multiple of $10,000.''.
    (c) Annual Gift Tax Exclusion.--Subsection (b) of section 
2503 is amended--
            (1) by striking the subsection heading and 
        inserting the following:
    ``(b) Exclusions From Gifts.--
            ``(1) In general.--'',
            (2) by moving the text 2 ems to the right, and
            (3) by adding at the end the following new 
        paragraph:
            ``(2) Inflation adjustment.--In the case of gifts 
        made in a calendar year after 1998, the $10,000 amount 
        contained in paragraph (1) shall be increased by an 
        amount equal to--
                    ``(A) $10,000, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for such 
                calendar year by substituting `calendar year 
                1997' for `calendar year 1992' in subparagraph 
                (B) thereof.
        If any amount as adjusted under the preceding sentence 
        is not a multiple of $1,000, such amount shall be 
        rounded to the next lowest multiple of $1,000.''.
    (d) Exemption From Generation-Skipping Tax.--Section 2631 
(relating to GST exemption) is amended by adding at the end the 
following new subsection:
    ``(c) Inflation Adjustment.--In the case of an individual 
who dies in any calendar year after 1998, the $1,000,000 amount 
contained in subsection (a) shall be increased by an amount 
equal to--
            ``(1) $1,000,000, multiplied by
            ``(2) the cost-of-living adjustment determined 
        under section 1(f)(3) for such calendar year by 
        substituting `calendar year 1997' for `calendar year 
        1992' in subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence is not a 
multiple of $10,000, such amount shall be rounded to the next 
lowest multiple of $10,000.''.
    (e) Amount Subject to Reduced Rate Where Extension of Time 
for Payment of Estate Tax on Closely Held Business.--Subsection 
(j) of section 6601 is amended by redesignating paragraph (3) 
as paragraph (4) and by inserting after paragraph (2) the 
following new paragraph:
            ``(3) Inflation adjustment.--In the case of estates 
        of decedents dying in a calendar year after 1998, the 
        $1,000,000 amount contained in paragraph (2)(A) shall 
        be increased by an amount equal to--
                    ``(A) $1,000,000, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for such 
                calendar year by substituting `calendar year 
                1997' for `calendar year 1992' in subparagraph 
                (B) thereof.
        If any amount as adjusted under the preceding sentence 
        is not a multiple of $10,000, such amount shall be 
        rounded to the next lowest multiple of $10,000.''.
    (f) Effective date.--The amendments made by this section 
shall apply to the estates of decedents dying, and gifts made, 
after December 31, 1997.

SEC. 502. FAMILY-OWNED BUSINESS EXCLUSION.

    (a) In General.--Part III of subchapter A of chapter 11 
(relating to gross estate) is amended by inserting after 
section 2033 the following new section:

``SEC. 2033A. FAMILY-OWNED BUSINESS EXCLUSION.

    ``(a) In General.--In the case of an estate of a decedent 
to which this section applies, the value of the gross estate 
shall not include the lesser of--
            ``(1) the adjusted value of the qualified family-
        owned business interests of the decedent otherwise 
        includible in the estate, or
            ``(2) the excess of $1,300,000 over the applicable 
        exclusion amount under section 2010(c) with respect to 
        such estate.
    ``(b) Estates to Which Section Applies.--
            ``(1) In general.--This section shall apply to an 
        estate if--
                    ``(A) the decedent was (at the date of the 
                decedent's death) a citizen or resident of the 
                United States,
                    ``(B) the executor elects the application 
                of this section and files the agreement 
                referred to in subsection (h),
                    ``(C) the sum of--
                            ``(i) the adjusted value of the 
                        qualified family-owned business 
                        interests described in paragraph (2), 
                        plus
                            ``(ii) the amount of the gifts of 
                        such interests determined under 
                        paragraph (3),
                exceeds 50 percent of the adjusted gross 
                estate, and
                    ``(D) during the 8-year period ending on 
                the date of the decedent's death there have 
                been periods aggregating 5 years or more during 
                which--
                            ``(i) such interests were owned by 
                        the decedent or a member of the 
                        decedent's family, and
                            ``(ii) there was material 
                        participation (within the meaning of 
                        section 2032A(e)(6)) by the decedent or 
                        a member of the decedent's family in 
                        the operation of the business to which 
                        such interests relate.
            ``(2) Includible qualified family-owned business 
        interests.--The qualified family-owned business 
        interests described in this paragraph are the interests 
        which--
                    ``(A) are included in determining the value 
                of the gross estate (without regard to this 
                section), and
                    ``(B) are acquired by any qualified heir 
                from, or passed to any qualified heir from, the 
                decedent (within the meaning of section 
                2032A(e)(9)).
            ``(3) Includible gifts of interests.--The amount of 
        the gifts of qualified family-owned business interests 
        determined under this paragraph is the excess of--
                    ``(A) the sum of--
                            ``(i) the amount of such gifts from 
                        the decedent to members of the 
                        decedent's family taken into account 
                        under subsection 2001(b)(1)(B), plus
                            ``(ii) the amount of such gifts 
                        otherwise excluded under section 
                        2503(b),
                to the extent such interests are continuously 
                held by members of such family (other than the 
                decedent's spouse) between the date of the gift 
                and the date of the decedent's death, over
                    ``(B) the amount of such gifts from the 
                decedent to members of the decedent's family 
                otherwise included in the gross estate.
    ``(c) Adjusted Gross Estate.--For purposes of this section, 
the term `adjusted gross estate' means the value of the gross 
estate (determined without regard to this section)--
            ``(1) reduced by any amount deductible under 
        paragraph (3) or (4) of section 2053(a), and
            ``(2) increased by the excess of--
                    ``(A) the sum of--
                            ``(i) the amount of gifts 
                        determined under subsection (b)(3), 
                        plus
                            ``(ii) the amount (if more than de 
                        minimis) of other transfers from the 
                        decedent to the decedent's spouse (at 
                        the time of the transfer) within 10 
                        years of the date of the decedent's 
                        death, plus
                            ``(iii) the amount of other gifts 
                        (not included under clause (i) or (ii)) 
                        from the decedent within 3 years of 
                        such date, other than gifts to members 
                        of the decedent's family otherwise 
                        excluded under section 2503(b), over
                    ``(B) the sum of the amounts described in 
                clauses (i), (ii), and (iii) of subparagraph 
                (A) which are otherwise includible in the gross 
                estate.
For purposes of the preceding sentence, the Secretary may 
provide that de minimis gifts to persons other than members of 
the decedent's family shall not be taken into account.
    ``(d) Adjusted Value of the Qualified Family-Owned Business 
Interests.--For purposes of this section, the adjusted value of 
any qualified family-owned business interest is the value of 
such interest for purposes of this chapter (determined without 
regard to this section), reduced by the excess of--
            ``(1) any amount deductible under paragraph (3) or 
        (4) of section 2053(a), over
            ``(2) the sum of--
                    ``(A) any indebtedness on any qualified 
                residence of the decedent the interest on which 
                is deductible under section 163(h)(3), plus
                    ``(B) any indebtedness to the extent the 
                taxpayer establishes that the proceeds of such 
                indebtedness were used for the payment of 
                educational and medical expenses of the 
                decedent, the decedent's spouse, or the 
                decedent's dependents (within the meaning of 
                section 152), plus
                    ``(C) any indebtedness not described in 
                subparagraph (A) or (B), to the extent such 
                indebtedness does not exceed $10,000.
    ``(e) Qualified Family-Owned Business Interest.--
            ``(1) In general.--For purposes of this section, 
        the term `qualified family-owned business interest' 
        means--
                    ``(A) an interest as a proprietor in a 
                trade or business carried on as a 
                proprietorship, or
                    ``(B) an interest in an entity carrying on 
                a trade or business, if--
                            ``(i) at least--
                                    ``(I) 50 percent of such 
                                entity is owned (directly or 
                                indirectly) by the decedent and 
                                members of the decedent's 
                                family,
                                    ``(II) 70 percent of such 
                                entity is so owned by members 
                                of 2 families, or
                                    ``(III) 90 percent of such 
                                entity is so owned by members 
                                of 3 families, and
                            ``(ii) for purposes of subclause 
                        (II) or (III) of clause (i), at least 
                        30 percent of such entity is so owned 
                        by the decedent and members of the 
                        decedent's family.
            ``(2) Limitation.--Such term shall not include--
                    ``(A) any interest in a trade or business 
                the principal place of business of which is not 
                located in the United States,
                    ``(B) any interest in an entity, if the 
                stock or debt of such entity or a controlled 
                group (as defined in section 267(f)(1)) of 
                which such entity was a member was readily 
                tradable on an established securities market or 
                secondary market (as defined by the Secretary) 
                at any time within 3 years of the date of the 
                decedent's death,
                    ``(C) any interest in a trade or business 
                not described in section 542(c)(2), if more 
                than 35 percent of the adjusted ordinary gross 
                income of such trade or business for the 
                taxable year which includes the date of the 
                decedent's death would qualify as personal 
                holding company income (as defined in section 
                543(a)),
                    ``(D) that portion of an interest in a 
                trade or business that is attributable to--
                            ``(i) cash or marketable 
                        securities, or both, in excess of the 
                        reasonably expected day-to-day working 
                        capital needs of such trade or 
                        business, and
                            ``(ii) any other assets of the 
                        trade or business (other than assets 
                        used in the active conduct of a trade 
                        or business described in section 
                        542(c)(2)), which produce, or are held 
                        for the production of, income of which 
                        is described in section 543(a) or in 
                        section 954(c)(1) (determined without 
                        regard to subparagraph (A) thereof and 
                        by substituting `trade or business' for 
                        `controlled foreign corporation').
            ``(3) Rules regarding ownership.--
                    ``(A) Ownership of entities.--For purposes 
                of paragraph (1)(B)--
                            ``(i) Corporations.--Ownership of a 
                        corporation shall be determined by the 
                        holding of stock possessing the 
                        appropriate percentage of the total 
                        combined voting power of all classes of 
                        stock entitled to vote and the 
                        appropriate percentage of the total 
                        value of shares of all classes of 
                        stock.
                            ``(ii) Partnerships.--Ownership of 
                        a partnership shall be determined by 
                        the owning of the appropriate 
                        percentage of the capital interest in 
                        such partnership.
                    ``(B) Ownership of tiered entities.--For 
                purposes of this section, if by reason of 
                holding an interest in a trade or business, a 
                decedent, any member of the decedent's family, 
                any qualified heir, or any member of any 
                qualified heir's family is treated as holding 
                an interest in any other trade or business--
                            ``(i) such ownership interest in 
                        the other trade or business shall be 
                        disregarded in determining if the 
                        ownership interest in the first trade 
                        or business is aqualified family-owned 
business interest, and
                            ``(ii) this section shall be 
                        applied separately in determining if 
                        such interest in any other trade or 
                        business is a qualified family-owned 
                        business interest.
                    ``(C) Individual ownership rules.--For 
                purposes of this section, an interest owned, 
                directly or indirectly, by or for an entity 
                described in paragraph (1)(B) shall be 
                considered as being owned proportionately by or 
                for the entity's shareholders, partners, or 
                beneficiaries. A person shall be treated as a 
                beneficiary of any trust only if such person 
                has a present interest in such trust.
    ``(f) Tax Treatment of Failure To Materially Participate in 
Business or Dispositions of Interests.--
            ``(1) In general.--There is imposed an additional 
        estate tax if, within 10 years after the date of the 
        decedent's death and before the date of the qualified 
        heir's death--
                    ``(A) the material participation 
                requirements described in section 
                2032A(c)(6)(B) are not met with respect to the 
                qualified family-owned business interest which 
                was acquired (or passed) from the decedent,
                    ``(B) the qualified heir disposes of any 
                portion of a qualified family-owned business 
                interest (other than by a disposition to a 
                member of the qualified heir's family or 
                through a qualified conservation contribution 
                under section 170(h)),
                    ``(C) the qualified heir loses United 
                States citizenship (within the meaning of 
                section 877) or with respect to whom an event 
                described in subparagraph (A) or (B) of section 
                877(e)(1) occurs, and such heir does not comply 
                with the requirements of subsection (g), or
                    ``(D) the principal place of business of a 
                trade or business of the qualified family-owned 
                business interest ceases to be located in the 
                United States.
            ``(2) Additional estate tax.--
                    ``(A) In general.--The amount of the 
                additional estate tax imposed by paragraph (1) 
                shall be equal to--
                            ``(i) the applicable percentage of 
                        the adjusted tax difference 
                        attributable to the qualified family-
                        owned business interest(as determined 
under rules similar to the rules of section 2032A(c)(2)(B)), plus
                            ``(ii) interest on the amount 
                        determined under clause (i) at the 
                        underpayment rate established under 
                        section 6621 for the period beginning 
                        on the date the estate tax liability 
                        was due under this chapter and ending 
                        on the date such additional estate tax 
                        is due.
                    ``(B) Applicable percentage.--For purposes 
                of this paragraph, the applicable percentage 
                shall be determined under the following table:

    ``If the event described in
      paragraph (1) occurs in
      the following year of                               The applicable
      material participation:                             percentage is:
    1 through 6...............................................      100 
    7.........................................................       80 
    8.........................................................       60 
    9.........................................................       40 
    10........................................................       20.

    ``(g) Security Requirements for Noncitizen Qualified 
Heirs.--
            ``(1) In general.--Except upon the application of 
        subparagraph (F) or (M) of subsection (i)(3), if a 
        qualified heir is not a citizen of the United States, 
        any interest under this section passing to or acquired 
        by such heir (including any interest held by such heir 
        at a time described in subsection (f)(1)(C)) shall be 
        treated as a qualified family-owned business interest 
        only if the interest passes or is acquired (or is held) 
        in a qualified trust.
            ``(2) Qualified trust.--The term `qualified trust' 
        means a trust--
                    ``(A) which is organized under, and 
                governed by, the laws of the United States or a 
                State, and
                    ``(B) except as otherwise provided in 
                regulations, with respect to which the trust 
                instrument requires that at least 1 trustee of 
                the trust be an individual citizen of the 
                United States or a domestic corporation.
    ``(h) Agreement.--The agreement referred to in this 
subsection is a written agreement signed by each person in 
being who has an interest (whether or not in possession) in any 
property designated in such agreement consenting to the 
application of subsection (f) with respect to such property.
    ``(i) Other Definitions and Applicable Rules.--For purposes 
of this section--
            ``(1) Qualified heir.--The term `qualified heir'--
                    ``(A) has the meaning given to such term by 
                section 2032A(e)(1), and
                    ``(B) includes any active employee of the 
                trade or business to which the qualified 
                family-owned business interest relates if such 
                employee has been employed by such trade or 
                business for a period of at least 10 years 
                before the date of the decedent's death.
            ``(2) Member of the family.--The term `member of 
        the family' has the meaning given to such term by 
        section 2032A(e)(2).
            ``(3) Applicable rules.--Rules similar to the 
        following rules shall apply:
                    ``(A) Section 2032A(b)(4) (relating to 
                decedents who are retired or disabled).
                    ``(B) Section 2032A(b)(5) (relating to 
                special rules for surviving spouses).
                    ``(C) Section 2032A(c)(2)(D) (relating to 
                partial dispositions).
                    ``(D) Section 2032A(c)(3) (relating to only 
                1 additional tax imposed with respect to any 1 
                portion).
                    ``(E) Section 2032A(c)(4) (relating to due 
                date).
                    ``(F) Section 2032A(c)(5) (relating to 
                liability for tax; furnishing of bond).
                    ``(G) Section 2032A(c)(7) (relating to no 
                tax if use begins within 2 years; active 
                management by eligible qualified heir treated 
                as material participation).
                    ``(H) Paragraphs (1) and (3) of section 
                2032A(d) (relating to election; agreement).
                    ``(I) Section 2032A(e)(10) (relating to 
                community property).
                    ``(J) Section 2032A(e)(14) (relating to 
                treatment of replacement property acquired in 
                section 1031 or 1033 transactions).
                    ``(K) Section 2032A(f) (relating to statute 
                of limitations).
                    ``(L) Section 6166(b)(3) (relating to 
                farmhouses and certain other structures taken 
                into account).
                    ``(M) Subparagraphs (B), (C), and (D) of 
                section 6166(g)(1) (relating to acceleration of 
                payment).
                    ``(N) Section 6324B (relating to special 
                lien for additional estate tax).''.
    (b) Clerical Amendment.--The table of sections for part III 
of subchapter A of chapter 11 is amended by inserting after the 
item relating to section 2033 the following new item:

        ``Sec. 2033A. Family-owned business exclusion.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to estates of decedents dying after December 31, 
1997.

SEC. 503. MODIFICATIONS TO RATE OF INTEREST ON PORTION OF ESTATE TAX 
                    EXTENDED UNDER SECTION 6166.

    (a) In General.--Paragraphs (1) and (2) of section 6601(j) 
(relating to 4-percent rate on certain portion of estate tax 
extended under section 6166) are amended to read as follows:
            ``(1) In general.--If the time for payment of an 
        amount of tax imposed by chapter 11 is extended as 
        provided in section 6166, then in lieu of the annual 
        rate provided by subsection (a)--
                    ``(A) interest on the 2-percent portion of 
                such amount shall be paid at the rate of 2 
                percent, and
                    ``(B) interest on so much of such amount as 
                exceeds the 2-percent portion shall be paid at 
                a rate equal to 45 percent of the annual rate 
                provided by subsection (a).
        For purposes of this subsection, the amount of any 
        deficiency which is prorated to installments payable 
        under section 6166 shall be treated as an amount of tax 
        payable in installments under such section.
            ``(2) 2-percent portion.--For purposes of this 
        subsection, the term `2-percent portion' means the 
        lesser of--
                    ``(A)(i) the amount of the tentative tax 
                which would be determined under the rate 
                schedule set forth in section 2001(c) if the 
                amount with respect to which such tentative tax 
                is to be computed were the sum of $1,000,000 
                and the applicable exclusion amount in effect 
                under section 2010(c), reduced by
                    ``(ii) the applicable credit amount in 
                effect under section 2010(c), or
                    ``(B) the amount of the tax imposed by 
                chapter 11 which is extended as provided in 
                section 6166.''.
    (b) Disallowance of Interest Deduction.--
            (1) Estate tax.--Paragraph (1) of section 2053(c) 
        is amended by adding at the end the following new 
        subparagraph:
                    ``(D) Section 6166 interest.--No deduction 
                shall be allowed under this section for any 
                interest payable under section 6601 on any 
                unpaid portion of the tax imposed by section 
                2001 for the period during which an extension 
                of time for payment of such tax is in effect 
                under section 6166.''.
            (2) Income tax.--
                    (A) Section 163 is amended by redesignating 
                subsection (k) as subsection (l) and by 
                inserting after subsection (j) the following 
                new subsection:
    ``(k) Section 6166 Interest.--No deduction shall be allowed 
under this section for any interest payable under section 6601 
on any unpaid portion of the tax imposed by section 2001 for 
the period during which an extension of time for payment of 
such tax is in effect under section 6166.''.
                    (B) Subparagraph (E) of section 163(h)(2) 
                is amended by striking ``or 6166'' and all that 
                follows and inserting a period.
    (c) Conforming Amendments.--
            (1) Paragraphs (7)(A)(iii) and (8)(A)(iii) of 
        section 6166(b) are amended by striking ``4-percent'' 
        each place it appears (including the heading) and 
        inserting ``2-percent''.
            (2) Paragraph (4) of section 6601(j), as 
        redesignated by section 501(e), is amended by striking 
        ``4-percent'' each place it appears and inserting ``2-
        percent''.
            (3) The subsection heading for section 6601(j) is 
        amended by striking ``4-Percent'' and inserting ``2-
        Percent''.
    (d) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to estates of decedents dying after 
        December 31, 1997.
            (2) Election.--In the case of the estate of any 
        decedent dying before January 1, 1998, with respect to 
        which there is an election under section 6166 of the 
        Internal Revenue Code of 1986, the executor of the 
        estate may elect to have the amendments made by this 
        section apply with respect to installments due after 
        the effective date of the election; except that the 2-
        percent portion of such installments shall be equal to 
        the amount which would be the 4-percent portion of such 
        installments without regard to such election. Such an 
        election shall be made before January 1, 1999 in the 
        manner prescribed by the Secretary of the Treasury and, 
        once made, is irrevocable.

SEC. 504. EXTENSION OF TREATMENT OF CERTAIN RENTS UNDER SECTION 2032A 
                    TO LINEAL DESCENDANTS.

    (a) General Rule.--Paragraph (7) of section 2032A(c) 
(relating to special rules for tax treatment of dispositions 
and failures to use for qualified use) is amended by adding at 
the end the following new subparagraph:
                    ``(E) Certain rents treated as qualified 
                use.--For purposes of this subsection, a 
                surviving spouse or lineal descendant of the 
                decedent shall not be treated as failing to use 
                qualified real property in a qualified use 
                solely because such spouse or descendant rents 
                such property to a member of the family of such 
                spouse or descendant on a net cash basis. For 
                purposes of the preceding sentence, a legally 
                adopted child of an individual shall be treated 
                as the child of such individual by blood.''.
    (b) Conforming Amendment.--Section 2032A(b)(5)(A) is 
amended by striking the last sentence.
    (c) Effective Date.--The amendments made by this section 
shall apply with respect to leases entered into after December 
31, 1976.

SEC. 505. CLARIFICATION OF JUDICIAL REVIEW OF ELIGIBILITY FOR EXTENSION 
                    OF TIME FOR PAYMENT OF ESTATE TAX.

    (a) In General.--Part IV of subchapter C of chapter 76 of 
the Internal Revenue Code of 1986 (relating to declaratory 
judgments) is amended by adding at the end the following new 
section:

``SEC. 7479. DECLARATORY JUDGMENTS RELATING TO ELIGIBILITY OF ESTATE 
                    WITH RESPECT TO INSTALLMENT PAYMENTS UNDER SECTION 
                    6166.

    ``(a) Creation of Remedy.--In a case of actual controversy 
involving a determination by the Secretary of (or a failure by 
the Secretary to make a determination with respect to)--
            ``(1) whether an election may be made under section 
        6166 (relating to extension of time for payment of 
        estate tax where estate consists largely of interest in 
        closely held business) with respect to an estate, or
            ``(2) whether the extension of time for payment of 
        tax provided in section 6166(a) has ceased to apply 
        with respect to an estate,
upon the filing of an appropriate pleading, the Tax Court may 
make a declaration with respect to whether such election may be 
made or whether such extension has ceased to apply. Any such 
declaration shall have the force and effect of a decision of 
the Tax Court and shall be reviewable as such.
    ``(b) Limitations.--
            ``(1) Petitioner.--A pleading may be filed under 
        this section, with respect to any estate, only--
                    ``(A) by the executor of such estate, or
                    ``(B) by any person who has assumed an 
                obligation to make payments under section 6166 
                with respect to such estate (but only if each 
                other such person is joined as a party).
            ``(2) Exhaustion of administrative remedies.--The 
        court shall not issue a declaratory judgment or decree 
        under this section in any proceeding unless it 
        determines that the petitioner has exhausted all 
        available administrative remedies within the Internal 
        Revenue Service. A petitioner shall be deemed to have 
        exhausted its administrative remedies with respect to a 
        failure of the Secretary to make a determination at the 
        expiration of 180 days after the date on which the 
        request for such determination was made if the 
        petitioner has taken, in a timely manner, all 
        reasonable steps to secure such determination.
            ``(3) Time for bringing action.--If the Secretary 
        sends by certified or registered mail notice of his 
        determination as described in subsection (a) to the 
        petitioner, no proceeding may be initiated under this 
        section unless the pleading is filed before the 91st 
        day after the date of such mailing.''.
    (b) Clerical Amendment.--The table of sections for part IV 
of subchapter C of chapter 76 of such Code is amended by adding 
at the end the following new item:

        ``Sec. 7479. Declaratory judgments relating to eligibility of 
                  estate with respect to installment payments under 
                  section 6166.''.

1    (c) Effective Date.--The amendments made by this section 
shall apply to the estates of decedents dying after the date of 
the enactment of this Act.

SEC. 506. GIFTS MAY NOT BE REVALUED FOR ESTATE TAX PURPOSES AFTER 
                    EXPIRATION OF STATUTE OF LIMITATIONS.

    (a) In General.--Section 2001 (relating to imposition and 
rate of estate tax) is amended by adding at the end the 
following new subsection:
    ``(f) Valuation of Gifts.--If--
            ``(1) the time has expired within which a tax may 
        be assessed under chapter 12 (or under corresponding 
        provisions of prior laws) on the transfer of property 
        by gift made during a preceding calendar period (as 
        defined in section 2502(b)), and
            ``(2) the value of such gift is shown on the return 
        for such preceding calendar period or is disclosed in 
        such return, or in a statement attached to the return, 
        in a manner adequate to apprise the Secretary of the 
        nature of such gift,
the value of such gift shall, for purposes of computing the tax 
under this chapter, be the value of such gift as finally 
determined for purposes of chapter 12.''.
    (b) Modification of Application of Statute of 
Limitations.--Paragraph (9) of section 6501(c) is amended to 
read as follows:
            ``(9) Gift tax on certain gifts not shown on 
        return.--If any gift of property the value of which (or 
        any increase in taxable gifts required under section 
        2701(d) which) is required to be shown on a return of 
        tax imposed by chapter 12 (without regard to section 
        2503(b)), and is not shown on such return, any tax 
        imposed by chapter 12 on such gift may be assessed, or 
        a proceeding in court for the collection of such tax 
        may be begun without assessment, at any time. The 
        preceding sentence shall not apply to any item which is 
        disclosed in such return, or in a statement attached to 
        the return, in a manner adequate to apprise the 
        Secretary of the nature of such item. The value of any 
        item which is so disclosed may not be redetermined by 
        the Secretary after the expiration of the period under 
        subsection (a).''.
    (c) Declaratory Judgment Procedure for Determining Value of 
Gift.--
            (1) In general.--Part IV of subchapter C of chapter 
        76 is amended by inserting after section 7476 the 
        following new section:

``SEC. 7477. DECLARATORY JUDGMENTS RELATING TO VALUE OF CERTAIN GIFTS.

    ``(a) Creation of Remedy.--In a case of an actual 
controversy involving a determination by the Secretary of the 
value of any gift shown on the return of tax imposed by chapter 
12 or disclosed on such return or in any statement attached to 
such return, upon the filing of an appropriate pleading, the 
Tax Court may make a declaration of the value of such gift. Any 
such declaration shall have the force and effect of a decision 
of the Tax Court and shall be reviewable as such.
    ``(b) Limitations.--
            ``(1) Petitioner.--A pleading may be filed under 
        this section only by the donor.
            ``(2) Exhaustion of administrative remedies.--The 
        court shall not issue a declaratory judgment or decree 
        under this section in any proceedingunless it 
determines that the petitioner has exhausted all available 
administrative remedies within the Internal Revenue Service.
            ``(3) Time for bringing action.--If the Secretary 
        sends by certified or registered mail notice of his 
        determination as described in subsection (a) to the 
        petitioner, no proceeding may be initiated under this 
        section unless the pleading is filed before the 91st 
        day after the date of such mailing.''.
            (2) Clerical amendment.--The table of sections for 
        such part IV is amended by inserting after the item 
        relating to section 7476 the following new item:

        ``Sec. 7477. Declaratory judgments relating to value of certain 
                  gifts.''.

    (d) Conforming Amendment.--Subsection (c) of section 2504 
is amended by striking ``, and if a tax under this chapter or 
under corresponding provisions of prior laws has been assessed 
or paid for such preceding calendar period''.
    (e) Effective Dates.--
            (1) In general.--The amendments made by subsections 
        (a) and (c) shall apply to gifts made after the date of 
        the enactment of this Act.
            (2) Subsection (b)--The amendment made by 
        subsection (b) shall apply to gifts made in calendar 
        years ending after the date of the enactment of this 
        Act.

SEC. 507. REPEAL OF THROWBACK RULES APPLICABLE TO CERTAIN DOMESTIC 
                    TRUSTS.

    (a) Accumulation Distributions.--
            (1) In general.--Section 665 is amended by 
        inserting after subsection (b) the following new 
        subsection:
    ``(c) Exception for Accumulation Distributions From Certain 
Domestic Trusts.--For purposes of this subpart--
            ``(1) In general.--In the case of a qualified 
        trust, any distribution in any taxable year beginning 
        after the date of the enactment of this subsection 
        shall be computed without regard to any undistributed 
        net income.
            ``(2) Qualified trust.--For purposes of this 
        subsection, the term `qualified trust' means any trust 
        other than--
                    ``(A) a foreign trust (or, except as 
                provided in regulations, a domestic trust which 
                at any time was a foreign trust), or
                    ``(B) a trust created before March 1, 1984, 
                unless it is established that the trust would 
                not be aggregated with other trusts under 
                section 643(f) if such section applied to such 
                trust.''.
            (2) Conforming amendments.--Subsection (b) of 
        section 665 is amended by inserting ``except as 
        provided in subsection (c),'' after ``subpart,''.
    (b) Repeal of Tax on Transfers to Trusts at Less Than Fair 
Market Value.--
            (1) Subpart A of part I of subchapter J of chapter 
        1 is amended by striking section 644 and by 
        redesignating section 645 as section 644.
            (2) Paragraph (5) of section 706(b) is amended by 
        striking ``section 645'' and inserting ``section 644''.
            (3) The table of sections for such subpart is 
        amended by striking the last 2 items and inserting the 
        following new item:

        ``Sec. 644. Taxable year of trusts.''

    (c) Effective Dates.--
            (1) Accumulation distributions.--The amendments 
        made by subsection (a) shall apply to distributions in 
        taxable years beginning after the date of the enactment 
        of this Act.
            (2) Transferred property.--The amendments made by 
        subsection (b) shall apply to sales or exchanges after 
        the date of the enactment of this Act.

SEC. 508. TREATMENT OF LAND SUBJECT TO A QUALIFIED CONSERVATION 
                    EASEMENT.

    (a) Estate Tax With Respect to Land Subject to a Qualified 
Conservation Easement.--Section 2031 (relating to the 
definition of gross estate) is amended by redesignating 
subsection (c) as subsection (d) and by inserting after 
subsection (b) the following new subsection:
    ``(c) Estate Tax With Respect to Land Subject to a 
Qualified Conservation Easement.--
            ``(1) In general.--If the executor makes the 
        election described in paragraph (6), then, except as 
        otherwise provided in this subsection, there shall be 
        excluded from the gross estate the lesser of--
                    ``(A) the applicable percentage of the 
                value of land subject to a qualified 
                conservation easement, reduced by the amount of 
                any deduction under section 2055(f) with 
                respect to such land, or
                    ``(B) the exclusion limitation.
            ``(2) Applicable percentage.--For purposes of 
        paragraph (1), the term `applicable percentage' means 
        40 percent reduced (but not below zero) by 2 percentage 
        points for each percentage point (or fraction thereof) 
        by which the value of the qualified conservation 
        easement is less than 30 percent of the value of the 
        land (determined without regard to the value of such 
        easement and reduced by the value of any retained 
        development right (as defined in paragraph (5)).
            ``(3) Exclusion limitation.--For purposes of 
        paragraph (1), the exclusion limitation is the 
        limitation determined in accordance with the following 
        table:

    ``In the case of estates of                            The exclusion
      decedents dying during:                             limitation is:
          1998..........................................       $100,000 
          1999..........................................       $200,000 
          2000..........................................       $300,000 
          2001..........................................       $400,000 
          2002 or thereafter............................       $500,000.

            ``(4) Treatment of certain indebtedness.--
                    ``(A) In general.--The exclusion provided 
                in paragraph (1) shall not apply to the extent 
                that the land is debt-financed property.
                    ``(B) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Debt-financed property.--The 
                        term `debt-financed property' means any 
                        property with respect to which there is 
                        an acquisition indebtedness (as defined 
                        in clause (ii)) on the date of the 
                        decedent's death.
                            ``(ii) Acquisition indebtedness.--
                        The term `acquisition indebtedness' 
                        means, with respect to debt-financed 
                        property, the unpaid amount of--
                                    ``(I) the indebtedness 
                                incurred by the donor in 
                                acquiring such property,
                                    ``(II) the indebtedness 
                                incurred before the acquisition 
                                of such property if such 
                                indebtedness would not have 
                                been incurred but for such 
                                acquisition,
                                    ``(III) the indebtedness 
                                incurred after the acquisition 
                                of such property if such 
                                indebtedness would not have 
                                been incurred but for such 
                                acquisition and the incurrence 
                                of such indebtedness was 
                                reasonably foreseeable at the 
                                time of such acquisition, and
                                    ``(IV) the extension, 
                                renewal, or refinancing of an 
                                acquisition indebtedness.
            ``(5) Treatment of retained development right.--
                    ``(A) In general.--Paragraph (1) shall not 
                apply to the value of any development right 
                retained by the donor in the conveyance of a 
                qualified conservation easement.
                    ``(B) Termination of retained development 
                right.--If every person in being who has an 
                interest (whether or not in possession) in the 
                land executes an agreement to extinguish 
                permanently some or all of any development 
                rights (as defined in subparagraph (D)) 
                retained by the donor on or before the date for 
                filing the return of the tax imposed by section 
                2001, then any tax imposed by section 2001 
                shall be reduced accordingly. Such agreement 
                shall be filed with the return of the tax 
                imposed by section 2001. The agreement shall be 
                in such form as the Secretary shall prescribe.
                    ``(C) Additional tax.--Any failure to 
                implement the agreement described in 
                subparagraph (B) not later than the earlier 
                of--
                            ``(i) the date which is 2 years 
                        after the date of the decedent's death, 
                        or
                            ``(ii) the date of the sale of such 
                        land subject to the qualified 
                        conservation easement,
                shall result in the imposition of an additional 
                tax in the amount of the tax which would 
havebeen due on the retained development rights subject to such 
agreement. Such additional tax shall be due and payable on the last day 
of the 6th month following such date.
                    ``(D) Development right defined.--For 
                purposes of this paragraph, the term 
                `development right' means any right to use the 
                land subject to the qualified conservation 
                easement in which such right is retained for 
                any commercial purpose which is not subordinate 
                to and directly supportive of the use of such 
                land as a farm for farming purposes (within the 
                meaning of section 2032A(e)(5)).
            ``(6) Election.--The election under this subsection 
        shall be made on the return of the tax imposed by 
        section 2001. Such an election, once made, shall be 
        irrevocable.
            ``(7) Calculation of estate tax due.--An executor 
        making the election described in paragraph (6) shall, 
        for purposes of calculating the amount of tax imposed 
        by section 2001, include the value of any development 
        right (as defined in paragraph (5)) retained by the 
        donor in the conveyance of such qualified conservation 
        easement. The computation of tax on any retained 
        development right prescribed in this paragraph shall be 
        done in such manner and on such forms as the Secretary 
        shall prescribe.
            ``(8) Definitions.--For purposes of this 
        subsection--
                    ``(A) Land subject to a qualified 
                conservation easement.--The term `land subject 
                to a qualified conservation easement' means 
                land--
                            ``(i) which is located--
                                    ``(I) in or within 25 miles 
                                of an area which, on the date 
                                of the decedent's death, is a 
                                metropolitan area (as defined 
                                by the Office of Management and 
                                Budget),
                                    ``(II) in or within 25 
                                miles of an area which, on the 
                                date of the decedent's death, 
                                is a national park or 
                                wilderness area designated as 
                                part of the National Wilderness 
                                Preservation System (unless it 
                                is determined by the Secretary 
                                that land in or within 25 miles 
                                of such a park or wilderness 
                                area is not under significant 
                                development pressure), or
                                    ``(III) in or within 10 
                                miles of an area which, on the 
                                date of the decedent's death, 
                                is an Urban National Forest (as 
                                designated by the Forest 
                                Service),
                            ``(ii) which was owned by the 
                        decedent or a member of the decedent's 
                        family at all times during the 3-year 
                        period ending on the date of the 
                        decedent's death, and
                            ``(iii) with respect to which a 
                        qualified conservation easement has 
                        been made by an individual described in 
                        subparagraph (C), as of the date of the 
                        election described in paragraph (6).
                    ``(B) Qualified conservation easement.--The 
                term `qualified conservation easement' means a 
                qualified conservation contribution (as defined 
                in section 170(h)(1)) of a qualified real 
                property interest (as defined in section 
                170(h)(2)(C)), except that clause (iv) of 
                section 170(h)(4)(A) shall not apply, and the 
                restriction on the use of such interest 
                described in section 170(h)(2)(C) shall include 
                a prohibition on more than a de minimis use for 
                a commercial recreational activity.
                    ``(C) Individual described.--An individual 
                is described in this subparagraph if such 
                individual is--
                            ``(i) the decedent,
                            ``(ii) a member of the decedent's 
                        family,
                            ``(iii) the executor of the 
                        decedent's estate, or
                            ``(iv) the trustee of a trust the 
                        corpus of which includes the land to be 
                        subject to the qualified conservation 
                        easement.
                    ``(D) Member of family.--The term `member 
                of the decedent's family' means any member of 
                the family (as defined in section 2032A(e)(2)) 
                of the decedent.
            ``(9) Application of this section to interests in 
        partnerships, corporations, and trusts.--This section 
        shall apply to an interest in a partnership, 
        corporation, or trust if at least 30 percent of the 
        entity is owned (directly or indirectly) by the 
        decedent, as determined under the rules described in 
        section 2033A(e)(3).''.
    (b) Carryover Basis.--Section 1014(a) (relating to basis of 
property acquired from a decedent) is amended by striking 
``or'' at the end of paragraphs (1) and (2), by striking the 
period at the end of paragraph (3) and inserting ``, or'' and 
by adding at the end the following new paragraph:
            ``(4) to the extent of the applicability of the 
        exclusion described in section 2031(c), the basis in 
        the hands of the decedent.''.
    (c) Qualified Conservation Contribution Is Not a 
Disposition.--Subsection (c) of section 2032A (relating to 
alternative valuation method) is amended by adding at the end 
the following new paragraph:
            ``(8) Qualified conservation contribution is not a 
        disposition.--A qualified conservation contribution (as 
        defined in section 170(h)) by gift or otherwise shall 
        not be deemed a disposition under subsection 
        (c)(1)(A).''.
    (d) Qualified Conservation Contribution Where Surface and 
Mineral Rights are Separated.--Section 170(h)(5)(B)(ii) 
(relating to special rule) is amended to read as follows:
            ``(ii) Special rule.--With respect to any 
        contribution of property in which the ownership of the 
        surface estate and mineral interests has been and 
        remains separated, subparagraph (A) shall be treated as 
        met if the probability of surface mining occurring on 
        such property is so remote as to be negligible.''.
    (e) Effective Dates.--
            (1) Enclusion.--The amendments made by subsections 
        (a) and (b) shall apply to estates of decedents dying 
        after December 31, 1997.
            (2) Easements.--The amendments made by subsections 
        (c) and (d) shall apply to easements granted after 
        December 31, 1997.

             Subtitle B--Generation-Skipping Tax Provision

SEC. 511. EXPANSION OF EXCEPTION FROM GENERATION-SKIPPING TRANSFER TAX 
                    FOR TRANSFERS TO INDIVIDUALS WITH DECEASED PARENTS.

    (a) In General.--Section 2651 (relating to generation 
assignment) is amended by redesignating subsection (e) as 
subsection (f) and by inserting after subsection (d) the 
following new subsection:
    ``(e) Special Rule for Persons With a Deceased Parent.--
            ``(1) In general.--For purposes of determining 
        whether any transfer is a generation-skipping transfer, 
        if--
                    ``(A) an individual is a descendant of a 
                parent of the transferor (or the transferor's 
                spouse or former spouse), and
                    ``(B) such individual's parent who is a 
                lineal descendant of the parent of the 
                transferor (or the transferor's spouse or 
                former spouse) is dead at the time the transfer 
                (from which an interest of such individual is 
                established or derived) is subject to a tax 
                imposed by chapter 11 or 12 upon the transferor 
                (and if there shall be more than 1 such time, 
                then at the earliest such time),
        such individual shall be treated as if such individual 
        were a member of the generation which is 1 generation 
        below the lower of the transferor's generation or the 
        generation assignment of the youngest living ancestor 
        of such individual who is also a descendant of the 
        parent of the transferor (or the transferor's spouse or 
        former spouse), and the generation assignment of any 
        descendant of such individual shall be adjusted 
        accordingly.
            ``(2) Limited application of subsection to 
        collateral heirs.--This subsection shall not apply with 
        respect to a transfer to any individual who is not a 
        lineal descendant of the transferor (or the 
        transferor's spouse or former spouse) if, at the time 
        of the transfer, such transferor has any living lineal 
        descendant.''.
    (b) Conforming Amendments.--
            (1) Section 2612(c) (defining direct skip) is 
        amended by striking paragraph (2) and by redesignating 
        paragraph (3) as paragraph (2).
            (2) Section 2612(c)(2) (as so redesignated) is 
        amended by striking ``section 2651(e)(2)'' and 
        inserting ``section 2651(f)(2)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to terminations, distributions, and transfers 
occurring after December 31, 1997.

                          TITLE VI--EXTENSIONS

SEC. 601. RESEARCH TAX CREDIT.

    (a) In General.--Paragraph (1) of section 41(h) (relating 
to termination) is amended--
            (1) by striking ``May 31, 1997'' and inserting 
        ``June 30, 1998'', and
            (2) by striking in the last sentence ``during the 
        first 11 months of such taxable year.'' and inserting 
        ``during the 24-month period beginning with the first 
        month of such year. The 24 months referred to in the 
        preceding sentence shall be reduced by the number of 
        full months after June 1996 (and before the first month 
        of such first taxable year) during which the taxpayer 
        paid or incurred any amount which is taken into account 
        in determining the credit under this section.''.
    (b) Technical Amendments.--
            (1) Subparagraph (B) of section 41(c)(4) is amended 
        to read as follows:
                    ``(B) Election.--An election under this 
                paragraph shall apply to the taxable year for 
                which made and all succeeding taxable years 
                unless revoked with the consent of the 
                Secretary.''.
            (2) Paragraph (1) of section 45C(b) is amended by 
        striking ``May 31, 1997'' and inserting ``June 30, 
        1998''.
    (c) Effective Date.--The amendments made by this section 
shall apply to amounts paid or incurred after May 31, 1997.

SEC. 602. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDATIONS.

    (a) In General.--Clause (ii) of section 170(e)(5)(D) 
(relating to termination) is amended by striking ``May 31, 
1997'' and inserting ``June 30, 1998''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to contributions made after May 31, 1997.

SEC. 603. WORK OPPORTUNITY TAX CREDIT.

    (a) Extension.--Subparagraph (B) of section 51(c)(4) 
(relating to termination) is amended by striking ``September 
30, 1997'' and inserting ``June 30, 1998''.
    (b) Modification of Eligibility Requirement Based on Period 
on Welfare.--
            (1) In general.--Subparagraph (A) of section 
        51(d)(2) (defining qualified IV-A recipient) is amended 
        by striking all that follows ``a IV-A program'' and 
        inserting ``for any 9 months during the 18-month period 
        ending on the hiring date.''.
            (2) Conforming amendment.--Subparagraph (A) of 
        section 51(d)(3) is amended to read as follows:
                    ``(A) In general.--The term `qualified 
                veteran' means any veteran who is certified by 
                the designated local agency as being 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.''.
    (c) Qualified SSI Recipients Treated as Members of Targeted 
Groups.--
            (1) In general.--Section 51(d)(1) (relating to 
        members of targeted groups) is amended by striking 
        ``or'' at the end of subparagraph (F), by striking the 
        period at the end of subparagraph (G) and inserting ``, 
        or'', and by adding at the end the following new 
        subparagraph:
                    ``(H) a qualified SSI recipient.''.
            (2) Qualified ssi recipients.--Section 51(d) is 
        amended by redesignating paragraphs (9), (10), and (11) 
        as paragraphs (10), (11), and (12), respectively, and 
        by inserting after paragraph (8) the following new 
        paragraph:
            ``(9) Qualified ssi recipient.--The term `qualified 
        SSI recipient' means any individual who is certified by 
        the designated local agency as receiving supplemental 
        security income benefits under title XVI of the Social 
        Security Act (including supplemental security income 
        benefits of the type described in section 1616 of such 
        Act or section 212 of Public Law 93-66) for any month 
        ending within the 60-day period ending on the hiring 
        date.''.
    (d) Percentage of Wages Allowed as Credit.--
            (1) In general.--Subsection (a) of section 51 
        (relating to determination of amount) is amended by 
        striking ``35 percent'' and inserting ``40 percent''.
            (2) Application of credit for individuals 
        performing fewer than 400 hours of services.--Paragraph 
        (3) of section 51(i) is amended to read as follows:
            ``(3) Individuals not meeting minimum employment 
        periods.--
                    ``(A) Reduction of credit for individuals 
                performing fewer than 400 hours of service.--In 
                the case of an individual who has performed at 
                least 120 hours, but less than 400 hours, of 
                service for the employer, subsection (a) shall 
                be applied by substituting `25 percent' for `40 
                percent'.
                    ``(B) Denial of credit for individuals 
                performing fewer than 120 hours of service.--No 
                wages shall be taken into account under 
                subsection (a) with respect to any individual 
                unless such individual has performed at least 
                120 hours of service for the employer.''.
    (e) Effective date.--The amendments made by this section 
shall apply to individuals who begin work for the employer 
after September 30, 1997.

SEC. 604. ORPHAN DRUG TAX CREDIT.

    (a) In General.--Section 45C (relating to clinical testing 
expenses for certain drugs for rare diseases or conditions) is 
amended by striking subsection (e).
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to amounts paid or incurred after May 31, 1997.

  TITLE VII--INCENTIVES FOR REVITALIZATION OF THE DISTRICT OF COLUMBIA

SEC. 701. TAX INCENTIVES FOR REVITALIZATION OF THE DISTRICT OF 
                    COLUMBIA.

    (a) In General.--Chapter 1 is amended by adding at the end 
the following new subchapter:

          ``Subchapter W--District of Columbia Enterprise Zone

        ``Sec. 1400.  Establishment of DC Zone.
        ``Sec. 1400A. Tax-exempt economic development bonds.
        ``Sec. 1400B. Zero percent capital gains rate.
        ``Sec. 1400C. First-time homebuyer credit for District of 
                  Columbia.

``SEC. 1400. ESTABLISHMENT OF DC ZONE.

    ``(a) In General.--For purposes of this title--
            ``(1) the applicable DC area is hereby designated 
        as the District of Columbia Enterprise Zone, and
            ``(2) except as otherwise provided in this 
        subchapter, the District of Columbia Enterprise Zone 
        shall be treated as an empowerment zone designated 
        under subchapter U.
    ``(b) Applicable DC Area.--For purposes of subsection (a), 
the term `applicable DC area' means the area consisting of--
            ``(1) the census tracts located in the District of 
        Columbia which are part of an enterprise community 
        designated under subchapter U before the date of the 
        enactment of this subchapter, and
            ``(2) all other census tracts--
                    ``(A) which are located in the District of 
                Columbia, and
                    ``(B) for which the poverty rate is not 
                less than than 20 percent.
    ``(c) District of Columbia Enterprise Zone.--For purposes 
of this subchapter, the terms `District of Columbia Enterprise 
Zone' and `DC Zone' mean the District of Columbia Enterprise 
Zone designated by subsection (a).
    ``(d) Special Rules for Application of Employment Credit.--
            ``(1) Employees whose principal place of abode is 
        in district of columbia.--With respect to the DC Zone, 
        section 1396(d)(1)(B) (relating to empowerment zone 
        employment credit) shall be applied by substituting 
        `the District of Columbia' for `such empowerment zone'.
            ``(2) No decrease of percentage in 2002.--In the 
        case of the DC Zone, section 1396 (relating to 
        empowerment zone employment credit) shall be applied by 
        substituting ``20'' for ``15'' in the table contained 
        in section 1396(b). The preceding sentence shall apply 
        only with respect to qualified zone employees, as 
        defined in section 1396(d), determined by treating no 
        area other than the DC Zone as an empowerment zone or 
        enterprise community.
    ``(e) Special Rule for Application of Enterprise Zone 
Business Definition.--For purposes of this subchapter and for 
purposes of applying subchapter U with respect to the DC Zone, 
section 1397B shall be applied without regard to subsections 
(b)(6) and (c)(5) thereof.
    ``(f) Time For Which Designation Applicable.--
            ``(1) In general.--The designation made by 
        subsection (a) shall apply for the period beginning on 
        January 1, 1998, and ending on December 31, 2002.
            ``(2) Coordination with dc enterprise community 
        designated under subchapter u.--The designation under 
        subchapter U of the census tracts referred to in 
        subsection (b)(1) as an enterprise community shall 
        terminate on December 31, 2002.

``SEC. 1400A. TAX-EXEMPT ECONOMIC DEVELOPMENT BONDS.

    ``(a) In General.--In the case of the District of Columbia 
Enterprise Zone, subparagraph (A) of section 1394(c)(1) 
(relating to limitation on amount of bonds) shall be applied by 
substituting `$15,000,000' for `$3,000,000'.
    ``(b) Period of Applicability.--This section shall apply to 
bonds issued during the period beginning on January 1, 1998, 
and ending on December 31, 2002.

``SEC. 1400B. ZERO PERCENT CAPITAL GAINS RATE.

    ``(a) Exclusion.--Gross income shall not include qualified 
capital gain from the sale or exchange of any DC Zone asset 
held for more than 5 years.
    ``(b) DC Zone Asset.--For purposes of this section--
            ``(1) In general.--The term `DC Zone asset' means--
                    ``(A) any DC Zone business stock,
                    ``(B) any DC Zone partnership interest, and
                    ``(C) any DC Zone business property.
            ``(2) DC zone business stock.--
                    ``(A) In general.--The term `DC Zone 
                business stock' means any stock in a domestic 
                corporation which is originally issued after 
                December 31, 1997, if--
                            ``(i) such stock is acquired by the 
                        taxpayer, before January 1, 2003, at 
                        its original issue (directly or through 
                        an underwriter) solely in exchange for 
                        cash,
                            ``(ii) as of the time such stock 
                        was issued, such corporation was a DC 
                        Zone business (or, in the case of a new 
                        corporation, such corporation was being 
                        organized for purposes of being a DC 
                        Zone business), and
                            ``(iii) during substantially all of 
                        the taxpayer's holding period for such 
                        stock, such corporation qualified as a 
                        DC Zone business.
                    ``(B) Redemptions.--A rule similar to the 
                rule of section 1202(c)(3) shall apply for 
                purposes of this paragraph.
            ``(3) DC zone partnership interest.--The term `DC 
        Zone partnership interest' means any capital or profits 
        interest in a domestic partnership which is originally 
        issued after December 31, 1997, if--
                    ``(A) such interest is acquired by the 
                taxpayer, before January 1, 2003, from the 
                partnership solely in exchange for cash,
                    ``(B) as of the time such interest was 
                acquired, such partnership was a DC Zone 
                business (or, in the case of a new partnership, 
                such partnership was being organized for 
                purposes of being a DC Zone business), and
                    ``(C) during substantially all of the 
                taxpayer's holding period for such interest, 
                such partnership qualified as a DC Zone 
                business.
        A rule similar to the rule of paragraph (2)(B) shall 
        apply for purposes of this paragraph.
            ``(4) DC zone business property.--
                    ``(A) In general.--The term `DC Zone 
                business property' means tangible property if--
                            ``(i) such property was acquired by 
                        the taxpayer by purchase (as defined in 
                        section 179(d)(2)) after December 31, 
                        1997, and before January 1, 2003,
                            ``(ii) the original use of such 
                        property in the DC Zone commences with 
                        the taxpayer, and
                            ``(iii) during substantially all of 
                        the taxpayer's holding period for such 
                        property, substantially all of the use 
                        of such property was in a DC Zone 
                        business of the taxpayer.
                    ``(B) Special rule for buildings which are 
                substantially improved.--
                            ``(i) In general.--The requirements 
                        of clauses (i) and (ii) of subparagraph 
                        (A) shall be treated as met with 
                        respect to--
                                    ``(I) property which is 
                                substantially improved by the 
                                taxpayer before January 1, 
                                2003, and
                                    ``(II) any land on which 
                                such property is located.
                            ``(ii) Substantial improvement.--
                        For purposes of clause (i), property 
                        shall be treated as substantially 
                        improved by the taxpayer only if, 
                        during any 24-month period beginning 
                        after December 31, 1997, additions to 
                        basis with respect to such property in 
                        the hands of the taxpayer exceed the 
                        greater of--
                                    ``(I) an amount equal to 
                                the adjusted basis of such 
                                property at the beginning of 
                                such 24-month period in the 
                                hands of the taxpayer, or
                                    ``(II) $5,000.
            ``(6) Treatment of subsequent purchasers, etc.--The 
        term `DC Zone asset' includes any property which would 
        be a DC Zone asset but for paragraph (2)(A)(i), (3)(A), 
        or (4)(A)(ii) in the hands of the taxpayer if such 
        property was a DC Zone asset in the hands of a prior 
        holder.
            ``(7) 5-year safe harbor.--If any property ceases 
        to be a DC Zone asset by reason of paragraph 
        (2)(A)(iii), (3)(C), or (4)(A)(iii) after the 5-year 
        period beginning on the date the taxpayer acquired such 
        property, such property shall continue to be treated as 
        meeting the requirements of such paragraph; except that 
        the amount of gain to which subsection (a) applies on 
        any sale or exchange of such property shall not exceed 
        the amount which would be qualified capital gain had 
        such property been sold on the date of such cessation.
    ``(c) DC Zone Business.--For purposes of this section, the 
term `DC Zone business' means any entity which is an enterprise 
zone business (as defined in section 1397B), determined--
            ``(1) after the application of section 1400(e),
            ``(2) by substituting ``80 percent'' for ``50 
        percent'' in subsections (b)(2) and (c)(1) of section 
        1397B, and
            ``(3) by treating no area other than the DC Zone as 
        an empowerment zone or enterprise community.
    ``(d) Treatment of Zone as Including Census Tracts With 10 
Percent Poverty Rate.--For purposes of applying this section 
(and for purposes of applying this subchapter and subchapter U 
with respect to this section), the DC Zone shall be treated as 
including all census tracts--
            ``(1) which are located in the District of 
        Columbia, and
            ``(2) for which the poverty rate is not less than 
        10 percent.
    ``(e) Other Definitions and Special Rules.--For purposes of 
this section--
            ``(1) Qualified capital gain.--Except as otherwise 
        provided in this subsection, the term `qualified 
        capital gain' means any gain recognized on the sale or 
        exchange of--
                    ``(A) a capital asset, or
                    ``(B) property used in the trade or 
                business (as defined in section 1231(b)).
            ``(2) Gain before 1998 or after 2007 not 
        qualified.--The term `qualified capital gain' shall not 
        include any gain attributable to periods before January 
        1, 1998, or after December 31, 2007.
            ``(3) Certain gain not qualified.--The term 
        `qualified capital gain' shall not include any gain 
        which would be treated as ordinary income under section 
        1245 or under section 1250 if section 1250 applied to 
        all depreciation rather than the additional 
        depreciation.
            ``(4) Intangibles and land not integral part of dc 
        zone business.--The term `qualified capital gain' shall 
        not include any gain which is attributable to real 
        property, or an intangible asset, which is not an 
        integral part of a DC Zone business.
            ``(5) Related party transactions.--The term 
        `qualified capital gain' shall not include any gain 
        attributable, directly or indirectly, in whole or in 
        part, to a transaction with a related person. For 
        purposes of this paragraph, persons are related to each 
        other if such persons are described in section 267(b) 
        or 707(b)(1).
    ``(f) Certain Other Rules To Apply.--Rules similar to the 
rules of subsections (g), (h), (i)(2), and (j) of section 1202 
shall apply for purposes of this section.
    ``(g) Sales and Exchanges of Interests in Partnerships and 
S Corporations Which Are DC Zone Businesses.--In the case of 
the sale or exchange of an interest in a partnership, or of 
stock in an S corporation, which was a DC Zone business during 
substantially all of the period the taxpayer held such interest 
or stock, the amount of qualified capital gain shall be 
determined without regard to--
            ``(1) any gain which is attributable to real 
        property, or an intangible asset, which is not an 
        integral part of a DC Zone business, and
            ``(2) any gain attributable to periods before 
        January 1, 1998, or after December 31, 2007.

``SEC. 1400C. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF COLUMBIA.

    ``(a) Allowance of Credit.--In the case of an individual 
who is a first-time homebuyer of a principal residence in the 
District of Columbia during any taxable year, there shall be 
allowed as a credit against the tax imposed by this chapter for 
the taxable year an amount equal to so much of the purchase 
price of the residence as does not exceed $5,000.
    ``(b) Limitation Based on Modified Adjusted Gross Income.--
            ``(1) In general.--The amount allowable as a credit 
        under subsection (a) (determined without regard to this 
        subsection) for the taxable year shall be reduced (but 
        not below zero) by the amount which bears the same 
        ratio to the credit so allowable as--
                    ``(A) the excess (if any) of--
                            ``(i) the taxpayer's modified 
                        adjusted gross income for such taxable 
                        year, over
                            ``(ii) $70,000 ($110,000 in the 
                        case of a joint return), bears to
                    ``(B) $20,000.
            ``(2) Modified adjusted gross income.--For purposes 
        of paragraph (1), the term `modified adjusted gross 
        income' means the adjusted gross income of the taxpayer 
        for the taxable year increased by any amount excluded 
        from gross income under section 911, 931, or 933.
    ``(c) First-Time Homebuyer.--For purposes of this section--
            ``(1) In general.--The term `first-time homebuyer' 
        has the same meaning as when used in section 
        72(t)(8)(D)(i), except that `principal residence in the 
        District of Columbia during the 1-year period' shall be 
        substituted for `principal residence during the 2-year 
        period' in subclause (I) thereof.
            ``(2) One-time only.--If an individual is treated 
        as a first-time homebuyer with respect to any principal 
        residence, such individual may not be treated as a 
        first-time homebuyer with respect to any other 
        principal residence.
            ``(3) Principal residence.--The term `principal 
        residence' has the same meaning as when used in section 
        121.
    ``(d) Carryover of Credit.--If the credit allowable under 
subsection (a) exceeds the limitation imposed by section 26(a) 
for such taxable year reduced by the sum of the credits 
allowable under subpart A of part IV of subchapter A (other 
than this section), such excess shall be carried to the 
succeeding taxable year and added to the credit allowable under 
subsection (a) for such taxable year.
    ``(e) Special Rules.--For purposes of this section--
            ``(1) Allocation of dollar limitation.--
                    ``(A) Married individuals filing 
                separately.--In the case of a married 
                individual filing a separate return, subsection 
                (a) shall be applied by substituting `$2,500' 
                for `$5,000'.
                    ``(B) Other taxpayers.--If 2 or more 
                individuals who are not married purchase a 
                principal residence, the amount of the credit 
                allowed under subsection (a) shall be allocated 
                among such individuals in such manner as the 
                Secretary may prescribe, except that the total 
                amount of the credits allowed to all such 
                individuals shall not exceed $5,000.
            ``(2) Purchase.--
                    ``(A) In general.--The term `purchase' 
                means any acquisition, but only if--
                            ``(i) the property is not acquired 
                        from a person whose relationship to the 
                        person acquiring it would result in the 
                        disallowance of losses under section 
                        267 or 707(b) (but, in applying section 
                        267 (b) and (c) for purposes of this 
                        section, paragraph (4) of section 
                        267(c) shall be treated as providing 
                        that the family of an individual shall 
                        include only his spouse, ancestors, and 
                        lineal descendants), and
                            ``(ii) the basis of the property in 
                        the hands of the person acquiring it is 
                        not determined--
                                    ``(I) in whole or in part 
                                by reference to the adjusted 
                                basis of such property in the 
                                hands of the person from whom 
                                acquired, or
                                    ``(II) under section 
                                1014(a) (relating to property 
                                acquired from a decedent).
                    ``(B) Construction.--A residence which is 
                constructed by the taxpayer shall be treated as 
                purchased by the taxpayer.
            ``(3) Purchase price.--The term `purchase price' 
        means the adjusted basis of the principal residence on 
        the date of acquisition (within the meaning of section 
        72(t)(8)(D)(iii)).
    ``(f) Reporting.--If the Secretary requires information 
reporting under section 6045 by a person described in 
subsection (e)(2) thereof to verify the eligibility of 
taxpayers for the credit allowable by this section, the 
exception provided by section 6045(e)(5) shall not apply.
    ``(g) Credit Treated as Nonrefundable Personal Credit.--For 
purposes of this title, the credit allowed by this section 
shall be treated as a credit allowable under subpart A of part 
IV of subchapter A of this chapter.
    ``(h) Basis Adjustment.--For purposes of this subtitle, if 
a credit is allowed under this section with respect to the 
purchase of any residence, the basis of such residence shall be 
reduced by the amount of the credit so allowed.
    ``(i) Termination.--This section shall not apply to any 
property purchased after December 31, 2000.''
    (b) Conforming Amendments.--
            (1) Subsection (d) of section 39 is amended by 
        adding at the end the following new paragraph:
            ``(8) No carryback of dc zone credits before 
        effective date.--No portion of the unused business 
        credit for any taxable year which is attributable to 
        the credits allowable under subchapter U by reason of 
        section 1400 may be carried back to a taxable year 
        ending before the date of the enactment of section 
        1400.''
            (2) Subsection (a) of section 1016 is amended by 
        striking ``and'' at the end of paragraph (25), by 
        striking the period at the end of paragraph (26) and 
        inserting ``, and'', and by adding at the end thereof 
        the following new paragraph:
            ``(27) in the case of a residence with respect to 
        which a credit was allowed under section 1400C, to the 
        extent provided in section 1400C(h).''
    (c) Clerical Amendment.--The table of subchapters for 
chapter 1 is amended by adding at the end the following new 
item:

        ``Subchapter W. District of Columbia Enterprise Zone.''.

    (d) Effective Date.--Except as provided in subsection (c), 
the amendments made by this section shall take effect on the 
date of the enactment of this Act.

                 TITLE VIII--WELFARE-TO-WORK INCENTIVES

SEC. 801. INCENTIVES FOR EMPLOYING LONG-TERM FAMILY ASSISTANCE 
                    RECIPIENTS.

    (a) In General.--Subpart F of part IV of subchapter A of 
chapter 1 is amended by inserting after section 51 the 
following new section:

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

    ``(a) Determination of Amount.--For purposes of section 38, 
the amount of the welfare-to-work credit determined under this 
section for the taxable year shall be equal to--
            ``(1) 35 percent of the qualified first-year wages 
        for such year, and
            ``(2) 50 percent of the qualified second-year wages 
        for such year.
    ``(b) Qualified Wages Defined.--For purposes of this 
section--
            ``(1) In general.--The term `qualified wages' means 
        the wages paid or incurred by the employer during the 
        taxable year to individuals who are long-term family 
        assistance recipients.
            ``(2) Qualified first-year wages.--The term 
        `qualified first-year wages' means, with respect to any 
        individual, qualified wages attributable to service 
        rendered during the 1-year period beginning with the 
        day the individual begins work for the employer.
            ``(3) Qualified second-year wages.--The term 
        `qualified second-year wages' means, with respect to 
        any individual, qualified wages attributable to service 
        rendered during the 1-year period beginning on the day 
        after the last day of the 1-year period with respect to 
        such individual determined under paragraph (2).
            ``(4) Only first $10,000 of wages per year taken 
        into account.--The amount of the qualified first-year 
        wages, and the amount of qualified second-year wages, 
        which may be taken into account with respect to any 
        individual shall not exceed $10,000 per year.
            ``(5) Wages.--
                    ``(A) In general.--The term `wages' has the 
                meaning given such term by section 51(c), 
                without regard to paragraph (4) thereof.
                    ``(B) Certain amounts treated as wages.--
                The term `wages' includes amounts paid or 
                incurred by the employer which are excludable 
                from such recipient's gross income under--
                            ``(i) section 105 (relating to 
                        amounts received under accident and 
                        health plans),
                            ``(ii) section 106 (relating to 
                        contributions by employer to accident 
                        and health plans),
                            ``(iii) section 127 (relating to 
                        educational assistance programs) or 
                        would be so excludable but for section 
                        127(d), but only to the extent paid or 
                        incurred to a person not related to the 
                        employer, or
                            ``(iv) section 129 (relating to 
                        dependent care assistance programs).
                The amount treated as wages by clause (i) or 
                (ii) for any period shall be based on the 
                reasonable cost of coverage for the period, but 
                shall not exceed the applicable premium for the 
                period under section 4980B(f)(4).
                    ``(C) Special rules for agricultural and 
                railway labor.--If such recipient is an 
                employee to whom subparagraph (A) or (B) of 
                section 51(h)(1) applies, rules similar to 
therules of such subparagraphs shall apply except that--
                            ``(i) such subparagraph (A) shall 
                        be applied by substituting `$10,000' 
                        for `$6,000', and
                            ``(ii) such subparagraph (B) shall 
                        be applied by substituting `$833.33' 
                        for `$500'.
    ``(c) Long-Term Family Assistance Recipients.--For purposes 
of this section--
            ``(1) In general.--The term `long-term family 
        assistance recipient' means any individual who is 
        certified by the designated local agency (as defined in 
        section 51(d)(10))--
                    ``(A) as being a member of a family 
                receiving assistance under a IV-A program (as 
                defined in section 51(d)(2)(B)) for at least 
                the 18-month period ending on the hiring date,
                    ``(B)(i) as being a member of a family 
                receiving such assistance for 18 months 
                beginning after the date of the enactment of 
                this section, and
                    ``(ii) as having a hiring date which is not 
                more than 2 years after the end of the earliest 
                such 18-month period, or
                    ``(C)(i) as being a member of a family 
                which ceased to be eligible after the date of 
                the enactment of this section for such 
                assistance by reason of any limitation imposed 
                by Federal or State law on the maximum period 
                such assistance is payable to a family, and
                    ``(ii) as having a hiring date which is not 
                more than 2 years after the date of such 
                cessation.
            ``(2) Hiring date.--The term `hiring date' has the 
        meaning given such term by section 51(d).
    ``(d) Certain Rules To Apply.--
            ``(1) In general.--Rules similar to the rules of 
        section 52, and subsections (d)(11), (f), (g), (i) (as 
        in effect on the day before the date of the enactment 
        of the Taxpayer Relief Act of 1997), (j), and (k) of 
        section 51, shall apply for purposes of this section.
            ``(2) Credit to be part of general business credit, 
        etc.--References to section 51 in section 38(b), 
        280C(a), and 1396(c)(3) shall be treated as including 
        references to this section.
    ``(e) Coordination With Work Opportunity Credit.--If a 
credit is allowed under this section to an employer with 
respect to an individual for any taxable year, then for 
purposes of applying section 51 to such employer, such 
individual shall not be treated as a member of a targeted group 
for such taxable year.
    ``(f) Termination.--This section shall not apply to 
individuals who begin work for the employer after April 30, 
1999.''.
    (b) Clerical Amendment.--The table of sections for subpart 
F of part IV of subchapter A of chapter 1 is amended by 
inserting after the item relating to section 51 the following 
new item:

        ``Sec. 51A. Temporary incentives for employing long-term family 
                  assistance recipients.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to individuals who begin work for the employer 
after December 31, 1997.

                   TITLE IX--MISCELLANEOUS PROVISIONS

            Subtitle A--Provisions Relating to Excise Taxes

SEC. 901. GENERAL REVENUE PORTION OF HIGHWAY MOTOR FUELS TAXES 
                    DEPOSITED INTO HIGHWAY TRUST FUND.

    (a) In General.--Paragraph (4) of section 9503(b) (relating 
to certain additional taxes not transferred to Highway Trust 
Fund) is amended to read as follows:
            ``(4) Certain taxes not transferred to highway 
        trust fund.--For purposes of paragraphs (1) and (2), 
        there shall not be taken into account the taxes imposed 
        by--
                    ``(A) section 4041(d),
                    ``(B) section 4081 to the extent 
                attributable to the rate specified in section 
                4081(a)(2)(B),
                    ``(C) section 4041 or 4081 to the extent 
                attributable to fuel used in a train,
                    ``(D) in the case of fuels used as 
                described in paragraph (4)(D), (5)(B), or 
                (6)(D) of subsection (c), section 4041 or 
                4081--
                            ``(i) with respect to so much of 
                        the rate of tax on gasoline or special 
                        motor fuels as exceeds 11.5 cents per 
                        gallon, and
                            ``(ii) with respect to so much of 
                        the rate of tax on diesel fuel or 
                        kerosene as exceeds 17.5 cents per 
                        gallon,
                    ``(E) in the case of fuels described in 
                section 4041(b)(2)(A), 4041(k), or 4081(c), 
                section 4041 or 4081 before October 1, 1999, 
                with respect to a rate equal to 2.5 cents per 
                gallon, or
                    ``(F) in the case of fuels described in 
                section 4081(c)(2), such section before October 
                1, 1999, with respect to a rate equal to 2.8 
                cents per gallon.''.
    (b) Mass Transit Portion.--Section 9503(e)(2) (relating to 
transfers to Mass Transit Account) is amended by striking ``2 
cents'' and inserting ``2.85 cents''.
    (c) Limitation on Expenditures.--Subsection (c) of section 
9503 is amended by adding at the end the following new 
paragraph:
            ``(7) Limitation on expenditures.--Notwithstanding 
        any other provision of law, in calculating amounts 
        under section 157(a) of title 23, United States Code, 
        and sections 1013(c), 1015(a), and 1015(b) of the 
        Intermodal Surface Transportation Efficiency Act of 
        1991 (Public Law 102-240; 105 Stat. 1914), deposits in 
        the Highway Trust Fund resulting from the amendments 
        made by the Taxpayer Relief Act of 1997 shall not be 
        taken into account.''.
    (d) Technical Amendments.--
            (1) Section 9503 is amended by striking subsection 
        (f).
            (2) The last sentence of subparagraph (A) of 
        section 9503(c)(2) is amended by striking ``by taking 
        into account only the Highway Trust Fund financing rate 
        applicable to any fuel'' and inserting ``by taking into 
        account only the portion of the taxes which are 
        deposited into the Highway Trust Fund''.
            (3) Paragraphs (4)(D), (5)(B), and (6)(D) of 
        section 9503(c) are each amended by striking 
        ``attributable to the Highway Trust Fund financing 
        rate'' and inserting ``deposited into the Highway Trust 
        Fund''.
    (e) Delayed Deposits of Highway Motor Fuel Tax Revenues.--
Notwithstanding section 6302 of the Internal Revenue Code of 
1986, in the case of deposits of taxes imposed by sections 4041 
and 4081 (other than subsection (a)(2)(A)(ii)) of the Internal 
Revenue Code of1986, the due date for any deposit which would 
(but for this subsection) be required to be made after July 31, 1998, 
and before October 1, 1998, shall be October 5, 1998.
    (f) Effective Date.--The amendments made by this section 
shall apply to taxes received in the Treasury after September 
30, 1997.

SEC. 902. REPEAL OF TAX ON DIESEL FUEL USED IN RECREATIONAL BOATS.

    (a) In General.--Subparagraph (B) of section 6421(e)(2) 
(defining off-highway business use) is amended by striking 
clauses (iii) and (iv).
    (b) Conforming Amendments.--
            (1) Subparagraph (A) of section 4041(a)(1) is 
        amended--
                    (A) by striking ``, a diesel-powered train, 
                or a diesel-powered boat'' each place it 
                appears and inserting ``or a diesel-powered 
                train'', and
                    (B) by striking ``vehicle, train, or boat'' 
                and inserting ``vehicle or train''.
            (2) Paragraph (1) of section 4041(a) is amended by 
        striking subparagraph (D).
            (3) Paragraph (3) of section 4083(a) is amended by 
        striking ``, a diesel-powered train, or a diesel-
        powered boat'' and inserting ``or a diesel-powered 
        train''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on January 1, 1998.

SEC. 903. CONTINUED APPLICATION OF TAX ON IMPORTED RECYCLED HALON-1211.

    (a) In General.--Paragraph (1) of section 4682(d) is 
amended by striking ``recycled halon'' and inserting ``recycled 
Halon-1301 or recycled Halon-2402''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect on the date of the enactment of this Act.

SEC. 904. UNIFORM RATE OF TAX ON VACCINES.

    (a) In General.--Subsection (b) of section 4131 is amended 
to read as follows:
    ``(b) Amount of Tax.--
            ``(1) In general.--The amount of the tax imposed by 
        subsection (a) shall be 75 cents per dose of any 
        taxable vaccine.
            ``(2) Combinations of vaccines.--If any taxable 
        vaccine is described in more than 1 subparagraph of 
        section 4132(a)(1), the amount of the tax imposed by 
        subsection (a) on such vaccine shall be the sum of the 
        amounts for the vaccines which are so included.''.
    (b) Taxable Vaccines.--Paragraph (1) of section 4132(a) is 
amended to read as follows:
            ``(1) Taxable vaccine.--The term `taxable vaccine' 
        means any of the following vaccines which are 
        manufactured or produced in the United States or 
        entered into the United States for consumption, use, or 
        warehousing:
                    ``(A) Any vaccine containing diphtheria 
                toxoid.
                    ``(B) Any vaccine containing tetanus 
                toxoid.
                    ``(C) Any vaccine containing pertussis 
                bacteria, extracted or partial cell bacteria, 
                or specific pertussis antigens.
                    ``(D) Any vaccine against measles.
                    ``(E) Any vaccine against mumps.
                    ``(F) Any vaccine against rubella.
                    ``(G) Any vaccine containing polio virus.
                    ``(H) Any HIB vaccine.
                    ``(I) Any vaccine against hepatitis B.
                    ``(J) Any vaccine against chicken pox.''.
    (c) Conforming Amendment.--Subsection (a) of section 4132 
is amended by striking paragraphs (2), (3), (4), and (5) and by 
redesignating paragraphs (6) through (8) as paragraphs (2) 
through (4), respectively.
    (d) Effective Date.--The amendments made by this section 
shall take effect on the day after the date of the enactment of 
this Act.
    (e) Limitation on Certain Credits or Refunds.--For purposes 
of applying section 4132(b) of the Internal Revenue Code of 
1986 with respect to any claim for credit or refund filed 
before January 1, 1999, the amount of tax taken into account 
shall not exceed the tax computed under the rate in effect on 
the day after the date of the enactment of this Act.

SEC. 905. OPERATORS OF MULTIPLE GASOLINE RETAIL OUTLETS TREATED AS 
                    WHOLESALE DISTRIBUTOR FOR REFUND PURPOSES.

    (a) In General.--Subparagraph (B) of section 6416(a)(4) 
(defining wholesale distributor) is amended by adding at the 
end the following new sentence: ``Such term includes any person 
who makes retail sales of gasoline at 10 or more retail motor 
fuel outlets.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to sales after the date of the enactment of this 
Act.

SEC. 906. EXEMPTION OF ELECTRIC AND OTHER CLEAN-FUEL MOTOR VEHICLES 
                    FROM LUXURY AUTOMOBILE CLASSIFICATION.

    (a) In General.--Subsection (a) of section 4001 (relating 
to imposition of tax) is amended to read as follows:
    ``(a) Imposition of Tax.--
            ``(1) In general.--There is hereby imposed on the 
        1st retail sale of any passenger vehicle a tax equal to 
        10 percent of the price for which so sold to the extent 
        such price exceeds the applicable amount.
            ``(2) Applicable amount.--
                    ``(A) In general.--Except as provided in 
                subparagraphs (B) and (C), the applicable 
                amount is $30,000.
                    ``(B) Qualified clean-fuel vehicle 
                property.--In the case of a passenger vehicle 
                which is propelled by a fuel which is not a 
                clean-burning fuel and to which is installed 
                qualified clean-fuel vehicle property (as 
                defined in section 179A(c)(1)(A)) for purposes 
                of permitting such vehicle to be propelled by a 
                clean-burning fuel, the applicable amount is 
                equal to the sum of--
                            ``(i) the dollar amount in effect 
                        under subparagraph (A), plus
                            ``(ii) the increase in the price 
                        for which the passenger vehicle was 
                        sold (within the meaning of section 
                        4002) due to the installation of such 
                        property.
                    ``(C) Purpose built passenger vehicle.--
                            ``(i) In general.--In the case of a 
                        purpose built passenger vehicle, the 
                        applicable amount is equal to 150 
                        percent of the dollar amount in effect 
                        under subparagraph (A).
                            ``(ii) Purpose built passenger 
                        vehicle.--For purposes of clause (i), 
                        the term `purpose built passenger 
                        vehicle' means a passenger vehicle 
                        produced by an original equipment 
                        manufacturer and designed so that the 
                        vehicle may be propelled primarily by 
                        electricity.''.
    (b) Conforming Amendments.--
            (1) Subsection (e) of section 4001 (relating to 
        inflation adjustment) is amended by striking ``and 
        section 4003(a)''.
            (2) Subsection (f) of section 4001 (relating to 
        phasedown) is amended by striking ``subsection (a)'' 
        and inserting ``subsection (a)(1)''.
            (3) Subparagraph (A) of section 4003(a)(1) is 
        amended by inserting ``(other than property described 
        in section 4001(a)(2)(B))'' after ``part or 
        accessory''.
            (4) Subparagraph (B) of section 4003(a)(2) is 
        amended to read as follows:
                    ``(B) the appropriate applicable amount as 
                determined under section 4001(a)(2).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to sales and installations occurring after the date 
of the enactment of this Act.

SEC. 907. RATE OF TAX ON CERTAIN SPECIAL FUELS DETERMINED ON BASIS OF 
                    BTU EQUIVALENCY WITH GASOLINE.

    (a) Special Motor Fuels.--
            (1) In general.--Paragraph (2) of section 4041(a) 
        (relating to special motor fuels) is amended to read as 
        follows:
            ``(2) Special motor fuels.--
                    ``(A) In general.--There is hereby imposed 
                a tax on any liquid (other than kerosene, gas 
                oil, fuel oil, or any product taxable under 
                section 4081)--
                            ``(i) sold by any person to an 
                        owner, lessee, or other operator of a 
                        motor vehicle or motorboat for use as a 
                        fuel in such motor vehicle or 
                        motorboat, or
                            ``(ii) used by any person as a fuel 
                        in a motor vehicle or motorboat unless 
                        there was a taxable sale of such liquid 
                        under clause (i).
                    ``(B) Rate of tax.--The rate of the tax 
                imposed by this paragraph shall be--
                            ``(i) except as otherwise provided 
                        in this subparagraph, the rate of tax 
                        specified in section 4081(a)(2)(A)(i) 
                        which is in effect at the time of such 
                        sale or use,
                            ``(ii) 13.6 cents per gallon in the 
                        case of liquefied petroleum gas, and
                            ``(iii) 11.9 cents per gallon in 
                        the case of liquefied natural gas.
                In the case of any sale or use after September 
                30, 1999, clause (ii) shall be applied by 
                substituting `3.2 cents' for `13.6 cents', and 
                clause (iii) shall be applied by substituting 
                `2.8 cents' for `11.9 cents'.''.
            (2) Conforming amendment.--Paragraph (1) of section 
        4041(d) is amended by inserting ``and other than 
        liquefied natural gas'' after ``liquefied petroleum 
        gas''.
    (b) Methanol Fuel Produced From Natural Gas.--Subparagraph 
(A) of section 4041(m)(1) is amended to read as follows:
                    ``(A) the rate of the tax imposed by 
                subsection (a)(2) shall be--
                            ``(i) after September 30, 1997, and 
                        before October 1, 1999--
                                    ``(I) in the case of fuel 
                                none of the alcohol in which 
                                consists of ethanol, 9.15 cents 
                                per gallon, and
                                    ``(II) in any other case, 
                                11.3 cents per gallon, and
                            ``(ii) after September 30, 1999--
                                    ``(I) in the case of fuel 
                                none of the alcohol in which 
                                consists of ethanol, 2.15 cents 
                                per gallon, and
                                    ``(II) in any other case, 
                                4.3 cents per gallon, and''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on October 1, 1997.

SEC. 908. MODIFICATION OF TAX TREATMENT OF HARD CIDER.

    (a) Hard Cider Containing Less Than 7 Percent Alcohol Taxed 
as Wine.--Subsection (b) of section 5041 (relating to 
imposition and rate of tax) is amended by striking ``and'' at 
the end of paragraph (4), by striking the period at the end of 
paragraph (5) and inserting ``; and'', and by adding at the end 
the following new paragraph:
            ``(6) On hard cider derived primarily from apples 
        or apple concentrate and water, containing no other 
        fruit product, and containing at least one-half of 1 
        percent and less than 7 percent alcohol by volume, 22.6 
        cents per wine gallon.''.
    (b) Application of Small Producer Credit.--Paragraph (1) of 
section 5041(c) (relating to credit for small domestic 
producers) is amended by adding at the end the following new 
sentence: ``In the case of wine described in subsection (b)(6), 
the preceding sentence shall be applied by substituting `5.6 
cents' for `90 cents'.''
    (c) Effective Date.--The amendments made by this section 
shall take effect on October 1, 1997.

SEC. 909. STUDY OF FEASIBILITY OF MOVING COLLECTION POINT FOR DISTILLED 
                    SPIRITS EXCISE TAX.

    (a) In General.--The Secretary of the Treasury or his 
delegate shall conduct a study of options for changing the 
event on which the tax imposed by section 5001 of the Internal 
Revenue Code of 1986 is determined. One such option which shall 
be studied is determining such tax on removal from registered 
wholesale warehouses. In studying each such option, such 
Secretary shall focus on administrative issues including--
            (1) tax compliance,
            (2) the number of taxpayers required to pay the 
        tax,
            (3) the types of financial responsibility 
        requirements that might be required, and
            (4) special requirements regarding segregation of 
        non-tax-paid distilled spirits from other products.
Such study shall review the effects of each such option on the 
Department of the Treasury (including staffing and other 
demands on budgetary resources) and the change in the period 
between the time such tax is currently paid and the time such 
tax would be paid under each such option.
    (b) Report.--The report of such study shall be submitted to 
the Committee on Finance of the Senate and the Committee on 
Ways and Means of the House of Representatives not later than 
March 31, 1998.

SEC. 910. CLARIFICATION OF AUTHORITY TO USE SEMI-GENERIC DESIGNATIONS 
                    ON WINE LABELS.

    (a) In General.--Section 5388 (relating to designation of 
wines) is amended by adding at the end the following new 
subsection:
    ``(c) Use of Semi-Generic Designations.--
            ``(1) In general.--Semi-generic designations may be 
        used to designate wines of an origin other than that 
        indicated by such name only if--
                    ``(A) there appears in direct conjunction 
                therewith an appropriate appellation of origin 
                disclosing the true place of origin of the 
                wine, and
                    ``(B) the wine so designated conforms to 
                the standard of identity, if any, for such wine 
                contained in the regulations under this section 
                or, if there is no such standard, to the trade 
                understanding of such class or type.
            ``(2) Determination of whether name is semi-
        generic.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), a name of geographic 
                significance, which is also the designation of 
                a class or type of wine, shall be deemed to 
                have become semi-generic only if so found by 
                the Secretary.
                    ``(B) Certain names treated as semi-
                generic.--The following names shall be treated 
                as semi-generic: Angelica, Burgundy, Claret, 
                Chablis, Champagne, Chianti, Malaga, Marsala, 
                Madeira, Moselle, Port, Rhine Wine or Hock, 
                Sauterne, Haut Sauterne, Sherry, Tokay.''.
    (b) Effective Date.--The amendment made by this section 
shall take effect on the date of the enactment of this Act.

              Subtitle B--Revisions Relating to Disasters

SEC. 911. AUTHORITY TO POSTPONE CERTAIN TAX-RELATED DEADLINES BY REASON 
                    OF PRESIDENTIALLY DECLARED DISASTER.

    (a) In General.--Chapter 77 is amended by inserting after 
section 7508 the following new section:

``SEC. 7508A. AUTHORITY TO POSTPONE CERTAIN TAX-RELATED DEADLINES BY 
                    REASON OF PRESIDENTIALLY DECLARED DISASTER.

    ``(a) In General.--In the case of a taxpayer determined by 
the Secretary to be affected by a Presidentially declared 
disaster (as defined by section 1033(h)(3)), the Secretary may 
prescribe regulations under which a period of up to 90 days may 
be disregarded in determining, under the internal revenue laws, 
in respect of any tax liability (including any penalty, 
additional amount, or addition to the tax) of such taxpayer--
            ``(1) whether any of the acts described in 
        paragraph (1) of section 7508(a) were performed within 
        the time prescribed therefor, and
            ``(2) the amount of any credit or refund.
    ``(b) Interest on Overpayments and Underpayments.--
Subsection (a) shall not apply for the purpose of determining 
interest on any overpayment or underpayment.''.
    (b) Clerical Amendment.--The table of sections for chapter 
77 is amended by inserting after the item relating to section 
7508 the following new item:

        ``Sec. 7508A. Authority to postpone certain tax-related 
                  deadlines by reason of presidentially declared 
                  disaster.''.

    (c) Effective Date.--The amendments made by this section 
shall apply with respect to any period for performing an act 
that has not expired before the date of the enactment of this 
Act.

SEC. 912. USE OF CERTAIN APPRAISALS TO ESTABLISH AMOUNT OF DISASTER 
                    LOSS.

    (a) In General.--Subsection (i) of section 165 is amended 
by adding at the end the following new paragraph:
            ``(4) Use of disaster loan appraisals to establish 
        amount of loss.--Nothing in this title shall be 
        construed to prohibit the Secretary from prescribing 
        regulations or other guidance under which an appraisal 
        for the purpose of obtaining a loan of Federal funds or 
        a loan guarantee from the Federal Government as a 
        result of a Presidentially declared disaster (as 
        defined by section 1033(h)(3)) may be used to establish 
        the amount of any loss described in paragraph (1) or 
        (2).''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect on the date of the enactment of this Act.

SEC. 913. TREATMENT OF LIVESTOCK SOLD ON ACCOUNT OF WEATHER-RELATED 
                    CONDITIONS.

    (a) Deferral of Income Inclusion.--Subsection (e) of 
section 451 (relating to special rules for proceeds from 
livestock sold on account of drought) is amended--
            (1) by striking ``drought conditions, and that 
        these drought conditions'' in paragraph (1) and 
        inserting ``drought, flood, or other weather-related 
        conditions, and that such conditions''; and
            (2) by inserting ``, Flood, or Other Weather-
        Related Conditions'' after ``Drought'' in the 
        subsection heading.
    (b) Involuntary Conversions.--Subsection (e) of section 
1033 (relating to livestock sold on account of drought) is 
amended--
            (1) by inserting ``, flood, or other weather-
        related conditions'' before the period at the end 
        thereof; and
            (2) by inserting ``, Flood, or Other Weather-
        Related Conditions'' after ``Drought'' in the 
        subsection heading.
    (c) Effective Date.--The amendments made by this section 
shall apply to sales and exchanges after December 31, 1996.

SEC. 914. MORTGAGE FINANCING FOR RESIDENCES LOCATED IN DISASTER AREAS.

    Subsection (k) of section 143 (relating to mortgage revenue 
bonds; qualified mortgage bond and qualified veteran's mortgage 
bond) is amended by adding at the end the following new 
paragraph:
            ``(11) Special rules for residences located in 
        disaster areas.--In the case of a residence located in 
        an area determined by the President to warrant 
        assistance from the Federal Government under the Robert 
        T. Stafford Disaster Relief and Emergency Assistance 
        Act (as in effect on the date of the enactment of the 
        Taxpayer Relief Act of 1997), this section shall be 
        applied with the following modifications to financing 
        provided with respect to such residence within 2 years 
        after the date of the disaster declaration:
                    ``(A) Subsection (d) (relating to 3-year 
                requirement) shall not apply.
                    ``(B) Subsections (e) and (f) (relating to 
                purchase price requirement and income 
                requirement) shall be applied as if such 
                residence were a targeted area residence.
        The preceding sentence shall apply only with respect to 
        bonds issued after December 31, 1996, and before 
        January 1, 1999.''.

SEC. 915. ABATEMENT OF INTEREST ON UNDERPAYMENTS BY TAXPAYERS IN 
                    PRESIDENTIALLY DECLARED DISASTER AREAS.

    (a) In General.--If the Secretary of the Treasury extends 
for any period the time for filing income tax returns under 
section 6081 of the Internal Revenue Code of 1986 and the time 
for paying income tax with respect to such returns under 
section 6161 of such Code (and waives any penalties relating to 
the failure to so file or so pay) for any individual located in 
a Presidentially declared disaster area, the Secretary shall, 
notwithstanding section 7508A(b) of such Code, abate for such 
period the assessment of any interest prescribed under section 
6601 of such Code on such income tax.
    (b) Presidentially Declared Disaster Area.--For purposes of 
subsection (a), the term ``Presidentially declared disaster 
area'' means, with respect to any individual, any area which 
the President has determined during 1997 warrants assistance by 
the Federal Government under the Robert T. Stafford Disaster 
Relief and Emergency Assistance Act.
    (c) Individual.--For purposes of this section, the term 
``individual'' shall not include any estate or trust.
    (d) Effective Date.--This section shall apply to disasters 
declared after December 31, 1996.

          Subtitle C--Provisions Relating to Employment Taxes

SEC. 921. CLARIFICATION OF STANDARD TO BE USED IN DETERMINING 
                    EMPLOYMENT TAX STATUS OF SECURITIES BROKERS.

    (a) In General.--In determining for purposes of the 
Internal Revenue Code of 1986 whether a registered 
representative of a securities broker-dealer is an employee (as 
defined in section 3121(d) of the Internal Revenue Code of 
1986), no weight shall be given to instructions from the 
service recipient which are imposed only in compliance with 
investor protection standards imposed by the Federal 
Government, any State government, or a governing body pursuant 
to a delegation by a Federal or State agency.
    (b) Effective Date.--Subsection (a) shall apply to services 
performed after December 31, 1997.

SEC. 922. CLARIFICATION OF EXEMPTION FROM SELF-EMPLOYMENT TAX FOR 
                    CERTAIN TERMINATION PAYMENTS RECEIVED BY FORMER 
                    INSURANCE SALESMEN.

    (a) Internal Revenue Code.--Section 1402 (relating to 
definitions) is amended by adding at the end the following new 
subsection:
    ``(k) Codification of Treatment of Certain Termination 
Payments Received by Former Insurance Salesmen.--Nothing in 
subsection (a) shall be construed as including in the net 
earnings from self-employment of an individual any amount 
received during the taxable year from an insurance company on 
account of services performed by such individual as an 
insurance salesman for such company if--
            ``(1) such amount is received after termination of 
        such individual's agreement to perform such services 
        for such company,
            ``(2) such individual performs no services for such 
        company after such termination and before the close of 
        such taxable year,
            ``(3) such individual enters into a covenant not to 
        compete against such company which applies to at least 
        the 1-year period beginning on the date of such 
        termination, and
            ``(4) the amount of such payment--
                    ``(A) depends primarily on policies sold by 
                or credited to the account of such individual 
                during the last year of such agreement or the 
                extent to which such policies remain in force 
                for some period after such termination, or 
                both, and
                    ``(B) does not depend to any extent on 
                length of service or overall earnings from 
                services performed for such company (without 
                regard to whether eligibility for payment 
                depends on length of service).''.
    (b) Social Security Act.--Section 211 of the Social 
Security Act is amended by adding at the end the following new 
subsection:

``Codification of Treatment of Certain Termination Payments Received by 
                       Former Insurance Salesmen

    ``(j) Nothing in subsection (a) shall be construed as 
including in the net earnings from self-employment of an 
individual any amount received during the taxable year from an 
insurance company on account of services performed by such 
individual as an insurance salesman for such company if--
            ``(1) such amount is received after termination of 
        such individual's agreement to perform such services 
        for such company,
            ``(2) such individual performs no services for such 
        company after such termination and before the close of 
        such taxable year,
            ``(3) such individual enters into a covenant not to 
        compete against such company which applies to at least 
        the 1-year period beginning on the date of such 
        termination, and
            ``(4) the amount of such payment--
                    ``(A) depends primarily on policies sold by 
                or credited to the account of such individual 
                during the last year of such agreement or the 
                extent to which such policies remain in force 
                for some period after such termination, or 
                both, and
                    ``(B) does not depend to any extent on 
                length of service or overall earnings from 
                services performed for such company (without 
                regard to whether eligibility for payment 
                depends on length of service).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to payments after December 31, 1997.

          Subtitle D--Provisions Relating to Small Businesses

SEC. 931. WAIVER OF PENALTY THROUGH JUNE 30, 1998, ON SMALL BUSINESSES 
                    FAILING TO MAKE ELECTRONIC FUND TRANSFERS OF TAXES.

    No penalty shall be imposed under the Internal Revenue Code 
of 1986 solely by reason of a failure by a person to use the 
electronic fund transfer system established under section 
6302(h) of such Code if--
            (1) such person is a member of a class of taxpayers 
        first required to use such system on or after July 1, 
        1997, and
            (2) such failure occurs before July 1, 1998.

SEC. 932. CLARIFICATION OF TREATMENT OF HOME OFFICE USE FOR 
                    ADMINISTRATIVE AND MANAGEMENT ACTIVITIES.

    (a) In General.--Paragraph (1) of section 280A(c) is 
amended by adding at the end the following new sentence: ``For 
purposes of subparagraph (A), the term `principal place of 
business' includes a place of business which is used by the 
taxpayer for the administrative or management activities of any 
trade or business of the taxpayer if there is no other fixed 
location of such trade or business where the taxpayer conducts 
substantial administrative or management activities of such 
trade or business.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1998.

SEC. 933. AVERAGING OF FARM INCOME OVER 3 YEARS.

    (a) In General.--Subchapter Q of chapter 1 (relating to 
readjustment of tax between years and special limitations) is 
amended by adding the following new part:

                       ``PART I--INCOME AVERAGING

        ``Sec. 1301. Averaging of farm income.

``SEC. 1301. AVERAGING OF FARM INCOME.

    ``(a) In General.--At the election of an individual engaged 
in a farming business, the tax imposed by section 1 for such 
taxable year shall be equal to the sum of--
            ``(1) a tax computed under such section on taxable 
        income reduced by elected farm income, plus
            ``(2) the increase in tax imposed by section 1 
        which would result if taxable income for each of the 3 
        prior taxable years were increased by an amount equal 
        to one-third of the elected farm income.
Any adjustment under this section for any taxable year shall be 
taken into account in applying this section for any subsequent 
taxable year.
    ``(b) Definitions.--In this section--
            ``(1) Elected farm income.--
                    ``(A) In general.--The term `elected farm 
                income' means so much of the taxable income for 
                the taxable year--
                            ``(i) which is attributable to any 
                        farming business; and
                            ``(ii) which is specified in the 
                        election under subsection (a).
                    ``(B) Treatment of gains.--For purposes of 
                subparagraph (A), gain from the sale or other 
                disposition of property (other than land) 
                regularly used by the taxpayer in such a 
                farming business for a substantial period shall 
                be treated as attributable to such a farming 
                business.
            ``(2) Individual.--The term `individual' shall not 
        include any estate or trust.
            ``(3) Farming business.--The term `farming 
        business' has the meaning given such term by section 
        263A(e)(4).
    ``(c) Regulations.--The Secretary shall prescribe such 
regulations as may be appropriate to carry out the purposes of 
this section, including regulations regarding--
            ``(1) the order and manner in which items of 
        income, gain, deduction, or loss, or limitations on 
        tax, shall be taken into account in computing the tax 
        imposed by this chapter on the income of any taxpayer 
        to whom this section applies for any taxable year, and
            ``(2) the treatment of any short taxable year.''.
    (b) Clerical Amendment.--The table of parts for such 
subchapter Q is amended by inserting before the item relating 
to part II the following new item:

        ``Part I. Income averaging.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1997, 
and before January 1, 2001.

SEC. 934. INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS OF SELF-
                    EMPLOYED INDIVIDUALS.

    (a) In General.--The table contained in section 
162(l)(1)(B) is amended to read as follows:

    ``For taxable years be-                               The applicable
      ginning in calendar year--                         percentage is--
    1997......................................................       40 
    1998 and 1999.............................................       45 
    2000 and 2001.............................................       50 
    2002......................................................       60 
    2003 through 2005.........................................       80 
    2006......................................................       90 
    2007 and thereafter.......................................   100.''.

    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 1996.

SEC. 935. MORATORIUM ON CERTAIN REGULATIONS.

    No temporary or final regulation with respect to the 
definition of a limited partner under section 1402(a)(13) of 
the Internal Revenue Code of 1986 may be issued or made 
effective before July 1, 1998.

                        Subtitle E--Brownfields

SEC. 941. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

    (a) In General.--Part VI of subchapter B of chapter 1 is 
amended by adding at the end the following new section:

``SEC. 198. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

    ``(a) In General.--A taxpayer may elect to treat any 
qualified environmental remediation expenditure which is paid 
or incurred by the taxpayer as an expense which is not 
chargeable to capital account. Any expenditure which is so 
treated shall be allowed as a deduction for the taxable year in 
which it is paid or incurred.
    ``(b) Qualified Environmental Remediation Expenditure.--For 
purposes of this section--
            ``(1) In general.--The term `qualified 
        environmental remediation expenditure' means any 
        expenditure--
                    ``(A) which is otherwise chargeable to 
                capital account, and
                    ``(B) which is paid or incurred in 
                connection with the abatement or control of 
                hazardous substances at a qualified 
                contaminated site.
            ``(2) Special rule for expenditures for depreciable 
        property.--Such term shall not include any expenditure 
        for the acquisition of property of a character subject 
        to the allowance for depreciation which is used in 
        connection with the abatement or control of hazardous 
        substances at a qualified contaminated site; except 
        that the portion of the allowance under section 167 for 
        such property which is otherwise allocated to such site 
        shall be treated as a qualified environmental 
        remediation expenditure.
    ``(c) Qualified Contaminated Site.--For purposes of this 
section--
            ``(1) Qualified contaminated site.--
                    ``(A) In general.--The term `qualified 
                contaminated site' means any area--
                            ``(i) which is held by the taxpayer 
                        for use in a trade or business or for 
                        the production of income, or which is 
                        property described in section 1221(1) 
                        in the hands of the taxpayer,
                            ``(ii) which is within a targeted 
                        area, and
                            ``(iii) at or on which there has 
                        been a release (or threat of release) 
                        or disposal of any hazardous substance.
                    ``(B) Taxpayer must receive statement from 
                state environmental agency.--An area shall be 
                treated as a qualified contaminated site with 
                respect to expenditures paid or incurred during 
                any taxable year only if the taxpayer receives 
                a statement from the appropriate agency of the 
                State in which such area is located that such 
                area meets the requirements of clauses (ii) and 
                (iii) of subparagraph (A).
                    ``(C) Appropriate state agency.--For 
                purposes of subparagraph (B), the chief 
                executive officer of each State may, in 
                consultation with the Administrator of the 
                Environmental Protection Agency, designate the 
                appropriate State environmental agency within 
                60 days of the date of the enactment of this 
                section. If the chief executive officer of a 
                State has not designated an appropriate State 
                environmental agency within such 60-day period, 
                the appropriate environmental agency for such 
                State shall be designated by the Administrator 
                of the Environmental Protection Agency.
            ``(2) Targeted area.--
                    ``(A) In general.--The term `targeted area' 
                means--
                            ``(i) any population census tract 
                        with a poverty rate of not less than 20 
                        percent,
                            ``(ii) a population census tract 
                        with a population of less than 2,000 
                        if--
                                    ``(I) more than 75 percent 
                                of such tract is zoned for 
                                commercial or industrial use, 
                                and
                                    ``(II) such tract is 
                                contiguous to 1 or more other 
                                population census tracts which 
                                meet the requirement of clause 
                                (i) without regard to this 
                                clause,
                            ``(iii) any empowerment zone or 
                        enterprise community (and any 
                        supplemental zone designated on 
                        December 21, 1994), and
                            ``(iv) any site announced before 
                        February 1, 1997, as being included as 
                        a brownfields pilot project of the 
                        Environmental Protection Agency.
                    ``(B) National priorities listed sites not 
                included.--Such term shall not include any site 
                which is on, or proposed for, the national 
                priorities list under section 105(a)(8)(B) of 
                the Comprehensive Environmental Response, 
                Compensation, and Liability Act of 1980 (as in 
                effect on the date of the enactment of this 
                section).
                    ``(C) Certain rules to apply.--For purposes 
                of this paragraph the rules of sections 
                1392(b)(4) and 1393(a)(9) shall apply.
    ``(d) Hazardous Substance.--For purposes of this section--
            ``(1) In general.--The term `hazardous substance' 
        means--
                    ``(A) any substance which is a hazardous 
                substance as defined in section 101(14) of the 
                Comprehensive Environmental Response, 
                Compensation, and Liability Act of 1980, and
                    ``(B) any substance which is designated as 
                a hazardous substance under section 102 of such 
                Act.
            ``(2) Exception.--Such term shall not include any 
        substance with respect to which a removal or remedial 
        action is not permitted under section 104 of such Act 
        by reason of subsection (a)(3) thereof.
    ``(e) Deduction Recaptured as Ordinary Income on Sale, 
Etc.--Solely for purposes of section 1245, in the case of 
property to which a qualified environmental remediation 
expenditure would have been capitalized but for this section--
            ``(1) the deduction allowed by this section for 
        such expenditure shall be treated as a deduction for 
        depreciation, and
            ``(2) such property (if not otherwise section 1245 
        property) shall be treated as section 1245 property 
        solely for purposes of applying section 1245 to such 
        deduction.
    ``(f) Coordination With Other Provisions.--Sections 280B 
and 468 shall not apply to amounts which are treated as 
expenses under this section.
    ``(g) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section.
    ``(h) Termination.--This section shall not apply to 
expenditures paid or incurred after December 31, 2000.''.
    (b) Clerical Amendment.--The table of sections for part VI 
of subchapter B of chapter 1 is amended by adding at the end 
the following new item:

        ``Sec. 198. Expensing of environmental remediation costs.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to expenditures paid or incurred after the date of 
the enactment of this Act, in taxable years ending after such 
date.

Subtitle F--Empowerment Zones, Enterprise Communities, Brownfields, and 
              Community Development Financial Institutions

                CHAPTER 1--ADDITIONAL EMPOWERMENT ZONES

SEC. 951. ADDITIONAL EMPOWERMENT ZONES.

    (a) In General.--Paragraph (2) of section 1391(b) (relating 
to designations of empowerment zones and enterprise 
communities) is amended--
            (1) by striking ``9'' and inserting ``11'',
            (2) by striking ``6'' and inserting ``8'', and
            (3) by striking ``750,000'' and inserting 
        ``1,000,000''.
    (b) Special Rules for Application of Employment Credit.--
Subsection (b) of section 1396 (relating to empowerment zone 
employment credit) is amended--
            (1) by striking so much of the subsection as 
        precedes the table and inserting the following:
    ``(b) Applicable Percentage.--For purposes of this 
section--
            ``(1) In general.--Except as provided in paragraph 
        (2), the term `applicable percentage' means the 
        percentage determined in accordance with the following 
        table:'', and
            (2) by adding at the end the following new 
        paragraph:
            ``(2) Special rule.--With respect to each 
        empowerment zone designated pursuant to the amendments 
        made by the Taxpayer Relief Act of 1997 to section 
        1391(b)(2), the following table shall apply in lieu of 
        the table in paragraph (1):

    ``In the case of wages
      paid or incurred during                             The applicable
      calendar year--                                     percentage is:
    2000 through 2004.........................................       20 
    2005......................................................       15 
    2006......................................................       10 
    2007......................................................      5.''

    (c) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act, 
except that designations of new empowerment zones made pursuant 
to such amendments shall be made during the 180-day period 
beginning on the date of the enactment of this Act. No 
designation pursuant to such amendments shall take effect 
before January 1, 2000.

                    CHAPTER 2--NEW EMPOWERMENT ZONES

SEC. 952. DESIGNATION OF NEW EMPOWERMENT ZONES.

    (a) In General.--Section 1391 (relating to designation 
procedure for empowerment zones and enterprise communities) is 
amended by adding at the end the following new subsection:
    ``(g) Additional Designations Permitted.--
            ``(1) In general.--In addition to the areas 
        designated under subsection (a), the appropriate 
        Secretaries may designate in the aggregate an 
        additional 20 nominated areas as empowerment zones 
        under this section, subject to the availability of 
        eligible nominated areas. Of that number, not more than 
        15 may be designated in urban areas and not more than 5 
        may be designated in rural areas.
            ``(2) Period designations may be made and take 
        effect.--A designation may be made under this 
        subsection after the date of the enactment of this 
        subsection and before January 1, 1999.
            ``(3) Modifications to eligibility criteria, etc.--
                    ``(A) Poverty rate requirement.--
                            ``(i) In general.--A nominated area 
                        shall be eligible for designation under 
                        this subsection only if the poverty 
                        rate for each population census tract 
                        within the nominated area is not less 
                        than 20 percent and the poverty rate 
                        for at least 90 percent of the 
                        population census tracts within the 
                        nominated area is not less than 25 
                        percent.
                            ``(ii) Treatment of census tracts 
                        with small populations.--A population 
                        census tract with a population of less 
                        than 2,000 shall be treated as having a 
                        poverty rate of not less than 25 
                        percent if--
                                    ``(I) more than 75 percent 
                                of such tract is zoned for 
                                commercial or industrial use, 
                                and
                                    ``(II) such tract is 
                                contiguous to 1 or more other 
                                population census tracts which 
                                have a poverty rate of not less 
                                than 25 percent (determined 
                                without regard to this clause).
                            ``(iii) Exception for developable 
                        sites.--Clause (i) shall not apply to 
                        up to 3 noncontiguous parcels in a 
                        nominated area which may be developed 
                        for commercial or industrial purposes. 
                        The aggregate area of noncontiguous 
                        parcels to which the preceding sentence 
                        applies with respect to any nominated 
                        area shall not exceed 2,000 acres.
                            ``(iv) Certain provisions not to 
                        apply.--Section 1392(a)(4) (and so much 
                        of paragraphs (1) and (2) of section 
                        1392(b) as relate to section 
                        1392(a)(4)) shall not apply to an area 
                        nominated for designation under this 
                        subsection.
                            ``(v) Special rule for rural 
                        empowerment zone.--The Secretary of 
                        Agriculture may designate not more than 
                        1 empowerment zone in a rural area 
                        without regard to clause (i) if such 
                        area satisfies emigration criteria 
                        specified by the Secretary of 
                        Agriculture.
                    ``(B) Size limitation.--
                            ``(i) In general.--The parcels 
                        described in subparagraph (A)(iii) 
                        shall not be taken into account in 
                        determining whether the requirement of 
                        subparagraph (A) or (B) of section 
                        1392(a)(3) is met.
                            ``(ii) Special rule for rural 
                        areas.--If a population census tract 
                        (or equivalent division under section 
                        1392(b)(4)) in a rural area exceeds 
                        1,000 square miles or includes a 
                        substantial amount of land owned by the 
                        Federal, State, or local government, 
                        the nominated area may exclude such 
                        excess square mileage or governmentally 
                        owned land and the exclusion of that 
                        area will not be treated as violating 
                        the continuous boundary requirement of 
                        section 1392(a)(3)(B).
                    ``(C) Aggregate population limitation.--The 
                aggregate population limitation under the last 
                sentence of subsection (b)(2) shall not apply 
                to a designation under paragraph (1)(B).
                    ``(D) Previously designated enterprise 
                communities may be included.--Subsection (e)(5) 
                shall not apply to any enterprise community 
                designated under subsection (a) that is also 
                nominated for designation under this 
                subsection.
                    ``(E) Indian reservations may be 
                nominated.--
                            ``(i) In general.--Section 
                        1393(a)(4) shall not apply to an area 
                        nominated for designation under this 
                        subsection.
                            ``(ii) Special rule.--An area in an 
                        Indian reservation shall be treated as 
                        nominated by a State and a local 
                        government if it is nominated by the 
                        reservation governing body (as 
                        determined by the Secretary of 
                        Interior).''
    (b) Employment Credit Not To Apply to New Empowerment 
Zones.--Section 1396 (relating to empowerment zone employment 
credit) is amended by adding at the end the following new 
subsection:
    ``(e) Credit Not To Apply to Empowerment Zones Designated 
Under Section 1391(g).--This section shall be applied without 
regard to any empowerment zone designated under section 
1391(g).''
    (c) Increased Expensing Under Section 179 Not To Apply in 
Developable Sites.--Section 1397A (relating to increase in 
expensing under section 179) is amended by adding at the end 
the following new subsection:
    ``(c) Limitation.--For purposes of this section, qualified 
zone property shall not include any property substantially all 
of the use of which is in any parcel described in section 
1391(g)(3)(A)(iii).''
    (d) Conforming Amendments.--
            (1) Subsections (e) and (f) of section 1391 are 
        each amended by striking ``subsection (a)'' and 
        inserting ``this section''.
            (2) Section 1391(c) is amended by striking ``this 
        section'' and inserting ``subsection (a)''.

SEC. 953. VOLUME CAP NOT TO APPLY TO ENTERPRISE ZONE FACILITY BONDS 
                    WITH RESPECT TO NEW EMPOWERMENT ZONES.

    (a) In General.--Section 1394 (relating to tax-exempt 
enterprise zone facility bonds) is amended by adding at the end 
the following new subsection:
    ``(f) Bonds for Empowerment Zones Designated Under Section 
1391(g).--
            ``(1) In general.--In the case of a new empowerment 
        zone facility bond--
                    ``(A) such bond shall not be treated as a 
                private activity bond for purposes of section 
                146, and
                    ``(B) subsection (c) of this section shall 
                not apply.
            ``(2) Limitation on amount of bonds.--
                    ``(A) In general.--Paragraph (1) shall 
                apply to a new empowerment zone facility bond 
                only if such bond is designated for purposes of 
                this subsection by the local government which 
                nominated the area to which such bond relates.
                    ``(B) Limitation on bonds designated.--The 
                aggregate face amount of bonds which may be 
                designated under subparagraph (A) with respect 
                to any empowerment zone shall not exceed--
                            ``(i) $60,000,000 if such zone is 
                        in a rural area,
                            ``(ii) $130,000,000 if such zone is 
                        in an urban area and the zone has a 
                        population of less than 100,000, and
                            ``(iii) $230,000,000 if such zone 
                        is in an urban area and the zone has a 
                        population of at least 100,000.
                    ``(C) Special rules.--
                            ``(i) Coordination with limitation 
                        in subsection (c).--Bonds to which 
                        paragraph (1) applies shall not be 
                        taken into account in applying the 
                        limitation of subsection (c) to other 
                        bonds.
                            ``(ii) Current refunding not taken 
                        into account.--In the case of a 
                        refunding (or series of refundings) of 
                        a bond designated under this paragraph, 
                        the refunding obligation shall be 
                        treated as designated under this 
                        paragraph (and shall not be taken into 
                        account in applying subparagraph (B)) 
                        if--
                                    ``(I) the amount of the 
                                refunding bond does not exceed 
                                the outstanding amount of the 
                                refunded bond, and
                                    ``(II) the refunded bond is 
                                redeemed not later than 90 days 
                                after the date of issuance of 
                                the refunding bond.
            ``(3) New empowerment zone facility bond.--For 
        purposes of this subsection, the term `new empowerment 
        zone facility bond' means any bond which would be 
        described in subsection (a) if only empowerment zones 
        designated under section 1391(g) were taken into 
        account under sections 1397B and 1397C.''
    (b) Effective Date.--The amendment made by this section 
shall apply to obligations issued after the date of the 
enactment of this Act.

SEC. 954. MODIFICATION TO ELIGIBILITY CRITERIA FOR DESIGNATION OF 
                    FUTURE ENTERPRISE ZONES IN ALASKA OR HAWAII.

    Section 1392 (relating to eligibility criteria) is amended 
by adding at the end the following new subsection:
    ``(d) Special Eligibility for Nominated Areas Located in 
Alaska or Hawaii.--A nominated area in Alaska or Hawaii shall 
be treated as meeting the requirements of paragraphs (2), (3), 
and (4) of subsection (a) if for each census tract or block 
group within such area 20 percent or more of the families have 
income which is 50 percent or less of the statewide median 
family income (as determined under section 143).''.

  CHAPTER 3--TREATMENT OF EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES

SEC. 955. MODIFICATIONS TO ENTERPRISE ZONE FACILITY BOND RULES FOR ALL 
                    EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES.

    (a) Modifications Relating to Enterprise Zone Business.--
Paragraph (3) of section 1394(b) (defining enterprise zone 
business) is amended to read as follows:
            ``(3) Enterprise zone business.--
                    ``(A) In general.--Except as modified in 
                this paragraph, the term `enterprise zone 
                business' has the meaning given such term by 
                section 1397B.
                    ``(B) Modifications.--In applying section 
                1397B for purposes of this section--
                            ``(i) Businesses in enterprise 
                        communities eligible.--References in 
                        section 1397B to empowerment zones 
                        shall be treated as including 
                        references to enterprise communities.
                            ``(ii) Waiver of requirements 
                        during startup period.--A business 
                        shall not fail to be treated as an 
                        enterprise zone business during the 
                        startup period if--
                                    ``(I) as of the beginning 
                                of the startup period, it is 
                                reasonably expected that such 
                                business will be an enterprise 
                                zone business (as defined in 
                                section 1397B as modified by 
                                this paragraph) at the end of 
                                such period, and
                                    ``(II) such business makes 
                                bona fide efforts to be such a 
                                business.
                            ``(iii) Reduced requirements after 
                        testing period.--A business shall not 
                        fail to be treated as an enterprise 
                        zone business for any taxable year 
                        beginning after the testing period by 
                        reason of failing to meet any 
                        requirement of subsection (b) or (c) of 
                        section 1397B if at least 35 percent of 
                        the employees of such business for such 
                        year are residents of an empowerment 
                        zone or an enterprise community. The 
                        preceding sentence shall not apply to 
                        any business which is not a qualified 
                        business by reason of paragraph (1), 
                        (4), or (5) of section 1397B(d).
                    ``(C) Definitions relating to subparagraph 
                (b).--For purposes of subparagraph (B)--
                            ``(i) Startup period.--The term 
                        `startup period' means, with respect to 
                        any property being provided for any 
                        business, the period before the first 
                        taxable year beginning more than 2 
                        years after the later of--
                                    ``(I) the date of issuance 
                                of the issue providing such 
                                property, or
                                    ``(II) the date such 
                                property is first placed in 
                                service after such issuance 
                                (or, if earlier, the date which 
                                is 3 years after the date 
                                described in subclause (I)).
                            ``(ii) Testing period.--The term 
                        `testing period' means the first 3 
                        taxable years beginning after the 
                        startup period.
                    ``(D) Portions of business may be 
                enterprise zone business.--The term `enterprise 
                zone business' includes any trades or 
                businesses which would qualify as an enterprise 
                zone business (determined after the 
                modifications of subparagraph (B)) if such 
                trades or businesses were separately 
                incorporated.''
    (b) Modifications Relating to Qualified Zone Property.--
Paragraph (2) of section 1394(b) (defining qualified zone 
property) is amended to read as follows:
            ``(2) Qualified zone property.--The term `qualified 
        zone property' has the meaning given such term by 
        section 1397C; except that--
                    ``(A) the references to empowerment zones 
                shall be treated as including references to 
                enterprise communities, and
                    ``(B) section 1397C(a)(2) shall be applied 
                by substituting `an amount equal to 15 percent 
                of the adjusted basis' for `an amount equal to 
                the adjusted basis'.''
    (c) Effective Date.--The amendments made by this section 
shall apply to obligations issued after the date of the 
enactment of this Act.

SEC. 956. MODIFICATIONS TO ENTERPRISE ZONE BUSINESS DEFINITION FOR ALL 
                    EMPOWERMENT ZONES AND ENTERPRISE COMMUNITIES.

    (a) In General.--Section 1397B (defining enterprise zone 
business) is amended--
            (1) by striking ``80 percent'' in subsections 
        (b)(2) and (c)(1) and inserting ``50 percent'',
            (2) by striking ``substantially all'' each place it 
        appears in subsections (b) and (c) and inserting ``a 
        substantial portion'',
            (3) by striking ``, and exclusively related to,'' 
        in subsections (b)(4) and (c)(3),
            (4) by adding at the end of subsection (d)(2) the 
        following new flush sentence:
        ``For purposes of subparagraph (B), the lessor of the 
        property may rely on a lessee's certification that such 
        lessee is an enterprise zone business.'',
            (5) by striking ``substantially all'' in subsection 
        (d)(3) and inserting ``at least 50 percent'', and
            (6) by adding at the end the following new 
        subsection:
    ``(f) Treatment of Businesses Straddling Census Tract 
Lines.--For purposes of this section, if--
            ``(1) a business entity or proprietorship uses real 
        property located within an empowerment zone,
            ``(2) the business entity or proprietorship also 
        uses real property located outside the empowerment 
        zone,
            ``(3) the amount of real property described in 
        paragraph (1) is substantial compared to the amount of 
        real property described in paragraph (2), and
            ``(4) the real property described in paragraph (2) 
        is contiguous to part or all of the real property 
        described in paragraph (1),
then all the services performed by employees, all business 
activities, all tangible property, and all intangible property 
of the business entity or proprietorship that occur in or is 
located on the real property described in paragraphs (1) and 
(2) shall be treated as occurring or situated in an empowerment 
zone.''
    (b) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to taxable years beginning on or 
        after the date of the enactment of this Act.
            (2) Special rule for enterprise zone facility 
        bonds.--For purposes of section 1394(b) of the Internal 
        Revenue Code of 1986, the amendments made by this 
        section shall apply to obligations issued after the 
        date of the enactment of this Act.

                      Subtitle G--Other Provisions

SEC. 961. USE OF ESTIMATES OF SHRINKAGE FOR INVENTORY ACCOUNTING.

    (a) In General.--Section 471 (relating to general rule for 
inventories) is amended by redesignating subsection (b) as 
subsection (c) and by inserting after subsection (a) the 
following new subsection:
    ``(b) Estimates of Inventory Shrinkage Permitted.--A method 
of determining inventories shall not be treated as failing to 
clearly reflect income solely because it utilizes estimates of 
inventory shrinkage that are confirmed by a physical count only 
after the last day of the taxable year if--
            ``(1) the taxpayer normally does a physical count 
        of inventories at each location on a regular and 
        consistent basis, and
            ``(2) the taxpayer makes proper adjustments to such 
        inventories and to its estimating methods to the extent 
        such estimates are greater than or less than the actual 
        shrinkage.''.
    (b) Effective Date.--
            (1) In general.--The amendment made by this section 
        shall apply to taxable years ending after the date of 
        the enactment of this Act.
            (2) Coordination with section 481.--In the case of 
        any taxpayer permitted by this section to change its 
        method of accounting to a permissible method for any 
        taxable year--
                    (A) such changes shall be treated as 
                initiated by the taxpayer,
                    (B) such changes shall be treated as made 
                with the consent of the Secretary of the 
                Treasury, and
                    (C) the period for taking into account the 
                adjustments under section 481 by reason of such 
                change shall be 4 years.

SEC. 962. ASSIGNMENT OF WORKMEN'S COMPENSATION LIABILITY ELIGIBLE FOR 
                    EXCLUSION RELATING TO PERSONAL INJURY LIABILITY 
                    ASSIGNMENTS.

    (a) In General.--Subsection (c) of section 130 (relating to 
certain personal injury liability assignments) is amended--
            (1) by inserting ``, or as compensation under any 
        workmen's compensation act,'' after ``(whether by suit 
        or agreement)'' in the material preceding paragraph 
        (1),
            (2) by inserting ``or the workmen's compensation 
        claim,'' after ``agreement,'' in paragraph (1), and
            (3) by striking ``section 104(a)(2)'' in paragraph 
        (2)(D) and inserting ``paragraph (1) or (2) of section 
        104(a)''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall apply to claims under workmen's compensation acts filed 
after the date of the enactment of this Act.

SEC. 963. TAX-EXEMPT STATUS FOR CERTAIN STATE WORKER'S COMPENSATION ACT 
                    COMPANIES.

    (a) In General.--Section 501(c)(27) (relating to membership 
organizations under workmen's compensation acts) is amended by 
adding at the end the following:
            ``(B) Any organization (including a mutual 
        insurance company) if--
                    ``(i) such organization is created by State 
                law and is organized and operated under State 
                law exclusively to--
                            ``(I) provide workmen's 
                        compensation insurance which is 
                        required by State law or with respect 
                        to which State law provides significant 
                        disincentives if such insurance is not 
                        purchased by an employer, and
                            ``(II) provide related coverage 
                        which is incidental to workmen's 
                        compensation insurance,
                    ``(ii) such organization must provide 
                workmen's compensation insurance to any 
                employer in the State (for employees in the 
                State or temporarily assigned out-of-State) 
                which seeks such insurance and meets other 
                reasonable requirements relating thereto,
                    ``(iii)(I) the State makes a financial 
                commitment with respect to such organization 
                either by extending the full faith and credit 
                of the State to the initial debt of such 
                organization or by providing the initial 
                operating capital of such organization, and 
                (II) in the case of periods after the date of 
                enactment of this subparagraph, the assets of 
                such organization revert to the State upon 
                dissolution or State law does not permit the 
                dissolution of such organization, and
                    ``(iv) the majority of the board of 
                directors or oversight body of such 
                organization are appointed by the chief 
                executive officer or other executive branch 
                official of the State, by the State 
                legislature, or by both.''.
    (b) Conforming Amendments.--Section 501(c)(27) is amended 
by inserting ``(A)'' after ``(27)'', by redesignating 
subparagraphs (A), (B), and (C) as clauses (i), (ii), and 
(iii), respectively, and by redesignating clauses (i) and (ii) 
of subparagraphs (B) and (C) (before redesignation) as 
subclauses (I) and (II), respectively.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1997.

SEC. 964. ELECTION FOR 1987 PARTNERSHIPS TO CONTINUE EXCEPTION FROM 
                    TREATMENT OF PUBLICLY TRADED PARTNERSHIPS AS 
                    CORPORATIONS.

    (a) In General.--Section 7704 is amended by adding at the 
end the following new subsection:
    ``(g) Exception for Electing 1987 Partnerships.--
            ``(1) In general.--Subsection (a) shall not apply 
        to an electing 1987 partnership.
            ``(2) Electing 1987 partnership.--For purposes of 
        this subsection, the term `electing 1987 partnership' 
        means any publicly traded partnership if--
                    ``(A) such partnership is an existing 
                partnership (as defined in section 10211(c)(2) 
                of the Revenue Reconciliation Act of 1987),
                    ``(B) subsection (a) has not applied (and 
                without regard to subsection (c)(1) would not 
                have applied) to such partnership for all prior 
                taxable years beginning after December 31, 
                1987, and before January 1, 1998, and
                    ``(C) such partnership elects the 
                application of this subsection, and consents to 
                the application of the tax imposed by paragraph 
                (3), for its first taxable year beginning after 
                December 31, 1997.
        A partnership which, but for this sentence, would be 
        treated as an electing 1987 partnership shall cease to 
        be so treated (and the election under subparagraph (C) 
        shall cease to be in effect) as of the 1st day after 
        December 31, 1997, on which there has been an addition 
        of a substantial new line of business with respect to 
        such partnership.
            ``(3) Additional tax on electing partnerships.--
                    ``(A) Imposition of tax.--There is hereby 
                imposed for each taxable year on the income of 
                each electing 1987 partnership a tax equal to 
                3.5 percent of such partnership's gross income 
                for the taxable year from the active conduct of 
                trades and businesses by the partnership.
                    ``(B) Adjustments in the case of tiered 
                partnerships.--For purposes of this paragraph, 
                in the case of a partnership which is a partner 
                in another partnership, the gross income 
                referred to in subparagraph (A) shall include 
                the partnership's distributive share of the 
                gross income of such other partnership from the 
                active conduct of trades and businesses of such 
                other partnership. A similar rule shall apply 
                in the case of lower-tiered partnerships.
                    ``(C) Treatment of tax.--For purposes of 
                this title, the tax imposed by this paragraph 
                shall be treated as imposed by chapter 1 other 
                than for purposes of determining the amount of 
                any credit allowable under chapter 1.
            ``(4) Election.--An election and consent under this 
        subsection shall apply to the taxable year for which 
        made and all subsequent taxable years unless revoked by 
        the partnership. Such revocation may be made without 
        the consent of the Secretary, but, once so revoked, may 
        not be reinstated.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 1997.

SEC. 965. EXCLUSION FROM UNRELATED BUSINESS TAXABLE INCOME FOR CERTAIN 
                    SPONSORSHIP PAYMENTS.

    (a) In General.--Section 513 (relating to unrelated trade 
or business income) is amended by adding at the end the 
following new subsection:
    ``(i) Treatment of Certain Sponsorship Payments.--
            ``(1) In general.--The term `unrelated trade or 
        business' does not include the activity of soliciting 
        and receiving qualified sponsorship payments.
            ``(2) Qualified sponsorship payments.--For purposes 
        of this subsection--
                    ``(A) In general.--The term `qualified 
                sponsorship payment' means any payment made by 
                any person engaged in a trade or business with 
                respect to which there is no arrangement or 
                expectation that such person will receive any 
                substantial return benefit other than the use 
                or acknowledgement of the name or logo (or 
                product lines) of such person's trade or 
                business in connection with the activities of 
                the organization that receives such payment. 
                Such a use or acknowledgement does not include 
                advertising such person's products or services 
                (including messages containing qualitative or 
                comparative language, price information, or 
                other indications of savings or value, an 
                endorsement, or an inducement to purchase, 
                sell, or use such products or services).
                    ``(B) Limitations.--
                            ``(i) Contingent payments.--The 
                        term `qualified sponsorship payment' 
                        does not include any payment if the 
                        amount of such payment is contingent 
                        upon the level of attendance at one or 
                        more events, broadcast ratings, or 
                        other factors indicating the degree of 
                        public exposure to one or more events.
                            ``(ii) Safe harbor does not apply 
                        to periodicals and qualified convention 
                        and trade show activities.--The term 
                        `qualified sponsorship payment' does 
                        not include--
                                    ``(I) any payment which 
                                entitles the payor to the use 
                                or acknowledgement of the name 
                                or logo (or product lines) of 
                                the payor's trade or business 
                                in regularly scheduled and 
                                printed material published by 
                                or on behalf of the payee 
                                organization that is not 
                                related to and primarily 
                                distributed in connection with 
                                a specific event conducted by 
                                the payee organization, or
                                    ``(II) any payment made in 
                                connection with any qualified 
                                convention or trade show 
                                activity (as defined in 
                                subsection (d)(3)(B)).
            ``(3) Allocation of portions of single payment.--
        For purposes of this subsection, to the extent that a 
        portion of a payment would (if made as a separate 
        payment) be a qualified sponsorship payment, such 
        portion of such payment and the other portion of such 
        payment shall be treated as separate payments.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to payments solicited or received after December 
31, 1997.

SEC. 966. ASSOCIATIONS OF HOLDERS OF TIMESHARE INTERESTS TO BE TAXED 
                    LIKE OTHER HOMEOWNERS ASSOCIATIONS.

    (a) Timeshare Associations Included as Homeowner 
Associations.--
            (1) In general.--Paragraph (1) of section 528(c) 
        (defining homeowners association) is amended--
                    (A) by striking ``or a residential real 
                estate management association'' and inserting 
                ``, a residential real estate management 
                association, or a timeshare association'' in 
                the material preceding subparagraph (A),
                    (B) by striking ``or'' at the end of clause 
                (i) of subparagraph (B), by striking the period 
                at the end of clause (ii) of subparagraph (B) 
                and inserting ``, or'', and by adding at the 
                end of subparagraph (B) the following new 
                clause:
                            ``(iii) owners of timeshare rights 
                        to use, or timeshare ownership 
                        interests in, association property in 
                        the case of a timeshare association,'', 
                        and
                    (C) by inserting ``and, in the case of a 
                timeshare association, for activities provided 
                to or on behalf of members of the association'' 
                before the comma at the end of subparagraph 
                (C).
            (2) Timeshare association defined.--Subsection (c) 
        of section 528 is amended by redesignating paragraph 
        (4) as paragraph (5) and by inserting after paragraph 
        (3) the following new paragraph:
            ``(4) Timeshare association.--The term `timeshare 
        association' means any organization (other than a 
        condominium management association) meeting the 
        requirement of subparagraph (A) of paragraph (1) if any 
        member thereof holds a timeshare right to use, or a 
        timeshare ownership interest in, real property 
        constituting association property.''.
    (b) Exempt Function Income.--Paragraph (3) of section 
528(d) is amended by striking ``or'' at the end of subparagraph 
(A), by striking the period at the end of subparagraph (B) and 
inserting ``, or'', and by adding at the end the following new 
subparagraph:
                    ``(C) owners of timeshare rights to use, or 
                timeshare ownership interests in, real property 
                in the case of a timeshare association.''.
    (c) Association Property.--Paragraph (5) of section 528(c), 
as redesignated by subsection (a)(2), is amended by adding at 
the end the following new flush sentence:
        ``In the case of a timeshare association, such term 
        includes property in which the timeshare association, 
        or members of the association, have rights arising out 
        of recorded easements, covenants, or other recorded 
        instruments to use property related to the timeshare 
        project.''.
    (d) Rate of Tax.--Subsection (b) of section 528 (relating 
to certain homeowners associations) is amended by inserting 
before the period ``(32 percent of such income in the case of a 
timeshare association)''.
    (e) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1996.

SEC. 967. ADDITIONAL ADVANCE REFUNDING OF CERTAIN VIRGIN ISLAND BONDS.

    Subclause (I) of section 149(d)(3)(A)(i) of the Internal 
Revenue Code of 1986 shall not apply to the second advance 
refunding of any issue of the Virgin Islands which was first 
advance refunded before June 9, 1997, if the debt provisions of 
the refunding bonds are changed to repeal the priority first 
lien requirement of the refunded bonds.

SEC. 968. NONRECOGNITION OF GAIN ON SALE OF STOCK TO CERTAIN FARMERS' 
                    COOPERATIVES.

    (a) In General.--Section 1042 (relating to sales of stock 
to employee stock ownership plans or certain cooperatives) is 
amended by adding at the end the following new subsection:
    ``(g) Application of Section to Sales of Stock in 
Agricultural Refiners and Processors to Eligible Farm 
Cooperatives.--
            ``(1) In general.--This section shall apply to the 
        sale of stock of a qualified refiner or processor to an 
        eligible farmers' cooperative.
            ``(2) Qualified refiner or processor.--For purposes 
        of this subsection, the term `qualified refiner or 
        processor' means a domestic corporation--
                    ``(A) substantially all of the activities 
                of which consist of the active conduct of the 
                trade or business of refining or processing 
                agricultural or horticultural products, and
                    ``(B) which, during the 1-year period 
                ending on the date of the sale, purchases 
morethan one-half of such products to be refined or processed from--
                            ``(i) farmers who make up the 
                        eligible farmers' cooperative which is 
                        purchasing stock in the corporation in 
                        a transaction to which this subsection 
                        is to apply, or
                            ``(ii) such cooperative.
            ``(3) Eligible farmers' cooperative.--For purposes 
        of this section, the term `eligible farmers' 
        cooperative' means an organization to which part I of 
        subchapter T applies and which is engaged in the 
        marketing of agricultural or horticultural products.
            ``(4) Special rules.--In applying this section to a 
        sale to which paragraph (1) applies--
                    ``(A) the eligible farmers' cooperative 
                shall be treated in the same manner as a 
                cooperative described in subsection (b)(1)(B),
                    ``(B) subsection (b)(2) shall be applied by 
                substituting `100 percent' for `30 percent' 
                each place it appears,
                    ``(C) the determination as to whether any 
                stock in the domestic corporation is a 
                qualified security shall be made without regard 
                to whether the stock is an employer security or 
                to subsection (c)(1)(A), and
                    ``(D) paragraphs (2)(D) and (7) of 
                subsection (c) shall not apply.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to sales after December 31, 1997.

SEC. 969. INCREASED DEDUCTIBILITY OF BUSINESS MEAL EXPENSES FOR 
                    INDIVIDUALS SUBJECT TO FEDERAL HOURS OF SERVICE.

    (a) In General.--Section 274(n) (relating to only 50 
percent of meal and entertainment expenses allowed as 
deduction) is amended by adding at the end the following new 
paragraph:
            ``(3) Special rule for individuals subject to 
        federal hours of service.--
                    ``(A) In general.--In the case of any 
                expenses for food or beverages consumed while 
                away from home (within the meaning of section 
                162(a)(2)) by an individual during, or incident 
                to, the period of duty subject to the hours of 
                service limitations of the Department of 
                Transportation, paragraph (1) shall be applied 
                by substituting `the applicable percentage' for 
                `50 percent'.
                    ``(B) Applicable percentage.--For purposes 
                of this paragraph, the term `applicable 
                percentage' means the percentage determined 
                under the following table:

``For taxable years be-                                   The applicable
  ginning in calendar year--                             percentage is--
    1998 or 1999..............................................       55 
    2000 or 2001..............................................       60 
    2002 or 2003..............................................       65 
    2004 or 2005..............................................       70 
    2006 or 2007..............................................       75 
    2008 or thereafter........................................    80.''.

    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1997.

SEC. 970. CLARIFICATION OF DE MINIMIS FRINGE BENEFIT RULES TO NO-CHARGE 
                    EMPLOYEE MEALS.

    (a) In General.--Paragraph (2) of section 132(e) (defining 
de minimis fringe) is amended by adding at the end the 
following new sentence: ``For purposes of subparagraph (B), an 
employee entitled under section 119 to exclude the value of a 
meal provided at such facility shall be treated as having paid 
an amount for such meal equal to the direct operating costs of 
the facility attributable to such meal.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 1997.

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

    (a) In General.--Section 280F(a)(1) (relating to limiting 
depreciation on luxury automobiles) is amended by adding at the 
end the following new subparagraph:
                    ``(C) Special rule for certain clean-fuel 
                passenger automobiles.--
                            ``(i) Modified automobiles.--In the 
                        case of a passenger automobile which is 
                        propelled by a fuel which is not a 
                        clean-burning fuel and to which is 
                        installed qualified clean-fuel vehicle 
                        property (as defined in section 
                        179A(c)(1)(A)) for purposes of 
                        permitting such vehicle to be propelled 
                        by a clean burning fuel (as defined in 
                        section 179A(e)(1)), subparagraph (A) 
                        shall not apply to the cost of the 
                        installed qualified clean burning 
                        vehicle property.
                            ``(ii) Purpose built passenger 
                        vehicles.--In the case of a purpose 
                        built passenger vehicle (as defined in 
                        section 4001(a)(2)(C)(ii)), each of the 
                        annual limitations specified in 
                        subparagraph (A) shall be tripled.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to property placed in service after the date of 
enactment of this Act and before January 1, 2005.

SEC. 972. TEMPORARY SUSPENSION OF TAXABLE INCOME LIMIT ON PERCENTAGE 
                    DEPLETION FOR MARGINAL PRODUCTION.

    (a) In General.--Paragraph (6) of section 613A(c) is 
amended by adding at the end the following new subparagraph:
                    ``(H) Temporary suspension of taxable 
                income limit with respect to marginal 
                production.--The second sentence of subsection 
                (a) of section 613 shall not apply to so much 
                of the allowance for depletion as is determined 
                under subparagraph (A) for any taxable year 
                beginning after December 31, 1997, and before 
                January 1, 2000.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1997.

SEC. 973. INCREASE IN STANDARD MILEAGE RATE EXPENSE DEDUCTION FOR 
                    CHARITABLE USE OF PASSENGER AUTOMOBILE.

    (a) In General.--Section 170(i) (relating to standard 
mileage rate for use of passenger automobile) is amended to 
read as follows:
    ``(i) Standard Mileage Rate for Use of Passenger 
Automobile.--For purposes of computing the deduction under this 
section for use of a passenger automobile, the standard mileage 
rate shall be 14 cents per mile.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1997.

SEC. 974. CLARIFICATION OF TREATMENT OF CERTAIN RECEIVABLES PURCHASED 
                    BY COOPERATIVE HOSPITAL SERVICE ORGANIZATIONS.

    (a) In General.--Subparagraph (A) of section 501(e)(1) is 
amended by inserting ``(including the purchase of patron 
accounts receivable on a recourse basis)'' after ``billing and 
collection''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1996.

SEC. 975. DEDUCTION IN COMPUTING ADJUSTED GROSS INCOME FOR EXPENSES IN 
                    CONNECTION WITH SERVICE PERFORMED BY CERTAIN 
                    OFFICIALS.

    (a) In General.--Paragraph (2) of section 62(a) (defining 
adjusted gross income) is amended by adding at the end the 
following new subparagraph:
                    ``(C) Certain expenses of officials.--The 
                deductions allowed by section 162 which consist 
                of expenses paid or incurred with respect to 
                services performed by an official as an 
                employee of a State or a political subdivision 
                thereof in a position compensated in whole or 
                in part on a fee basis.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to expenses paid or incurred in taxable years 
beginning after December 31, 1986.

SEC. 976. COMBINED EMPLOYMENT TAX REPORTING DEMONSTRATION PROJECT.

    (a) In General.--The Secretary of the Treasury shall 
provide for a demonstration project to assess the feasibility 
and desirability of expanding combined Federal and State tax 
reporting.
    (b) Description of Demonstration Project.--The 
demonstration project under subsection (a) shall be--
            (1) carried out between the Internal Revenue 
        Service and the State of Montana for a period ending 
        with the date which is 5 years after the date of the 
        enactment of this Act,
            (2) limited to the reporting of employment taxes, 
        and
            (3) limited to the disclosure of the taxpayer 
        identity (as defined in section 6103(b)(6) of such 
        Code) and the signature of the taxpayer.
    (c) Conforming Amendment.--Section 6103(d) is amended by 
adding at the end the following new paragraph:
            ``(5) Disclosure for certain combined reporting 
        project.--The Secretary shall disclose taxpayer 
        identities and signatures for purposes of the 
        demonstration project described in section 967 of the 
        Taxpayer Relief Act of 1997.''.

SEC. 977. ELECTIVE CARRYBACK OF EXISTING CARRYOVERS OF NATIONAL 
                    RAILROAD PASSENGER CORPORATION.

    (a) Elective Carryback.--
            (1) In general.--If the National Railroad Passenger 
        Corporation (in this section referred to as the 
        ``Corporation'')--
                    (A) makes an election under this section 
                for its first taxable year ending after 
                September 30, 1997, and
                    (B) agrees to the conditions specified in 
                paragraph (2),
        then the Corporation shall be treated as having made a 
        payment of the tax imposed by chapter 1 of the Internal 
        Revenue Code of 1986 for such first taxable year and 
        the succeeding taxable year in an amount (for each such 
        taxable year) equal to 50 percent of the amount 
        determined under paragraph (3). Each such payment shall 
        be treated as having been made by the Corporation on 
        the last day prescribed by law (without regard to 
        extensions) for filing its return of tax under chapter 
        1 of such Code for the taxable year to which such 
        payment relates.
            (2) Conditions.--
                    (A) In general.--This section shall only 
                apply to the Corporation if it agrees (in such 
                manner as the Secretary of the Treasury or his 
                delegate may prescribe) to--
                            (i) except as provided in clause 
                        (ii), use any refund of the payment 
                        described in paragraph (1) (and any 
                        interest thereon) solely to finance 
                        qualified expenses of the Corporation, 
                        and
                            (ii) make the payments to non-
                        Amtrak States as described in 
                        subsection (c).
                    (B) Repayment.--
                            (i) In general.--The Corporation 
                        shall repay to the United States any 
                        amount not used in accordance with this 
                        paragraph and any amount remaining 
                        unused as of January 1, 2010.
                            (ii) Special rules.--For purposes 
                        of clause (i)--
                                    (I) no amount shall be 
                                treated as remaining unused as 
                                of January 1, 2010, if it is 
                                obligated as of such date for a 
                                qualified expense, and
                                    (II) the Corporation shall 
                                not be treated as failing to 
                                meet the requirements of clause 
                                (i) by reason of investing any 
                                amount for a temporary period.
            (3) Amount.--For purposes of paragraph (1)--
                    (A) In general.--The amount determined 
                under this paragraph shall be the lesser of--
                            (i) 35 percent of the Corporation's 
                        existing qualified carryovers, or
                            (ii) the Corporation's net tax 
                        liability for the carryback period.
                    (B) Dollar limit.--Such amount shall not 
                exceed $2,323,000,000.
    (b) Existing Qualified Carryovers; Net Tax Liability.--For 
purposes of this section--
            (1) Existing qualified carryovers.--The term 
        ``existing qualified carryovers'' means the aggregate 
        of the amounts which are net operating loss carryovers 
        under section 172(b) of the Internal Revenue Code of 
        1986 to the Corporation's first taxable year ending 
        after September 30, 1997.
            (2) Net tax liability for carryback period.--
                    (A) In general.--The Corporation's net tax 
                liability for the carryback period is the 
                aggregate of the net tax liability of the 
                Corporation's railroad predecessors for taxable 
                years in the carryback period.
                    (B) Net tax liability.--The term ``net tax 
                liability'' means, with respect to any taxable 
                year, the amount of the tax imposed by chapter 
                1 of the Internal Revenue Code of 1986 (or any 
                corresponding provision of prior law) for such 
                taxable year, reduced by the sum of the credits 
                allowable against such tax under such Code (or 
                any corresponding provision of prior law).
                    (C) Carryback period.--The term ``carryback 
                period'' means the period--
                            (i) which begins with the first 
                        taxable year of any railroad 
                        predecessor beginning before January 1, 
                        1971, for which there is a net tax 
                        liability, and
                            (ii) which ends with the last 
                        taxable year of any railroad 
                        predecessor beginning before January 1, 
                        1971.
            (3) Railroad predecessor.--
                    (A) In general.--The term ``railroad 
                predecessor'' means--
                            (i) any railroad which entered into 
                        a contract under section 401 or 404(a) 
                        of the Rail Passenger Service Act of 
                        1970 relieving the railroad of its 
                        entire responsibility for the provision 
                        of intercity rail passenger service, 
                        and
                            (ii) any predecessor thereof.
                    (B) Consolidated returns.--If any railroad 
                described in subparagraph (A) was a member of 
                an affiliated group which filed a consolidated 
                return for any taxable year in the carryback 
                period, each member of such group shall be 
                treated as a railroad predecessor for such 
                year.
    (c) Payments to Non-Amtrak States.--
            (1) In general.--Within 30 days after receipt of 
        any refund of any payment described in subsection 
        (a)(1), the Corporation shall pay to each non-Amtrak 
        State an amount equal to 1 percent of the amount of 
        such refund.
            (2) Use of payment.--Each non-Amtrak State shall 
        use the payment described in paragraph (1) (and any 
        interest thereon) solely to finance qualified expenses 
        of the State.
            (3) Repayment.--A non-Amtrak State shall pay to the 
        United States--
                    (A) any portion of the payment received by 
                the State under paragraph (1) (and any interest 
                thereon) which is used for a purpose other than 
                to finance qualified expenses of the State or 
                which remains unused as of January 1, 2010, or
                    (B) if such State ceases to be a non-Amtrak 
                State, the portion of such payment (and any 
                interest thereon) remaining as of the date of 
                the cessation.
        Rules similar to the rules of subsection (a)(2)(B) 
        shall apply for purposes of this paragraph.
    (d) Tax Consequences.--
            (1) Reduction in carryovers.--If the Corporation 
        elects the application of this section, the 
        Corporation's existing qualified carryovers shall be 
        reduced by an amount equal to the amount determined 
        under subsection (a)(3) divided by 0.35.
            (2) Reduction in tax paid by railroad 
        predecessors.--
                    (A) In general.--The Secretary of the 
                Treasury or his delegate shall appropriately 
                adjust the tax account of each railroad 
                predecessor to reduce the net tax liability of 
                such predecessor for taxable years beginning in 
                the carryback period which is offset by reason 
                of the application of this section.
                    (B) FIFO ordering rule.--The Secretary 
                shall make the adjustments under subparagraph 
                (A) first for the earliest year in the 
                carryback period and then for each subsequent 
                year in such period.
                    (C) No effect on other taxpayers.--In no 
                event shall any taxpayer other than the 
                Corporation be allowed a refund or credit by 
                reason of this section.
                    (D) Waiver of limitations.--If the 
                adjustment under subparagraph (A) is barred by 
                the operation of any law or rule of law, such 
                law or rule of law shall be waived solely for 
                purposes of making such adjustment.
            (3) Tax treatment of expenditures.--With respect to 
        any payment by the Corporation of qualified expenses 
        described in subsection (e)(1)(A) during any taxable 
        year from the amount of any refund of the payment 
        described in subsection (a)(1)--
                    (A) no deduction shall be allowed to the 
                Corporation with respect to any amount paid or 
                incurred which is attributable to such amount, 
                and
                    (B) the basis of any property shall be 
                reduced by the portion of the cost of such 
                property which is attributable to such amount.
            (4) Payments to a non-amtrak state.--No deduction 
        shall be allowed to the Corporation under chapter 1 of 
        the Internal Revenue Code of 1986 for any payment to a 
        non-Amtrak State required under subsection 
        (a)(2)(A)(ii).
    (e) Definitions.--For purposes of this section--
            (1) Qualified expenses.--The term ``qualified 
        expenses'' means expenses incurred for--
                    (A) in the case of the Corporation--
                            (i) the acquisition of equipment, 
                        rolling stock, and other capital 
                        improvements, the upgrading of 
                        maintenance facilities, and the 
                        maintenance of existing equipment, in 
                        intercity passenger rail service, and
                            (ii) the payment of interest and 
                        principal on obligations incurred for 
                        such acquisition, upgrading, and 
                        maintenance, and
                    (B) in the case of a non-Amtrak State--
                            (i) the acquisition of equipment, 
                        rolling stock, and other capital 
                        improvements, the upgrading of 
                        maintenance facilities, and the 
                        maintenance of existing equipment, in 
                        intercity passenger rail service,
                            (ii) the acquisition of equipment, 
                        rolling stock, and other capital 
                        improvements, the upgrading of 
                        maintenance facilities, and the 
                        maintenance of existing equipment, in 
                        intercity bus service,
                            (iii) the purchase of intercity 
                        passenger rail services from the 
                        Corporation, and
                            (iv) the payment of interest and 
                        principal on obligations incurred for 
                        such acquisition, upgrading, 
                        maintenance, and purchase.
        In the case of a non-Amtrak State which provides its 
        own intercity passenger rail service on the date of the 
        enactment of this paragraph, subparagraph (B) shall be 
        applied by only taking into account clauses (i) and 
        (iv).
            (2) Non-amtrak state.--The term ``non-Amtrak 
        State'' means, with respect to any payment, any State 
        which does not receive intercity passenger rail service 
        from the Corporation at any time during the period 
        beginning on the date of the enactment of this Act and 
        ending on the date of the payment.
    (f) Authorizing Reform Required.--
            (1) In general.--The Secretary of the Treasury 
        shall not make payment of any refund of any payment 
        described in subsection (a)(1) earlier than the date of 
        the enactment of Federal legislation, other than 
        legislation included in this section, which is enacted 
        after July 29, 1997, and which authorizes reforms of 
        the National Railroad Passenger Corporation.
            (2) No interest.--Notwithstanding any other 
        provision of law, if the payment of any refund is 
        delayed by reason of paragraph (1), no interest shall 
        accrue with respect to such payment prior to the 45th 
        day following the date of the enactment of Federal 
        legislation described in paragraph (1).
            (3) Estimate of revenue.--For purposes of 
        estimating revenues under budget reconciliation, the 
        impact of this section on Federal revenues shall be 
        determined without regard to this subsection.

 Subtitle H--Extension of Duty-Free Treatment Under Generalized System 
                             of Preferences

SEC. 981. GENERALIZED SYSTEM OF PREFERENCES.

    (a) Extension of Duty-Free Treatment Under System.--Section 
505 of the Trade Act of 1974 (19 U.S.C. 2465) is amended by 
striking ``May 31, 1997'' and inserting ``June 30, 1998''.
    (b) Retroactive Application for Certain Liquidations and 
Reliquidations.--
            (1) In general.--Notwithstanding section 514 of the 
        Tariff Act of 1930 or any other provision of law and 
        subject to paragraph (2), the entry--
                    (A) of any article to which duty-free 
                treatment under title V of the Trade Act of 
                1974 would have applied if the entry had been 
                made on May 31, 1997, and
                    (B) that was made after May 31, 1997, and 
                before the date of the enactment of this Act,
        shall be liquidated or reliquidated as free of duty, 
        and the Secretary of the Treasury shall refund any duty 
        paid with respect to such entry. As used in this 
        subsection, the term ``entry'' includes a withdrawal 
        from warehouse for consumption.
            (2) Requests.--Liquidation or reliquidation may be 
        made under paragraph (1) with respect to an entry only 
        if a request therefor is filed with the Customs 
        Service, within 180 days after the date of the 
        enactment of this Act, that contains sufficient 
        information to enable the Customs Service--
                    (A) to locate the entry; or
                    (B) to reconstruct the entry if it cannot 
                be located.

                           TITLE X--REVENUES

                     Subtitle A--Financial Products

SEC. 1001. CONSTRUCTIVE SALES TREATMENT FOR APPRECIATED FINANCIAL 
                    POSITIONS.

    (a) In General.--Part IV of subchapter P of chapter 1 is 
amended by adding at the end the following new section:

``SEC. 1259. CONSTRUCTIVE SALES TREATMENT FOR APPRECIATED FINANCIAL 
                    POSITIONS.

    ``(a) In General.--If there is a constructive sale of an 
appreciated financial position--
            ``(1) the taxpayer shall recognize gain as if such 
        position were sold, assigned, or otherwise terminated 
        at its fair market value on the date of such 
        constructive sale (and any gain shall be taken into 
        account for the taxable year which includes such date), 
        and
            ``(2) for purposes of applying this title for 
        periods after the constructive sale--
                    ``(A) proper adjustment shall be made in 
                the amount of any gain or loss subsequently 
                realized with respect to such position for any 
                gain taken into account by reason of paragraph 
                (1), and
                    ``(B) the holding period of such position 
                shall be determined as if such position were 
                originally acquired on the date of such 
                constructive sale.
    ``(b) Appreciated Financial Position.--For purposes of this 
section--
            ``(1) In general.--Except as provided in paragraph 
        (2), the term `appreciated financial position' means 
        any position with respect to any stock, debt 
        instrument, or partnership interest if there would be 
        gain were such position sold, assigned, or otherwise 
        terminated at its fair market value.
            ``(2) Exceptions.--The term `appreciated financial 
        position' shall not include--
                    ``(A) any position with respect to debt 
                if--
                            ``(i) the debt unconditionally 
                        entitles the holder to receive a 
                        specified principal amount,
                            ``(ii) the interest payments (or 
                        other similar amounts) with respect to 
                        such debt meet the requirements of 
                        clause (i) of section 860G(a)(1)(B), 
                        and
                            ``(iii) such debt is not 
                        convertible (directly or indirectly) 
                        into stock of the issuer or any related 
                        person, and
                    ``(B) any position which is marked to 
                market under any provision of this title or the 
                regulations thereunder.
            ``(3) Position.--The term `position' means an 
        interest, including a futures or forward contract, 
        short sale, or option.
    ``(c) Constructive Sale.--For purposes of this section--
            ``(1) In general.--A taxpayer shall be treated as 
        having made a constructive sale of an appreciated 
        financial position if the taxpayer (or a related 
        person)--
                    ``(A) enters into a short sale of the same 
                or substantially identical property,
                    ``(B) enters into an offsetting notional 
                principal contract with respect to the same or 
                substantially identical property,
                    ``(C) enters into a futures or forward 
                contract to deliver the same or substantially 
                identical property,
                    ``(D) in the case of an appreciated 
                financial position that is a short sale or a 
                contract described in subparagraph (B) or (C) 
                with respect to any property, acquires the same 
                or substantially identical property, or
                    ``(E) to the extent prescribed by the 
                Secretary in regulations, enters into 1 or more 
                other transactions (or acquires 1 or more 
                positions) that have substantially the same 
                effect as a transaction described in any of the 
                preceding subparagraphs.
            ``(2) Exception for sales of nonpublicly traded 
        property.--The term `constructive sale' shall not 
        include any contract for sale of any stock, debt 
        instrument, or partnership interest which is not a 
        marketable security (as defined in section 453(f)) if 
        the contract settles within 1 year after the date such 
        contract is entered into.
            ``(3) Exception for certain closed transactions.--
                    ``(A) In general.--In applying this 
                section, there shall be disregarded any 
                transaction (which would otherwise be treated 
                as a constructive sale) during the taxable year 
                if--
                            ``(i) such transaction is closed 
                        before the end of the 30th day after 
                        the close of such taxable year,
                            ``(ii) the taxpayer holds the 
                        appreciated financial position 
                        throughout the 60-day period beginning 
                        on the date such transaction is closed, 
                        and
                            ``(iii) at no time during such 60-
                        day period is the taxpayer's risk of 
                        loss with respect to such position 
                        reduced by reason of a circumstance 
                        which would be described in section 
                        246(c)(4) if references to stock 
                        included references to such position.
                    ``(B) Treatment of positions which are 
                reestablished.--If--
                            ``(i) a transaction, which would 
                        otherwise be treated as a constructive 
                        sale of an appreciated financial 
                        position, is closed during the taxable 
                        year or during the 30 days thereafter, 
                        and
                            ``(ii) another substantially 
                        similar transaction is entered into 
                        during the 60-day period beginning on 
                        the date the transaction referred to in 
                        clause (i) is closed--
                                    ``(I) which also would 
                                otherwise be treated as a 
                                constructive sale of such 
                                position,
                                    ``(II) which is closed 
                                before the 30th day after the 
                                close of the taxable year in 
which the transaction referred to in clause (i) occurs, and
                                    ``(III) which meets the 
                                requirements of clauses (ii) 
                                and (iii) of subparagraph (A),
                the transaction referred to in clause (ii) 
                shall be disregarded for purposes of 
                determining whether the requirements of 
                subparagraph (A)(iii) are met with respect to 
                the transaction described in clause (i).
            ``(4) Related person.--A person is related to 
        another person with respect to a transaction if--
                    ``(A) the relationship is described in 
                section 267(b) or 707(b), and
                    ``(B) such transaction is entered into with 
                a view toward avoiding the purposes of this 
                section.
    ``(d) Other Definitions.--For purposes of this section--
            ``(1) Forward contract.--The term `forward 
        contract' means a contract to deliver a substantially 
        fixed amount of property for a substantially fixed 
        price.
            ``(2) Offsetting notional principal contract.--The 
        term `offsetting notional principal contract' means, 
        with respect to any property, an agreement which 
        includes--
                    ``(A) a requirement to pay (or provide 
                credit for) all or substantially all of the 
                investment yield (including appreciation) on 
                such property for a specified period, and
                    ``(B) a right to be reimbursed for (or 
                receive credit for) all or substantially all of 
                any decline in the value of such property.
    ``(e) Special Rules.--
            ``(1) Treatment of subsequent sale of position 
        which was deemed sold.--If--
                    ``(A) there is a constructive sale of any 
                appreciated financial position,
                    ``(B) such position is subsequently 
                disposed of, and
                    ``(C) at the time of such disposition, the 
                transaction resulting in the constructive sale 
                of such position is open with respect to the 
                taxpayer or any related person,
        solely for purposes of determining whether the taxpayer 
        has entered into a constructive sale of any other 
        appreciated financial position held by the taxpayer, 
        the taxpayer shall be treated as entering into such 
        transaction immediately after such disposition.For 
purposes of the preceding sentence, an assignment or other termination 
shall be treated as a disposition.
            ``(2) Certain trust instruments treated as stock.--
        For purposes of this section, an interest in a trust 
        which is actively traded (within the meaning of section 
        1092(d)(1)) shall be treated as stock unless 
        substantially all (by value) of the property held by 
        the trust is debt described in subsection (b)(2)(A).
            ``(3) Multiple positions in property.--If a 
        taxpayer holds multiple positions in property, the 
        determination of whether a specific transaction is a 
        constructive sale and, if so, which appreciated 
        financial position is deemed sold shall be made in the 
        same manner as actual sales.
    ``(f) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary or appropriate to carry out the 
purposes of this section.''.
    (b) Election of Mark to Market for Dealers in Commodities 
and for Traders in Securities or Commodities.--Section 475 
(relating to mark to market accounting method for dealers in 
securities) is amended by redesignating subsection (e) as 
subsection (g) and by inserting after subsection (d) the 
following new subsections:
    ``(e) Election of Mark to Market for Dealers in 
Commodities.--
            ``(1) In general.--In the case of a dealer in 
        commodities who elects the application of this 
        subsection, this section shall apply to commodities 
        held by such dealer in the same manner as this section 
        applies to securities held by a dealer in securities.
            ``(2) Commodity.--For purposes of this subsection 
        and subsection (f), the term `commodity' means--
                    ``(A) any commodity which is actively 
                traded (within the meaning of section 
                1092(d)(1));
                    ``(B) any notional principal contract with 
                respect to any commodity described in 
                subparagraph (A);
                    ``(C) any evidence of an interest in, or a 
                derivative instrument in, any commodity 
                described in subparagraph (A) or (B), including 
                any option, forward contract, futures contract, 
                short position, and any similar instrument in 
                such a commodity; and
                    ``(D) any position which--
                            ``(i) is not a commodity described 
                        in subparagraph (A), (B), or (C),
                            ``(ii) is a hedge with respect to 
                        such a commodity, and
                            ``(iii) is clearly identified in 
                        the taxpayer's records as being 
                        described in this subparagraph before 
                        the close of the day on which it was 
                        acquired or entered into (or such other 
                        time as the Secretary may by 
                        regulations prescribe).
            ``(3) Election.--An election under this subsection 
        may be made without the consent of the Secretary. Such 
        an election, once made, shall apply to the taxable year 
        for which made and all subsequent taxable years unless 
        revoked with the consent of the Secretary.
    ``(f) Election of Mark to Market for Traders in Securities 
or Commodities.--
            ``(1) Traders in securities.--
                    ``(A) In general.--In the case of a person 
                who is engaged in a trade or business as a 
                trader in securities and who elects to have 
                this paragraph apply to such trade or 
                business--
                            ``(i) such person shall recognize 
                        gain or loss on any security held in 
                        connection with such trade or business 
                        at the close of any taxable year as if 
                        such security were sold for its fair 
                        market value on the last business day 
                        of such taxable year, and
                            ``(ii) any gain or loss shall be 
                        taken into account for such taxable 
                        year.
                Proper adjustment shall be made in the amount 
                of any gain or loss subsequently realized for 
                gain or loss taken into account under the 
                preceding sentence. The Secretary may provide 
                by regulations for the application of this 
                subparagraph at times other than the times 
                provided in this subparagraph.
                    ``(B) Exception.--Subparagraph (A) shall 
                not apply to any security--
                            ``(i) which is established to the 
                        satisfaction of the Secretary as having 
                        no connection to the activities of such 
                        person as a trader, and
                            ``(ii) which is clearly identified 
                        in such person's records as being 
                        described in clause (i) before the 
                        close of the day on which it was 
                        acquired, originated, or entered into 
                        (or such other time as the Secretary 
                        may by regulations prescribe).
                If a security ceases to be described in clause 
                (i) at any time after it was identified as such 
                under clause (ii), subparagraph (A) shall apply 
                to any changes in value of the security 
                occurring after the cessation.
                    ``(C) Coordination with section 1259.--Any 
                security to which subparagraph (A) applies and 
                which was acquired in the normal course of the 
                taxpayer's activities as a trader in securities 
                shall not be taken into account in applying 
                section 1259 to any position to which 
                subparagraph (A) does not apply.
                    ``(D) Other rules to apply.--Rules similar 
                to the rules of subsections (b)(4) and (d) 
                shall apply to securities held by a person in 
                any trade or business with respect to which an 
                election under this paragraph is in effect.
            ``(2) Traders in commodities.--In the case of a 
        person who is engaged in a trade or business as a 
        trader in commodities and who elects to have this 
        paragraph apply to such trade or business, paragraph 
        (1) shall apply to commodities held by such trader in 
        connection with such trade or business in the same 
        manner as paragraph (1) applies to securities held by a 
        trader in securities.
            ``(3) Election.--The elections under paragraphs (1) 
        and (2) may be made separately for each trade or 
        business and without the consent of the Secretary. Such 
        an election, once made, shall apply to the taxable year 
        for which made and all subsequent taxable years unless 
        revoked with the consent of the Secretary.''.
    (c) Clerical Amendment.--The table of sections for part IV 
of subchapter P of chapter 1 is amended by adding at the end 
the following new item:

        ``Sec. 1259. Constructive sales treatment for appreciated 
                  financial positions.''.

    (d) Effective Dates.--
            (1) In general.--Except as otherwise provided in 
        this subsection, the amendments made by this section 
        shall apply to any constructive sale after June 8, 
        1997.
            (2) Exception for sales of positions, etc. held 
        before june 9, 1997.--If--
                    (A) before June 9, 1997, the taxpayer 
                entered into any transaction which is a 
                constructive sale of any appreciated financial 
                position, and
                    (B) before the close of the 30-day period 
                beginning on the date of the enactment of this 
                Act or before such later date as may be 
                specified by the Secretary of the Treasury, 
                such transaction and position are clearly 
                identified in the taxpayer's records as 
                offsetting,
        such transaction and position shall not be taken into 
        account in determining whether any other constructive 
        sale after June 8, 1997, has occurred. The preceding 
        sentence shall cease to apply as of the date such 
        transaction is closed or the taxpayer ceases to hold 
        such position.
            (3) Special rule.--In the case of a decedent dying 
        after June 8, 1997, if--
                    (A) there was a constructive sale on or 
                before such date of any appreciated financial 
                position,
                    (B) the transaction resulting in such 
                constructive sale of such position remains open 
                (with respect to the decedent or any related 
                person)--
                            (i) for not less than 2 years after 
                        the date of such transaction (whether 
                        such period is before or after June 8, 
                        1997), and
                            (ii) at any time during the 3-year 
                        period ending on the date of the 
                        decedent's death, and
                    (C) such transaction is not closed within 
                the 30-day period beginning on the date of the 
                enactment of this Act,
        then, for purposes of such Code, such position (and the 
        transaction resulting in such constructive sale) shall 
        be treated as property constituting rights to receive 
        an item of income in respect of a decedent under 
        section 691 of such Code. Section 1014(c) of such Code 
        shall not apply to so much of such position's or 
        property's value (as included in the decedent's estate 
        for purposes of chapter 11 of such Code) as exceeds its 
        fair market value as of the date such transaction is 
        closed.
            (4) Election of mark to market by securities 
        traders and traders and dealers in commodities.--
                    (A) In general.--The amendments made by 
                subsection (b) shall apply to taxable years 
                ending after the date of the enactment of this 
                Act.
                    (B) 4-year spread of adjustments.--In the 
                case of a taxpayer who elects under subsection 
                (e) or (f) of section 475 of the Internal 
                Revenue Code of 1986 (as added by this section) 
                to change its method of accounting for the 
                taxable year which includes the date of the 
                enactment of this Act--
                            (i) any identification required 
                        under such subsection with respect to 
                        securities and commodities held on the 
                        date of the enactment of this Act shall 
                        be treated as timely made if made on or 
                        before the 30th day after such date of 
                        enactment, and
                            (ii) the net amount of the 
                        adjustments required to be taken into 
                        account by the taxpayer under section 
                        481 of such Code shall be taken into 
                        account ratably over the 4-taxable year 
                        period beginning with such first 
                        taxable year.

SEC. 1002. LIMITATION ON EXCEPTION FOR INVESTMENT COMPANIES UNDER 
                    SECTION 351.

    (a) In General.--Paragraph (1) of section 351(e) (relating 
to exceptions) is amended by adding at the end the following: 
``For purposes of the preceding sentence, the determination of 
whether a company is an investment company shall be made--
                    ``(A) by taking into account all stock and 
                securities held by the company, and
                    ``(B) by treating as stock and securities--
                            ``(i) money,
                            ``(ii) stocks and other equity 
                        interests in a corporation, evidences 
                        of indebtedness, options, forward or 
                        futures contracts, notional principal 
                        contracts and derivatives,
                            ``(iii) any foreign currency,
                            ``(iv) any interest in a real 
                        estate investment trust, a common trust 
                        fund, a regulated investment company, a 
                        publicly-traded partnership (as defined 
                        in section 7704(b)) or any other equity 
                        interest (other than in a corporation) 
                        which pursuant to its terms or any 
                        other arrangement is readily 
                        convertible into, or exchangeable for, 
                        any asset described in any preceding 
                        clause, this clause or clause (v) or 
                        (viii),
                            ``(v) except to the extent provided 
                        in regulations prescribed by the 
                        Secretary, any interest in a precious 
                        metal, unless such metal is used or 
                        held in the active conduct of a trade 
                        or business after the contribution,
                            ``(vi) except as otherwise provided 
                        in regulations prescribed by the 
                        Secretary, interests in any entity if 
                        substantially all of the assets of such 
                        entity consist (directly or indirectly) 
                        of any assets described in any 
                        preceding clause or clause (viii),
                            ``(vii) to the extent provided in 
                        regulations prescribed by the 
                        Secretary, any interest in any entity 
                        not described in clause (vi), but only 
                        to the extent of the value of such 
                        interest that is attributable to assets 
                        listed in clauses (i) through (v) or 
                        clause (viii), or
                            ``(viii) any other asset specified 
                        in regulations prescribed by the 
                        Secretary.
        The Secretary may prescribe regulations that, under 
        appropriate circumstances, treat any asset described in 
        clauses (i) through (v) as not so listed.''.
    (b) Effective Date.--
            (1) In general.--The amendment made by subsection 
        (a) shall apply to transfers after June 8, 1997, in 
        taxable years ending after such date.
            (2) Binding contracts.--The amendment made by 
        subsection (a) shall not apply to any transfer pursuant 
        to a written binding contract in effect on June 8, 
        1997, and at all times thereafter before such transfer 
        if such contract provides for the transfer of a fixed 
        amount of property.

SEC. 1003. GAINS AND LOSSES FROM CERTAIN TERMINATIONS WITH RESPECT TO 
                    PROPERTY.

    (a) Application of Capital Treatment to Property Other Than 
Personal Property.--
            (1) In general.--Paragraph (1) of section 1234A 
        (relating to gains and losses from certain 
        terminations) is amended by striking ``personal 
        property (as defined in section 1092(d)(1))'' and 
        inserting ``property''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply to terminations more than 30 
        days after the date of the enactment of this Act.
    (b) Treatment of Short Sales of Property Which Becomes 
Substantially Worthless.--
            (1) In general.--Section 1233 is amended by adding 
        at the end the following new subsection:
    ``(h) Short Sales of Property Which Becomes Substantially 
Worthless.--
            ``(1) In general.--If--
                    ``(A) the taxpayer enters into a short sale 
                of property, and
                    ``(B) such property becomes substantially 
                worthless,
        the taxpayer shall recognize gain in the same manner as 
        if the short sale were closed when the property becomes 
        substantially worthless. To the extent provided in 
        regulations prescribed by the Secretary, the preceding 
        sentence also shall apply with respect to any option 
        with respect to property, any offsetting notional 
        principal contract with respect to property, any 
        futures or forward contract to deliver any property, 
        and any other similar transaction.
            ``(2) Statute of limitations.--If property becomes 
        substantially worthless during a taxable year and any 
        short sale of such property remains open at the time 
        such property becomes substantially worthless, then--
                    ``(A) the statutory period for the 
                assessment of any deficiency attributable to 
                any part of the gain on such transaction shall 
                not expire before the earlier of--
                            ``(i) the date which is 3 years 
                        after the date the Secretary is 
                        notified by the taxpayer (in such 
                        manner as the Secretary may by 
                        regulations prescribe) of the 
                        substantial worthlessness of such 
                        property, or
                            ``(ii) the date which is 6 years 
                        after the date the return for such 
                        taxable year is filed, and
                    ``(B) such deficiency may be assessed 
                before the date applicable under subparagraph 
                (A) notwithstanding the provisions of any other 
                law or rule of law which would otherwise 
                prevent such assessment.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply to property which becomes 
        substantially worthless after the date of the enactment 
        of this Act.
    (c) Application of Capital Treatment, Etc. to Obligations 
Issued by Natural Persons.--
            (1) In general.--Section 1271(b) is amended to read 
        as follows:
    ``(b) Exception for Certain Obligations.--
            ``(1) In general.--This section shall not apply 
        to--
                    ``(A) any obligation issued by a natural 
                person before June 9, 1997, and
                    ``(B) any obligation issued before July 2, 
                1982, by an issuer which is not a corporation 
                and is not a government or political 
                subdivision thereof.
            ``(2) Termination.--Paragraph (1) shall not apply 
        to any obligation purchased (within the meaning of 
        section 1272(d)(1)) after June 8, 1997.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply to sales, exchanges, and 
        retirements after the date of enactment of this Act.

SEC. 1004. DETERMINATION OF ORIGINAL ISSUE DISCOUNT WHERE POOLED DEBT 
                    OBLIGATIONS SUBJECT TO ACCELERATION.

    (a) In General.--Subparagraph (C) of section 1272(a)(6) 
(relating to debt instruments to which the paragraph applies) 
is amended by striking ``or'' at the end of clause (i), by 
striking the period at the end of clause (ii) and inserting ``, 
or'', and by inserting after clause (ii) the following:
                            ``(iii) any pool of debt 
                        instruments the yield on which may be 
                        affected by reason of prepayments (or 
                        to the extent provided in regulations, 
                        by reason of other events).
                To the extent provided in regulations 
                prescribed by the Secretary, in the case of a 
                small business engaged in the trade or business 
                of selling tangible personal property at 
                retail, clause (iii) shall not apply to debt 
                instruments incurred in the ordinary course of 
                such trade or business while held by such 
                business.''.
    (b) Effective Dates.--
            (1) In general.--The amendment made by this section 
        shall apply to taxable years beginning after the date 
        of the enactment of this Act.
            (2) Change in method of accounting.--In the case of 
        any taxpayer required by this section to change its 
        method of accounting for its first taxable year 
        beginning after the date of the enactment of this Act--
                    (A) such change shall be treated as 
                initiated by the taxpayer,
                    (B) such change shall be treated as made 
                with the consent of the Secretary of the 
                Treasury, and
                    (C) the net amount of the adjustments 
                required to be taken into account by the 
                taxpayer under section 481 of the Internal 
                Revenue Code of 1986 shall be taken into 
                account ratably over the 4-taxable year period 
                beginning with such first taxable year.

SEC. 1005. DENIAL OF INTEREST DEDUCTIONS ON CERTAIN DEBT INSTRUMENTS.

    (a) In General.--Section 163 (relating to deduction for 
interest), as amended by title V, is amended by redesignating 
subsection (l) as subsection (m) and by inserting after 
subsection (k) the following new subsection:
    ``(l) Disallowance of Deduction on Certain Debt Instruments 
of Corporations.--
            ``(1) In general.--No deduction shall be allowed 
        under this chapter for any interest paid or accrued on 
        a disqualified debt instrument.
            ``(2) Disqualified debt instrument.--For purposes 
        of this subsection, the term `disqualified debt 
        instrument' means any indebtedness of a corporation 
        which is payable in equity of the issuer or a related 
        party.
            ``(3) Special rules for amounts payable in 
        equity.--For purposes of paragraph (2), indebtedness 
        shall be treated as payable in equity of the issuer or 
        a related party only if--
                    ``(A) a substantial amount of the principal 
                or interest is required to be paid or 
                converted, or at the option of the issuer or a 
                related party is payable in, or convertible 
                into, such equity,
                    ``(B) a substantial amount of the principal 
                or interest is required to be determined, or at 
                the option of the issuer or a related party is 
                determined, by reference to the value of such 
                equity, or
                    ``(C) the indebtedness is part of an 
                arrangement which is reasonably expected to 
                result in a transaction described in 
                subparagraph (A) or (B).
        For purposes of this paragraph, principal or interest 
        shall be treated as required to be so paid, converted, 
        or determined if it may be required at the option of 
        the holder or a related party and there is a 
        substantial certainty the option will be exercised.
            ``(4) Related party.--For purposes of this 
        subsection, a person is a related party with respect to 
        another person if such person bears a relationship to 
        such other person described in section 267(b) or 
        707(b).
            ``(5) Regulations.--The Secretary shall prescribe 
        such regulations as may be necessary or appropriate to 
        carry out the purposes of this subsection, including 
        regulations preventing avoidance of this subsection 
        through the use of an issuer other than a 
        corporation.''.
    (b) Effective Date.--
            (1) In general.--The amendment made by this section 
        shall apply to disqualified debt instruments issued 
        after June 8, 1997.
            (2) Transition rule.--The amendment made by this 
        section shall not apply to any instrument issued after 
        June 8, 1997, if such instrument is--
                    (A) issued pursuant to a written agreement 
                which was binding on such date and at all times 
                thereafter,
                    (B) described in a ruling request submitted 
                to the Internal Revenue Service on or before 
                such date, or
                    (C) described on or before such date in a 
                public announcement or in a filing with the 
                Securities and Exchange Commission required 
                solely by reason of the issuance.

        Subtitle B--Corporate Organizations and Reorganizations

SEC. 1011. TAX TREATMENT OF CERTAIN EXTRAORDINARY DIVIDENDS.

    (a) Treatment of Extraordinary Dividends in Excess of 
Basis.--Paragraph (2) of section 1059(a) (relating to corporate 
shareholder's recognition of gain attributable to nontaxed 
portion of extraordinary dividends) is amended to read as 
follows:
            ``(2) Amounts in excess of basis.--If the nontaxed 
        portion of such dividends exceeds such basis, such 
        excess shall be treated as gain from the sale or 
        exchange of such stock for the taxable year in which 
        the extraordinary dividend is received.''.
    (b) Treatment of Redemptions Where Options Involved.--
Paragraph (1) of section 1059(e) (relating to treatment of 
partial liquidations and non-pro rata redemptions) is amended 
to read as follows:
            ``(1) Treatment of partial liquidations and certain 
        redemptions.--Except as otherwise provided in 
        regulations--
                    ``(A) Redemptions.--In the case of any 
                redemption of stock--
                            ``(i) which is part of a partial 
                        liquidation (within the meaning of 
                        section 302(e)) of the redeeming 
                        corporation,
                            ``(ii) which is not pro rata as to 
                        all shareholders, or
                            ``(iii) which would not have been 
                        treated (in whole or in part) as a 
                        dividend if any options had not been 
                        taken into account under section 
                        318(a)(4),
                any amount treated as a dividend with respect 
                to such redemption shall be treated as an 
                extraordinary dividend to which paragraphs (1) 
                and (2) of subsection (a) apply without regard 
                to the period the taxpayer held such stock. In 
                the case of a redemption described in clause 
                (iii), only the basis in the stock redeemed 
                shall be taken into account under subsection 
                (a).
                    ``(B) Reorganizations, etc.--An exchange 
                described in section 356 which is treated as a 
                dividend shall be treated as a redemption of 
                stock for purposes of applying subparagraph 
                (A).''.
    (c) Time for Reduction.--Paragraph (1) of section 1059(d) 
is amended to read as follows:
            ``(1) Time for reduction.--Any reduction in basis 
        under subsection (a)(1) shall be treated as occurring 
        at the beginning of the ex-dividend date of the 
        extraordinary dividend to which the reduction 
        relates.''.
    (d) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to distributions after May 3, 1995.
            (2) Transition rule.--The amendments made by this 
        section shall not apply to any distribution made 
        pursuant to the terms of--
                    (A) a written binding contract in effect on 
                May 3, 1995, and at all times thereafter before 
                such distribution, or
                    (B) a tender offer outstanding on May 3, 
                1995.
            (3) Certain dividends not pursuant to certain 
        redemptions.--In determining whether the amendment made 
        by subsection (a) applies to any extraordinary dividend 
        other than a dividend treated as an extraordinary 
        dividend under section 1059(e)(1) of the Internal 
        Revenue Code of 1986 (as amended by this Act), 
        paragraphs (1) and (2) shall be applied by substituting 
        ``September 13, 1995'' for ``May 3, 1995''.

SEC. 1012. APPLICATION OF SECTION 355 TO DISTRIBUTIONS IN CONNECTION 
                    WITH ACQUISITIONS AND TO INTRAGROUP TRANSACTIONS.

    (a) Distributions In Connection With Acquisitions.--Section 
355 (relating to distributions of stock and securities of a 
controlled corporation) is amended by adding at the end the 
following new subsection:
    ``(e) Recognition of Gain on Certain Distributions of Stock 
or Securities in Connection With Acquisitions.--
            ``(1) General rule.--If there is a distribution to 
        which this subsection applies, any stock or securities 
        in the controlled corporation shall not be treated as 
        qualified property for purposes of subsection (c)(2) of 
        this section or section 361(c)(2).
            ``(2) Distributions to which subsection applies.--
                    ``(A) In general.--This subsection shall 
                apply to any distribution--
                            ``(i) to which this section (or so 
                        much of section 356 as relates to this 
                        section) applies, and
                            ``(ii) which is part of a plan (or 
                        series of related transactions) 
                        pursuant to which 1 or more persons 
                        acquire directly or indirectly stock 
                        representing a 50-percent or greater 
                        interest in the distributing 
                        corporation or any controlled 
                        corporation.
                    ``(B) Plan presumed to exist in certain 
                cases.--If 1 or more persons acquire directly 
                or indirectly stock representing a 50-percent 
                or greater interest in the distributing 
                corporation or any controlled corporation 
                during the 4-year period beginning on the date 
                which is 2 years before the date of the 
                distribution, such acquisition shall be treated 
                as pursuant to a plan described in subparagraph 
                (A)(ii) unless it is established that the 
                distribution and theacquisition are not 
pursuant to a plan or series of related transactions.
                    ``(C) Certain plans disregarded.--A plan 
                (or series of related transactions) shall not 
                be treated as described in subparagraph (A)(ii) 
                if, immediately after the completion of such 
                plan or transactions, the distributing 
                corporation and all controlled corporations are 
                members of a single affiliated group (as 
                defined in section 1504 without regard to 
                subsection (b) thereof).
                    ``(D) Coordination with subsection (d).--
                This subsection shall not apply to any 
                distribution to which subsection (d) applies.
            ``(3) Special rules relating to acquisitions.--
                    ``(A) Certain acquisitions not taken into 
                account.--Except as provided in regulations, 
                the following acquisitions shall not be treated 
                as described in paragraph (2)(A)(ii):
                            ``(i) The acquisition of stock in 
                        any controlled corporation by the 
                        distributing corporation.
                            ``(ii) The acquisition by a person 
                        of stock in any controlled corporation 
                        by reason of holding stock or 
                        securities in the distributing 
                        corporation.
                            ``(iii) The acquisition by a person 
                        of stock in any successor corporation 
                        of the distributing corporation or any 
                        controlled corporation by reason of 
                        holding stock or securities in such 
                        distributing or controlled corporation.
                            ``(iv) The acquisition of stock in 
                        a corporation if shareholders owning 
                        directly or indirectly stock 
                        possessing--
                                    ``(I) more than 50 percent 
                                of the total combined voting 
                                power of all classes of stock 
                                entitled to vote, and
                                    ``(II) more than 50 percent 
                                of the total value of shares of 
                                all classes of stock,
                        in the distributing corporation or any 
                        controlled corporation before such 
                        acquisition own directly or indirectly 
                        stock possessing such vote and value in 
                        such distributing or controlled 
                        corporation after such acquisition.
                This subparagraph shall not apply to any 
                acquisition if the stock held before the 
                acquisition was acquired pursuant to a plan (or 
                series of related transactions) described in 
                paragraph (2)(A)(ii).
                    ``(B) Asset acquisitions.--Except as 
                provided in regulations, for purposes of this 
                subsection, if the assets of the distributing 
                corporation or any controlled corporation are 
                acquired by a successor corporation in a 
                transaction described in subparagraph (A), (C), 
                or (D) of section 368(a)(1) or any other 
                transaction specified in regulations by the 
                Secretary, the shareholders (immediately before 
                the acquisition) of the corporation acquiring 
                such assets shall be treated as acquiring stock 
                in the corporation from which the assets were 
                acquired.
            ``(4) Definition and special rules.--For purposes 
        of this subsection--
                    ``(A) 50-percent or greater interest.--The 
                term `50-percent or greater interest' has the 
                meaning given such term by subsection (d)(4).
                    ``(B) Distributions in title 11 or similar 
                case.--Paragraph (1) shall not apply to any 
                distribution made in a title 11 or similar case 
                (as defined in section 368(a)(3)).
                    ``(C) Aggregation and attribution rules.--
                            ``(i) Aggregation.--The rules of 
                        paragraph (7)(A) of subsection (d) 
                        shall apply.
                            ``(ii) Attribution.--Section 
                        318(a)(2) shall apply in determining 
                        whether a person holds stock or 
                        securities in any corporation. Except 
                        as provided in regulations, section 
                        318(a)(2)(C) shall be applied without 
                        regard to the phrase `50 percent or 
                        more in value' for purposes of the 
                        preceding sentence.
                    ``(D) Successors and predecessors.--For 
                purposes of this subsection, any reference to a 
                controlled corporation or a distributing 
                corporation shall include a reference to any 
                predecessor or successor of such corporation.
                    ``(E) Statute of limitations.--If there is 
                a distribution to which paragraph (1) applies--
                            ``(i) the statutory period for the 
                        assessment of any deficiency 
                        attributable to any part of the gain 
                        recognized under this subsection by 
                        reason of such distribution shall not 
                        expire before the expiration of 3 years 
                        from the date the Secretary is notified 
                        by the taxpayer (in such manner as the 
                        Secretary may by regulations prescribe) 
                        that such distribution occurred, and
                            ``(ii) such deficiency may be 
                        assessed before the expiration of such 
                        3-year period notwithstanding the 
                        provisions of any other law or rule of 
                        law which would otherwise prevent such 
                        assessment.
            ``(5) Regulations.--The Secretary shall prescribe 
        such regulations as may be necessary to carry out the 
        purposes of this subsection, including regulations--
                    ``(A) providing for the application of this 
                subsection where there is more than 1 
                controlled corporation,
                    ``(B) treating 2 or more distributions as 1 
                distribution where necessary to prevent the 
                avoidance of such purposes, and
                    ``(C) providing for the application of 
                rules similar to the rules of subsection (d)(6) 
                where appropriate for purposes of paragraph 
                (2)(B).''.
    (b) Special Rules for Certain Intragroup Transactions.--
            (1) Section 355 not to apply.--Section 355, as 
        amended by subsection (a), is amended by adding at the 
        end the following new subsection:
    ``(f) Section Not To Apply to Certain Intragroup 
Distributions.--Except as provided in regulations, this section 
(or so much of section 356 as relates to this section) shall 
not apply to the distribution of stock from 1 member of an 
affiliated group (as defined in section 1504(a)) to another 
member of such group if such distribution is part of a plan (or 
series of related transactions) described in subsection 
(e)(2)(A)(ii) (determined after the application of subsection 
(e)).''.
            (2) Adjustments to basis.--Section 358 (relating to 
        basis to distributees) is amended by adding at the end 
        the following new subsection:
    ``(g) Adjustments in Intragroup Transactions Involving 
Section 355.--In the case of a distribution to which section 
355 (or so much of section 356 as relates to section 355) 
applies and which involves the distribution of stock from 1 
member of an affiliated group (as defined in section 1504(a) 
without regard to subsection (b) thereof) to another member of 
such group, the Secretary may, notwithstanding any other 
provision of this section, provide adjustments to the adjusted 
basis of any stock which--
            ``(1) is in a corporation which is a member of such 
        group, and
            ``(2) is held by another member of such group,
to appropriately reflect the proper treatment of such 
distribution.''.
    (c) Determination of Control in Certain Divisive 
Transactions.--
            (1) Section 351 transactions.--Section 351(c) 
        (relating to special rule) is amended to read as 
        follows:
    ``(c) Special Rules Where Distribution to Shareholders.--In 
determining control for purposes of this section--
            ``(1) the fact that any corporate transferor 
        distributes part or all of the stock in the corporation 
        which it receives in the exchange to its shareholders 
        shall not be taken into account, and
            ``(2) if the requirements of section 355 are met 
        with respect to such distribution, the shareholders 
        shall be treated as in control of such corporation 
        immediately after the exchange if the shareholders own 
        (immediately after the distribution) stock possessing--
                    ``(A) more than 50 percent of the total 
                combined voting power of all classes of stock 
                of such corporation entitled to vote, and
                    ``(B) more than 50 percent of the total 
                value of shares of all classes of stock of such 
                corporation.''.
            (2) D reorganizations.--Section 368(a)(2)(H) 
        (relating to special rule for determining whether 
        certain transactions are qualified under paragraph 
        (1)(D)) is amended to read as follows:
                    ``(H) Special rules for determining whether 
                certain transactions are qualified under 
                paragraph (1)(d).--For purposes of determining 
                whether a transaction qualifies under paragraph 
                (1)(D)--
                            ``(i) in the case of a transaction 
                        with respect to which the requirements 
                        of subparagraphs (A) and (B) of section 
                        354(b)(1) are met, the term `control' 
                        has the meaning given such term by 
                        section 304(c), and
                            ``(ii) in the case of a transaction 
                        with respect to which the requirements 
                        of section 355 are met, the 
                        shareholders described in paragraph 
                        (1)(D) shall be treated as having 
                        control of the corporation to which the 
                        assets are transferred if such 
                        shareholders own (immediately after the 
                        distribution) stock possessing--
                                    ``(I) more than 50 percent 
                                of the total combined voting 
                                power of all classes of stock 
                                of such corporation entitled to 
                                vote, and
                                    ``(II) more than 50 percent 
                                of the total value of shares of 
                                all classes of stock of such 
                                corporation.''.
    (d) Effective Dates.--
            (1) Section 355 rules.--The amendments made by 
        subsections (a) and (b) shall apply to distributions 
        after April 16, 1997, pursuant to a plan (or series of 
        related transactions) which involves an acquisition 
        described in section 355(e)(2)(A)(ii) of the Internal 
        Revenue Code of 1986 occurring after such date.
            (2) Divisive transactions.--The amendments made by 
        subsection (c) shall apply to transfers after the date 
        of the enactment of this Act.
            (3) Transition rule.--The amendments made by this 
        section shall not apply to any distribution pursuant to 
        a plan (or series of related transactions)which 
involves an acquisition described in section 355(e)(2)(A)(ii) of the 
Internal Revenue Code of 1986 (or, in the case of the amendments made 
by subsection (c), any transfer) occurring after April 16, 1997, if 
such acquisition or transfer is--
                    (A) made pursuant to an agreement which was 
                binding on such date and at all times 
                thereafter,
                    (B) described in a ruling request submitted 
                to the Internal Revenue Service on or before 
                such date, or
                    (C) described on or before such date in a 
                public announcement or in a filing with the 
                Securities and Exchange Commission required 
                solely by reason of the acquisition or 
                transfer.
        This paragraph shall not apply to any agreement, ruling 
        request, or public announcement or filing unless it 
        identifies the acquirer of the distributing corporation 
        or any controlled corporation, or the transferee, 
        whichever is applicable.

SEC. 1013. TAX TREATMENT OF REDEMPTIONS INVOLVING RELATED CORPORATIONS.

    (a) Stock Purchases by Related Corporations.--The last 
sentence of section 304(a)(1) (relating to acquisition by 
related corporation other than subsidiary) is amended to read 
as follows: ``To the extent that such distribution is treated 
as a distribution to which section 301 applies, the transferor 
and the acquiring corporation shall be treated in the same 
manner as if the transferor had transferred the stock so 
acquired to the acquiring corporation in exchange for stock of 
the acquiring corporation in a transaction to which section 
351(a) applies, and then the acquiring corporation had redeemed 
the stock it was treated as issuing in such transaction.''.
    (b) Coordination With Section 1059.--Clause (iii) of 
section 1059(e)(1)(A), as amended by this title, is amended to 
read as follows:
                            ``(iii) which would not have been 
                        treated (in whole or in part) as a 
                        dividend if--
                                    ``(I) any options had not 
                                been taken into account under 
                                section 318(a)(4), or
                                    ``(II) section 304(a) had 
                                not applied,''.
    (c) Special Rule for Acquisitions by Foreign 
Corporations.--Section 304(b) (relating to special rules for 
application of subsection (a)) is amended by adding at the end 
the following new paragraph:
            ``(5) Acquisitions by foreign corporations.--
                    ``(A) In general.--In the case of any 
                acquisition to which subsection (a) applies in 
                which the acquiring corporation is a foreign 
                corporation, the only earnings and profits 
                taken into account under paragraph (2)(A) shall 
                be those earnings and profits--
                            ``(i) which are attributable (under 
                        regulations prescribed by the 
                        Secretary) to stock of the acquiring 
                        corporation owned (within the meaning 
                        of section 958(a)) by a corporation or 
                        individual which is--
                                    ``(I) a United States 
                                shareholder (within the meaning 
                                of section 951(b)) of the 
                                acquiring corporation, and
                                    ``(II) the transferor or a 
                                person who bears a relationship 
                                to the transferor described in 
                                section 267(b) or 707(b), and
                            ``(ii) which were accumulated 
                        during the period or periods such stock 
                        was owned by such person while the 
                        acquiring corporation was a controlled 
                        foreign corporation.
                    ``(B) Application of section 1248.--For 
                purposes of subparagraph (A), the rules of 
                section 1248(d) shall apply except to the 
                extent otherwise provided by the Secretary.
                    ``(C) Regulations.--The Secretary shall 
                prescribe such regulations as are appropriate 
                to carry out the purposes of this paragraph.''.
    (d) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to distributions and acquisitions 
        after June 8, 1997.
            (2) Transition rule.--The amendments made by this 
        section shall not apply to any distribution or 
        acquisition after June 8, 1997, if such distribution or 
        acquisition is--
                    (A) made pursuant to a written agreement 
                which was binding on such date and at all times 
                thereafter,
                    (B) described in a ruling request submitted 
                to the Internal Revenue Service on or before 
                such date, or
                    (C) described in a public announcement or 
                filing with the Securities and Exchange 
                Commission on or before such date.

SEC. 1014. CERTAIN PREFERRED STOCK TREATED AS BOOT.

    (a) Section 351.--Section 351 (relating to transfer to 
corporation controlled by transferor) is amended by 
redesignating subsection (g) as subsection (h) and by inserting 
after subsection (f) the following new subsection:
    ``(g) Nonqualified Preferred Stock Not Treated as Stock.--
            ``(1) In general.--In the case of a person who 
        transfers property to a corporation and receives 
        nonqualified preferred stock--
                    ``(A) subsection (a) shall not apply to 
                such transferor,
                    ``(B) subsection (b) shall apply to such 
                transferor, and
                    ``(C) such nonqualified preferred stock 
                shall be treated as other property for purposes 
                of applying subsection (b).
            ``(2) Nonqualified preferred stock.--For purposes 
        of paragraph (1)--
                    ``(A) In general.--The term `nonqualified 
                preferred stock' means preferred stock if--
                            ``(i) the holder of such stock has 
                        the right to require the issuer or a 
                        related person to redeem or purchase 
                        the stock,
                            ``(ii) the issuer or a related 
                        person is required to redeem or 
                        purchase such stock,
                            ``(iii) the issuer or a related 
                        person has the right to redeem or 
                        purchase the stock and, as of the issue 
                        date, it is more likely than not that 
                        such right will be exercised, or
                            ``(iv) the dividend rate on such 
                        stock varies in whole or in part 
                        (directly or indirectly) with reference 
                        to interest rates, commodity prices, or 
                        other similar indices.
                    ``(B) Limitations.--Clauses (i), (ii), and 
                (iii) of subparagraph (A) shall apply only if 
                the right or obligation referred to therein may 
                be exercised within the 20-year period 
                beginning on the issue date of such stock and 
                such right or obligation is not subject to a 
                contingency which, as of the issue date, makes 
                remote the likelihood of the redemption or 
                purchase.
                    ``(C) Exceptions for certain rights or 
                obligations.--
                            ``(i) In general.--A right or 
                        obligation shall not be treated as 
                        described in clause (i), (ii), or (iii) 
                        of subparagraph (A) if--
                                    ``(I) it may be exercised 
                                only upon the death, 
                                disability, or mental 
                                incompetency of the holder, or
                                    ``(II) in the case of a 
                                right or obligation to redeem 
                                or purchase stock transferred 
                                in connection with the 
                                performance of services for the 
                                issuer or a related person (and 
                                which represents reasonable 
                                compensation), it may be 
                                exercised only upon the 
                                holder's separation from 
                                service from the issuer or a 
                                related person.
                            ``(ii) Exception.--Clause (i)(I) 
                        shall not apply if the stock 
                        relinquished in the exchange, or the 
                        stock acquired in the exchange is in--
                                    ``(I) a corporation if any 
                                class of stock in such 
                                corporation or a related party 
                                is readily tradable on an 
                                established securities market 
                                or otherwise, or
                                    ``(II) any other 
                                corporation if such exchange is 
                                part of a transaction or series 
                                of transactions in which such 
                                corporation is to become a 
                                corporation described in 
                                subclause (I).
            ``(3) Definitions.--For purposes of this 
        subsection--
                    ``(A) Preferred stock.--The term `preferred 
                stock' means stock which is limited and 
                preferred as to dividends and does not 
                participate in corporate growth to any 
                significant extent.
                    ``(B) Related person.--A person shall be 
                treated as related to another person if they 
                bear a relationship to such other person 
                described in section 267(b) or 707(b).
            ``(4) Regulations.--The Secretary may prescribe 
        such regulations as may be necessary or appropriate to 
        carry out the purposes of this subsection and sections 
        354(a)(2)(C), 355(a)(3)(D), and 356(e). The Secretary 
        may also prescribe regulations, consistent with the 
        treatment under this subsection and such sections, for 
        the treatment of nonqualified preferred stock under 
        other provisions of this title.''.
    (b) Section 354.--Paragraph (2) of section 354(a) (relating 
to exchanges of stock and securities in certain 
reorganizations) is amended by adding at the end the following 
new subparagraph:
                    ``(C) Nonqualified preferred stock.--
                            ``(i) In general.--Nonqualified 
                        preferred stock (as defined in section 
                        351(g)(2)) received in exchange for 
                        stock other than nonqualified preferred 
                        stock (as so defined) shall not be 
                        treated as stock or securities.
                            ``(ii) Recapitalizations of family-
                        owned corporations.--
                                    ``(I) In general.--Clause 
                                (i) shall not apply in the case 
                                of a recapitalization under 
                                section 368(a)(1)(E) of a 
                                family-owned corporation.
                                    ``(II) Family-owned 
                                corporation.--For purposes of 
                                this clause, except as provided 
                                in regulations, the term 
                                `family-owned corporation' 
                                means any corporation which is 
                                described in clause (i) of 
                                section 447(d)(2)(C) throughout 
                                the 8-year period beginning on 
                                the date which is 5 years 
                                before the date of the 
                                recapitalization. For purposes 
                                of the preceding sentence, 
                                stock shall not be treated as 
                                owned by a family member during 
                                any period described in section 
                                355(d)(6)(B).''.
    (c) Section 355.--Paragraph (3) of section 355(a) is 
amended by adding at the end the following new subparagraph:
                    ``(D) Nonqualified preferred stock.--
                Nonqualified preferred stock (as defined in 
                section 351(g)(2)) received in a distribution 
                with respect to stock other than nonqualified 
                preferred stock (as so defined) shall not be 
                treated as stock or securities.''.
    (d) Section 356.--Section 356 is amended by redesignating 
subsections (e) and (f) as subsections (f) and (g), 
respectively, and by inserting after subsection (d) the 
following new subsection:
    ``(e) Nonqualified Preferred Stock Treated as Other 
Property.--For purposes of this section--
            ``(1) In general.--Except as provided in paragraph 
        (2), the term `other property' includes 
nonqualifiedpreferred stock (as defined in section 351(g)(2)).
            ``(2) Exception.--The term `other property' does 
        not include nonqualified preferred stock (as so 
        defined) to the extent that, under section 354 or 355, 
        such preferred stock would be permitted to be received 
        without the recognition of gain.''.
    (e) Conforming Amendments.--
            (1) Subparagraph (B) of section 354(a)(2) and 
        subparagraph (C) of section 355(a)(3)(C) are each 
        amended by inserting ``(including nonqualified 
        preferred stock, as defined in section 351(g)(2))'' 
        after ``stock''.
            (2) Subparagraph (A) of section 354(a)(3) and 
        subparagraph (A) of section 355(a)(4) are each amended 
        by inserting ``nonqualified preferred stock and'' after 
        ``including''.
            (3) Section 1036 is amended by redesignating 
        subsection (b) as subsection (c) and by inserting after 
        subsection (a) the following new subsection:
    ``(b) Nonqualified Preferred Stock Not Treated as Stock.--
For purposes of this section, nonqualified preferred stock (as 
defined in section 351(g)(2)) shall be treated as property 
other than stock.''.
    (f) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to transactions after June 8, 1997.
            (2) Transition rule.--The amendments made by this 
        section shall not apply to any transaction after June 
        8, 1997, if such transaction is--
                    (A) made pursuant to a written agreement 
                which was binding on such date and at all times 
                thereafter,
                    (B) described in a ruling request submitted 
                to the Internal Revenue Service on or before 
                such date, or
                    (C) described on or before such date in a 
                public announcement or in a filing with the 
                Securities and Exchange Commission required 
                solely by reason of the transaction.

SEC. 1015. MODIFICATION OF HOLDING PERIOD APPLICABLE TO DIVIDENDS 
                    RECEIVED DEDUCTION.

    (a) In General.--Subparagraph (A) of section 246(c)(1) is 
amended to read as follows:
                    ``(A) which is held by the taxpayer for 45 
                days or less during the 90-day period beginning 
                on the date which is 45 days before the date on 
                which such share becomes ex-dividend with 
                respect to such dividend, or''.
    (b) Conforming Amendments.--
            (1) Paragraph (2) of section 246(c) is amended to 
        read as follows:
            ``(2) 90-day rule in the case of certain preference 
        dividends.--In the case of stock having preference in 
        dividends, if the taxpayer receives dividends with 
        respect to such stock which are attributable to a 
        period or periods aggregating in excess of 366 days, 
        paragraph (1)(A) shall be applied--
                    ``(A) by substituting `90 days' for `45 
                days' each place it appears, and
                    ``(B) by substituting `180-day period' for 
                `90-day period'.''.
            (2) Paragraph (3) of section 246(c) is amended by 
        adding ``and'' at the end of subparagraph (A), by 
        striking subparagraph (B), and by redesignating 
        subparagraph (C) as subparagraph (B).
    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to dividends received or accrued 
        after the 30th day after the date of the enactment of 
        this Act.
            (2) Transitional rule.--The amendments made by this 
        section shall not apply to dividends received or 
        accrued during the 2-year period beginning on the date 
        of the enactment of this Act if--
                    (A) the dividend is paid with respect to 
                stock held by the taxpayer on June 8, 1997, and 
                all times thereafter until the dividend is 
                received,
                    (B) such stock is continuously subject to a 
                position described in section 246(c)(4) of the 
                Internal Revenue Code of 1986 on June 8, 1997, 
                and all times thereafter until the dividend is 
                received, and
                    (C) such stock and position are clearly 
                identified in the taxpayer's records within 30 
                days after the date of the enactment of this 
                Act.
        Stock shall not be treated as meeting the requirement 
        of subparagraph (B) if the position is sold, closed, or 
        otherwise terminated and reestablished.

                 Subtitle C--Administrative Provisions

SEC. 1021. REPORTING OF CERTAIN PAYMENTS MADE TO ATTORNEYS.

    (a) In General.--Section 6045 (relating to returns of 
brokers) is amended by adding at the end the following new 
subsection:
    ``(f) Return Required in the Case of Payments to 
Attorneys.--
            ``(1) In general.--Any person engaged in a trade or 
        business and making a payment (in the course of such 
        trade or business) to which this subsection applies 
        shall file a return under subsection (a) and a 
        statement under subsection (b) with respect to such 
        payment.
            ``(2) Application of subsection.--
                    ``(A) In general.--This subsection shall 
                apply to any payment to an attorney in 
                connection with legal services (whether or not 
                such services are performed for the payor).
                    ``(B) Exception.--This subsection shall not 
                apply to the portion of any payment which is 
                required to be reported under section 6041(a) 
                (or would be so required but for the dollar 
                limitation contained therein) or section 
                6051.''.
    (b) Reporting of Attorneys' Fees Payable to Corporations.--
The regulations providing an exception under section 6041 of 
the Internal Revenue Code of 1986 for payments made to 
corporations shall not apply to payments of attorneys' fees.
    (c) Effective Date.--The amendment made by this section 
shall apply to payments made after December 31, 1997.

SEC. 1022. DECREASE OF THRESHOLD FOR REPORTING PAYMENTS TO CORPORATIONS 
                    PERFORMING SERVICES FOR FEDERAL AGENCIES.

    (a) In General.--Subsection (d) of section 6041A (relating 
to returns regarding payments of remuneration for services and 
direct sales) is amended by adding at the end the following new 
paragraph:
            ``(3) Payments to corporations by federal executive 
        agencies.--
                    ``(A) In general.--Notwithstanding any 
                regulation prescribed by the Secretary before 
                the date of the enactment of this paragraph, 
                subsection (a) shall apply to remuneration paid 
                to a corporation by any Federal executive 
                agency (as defined in section 6050M(b)).
                    ``(B) Exception.--Subparagraph (A) shall 
                not apply to--
                            ``(i) services under contracts 
                        described in section 6050M(e)(3) with 
                        respect to which the requirements of 
                        section 6050M(e)(2) are met, and
                            ``(ii) such other services as the 
                        Secretary may specify in regulations 
                        prescribed after the date of the 
                        enactment of this paragraph.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to returns the due date for which (determined 
without regard to any extension) is more than 90 days after the 
date of the enactment of this Act.

SEC. 1023. DISCLOSURE OF RETURN INFORMATION FOR ADMINISTRATION OF 
                    CERTAIN VETERANS PROGRAMS.

    (a) General Rule.--Clause (viii) of section 6103(l)(7)(D) 
(relating to disclosure of return information to Federal, 
State, and local agencies administering certain programs) is 
amended by striking ``1998'' and inserting ``2003''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect on the date of the enactment of this Act.

SEC. 1024. CONTINUOUS LEVY ON CERTAIN PAYMENTS.

    (a) In General.--Section 6331 (relating to levy and 
distraint) is amended--
            (1) by redesignating subsection (h) as subsection 
        (i), and
            (2) by inserting after subsection (g) the following 
        new subsection:
    ``(h) Continuing Levy on Certain Payments.--
            ``(1) In general.--The effect of a levy on 
        specified payments to or received by a taxpayer shall 
        be continuous from the date such levy is first made 
        until such levy is released. Notwithstanding section 
        6334, such continuous levy shall attach to up to 15 
        percent of any specified payment due to the taxpayer.
            ``(2) Specified payment.--For the purposes of 
        paragraph (1), the term `specified payment' means--
                    ``(A) any Federal payment other than a 
                payment for which eligibility is based on the 
                income or assets (or both) of a payee,
                    ``(B) any payment described in paragraph 
                (4), (7), (9), or (11) of section 6334(a), and
                    ``(C) any annuity or pension payment under 
                the Railroad Retirement Act or benefit under 
                the Railroad Unemployment Insurance Act.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to levies issued after the date of the enactment of 
this Act.

SEC. 1025. MODIFICATION OF LEVY EXEMPTION.

    (a) In General.--Section 6334 (relating to property exempt 
from levy) is amended by redesignating subsection (f) as 
subsection (g) and by inserting after subsection (e) the 
following new subsection:
    ``(f) Levy Allowed on Certain Specified Payments.--Any 
payment described in subparagraph (B) or (C) of section 
6331(h)(2) shall not be exempt from levy if the Secretary 
approves the levy thereon under section 6331(h).''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to levies issued after the date of the enactment of 
this Act.

SEC. 1026. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND RETURN 
                    INFORMATION.

    (a) In General.--Subsection (k) of section 6103 is amended 
by adding at the end the following new paragraph:
            ``(8) Levies on certain government payments.--
                    ``(A) Disclosure of return information in 
                levies on financial management service.--In 
                serving a notice of levy, or release of such 
                levy, with respect to any applicable government 
                payment, the Secretary may disclose to officers 
                and employees of the Financial Management 
                Service--
                            ``(i) return information, including 
                        taxpayer identity information,
                            ``(ii) the amount of any unpaid 
                        liability under this title (including 
                        penalties and interest), and
                            ``(iii) the type of tax and tax 
                        period to which such unpaid liability 
                        relates.
                    ``(B) Restriction on use of disclosed 
                information.--Return information disclosed 
                under subparagraph (A) may be used by officers 
                and employees of the Financial Management 
                Service only for the purpose of, and to the 
                extent necessary in, transferring levied funds 
                in satisfaction of the levy, maintaining 
                appropriate agency records in regard to such 
                levy or the release thereof, notifying the 
                taxpayer and the agency certifying such payment 
                that the levy has been honored, or in the 
                defense of any litigation ensuing from the 
                honor of such levy.
                    ``(C) Applicable government payment.--For 
                purposes of this paragraph, the term 
                `applicable government payment' means--
                            ``(i) any Federal payment (other 
                        than a payment for which eligibility is 
                        based on the income or assets (or both) 
                        of a payee) certified to the Financial 
                        Management Service for disbursement, 
                        and
                            ``(ii) any other payment which is 
                        certified to the Financial Management 
                        Service for disbursement and which the 
                        Secretary designates by published 
                        notice.''.
    (b) Conforming Amendments.--
            (1) Section 6103(p) is amended--
                    (A) in paragraph (3)(A), by striking ``(2), 
                or (6)'' and inserting ``(2), (6), or (8)'', 
                and
                    (B) in paragraph (4), by inserting 
                ``(k)(8),'' after ``(j) (1) or (2),'' each 
                place it appears.
            (2) Section 552a(a)(8)(B) of title 5, United States 
        Code, is amended by striking ``or'' at the end of 
        clause (v), by adding ``or'' at the end of clause (vi), 
        and by adding at the end the following new clause:
                            ``(vii) matches performed incident 
                        to a levy described in section 
                        6103(k)(8) of the Internal Revenue Code 
                        of 1986;''.
    (c) Effective Date.--The amendments made by this section 
shall apply to levies issued after the date of the enactment of 
this Act.

SEC. 1027. RETURNS OF BENEFICIARIES OF ESTATES AND TRUSTS REQUIRED TO 
                    FILE RETURNS CONSISTENT WITH ESTATE OR TRUST RETURN 
                    OR TO NOTIFY SECRETARY OF INCONSISTENCY.

    (a) Domestic Estates and Trusts.--Section 6034A (relating 
to information to beneficiaries of estates and trusts) is 
amended by adding at the end the following new subsection:
    ``(c) Beneficiary's Return Must be Consistent with Estate 
or Trust Return or Secretary Notified of Inconsistency.--
            ``(1) In general.--A beneficiary of any estate or 
        trust to which subsection (a) applies shall, on such 
        beneficiary's return, treat any reported item in a 
        manner which is consistent with the treatment of such 
        item on the applicable entity's return.
            ``(2) Notification of inconsistent treatment.--
                    ``(A) In general.--In the case of any 
                reported item, if--
                            ``(i)(I) the applicable entity has 
                        filed a return but the beneficiary's 
                        treatment on such beneficiary's return 
                        is (or may be) inconsistent with the 
                        treatment of the item on the applicable 
                        entity's return, or
                            ``(II) the applicable entity has 
                        not filed a return, and
                            ``(ii) the beneficiary files with 
                        the Secretary a statement identifying 
                        the inconsistency,
                paragraph (1) shall not apply to such item.
                    ``(B) Beneficiary receiving incorrect 
                information.--A beneficiary shall be treated as 
                having complied with clause (ii) of 
                subparagraph (A) with respect to a reported 
                item if the beneficiary--
                            ``(i) demonstrates to the 
                        satisfaction of the Secretary that the 
                        treatment of the reported item on the 
                        beneficiary's return is consistent with 
                        the treatment of the item on the 
                        statement furnished under subsection 
                        (a) to the beneficiary by the 
                        applicable entity, 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 beneficiary does not 
                comply with subparagraph (A)(ii) of paragraph 
                (2),
        any adjustment required to make the treatment of the 
        items by such beneficiary consistent with the treatment 
        of the items on the applicable entity's 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) Definitions.--For purposes of this 
        subsection--
                    ``(A) Reported item.--The term `reported 
                item' means any item for which information is 
                required to be furnished under subsection (a).
                    ``(B) Applicable entity.--The term 
                `applicable entity' means the estate or trust 
                of which the taxpayer is the beneficiary.
            ``(5) Addition to tax for failure to comply with 
        section.--For addition to tax in the case of a 
        beneficiary's negligence in connection with, or 
        disregard of, the requirements of this section, see 
        part II of subchapter A of chapter 68.''.
    (b) Foreign Trusts.--Subsection (d) of section 6048 
(relating to information with respect to certain foreign 
trusts) is amended by adding at the end the following new 
paragraph:
            ``(5) United states person's return must be 
        consistent with trust return or secretary notified of 
        inconsistency.--Rules similar to the rules of section 
        6034A(c) shall apply to items reported by a trust under 
        subsection (b)(1)(B) and to United States persons 
        referred to in such subsection.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to returns of beneficiaries and owners filed after 
the date of the enactment of this Act.

SEC. 1028. REGISTRATION AND OTHER PROVISIONS RELATING TO CONFIDENTIAL 
                    CORPORATE TAX SHELTERS.

    (a) In General.--Section 6111 (relating to registration of 
tax shelters) is amended by redesignating subsections (d) and 
(e) as subsections (e) and (f), respectively, and by inserting 
after subsection (c) the following new subsection:
    ``(d) Certain Confidential Arrangements Treated as Tax 
Shelters.--
            ``(1) In general.--For purposes of this section, 
        the term `tax shelter' includes any entity, plan, 
        arrangement, or transaction--
                    ``(A) a significant purpose of the 
                structure of which is the avoidance or evasion 
                of Federal income tax for a direct or indirect 
                participant which is a corporation,
                    ``(B) which is offered to any potential 
                participant under conditions of 
                confidentiality, and
                    ``(C) for which the tax shelter promoters 
                may receive fees in excess of $100,000 in the 
                aggregate.
            ``(2) Conditions of confidentiality.--For purposes 
        of paragraph (1)(B), an offer is under conditions of 
        confidentiality if--
                    ``(A) the potential participant to whom the 
                offer is made (or any other person acting on 
                behalf of such participant) has an 
                understanding or agreement with or for the 
                benefit of any promoter of the tax shelter that 
                such participant (or such other person) will 
                limit disclosure of the tax shelter or any 
                significant tax features of the tax shelter, or
                    ``(B) any promoter of the tax shelter--
                            ``(i) claims, knows, or has reason 
                        to know,
                            ``(ii) knows or has reason to know 
                        that any other person (other than the 
                        potential participant) claims, or
                            ``(iii) causes another person to 
                        claim,
                that the tax shelter (or any aspect thereof) is 
                proprietary to any person other than the 
                potential participant or is otherwise protected 
                from disclosure to or use by others.
        For purposes of this subsection, the term `promoter' 
        means any person or any related person (within the 
        meaning of section 267 or 707) who participates in the 
        organization, management, or sale of the tax shelter.
            ``(3) Persons other than promoter required to 
        register in certain cases.--
                    ``(A) In general.--If--
                            ``(i) the requirements of 
                        subsection (a) are not met with respect 
                        to any tax shelter (as defined in 
                        paragraph (1)) by any tax shelter 
                        promoter, and
                            ``(ii) no tax shelter promoter is a 
                        United States person,
                then each United States person who discussed 
                participation in such shelter shall register 
                such shelter under subsection (a).
                    ``(B) Exception.--Subparagraph (A) shall 
                not apply to a United States person who 
                discussed participation in a tax shelter if--
                            ``(i) such person notified the 
                        promoter in writing (not later than the 
                        close of the 90th day after the day on 
                        which such discussions began) that such 
                        person would not participate in such 
                        shelter, and
                            ``(ii) such person does not 
                        participate in such shelter.
            ``(4) Offer to participate treated as offer for 
        sale.--For purposes of subsections (a) and (b), an 
        offer to participate in a tax shelter (as defined in 
        paragraph (1)) shall be treated as an offer for 
        sale.''.
    (b) Penalty.--Subsection (a) of section 6707 (relating to 
failure to furnish information regarding tax shelters) is 
amended by adding at the end the following new paragraph:
            ``(3) Confidential arrangements.--
                    ``(A) In general.--In the case of a tax 
                shelter (as defined in section 6111(d)), the 
                penalty imposed under paragraph (1) shall be an 
                amount equal to the greater of--
                            ``(i) 50 percent of the fees paid 
                        to all promoters of the tax shelter 
                        with respect to offerings made before 
                        the date such shelter is registered 
                        under section 6111, or
                            ``(ii) $10,000.
                Clause (i) shall be applied by substituting `75 
                percent' for `50 percent' in the case of an 
                intentional failure or act described in 
                paragraph (1).
                    ``(B) Special rule for participants 
                required to register shelter.--In the case of a 
                person required to register such a tax shelter 
                by reason of section 6111(d)(3)--
                            ``(i) such person shall be required 
                        to pay the penalty under paragraph (1) 
                        only if such person actually 
                        participated in such shelter,
                            ``(ii) the amount of such penalty 
                        shall be determined by taking into 
                        account under subparagraph (A)(i) only 
                        the fees paid by such person, and
                            ``(iii) such penalty shall be in 
                        addition to the penalty imposed on any 
                        other person for failing to register 
                        such shelter.''.
    (c) Modifications to Substantial Understatement Penalty.--
            (1) Restriction on reasonable basis for corporate 
        understatement of income tax.--Subparagraph (B) of 
        section 6662(d)(2) is amended by adding at the end the 
        following new flush sentence:
                ``For purposes of clause (ii)(II), in no event 
                shall a corporation be treated as having a 
                reasonable basis for its tax treatment of an 
                item attributable to a multiple-party financing 
                transaction if such treatment does not clearly 
                reflect the income of the corporation.''.
            (2) Modification to definition of tax shelter.--
        Clause (iii) of section 6662(d)(2)(C) is amended by 
        striking ``the principal purpose'' and inserting ``a 
        significant purpose''.
    (d) Conforming Amendments.--
            (1) Paragraph (2) of section 6707(a) is amended by 
        striking ``The penalty'' and inserting ``Except as 
        provided in paragraph (3), the penalty''.
            (2) Subparagraph (A) of section 6707(a)(1) is 
        amended by striking ``paragraph (2)'' and inserting 
        ``paragraph (2) or (3), as the case may be''.
    (e) Effective Date.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        any tax shelter (as defined in section 6111(d) of the 
        Internal Revenue Code of 1986, as amended by this 
        section) interests in which are offered to potential 
        participants after the Secretary of the Treasury 
        prescribes guidance with respect to meeting 
        requirements added by such amendments.
            (2) Modifications to substantial understatement 
        penalty.--The amendments made by subsection (c) shall 
        apply to items with respect to transactions entered 
        into after the date of the enactment of this Act.

            Subtitle D--Excise and Employment Tax Provisions

SEC. 1031. EXTENSION AND MODIFICATION OF TAXES FUNDING AIRPORT AND 
                    AIRWAY TRUST FUND; INCREASED DEPOSITS INTO SUCH 
                    FUND.

    (a) Fuel Taxes.--
            (1) Aviation fuel.--Clause (ii) of section 
        4091(b)(3)(A) is amended by striking ``September 30, 
        1997'' and inserting ``September 30, 2007''.
            (2) Aviation gasoline.--Subparagraph (B) of section 
        4081(d)(2) is amended by striking ``September 30, 
        1997'' and inserting ``September 30, 2007''.
            (3) Noncommercial aviation.--Subparagraph (B) of 
        section 4041(c)(3) is amended by striking ``September 
        30, 1997'' and inserting ``September 30, 2007''.
    (b) Ticket Taxes.--
            (1) Persons.--Clause (ii) of section 4261(g)(1)(A) 
        is amended by striking ``September 30, 1997'' and 
        inserting ``September 30, 2007''.
            (2) Property.--Clause (ii) of section 4271(d)(1)(A) 
        is amended by striking ``September 30, 1997'' and 
        inserting ``September 30, 2007''.
    (c) Modifications to Tax on Transportation of Persons by 
Air.--
            (1) In general.--Section 4261 (relating to 
        imposition of tax) is amended by striking subsections 
        (a), (b), and (c) and inserting the following new 
        subsections:
    ``(a) In General.--There is hereby imposed on the amount 
paid for taxable transportation of any person a tax equal to 
7.5 percent of the amount so paid.
    ``(b) Domestic Segments of Taxable Transportation.--
            ``(1) In general.--There is hereby imposed on the 
        amount paid for each domestic segment of taxable 
        transportation by air a tax in the amount determined in 
        accordance with the following table for the period in 
        which the segment begins:

  In the case of segments
                                                                        
    beginning:
                                                             The tax is:
        After September 30, 1997, and before October 1, 1998..    $1.00 
        After September 30, 1998, and before October 1, 1999..    $2.00 
        After September 30, 1999, and before January 1, 2000..    $2.25 
        During 2000...........................................    $2.50 
        During 2001...........................................    $2.75 
        During 2002 or thereafter.............................    $3.00.

            ``(2) Domestic segment.--For purposes of this 
        section, the term `domestic segment' means any segment 
        consisting of 1 takeoff and 1 landing and which is 
        taxable transportation described in section 4262(a)(1).
            ``(3) Changes in segments by reason of rerouting.--
        If--
                    ``(A) transportation is purchased between 2 
                locations on specified flights, and
                    ``(B) there is a change in the route taken 
                between such 2 locations which changes the 
                number of domestic segments, but there is no 
                change in the amount charged for such 
                transportation,
        the tax imposed by paragraph (1) shall be determined 
        without regard to such change in route.
    ``(c) Use of International Travel Facilities.--
            ``(1) In general.--There is hereby imposed a tax of 
        $12.00 on any amount paid (whether within or without 
        the United States) for any transportation of any person 
        by air, if such transportation begins or ends in the 
        United States.
            ``(2) Exception for transportation entirely taxable 
        under subsection (a).--This subsection shall not apply 
        to any transportation all of which is taxable under 
        subsection (a) (determined without regard to sections 
        4281 and 4282).
            ``(3) Special rule for alaska and hawaii.--In any 
        case in which the tax imposed by paragraph (1) applies 
        to a domestic segment beginning or ending in Alaska or 
        Hawaii, such tax shall apply only to departures and 
        shall be at the rate of $6.''.
            (2) Special rules.--Section 4261 is amended by 
        redesignating subsections (e), (f), and (g) as 
        subsections (f), (g), and (h), respectively, and by 
        inserting after subsection (d) the following new 
        subsection:
    ``(e) Special Rules.--
            ``(1) Segments to and from rural airports.--
                    ``(A) Exception from segment tax.--The tax 
                imposed by subsection (b)(1) shall not apply to 
                any domestic segment beginning or ending at an 
                airport which is a rural airport for the 
                calendar year in which such segment begins or 
                ends (as the case may be).
                    ``(B) Rural airport.--For purposes of this 
                paragraph, the term `rural airport' means, with 
                respect to any calendar year, any airport if--
                            ``(i) there were fewer than 100,000 
                        commercial passengers departing by air 
                        during the second preceding calendar 
                        year from such airport, and
                            ``(ii) such airport--
                                    ``(I) is not located within 
                                75 miles of another airport 
                                which is not described in 
                                clause (i), or
                                    ``(II) is receiving 
                                essential air service subsidies 
                                as of the date of the enactment 
                                of this paragraph.
                    ``(C) No phasein of reduced ticket tax.--In 
                the case of transportation beginning before 
                October 1, 1999--
                            ``(i) In general.--Paragraph (5) 
                        shall not apply to any domestic segment 
                        beginning or ending at an airport which 
                        is a rural airport for the calendar 
                        year in which such segment begins or 
                        ends (as the case may be).
                            ``(ii) Transportation involving 
                        multiple segments.--In the case of 
                        transportation involving more than 1 
                        domestic segment at least 1 of which 
                        does not begin or end at a rural 
                        airport, the 7.5 percent rate 
                        applicable by reason of clause (i) 
                        shall be applied by taking into account 
                        only an amount which bears the same 
                        ratio to the amount paid for such 
                        transportation as the number of 
                        specified miles in domestic segments 
                        which begin or end at a rural airport 
                        bears to the total number of specified 
                        miles in such transportation.
            ``(2) Amounts paid outside the united states.--In 
        the case of amounts paid outside the United States for 
        taxable transportation, the taxes imposed by 
        subsections (a) and (b) shall apply only if such 
        transportation begins and ends in the United States.
            ``(3) Amounts paid for right to award free or 
        reduced rate air transportation.--
                    ``(A) In general.--Any amount paid (and the 
                value of any other benefit provided) to an air 
                carrier (or any related person) for the right 
                to provide mileage awards for (or other 
                reductions in the cost of) any transportation 
                of persons by air shall be treated for purposes 
                of subsection (a) as an amount paid for taxable 
                transportation, and such amount shall be 
                taxable under subsection (a) without regard to 
                any other provision of this subchapter.
                    ``(B) Controlled group.--For purposes of 
                subparagraph (A), a corporation and all wholly 
                owned subsidiaries of such corporation shall be 
                treated as 1 corporation.
                    ``(C) Regulations.--The Secretary shall 
                prescribe rules which reallocate items of 
                income, deduction, credit, exclusion, or other 
                allowance to the extent necessary to prevent 
                the avoidance of tax imposed by reason of this 
                paragraph. The Secretary may prescribe rules 
                which exclude from the tax imposed by 
                subsection (a) amounts attributable to mileage 
                awards which are used other than for 
                transportation of persons by air.
            ``(4) Inflation adjustment of dollar rates of 
        tax.--
                    ``(A) In general.--In the case of taxable 
                events in a calendar year after the last 
                nonindexed year, the $3.00 amount contained in 
                subsection (b) and each dollar amount contained 
                in subsection (c) shall be increased by an 
                amount equal to--
                            ``(i) such dollar amount, 
                        multiplied by
                            ``(ii) the cost-of-living 
                        adjustment determined under section 
                        1(f)(3) for such calendar year by 
                        substituting the year before the last 
                        nonindexed year for `calendar year 
                        1992' in subparagraph (B) thereof.
                If any increase determined under the preceding 
                sentence is not a multiple of 10 cents, such 
                increase shall be rounded to the nearest 
                multiple of 10 cents.
                    ``(B) Last nonindexed year.--For purposes 
                of subparagraph (A), the last nonindexed year 
                is--
                            ``(i) 2002 in the case of the $3.00 
                        amount contained in subsection (b), and
                            ``(ii) 1998 in the case of the 
                        dollar amounts contained in subsection 
                        (c).
                    ``(C) Taxable event.--For purposes of 
                subparagraph (A), in the case of the tax 
                imposed subsection (b), the beginning of the 
                domestic segment shall be treated as the 
                taxable event.
            ``(5) Rates of ticket tax for transportation 
        beginning before october 1, 1999.--Subsection (a) shall 
        be applied by substituting for `7.5 percent'--
                    ``(A) `9 percent' in the case of 
                transportation beginning after September 30, 
                1997, and before October 1, 1998, and
                    ``(B) `8 percent' in the case of 
                transportation beginning after September 30, 
                1998, and before October 1, 1999.''.
            (3) Secondary liability of carrier for unpaid 
        tax.--Subsection (c) of section 4263 is amended by 
        striking ``subchapter--'' and all that follows and 
        inserting ``subchapter, such tax shall be paid by the 
        carrier providing the initial segment of such 
        transportation which begins or ends in the United 
        States.''.
    (d) Increased Airport and Airway Trust Fund Deposits.--
            (1) Paragraph (1) of section 9502(b) is amended--
                    (A) by striking ``(to the extent that the 
                rate of the tax on such gasoline exceeds 4.3 
                cents per gallon)'' in subparagraph (C),
                    (B) by striking ``to the extent 
                attributable to the Airport and Airway Trust 
                Fund financing rate'' in subparagraph (D), and
                    (C) by adding at the end the following 
                flush sentence:
``There shall not be taken into account under paragraph (1) so 
much of the taxes imposed by sections 4081 and 4091 as are 
determined at the rates specified in section 4081(a)(2)(B) or 
4091(b)(2).''.
            (2) Section 9502 is amended by striking subsection 
        (f).
    (e) Effective Dates.--
            (1) Fuel taxes.--The amendments made by subsection 
        (a) shall apply take effect on October 1, 1997.
            (2) Ticket taxes.--
                    (A) In general.--Except as otherwise 
                provided in this paragraph, the amendments made 
                by subsections (b) and (c) shall apply to 
                transportation beginning on or after October 1, 
                1997.
                    (B) Treatment of amounts paid for tickets 
                purchased before date of enactment.--The 
                amendments made by subsection (c) shall not 
                apply to amounts paid for a ticket purchased 
                before the date of the enactment of this Act 
                for a specified flight beginning on or after 
                October 1, 1997.
                    (C) Amounts paid for right to award mileage 
                awards.--
                            (i) In general.--Paragraph (3) of 
                        section 4261(e) of the Internal Revenue 
                        Code of 1986 (as added by the amendment 
                        made by subsection (c)) shall apply to 
                        amounts paid (and other benefits 
                        provided) after September 30, 1997.
                            (ii) Payments within controlled 
                        group.--For purposes of clause (i), any 
                        amount paid after June 11, 1997, and 
                        before October 1, 1997, by 1 member of 
                        a controlled group for a right which is 
                        described in such section 4261(e)(3) 
                        and is furnished by another member of 
                        such group after September 30, 1997, 
                        shall be treated as paid after 
                        September 30, 1997. For purposes of the 
                        preceding sentence, all persons treated 
                        as a single employer under subsection 
                        (a) or (b) of section 52 of such Code 
                        shall be treated as members of a 
                        controlled group.
            (3) Increased deposits into airport and airway 
        trust fund.--The amendments made by subsection (d) 
        shall apply with respect to taxes received in the 
        Treasury on and after October 1, 1997.
    (g) Delayed Deposits of Airport Trust Fund Tax Revenues.--
Notwithstanding section 6302 of the Internal Revenue Code of 
1986--
            (1) in the case of deposits of taxes imposed by 
        section 4261 of such Code, the due date for any such 
        deposit which would (but for this subsection) be 
        required to be made after August 14, 1997, and before 
        October 1, 1997, shall be October 10, 1997,
            (2) in the case of deposits of taxes imposed by 
        section 4261 of such Code, the due date for any such 
        deposit which would (but for this subsection) be 
        required to be made after August 14, 1998, and before 
        October 1, 1998, shall be October 5, 1998, and
            (3) in the case of deposits of taxes imposed by 
        sections 4081(a)(2)(A)(ii), 4091, and 4271 of such 
        Code, the due date for any such deposit which would 
        (but for this subsection) be required to be made after 
        July 31, 1998, and before October 1, 1998, shall be 
        October 5, 1998.

SEC. 1032. KEROSENE TAXED AS DIESEL FUEL.

    (a) In General.--Subsection (a) of section 4083 (defining 
taxable fuel) is amended by striking ``and'' at the end of 
subparagraph (A), by striking the period at the end of 
subparagraph (B) and inserting ``, and'', and by adding at the 
end the following new subparagraph:
                    ``(C) kerosene.''.
    (b) Rate of Tax.--Clause (iii) of section 4081(a)(2)(A) is 
amended by inserting ``or kerosene'' after ``diesel fuel''.
    (c) Exemptions From Tax; Refunds to Vendors.--
            (1) In general.--Section 4082 (relating to 
        exemptions for diesel fuel) is amended by striking 
        ``diesel fuel'' each place it appears in subsections 
        (a), (c), and (d) and inserting ``diesel fuel and 
        kerosene''.
            (2) Certain kerosene exempt from dyeing 
        requirement.--Section 4082 is amended by redesignating 
        subsections (d) and (e) as subsections (e) and (f), 
        respectively, and by inserting after subsection (c) the 
        following new subsection:
    ``(d) Additional Exceptions to Dyeing Requirements for 
Kerosene.--
            ``(1) Aviation-grade kerosene.--Subsection (a)(2) 
        shall not apply to a removal, entry, or sale of 
        aviation-grade kerosene (as determined under 
        regulations prescribed by the Secretary) if the person 
        receiving the kerosene is registered under section 4101 
        with respect to the tax imposed by section 4091.
            ``(2) Use for non-fuel feedstock purposes.--
        Subsection (a)(2) shall not apply to kerosene--
                    ``(A) received by pipeline or vessel for 
                use by the person receiving the kerosene in the 
                manufacture or production of any substance 
                (other than gasoline, diesel fuel, or special 
                fuels referred to in section 4041), or
                    ``(B) to the extent provided in 
                regulations, removed or entered--
                            ``(i) for such a use by the person 
                        removing or entering the kerosene, or
                            ``(ii) for resale by such person 
                        for such a use by the purchaser,
        but only if the person receiving, removing, or entering 
        the kerosene and such purchaser (if any) are registered 
        under section 4101 with respect to the tax imposed by 
        section 4081.
            ``(3) Wholesale distributors.--To the extent 
        provided in regulations, subsection (a)(2) shall not 
        apply to a removal, entry, or sale of kerosene to a 
        wholesale distributor of kerosene if such distributor--
                    ``(A) is registered under section 4101 with 
                respect to the tax imposed by section 4081 on 
                kerosene, and
                    ``(B) sells kerosene exclusively to 
                ultimate vendors described in section 
                6427(l)(5)(B) with respect to kerosene.''
            (3) Refunds.--
                    (A) Subsection (l) of section 6427 is 
                amended by inserting ``or kerosene'' after 
                ``diesel fuel'' each place it appears in 
                paragraphs (1), (2), and (5) (including the 
                heading for paragraph (5)).
                    (B) Paragraph (5) of section 6427(l) is 
                amended by redesignating subparagraph (B) as 
                subparagraph (C) and by inserting after 
                subparagraph (A) the following new 
                subparagraph:
                    ``(B) Sales of kerosene not for use in 
                motor fuel.--Paragraph (1)(A) shall not apply 
                to kerosene sold by a vendor--
                            ``(i) for any use if such sale is 
                        from a pump which (as determined under 
                        regulations prescribed by the 
                        Secretary) is not suitable for use in 
                        fueling any diesel-powered highway 
                        vehicle or train, or
                            ``(ii) to the extent provided by 
                        the Secretary, for blending with 
                        heating oil to be used during periods 
                        of extreme or unseasonable cold.''.
                    (C) Subparagraph (C) of section 6427(l)(5), 
                as redesignated by subparagraph (B) of this 
                paragraph, is amended by striking 
                ``subparagraph (A)'' and inserting 
                ``subparagraph (A) or (B)''.
                    (D) The heading for subsection (l) of 
                section 6427 is amended by inserting ``, 
                Kerosene,'' after ``Diesel Fuel''.
                    (E) Clause (i) of section 6427(i)(5)(A) is 
                amended by inserting ``($100 or more in the 
                case of kerosene)'' after ``$200 or more''.
    (d) Certain Approved Terminals of Registered Persons 
Required To Offer Dyed Diesel Fuel and Kerosene for Nontaxable 
Purposes.--Section 4101 is amended by adding at the end the 
following new subsection:
    ``(e) Certain Approved Terminals of Registered Persons 
Required To Offer Dyed Diesel Fuel and Kerosene for Nontaxable 
Purposes.--
            ``(1) In general.--A terminal for kerosene or 
        diesel fuel may not be an approved facility for storage 
        of non-tax-paid diesel fuel or kerosene under this 
        section unless the operator of such terminal offers 
        dyed diesel fuel and kerosene for removal for 
        nontaxable use in accordance with section 4082(a).
            ``(2) Exception.--Paragraph (1) shall not apply to 
        any terminal exclusively providing aviation-grade 
        kerosene by pipeline to an airport.''.
    (e) Conforming Amendments.--
            (1) Paragraph (2) of section 4041(a), as amended by 
        title IX, is amended by striking ``kerosene,''.
            (2) Paragraph (1) of section 4041(c) is amended by 
        striking ``any liquid'' and inserting ``kerosene and 
        any other liquid''.
            (3)(A) The heading for section 4082 is amended by 
        inserting ``AND KEROSENE'' after ``DIESEL FUEL''.
            (B) The table of sections for subpart A of part III 
        of subchapter A of chapter 32 is amended by inserting 
        ``and kerosene'' after ``diesel fuel'' in the item 
        relating to section 4082.
            (4) Subsection (b) of section 4083 is amended by 
        striking ``gasoline, diesel fuel,'' and inserting 
        ``taxable fuels''.
            (5) Subsection (a) of section 4093 is amended by 
        striking ``any liquid'' and inserting ``kerosene and 
        any other liquid''.
            (6) The material following subparagraph (F) of 
        section 6416(b)(2) is amended by inserting ``or 
        kerosene'' after ``diesel fuel''.
            (7) Paragraphs (1) and (3) of section 6427(f), and 
        the heading for section 6427(f), are each amended by 
        inserting ``kerosene,'' after ``diesel fuel,''.
            (8) Paragraph (2) of section 6427(f) is amended by 
        striking ``or diesel fuel'' each place it appears and 
        inserting ``, diesel fuel, or kerosene''.
            (9) Subparagraph (A) of section 6427(i)(3) is 
        amended by striking ``or diesel fuel'' and inserting 
        ``, diesel fuel, or kerosene''.
            (10) The heading for paragraph (4) of section 
        6427(i) is amended to read as follows:
            ``(4) Special rule for refunds under subsection 
        (l).--''
            (11) Paragraph (1) of section 6715(c) is amended by 
        inserting ``or kerosene'' after ``diesel fuel''.
            (12)(A) The text of section 7232 is amended by 
        striking ``gasoline, lubricating oil, diesel fuel'' and 
        inserting ``any taxable fuel (as defined in section 
        4083)''.
            (B) The section heading for section 7232 is amended 
        to read as follows:

``SEC. 7232. FAILURE TO REGISTER UNDER SECTION 4101, FALSE 
                    REPRESENTATIONS OF REGISTRATION STATUS, ETC.''.

            (C) The table of sections for part II of subchapter 
        A of chapter 75 is amended by striking the item 
        relating to section 7232 and inserting the following:

        ``Sec. 7232. Failure to register under section 4101, false 
                  representations of registration status, etc.''.

            (13) Sections 9503(b)(1)(E) and 9508(b)(2) are each 
        amended by striking ``and diesel fuel'' and inserting 
        ``, diesel fuel, and kerosene''.
            (14) Subparagraph (B) of section 9503(b)(5) is 
        amended by striking ``or diesel fuel'' and inserting 
        ``, diesel fuel, or kerosene''.
    (f) Effective Date.--The amendments made by this section 
shall take effect on July 1, 1998.
    (g) Floor Stock Taxes.--
            (1) Imposition of tax.--In the case of kerosene 
        which is held on July 1, 1998, by any person, there is 
        hereby imposed a floor stocks tax of 24.4 cents per 
        gallon.
            (2) Liability for tax and method of payment.--
                    (A) Liability for tax.--A person holding 
                kerosene on July 1, 1998, to which the 
taximposed by paragraph (1) applies shall be liable for such tax.
                    (B) Method of payment.--The tax imposed by 
                paragraph (1) shall be paid in such manner as 
                the Secretary shall prescribe.
                    (C) Time for payment.--The tax imposed by 
                paragraph (1) shall be paid on or before August 
                31, 1998.
            (3) Definitions.--For purposes of this subsection--
                    (A) Held by a person.--Kerosene shall be 
                considered as ``held by a person'' if title 
                thereto has passed to such person (whether or 
                not delivery to the person has been made).
                    (B) Secretary.--The term ``Secretary'' 
                means the Secretary of the Treasury or his 
                delegate.
            (4) Exception for exempt uses.--The tax imposed by 
        paragraph (1) shall not apply to kerosene held by any 
        person exclusively for any use to the extent a credit 
        or refund of the tax imposed by section 4081 of the 
        Internal Revenue Code of 1986 is allowable for such 
        use.
            (5) Exception for fuel held in vehicle tank.--No 
        tax shall be imposed by paragraph (1) on kerosene held 
        in the tank of a motor vehicle or motorboat.
            (6) Exception for certain amounts of fuel.--
                    (A) In general.--No tax shall be imposed by 
                paragraph (1) on kerosene held on July 1, 1998, 
                by any person if the aggregate amount of 
                kerosene held by such person on such date does 
                not exceed 2,000 gallons. The preceding 
                sentence shall apply only if such person 
                submits to the Secretary (at the time and in 
                the manner required by the Secretary) such 
                information as the Secretary shall require for 
                purposes of this paragraph.
                    (B) Exempt fuel.--For purposes of 
                subparagraph (A), there shall not be taken into 
                account fuel held by any person which is exempt 
                from the tax imposed by paragraph (1) by reason 
                of paragraph (4) or (5).
                    (C) Controlled groups.--For purposes of 
                this paragraph--
                            (i) Corporations.--
                                    (I) In general.--All 
                                persons treated as a controlled 
                                group shall be treated as 1 
                                person.
                                    (II) Controlled group.--The 
                                term ``controlled group'' has 
                                the meaning given to such term 
                                by subsection (a) of section 
                                1563 of such Code; except that 
                                for such purposes the phrase 
                                ``more than 50 percent'' shall 
                                be substituted for the phrase 
                                ``at least 80 percent'' each 
                                place it appears in such 
                                subsection.
                            (ii) Nonincorporated persons under 
                        common control.--Under regulations 
                        prescribed by the Secretary, principles 
                        similar to the principles of clause (i) 
                        shall apply to a group of persons under 
                        common control where 1 or more of such 
                        persons is not a corporation.
            (7) Coordination with section 4081.--No tax shall 
        be imposed by paragraph (1) on kerosene to the extent 
        that tax has been (or will be) imposed on such kerosene 
        under section 4081 or 4091 of such Code.
            (8) Other laws applicable.--All provisions of law, 
        including penalties, applicable with respect to the 
        taxes imposed by section 4081 of such Code shall, 
        insofar as applicable and not inconsistent with the 
        provisions of this subsection, apply with respect to 
        the floor stock taxes imposed by paragraph (1) to the 
        same extent as if such taxes were imposed by such 
        section 4081.

SEC. 1033. RESTORATION OF LEAKING UNDERGROUND STORAGE TANK TRUST FUND 
                    TAXES.

    Paragraph (3) of section 4081(d) is amended by striking 
``shall not apply after December 31, 1995'' and inserting 
``shall apply after September 30, 1997, and before April 1, 
2005''.

SEC. 1034. APPLICATION OF COMMUNICATIONS TAX TO PREPAID TELEPHONE 
                    CARDS.

    (a) In General.--Section 4251 is amended by adding at the 
end the following new subsection:
    ``(d) Treatment of Prepaid Telephone Cards.--
            ``(1) In general.--For purposes of this subchapter, 
        in the case of communications services acquired by 
        means of a prepaid telephone card--
                    ``(A) the face amount of such card shall be 
                treated as the amount paid for such 
                communications services, and
                    ``(B) that amount shall be treated as paid 
                when the card is transferred by any 
                telecommunications carrier to any person who is 
                not such a carrier.
            ``(2) Determination of face amount in absence of 
        specified dollar amount.--In the case of any prepaid 
        telephone card which entitles the user other than to a 
        specified dollar amount of use, the face amount shall 
        be determined under regulations prescribed by the 
        Secretary.
            ``(3) Prepaid telephone card.--For purposes of this 
        subsection, the term `prepaid telephone card' means any 
        card or other similar arrangement which permits its 
        holder to obtain communications services and pay for 
        such services in advance.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to amounts paid in calendar months beginning more 
than 60 days after the date of the enactment of this Act.

SEC. 1035. EXTENSION OF TEMPORARY UNEMPLOYMENT TAX.

    Section 3301 (relating to rate of unemployment tax) is 
amended--
            (1) by striking ``1998'' in paragraph (1) and 
        inserting ``2007'', and
            (2) by striking ``1999'' in paragraph (2) and 
        inserting ``2008''.

         Subtitle E--Provisions Relating to Tax-Exempt Entities

SEC. 1041. EXPANSION OF LOOK-THRU RULE FOR INTEREST, ANNUITIES, 
                    ROYALTIES, AND RENTS DERIVED BY SUBSIDIARIES OF 
                    TAX-EXEMPT ORGANIZATIONS.

    (a) In General.--Paragraph (13) of section 512(b) is 
amended to read as follows:
            ``(13) Special rules for certain amounts received 
        from controlled entities.--
                    ``(A) In general.--If an organization (in 
                this paragraph referred to as the `controlling 
                organization') receives (directly or 
                indirectly) a specified payment from another 
                entity which it controls (in this paragraph 
                referred to as the `controlled entity'), 
                notwithstanding paragraphs (1), (2), and (3), 
                the controlling organization shall include such 
                payment as an item of gross income derived from 
                an unrelated trade or business to the extent 
                such payment reduces the net unrelated income 
                of the controlled entity (or increases any net 
                unrelated loss of the controlled entity). There 
                shall be allowed all deductions of the 
                controlling organization directly connected 
                with amounts treated as derived from an 
                unrelated trade or business under the preceding 
                sentence.
                    ``(B) Net unrelated income or loss.--For 
                purposes of this paragraph--
                            ``(i) Net unrelated income.--The 
                        term `net unrelated income' means--
                                    ``(I) in the case of a 
                                controlled entity which is not 
                                exempt from tax under section 
                                501(a), the portion of such 
                                entity's taxable income which 
                                would be unrelated business 
                                taxable income if such entity 
                                were exempt from tax under 
                                section 501(a) and had the same 
                                exempt purposes (as defined in 
                                section 513A(a)(5)(A)) as the 
                                controlling organization, or
                                    ``(II) in the case of a 
                                controlled entity which is 
                                exempt from tax under section 
                                501(a), the amount of the 
                                unrelated business taxable 
                                income of the controlled 
                                entity.
                            ``(ii) Net unrelated loss.--The 
                        term `net unrelated loss' means the net 
                        operating loss adjusted under rules 
                        similar to the rules of clause (i).
                    ``(C) Specified payment.--For purposes of 
                this paragraph, the term `specified payment' 
                means any interest, annuity, royalty, or rent.
                    ``(D) Definition of control.--For purposes 
                of this paragraph--
                            ``(i) Control.--The term `control' 
                        means--
                                    ``(I) in the case of a 
                                corporation, ownership (by vote 
                                or value) of more than 50 
                                percent of the stock in such 
                                corporation,
                                    ``(II) in the case of a 
                                partnership, ownership of more 
                                than 50 percent of the profits 
                                interests or capital interests 
                                in such partnership, or
                                    ``(III) in any other case, 
                                ownership of more than 50 
                                percent of the beneficial 
                                interests in the entity.
                            ``(ii) Constructive ownership.--
                        Section 318 (relating to constructive 
                        ownership of stock) shall apply for 
                        purposes of determining ownership of 
                        stock in a corporation. Similar 
                        principles shall apply for purposes of 
                        determining ownership of interests in 
                        any other entity.
                    ``(E) Related persons.--The Secretary shall 
                prescribe such rules as may be necessary or 
                appropriate to prevent avoidance of the 
                purposes of this paragraph through the use of 
                related persons.''.
    (b) Effective Date.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        taxable years beginning after the date of the enactment 
        of this Act.
            (2) Binding contracts.--The amendments made by this 
        section shall not apply to any payment made during the 
        first 2 taxable years beginning on or after the date of 
        the enactment of this Act if such payment is made 
        pursuant to a written binding contract in effect on 
        June 8, 1997, and at all times thereafter before such 
        payment.

SEC. 1042. TERMINATION OF CERTAIN EXCEPTIONS FROM RULES RELATING TO 
                    EXEMPT ORGANIZATIONS WHICH PROVIDE COMMERCIAL-TYPE 
                    INSURANCE.

    (a) In General.--Subparagraphs (A) and (B) of section 
1012(c)(4) of the Tax Reform Act of 1986 shall not apply to any 
taxable year beginning after December 31, 1997.
    (b) Special Rules.--In the case of an organization to which 
section 501(m) of the Internal Revenue Code of 1986 applies 
solely by reason of the amendment made by subsection (a)--
            (1) no adjustment shall be made under section 481 
        (or any other provision) of such Code on account of a 
        change in its method of accounting for its first 
        taxable year beginning after December 31, 1997, and
            (2) for purposes of determining gain or loss, the 
        adjusted basis of any asset held on the 1st day of such 
        taxable year shall be treated as equal to its fair 
        market value as of such day.
    (c) Reserve Weakening After June 8, 1997.--Any reserve 
weakening after June 8, 1997, by an organization described in 
subsection (b) shall be treated as occurring in such 
organization's 1st taxable year beginning after December 31, 
1997.
    (d) Regulations.--The Secretary of the Treasury or his 
delegate may prescribe rules for providing proper adjustments 
for organizations described in subsection (b) with respect to 
short taxable years which begin during 1998 by reason of 
section 843 of the Internal Revenue Code of 1986.

                     Subtitle F--Foreign Provisions

SEC. 1051. DEFINITION OF FOREIGN PERSONAL HOLDING COMPANY INCOME.

    (a) Income From Notional Principal Contracts and Payments 
in Lieu of Dividends.--
            (1) In general.--Paragraph (1) of section 954(c) 
        (defining foreign personal holding company income) is 
        amended by adding at the end the following new 
        subparagraphs:
                    ``(F) Income from notional principal 
                contracts.--Net income from notional principal 
                contracts. Any item of income, gain, deduction, 
                or loss from a notional principal contract 
                entered into for purposes of hedging any item 
                described in any preceding subparagraph shall 
                not be taken into account for purposes of this 
                subparagraph but shall be taken into account 
                under such other subparagraph.
                    ``(G) Payments in lieu of dividends.--
                Payments in lieu of dividends which are made 
                pursuant to an agreement to which section 1058 
                applies.''.
            (2) Conforming amendment.--Subparagraph (B) of 
        section 954(c)(1) is amended--
                    (A) by striking the second sentence, and
                    (B) by striking ``also'' in the last 
                sentence.
    (b) Exception for Dealers.--Paragraph (2) of section 954(c) 
is amended by adding at the end the following new subparagraph:
                    ``(C) Exception for dealers.--Except as 
                provided in subparagraph (A), (E), or (G) of 
                paragraph (1) or by regulations, in the case of 
                a regular dealer in property (within the 
                meaning of paragraph (1)(B)), forward 
                contracts, option contracts, or similar 
                financial instruments (including notional 
                principal contracts and all instruments 
                referenced to commodities), there shall not be 
                taken into account in computing foreign 
                personal holding income any item of income, 
                gain, deduction, or loss from any transaction 
                (including hedging transactions) entered into 
                in the ordinary course of such dealer's trade 
                or business as such a dealer.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

SEC. 1052. PERSONAL PROPERTY USED PREDOMINANTLY IN THE UNITED STATES 
                    TREATED AS NOT PROPERTY OF A LIKE KIND WITH RESPECT 
                    TO PROPERTY USED PREDOMINANTLY OUTSIDE THE UNITED 
                    STATES.

    (a) In General.--Subsection (h) of section 1031 (relating 
to exchange of property held for productive use or investment) 
is amended to read as follows:
    ``(h) Special Rules for Foreign Real and Personal 
Property.--For purposes of this section--
            ``(1) Real property.--Real property located in the 
        United States and real property located outside the 
        United States are not property of a like kind.
            ``(2) Personal property.--
                    ``(A) In general.--Personal property used 
                predominantly within the United States and 
                personal property used predominantly outside 
                the United States are not property of a like 
                kind.
                    ``(B) Predominant use.--Except as provided 
                in subparagraph (C) and (D), the predominant 
                use of any property shall be determined based 
                on--
                            ``(i) in the case of the property 
                        relinquished in the exchange, the 2-
                        year period ending on the date of such 
                        relinquishment, and
                            ``(ii) in the case of the property 
                        acquired in the exchange, the 2-year 
                        period beginning on the date of such 
                        acquisition.
                    ``(C) Property held for less than 2 
                years.--Except in the case of an exchange which 
                is part of a transaction (or series of 
                transactions) structured to avoid the purposes 
                of this subsection--
                            ``(i) only the periods the property 
                        was held by the person relinquishing 
                        the property (or any related person) 
                        shall be taken into account under 
                        subparagraph (B)(i), and
                            ``(ii) only the periods the 
                        property was held by the person 
                        acquiring the property (or any related 
                        person) shall be taken into account 
                        under subparagraph (B)(ii).
                    ``(D) Special rule for certain property.--
                Property described in any subparagraph of 
                section 168(g)(4) shall be treated as used 
                predominantly in the United States.''.
    (b) Effective Date.--
            (1) In general.--The amendment made by this section 
        shall apply to transfers after June 8, 1997, in taxable 
        years ending after such date.
            (2) Binding contracts.--The amendment made by this 
        section shall not apply to any transfer pursuant to a 
        written binding contract in effect on June 8, 1997, and 
        at all times thereafter before the disposition of 
        property. A contract shall not fail to meet the 
        requirements of the preceding sentence solely because--
                    (A) it provides for a sale in lieu of an 
                exchange, or
                    (B) the property to be acquired as 
                replacement property was not identified under 
                such contract before June 9, 1997.

SEC. 1053. HOLDING PERIOD REQUIREMENT FOR CERTAIN FOREIGN TAXES.

    (a) In General.--Section 901 is amended by redesignating 
subsection (k) as subsection (l) and by inserting after 
subsection (j) the following new subsection:
    ``(k) Minimum Holding Period for Certain Taxes.--
            ``(1) Withholding taxes.--
                    ``(A) In general.--In no event shall a 
                credit be allowed under subsection (a) for any 
                withholding tax on a dividend with respect to 
                stock in a corporation if--
                            ``(i) such stock is held by the 
                        recipient of the dividend for 15 days 
                        or less during the 30-day period 
                        beginning on the date which is 15 days 
                        before the date on which such share 
                        becomes ex-dividend with respect to 
                        such dividend, or
                            ``(ii) to the extent that the 
                        recipient of the dividend is under an 
                        obligation (whether pursuant to a short 
                        sale or otherwise) to make related 
                        payments with respect to positions in 
                        substantially similar or related 
                        property.
                    ``(B) Withholding tax.--For purposes of 
                this paragraph, the term `withholding tax' 
                includes any tax determined on a gross basis; 
                but does not include any tax which is in the 
                nature of a prepayment of a tax imposed on a 
                net basis.
            ``(2) Deemed paid taxes.--In the case of income, 
        war profits, or excess profits taxes deemed paid under 
        section 853, 902, or 960 through a chain of ownership 
        of stock in 1 or more corporations, no credit shall be 
        allowed under subsection (a) for such taxes if--
                    ``(A) any stock of any corporation in such 
                chain (the ownership of which is required to 
                obtain credit under subsection (a) for such 
                taxes) is held for less than the period 
                described in paragraph (1)(A)(i), or
                    ``(B) the corporation holding the stock is 
                under an obligation referred to in paragraph 
                (1)(A)(ii).
            ``(3) 45-day rule in the case of certain preference 
        dividends.--In the case of stock having preference in 
        dividends and dividends with respect to such stock 
        which are attributable to a period or periods 
        aggregating in excess of 366 days, paragraph (1)(A)(i) 
        shall be applied--
                    ``(A) by substituting `45 days' for `15 
                days' each place it appears, and
                    ``(B) by substituting `90-day period' for 
                `30-day period'.
            ``(4) Exception for certain taxes paid by 
        securities dealers.--
                    ``(A) In general.--Paragraphs (1) and (2) 
                shall not apply to any qualified tax with 
                respect to any security held in the active 
                conductin a foreign country of a securities 
business of any person--
                            ``(i) who is registered as a 
                        securities broker or dealer under 
                        section 15(a) of the Securities 
                        Exchange Act of 1934,
                            ``(ii) who is registered as a 
                        Government securities broker or dealer 
                        under section 15C(a) of such Act, or
                            ``(iii) who is licensed or 
                        authorized in such foreign country to 
                        conduct securities activities in such 
                        country and is subject to bona fide 
                        regulation by a securities regulating 
                        authority of such country.
                    ``(B) Qualified tax.--For purposes of 
                subparagraph (A), the term `qualified tax' 
                means a tax paid to a foreign country (other 
                than the foreign country referred to in 
                subparagraph (A)) if--
                            ``(i) the dividend to which such 
                        tax is attributable is subject to 
                        taxation on a net basis by the country 
                        referred to in subparagraph (A), and
                            ``(ii) such country allows a credit 
                        against its net basis tax for the full 
                        amount of the tax paid to such other 
                        foreign country.
                    ``(C) Regulations.--The Secretary may 
                prescribe such regulations as may be 
                appropriate to carry out this paragraph, 
                including regulations to prevent the abuse of 
                the exception provided by this paragraph and to 
                treat other taxes as qualified taxes.
            ``(5) Certain rules to apply.--For purposes of this 
        subsection, the rules of paragraphs (3) and (4) of 
        section 246(c) shall apply.
            ``(6) Treatment of bona fide sales.--If a person's 
        holding period is reduced by reason of the application 
        of the rules of section 246(c)(4) to any contract for 
        the bona fide sale of stock, the determination of 
        whether such person's holding period meets the 
        requirements of paragraph (2) with respect to taxes 
        deemed paid under section 902 or 960 shall be made as 
        of the date such contract is entered into.
            ``(7) Taxes allowed as deduction, etc.--Sections 
        275 and 78 shall not apply to any tax which is not 
        allowable as a credit under subsection (a) by reason of 
        this subsection.''.
    (b) Notice of Withholding Taxes Paid by Regulated 
Investment Company.--Subsection (c) of section 853 (relating to 
foreign tax credit allowed to shareholders) is amended by 
adding at the end the following new sentence: ``Such notice 
shall also include the amount of such taxes which (without 
regard to the election under this section) would not be 
allowable as a credit under section 901(a) to the regulated 
investment company by reason of section 901(k).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to dividends paid or accrued more than 30 days 
after the date of the enactment of this Act.

SEC. 1054. DENIAL OF TREATY BENEFITS FOR CERTAIN PAYMENTS THROUGH 
                    HYBRID ENTITIES.

    (a) In General.--Section 894 (relating to income affected 
by treaty) is amended by inserting after subsection (b) the 
following new subsection:
    ``(c) Denial of Treaty Benefits for Certain Payments 
Through Hybrid Entities.--
            ``(1) Application to certain payments.--A foreign 
        person shall not be entitled under any income tax 
        treaty of the United States with a foreign country to 
        any reduced rate of any withholding tax imposed by this 
        title on an item of income derived through an entity 
        which is treated as a partnership (or is otherwise 
        treated as fiscally transparent) for purposes of this 
        title if--
                    ``(A) such item is not treated for purposes 
                of the taxation laws of such foreign country as 
                an item of income of such person,
                    ``(B) the treaty does not contain a 
                provision addressing the applicability of the 
                treaty in the case of an item of income derived 
                through a partnership, and
                    ``(C) the foreign country does not impose 
                tax on a distribution of such item of income 
                from such entity to such person.
            ``(2) Regulations.--The Secretary shall prescribe 
        such regulations as may be necessary or appropriate to 
        determine the extent to which a taxpayer to which 
        paragraph (1) does not apply shall not be entitled to 
        benefits under any income tax treaty of the United 
        States with respect to any payment received by, or 
        income attributable to any activities of, an entity 
        organized in any jurisdiction (including the United 
        States) that is treated as a partnership or is 
        otherwise treated as fiscally transparent for purposes 
        of this title (including a common investment trust 
        under section 584, a grantor trust, or an entity that 
        is disregarded for purposes of this title) and is 
        treated as fiscally nontransparent for purposes of the 
        tax laws of the jurisdiction of residence of the 
        taxpayer.''.
    (b) Effective Date.--The amendments made by this section 
shall apply upon the date of enactment of this Act.

SEC. 1055. INTEREST ON UNDERPAYMENTS NOT REDUCED BY FOREIGN TAX CREDIT 
                    CARRYBACKS.

    (a) In General.--Subsection (d) of section 6601 is amended 
by redesignating paragraphs (2) and (3) as paragraphs (3) and 
(4), respectively, and by inserting after paragraph (1) the 
following new paragraph:
            ``(2) Foreign tax credit carrybacks.--If any credit 
        allowed for any taxable year is increased by reason of 
        a carryback of tax paid or accrued to foreign countries 
        or possessions of the United States, such increase 
        shall not affect the computation of interest under this 
        section for the period ending with the filing date for 
        the taxable year in which such taxes were in fact paid 
        or accrued, or, with respect to any portion of such 
        credit carryback from a taxable year attributable to a 
        net operating loss carryback or a capital loss 
        carryback from a subsequent taxable year, such increase 
        shall not affect the computation of interest under this 
        section for theperiod ending with the filing date for 
such subsequent taxable year.''.
    (b) Conforming Amendment to Refunds Attributable to Foreign 
Tax Credit Carrybacks.--
            (1) In general.--Subsection (f) of section 6611 is 
        amended by redesignating paragraphs (2) and (3) as 
        paragraphs (3) and (4), respectively, and by inserting 
        after paragraph (1) the following new paragraph:
            ``(2) Foreign tax credit carrybacks.--For purposes 
        of subsection (a), if any overpayment of tax imposed by 
        subtitle A results from a carryback of tax paid or 
        accrued to foreign countries or possessions of the 
        United States, such overpayment shall be deemed not to 
        have been made before the filing date for the taxable 
        year in which such taxes were in fact paid or accrued, 
        or, with respect to any portion of such credit 
        carryback from a taxable year attributable to a net 
        operating loss carryback or a capital loss carryback 
        from a subsequent taxable year, such overpayment shall 
        be deemed not to have been made before the filing date 
        for such subsequent taxable year.''.
            (2) Conforming amendments.--
                    (A) Paragraph (4) of section 6611(f) (as so 
                redesignated) is amended--
                            (i) by striking ``paragraphs (1) 
                        and (2)'' and inserting ``paragraphs 
                        (1), (2), and (3)'', and
                            (ii) by striking ``paragraph (1) or 
                        (2)'' each place it appears and 
                        inserting ``paragraph (1), (2), or 
                        (3)''.
                    (B) Clause (ii) of section 6611(f)(4)(B) 
                (as so redesignated) is amended by striking 
                ``and'' at the end of subclause (I), by 
                redesignating subclause (II) as subclause 
                (III), and by inserting after subclause (I) the 
                following new subclause:
                                    ``(II) in the case of a 
                                carryback of taxes paid or 
                                accrued to foreign countries or 
                                possessions of the United 
                                States, the taxable year in 
                                which such taxes were in fact 
                                paid or accrued (or, with 
                                respect to any portion of such 
                                carryback from a taxable year 
                                attributable to a net operating 
                                loss carryback or a capital 
                                loss carryback from a 
                                subsequent taxable year, such 
                                subsequent taxable year), 
                                and''.
                    (C) Subclause (III) of section 
                6611(f)(4)(B)(ii) (as so redesignated) is 
                amended by inserting ``(as defined in paragraph 
                (3)(B))'' after ``credit carryback'' the first 
                place it appears.
                    (D) Section 6611 is amended by striking 
                subsection (g) and by redesignating subsections 
                (h) and (i) as subsections (g) and (h), 
                respectively.
    (c) Effective Date.--The amendments made by this section 
shall apply to foreign tax credit carrybacks arising in taxable 
years beginning after the date of the enactment of this Act.

SEC. 1056. CLARIFICATION OF PERIOD OF LIMITATIONS ON CLAIM FOR CREDIT 
                    OR REFUND ATTRIBUTABLE TO FOREIGN TAX CREDIT 
                    CARRYFORWARD.

    (a) In General.--Subparagraph (A) of section 6511(d)(3) is 
amended by striking ``for the year with respect to which the 
claim is made'' and inserting ``for the year in which such 
taxes were actually paid or accrued''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxes paid or accrued in taxable years beginning 
after the date of the enactment of this Act.

SEC. 1057. REPEAL OF EXCEPTION TO ALTERNATIVE MINIMUM FOREIGN TAX 
                    CREDIT LIMIT.

    (a) In General.--Section 59(a)(2) (relating to limitation 
to 90 percent of tax) is amended by striking subparagraph (C).
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

                   Subtitle G--Partnership Provisions

SEC. 1061. ALLOCATION OF BASIS AMONG PROPERTIES DISTRIBUTED BY 
                    PARTNERSHIP.

    (a) In General.--Subsection (c) of section 732 is amended 
to read as follows:
    ``(c) Allocation of Basis.--
            ``(1) In general.--The basis of distributed 
        properties to which subsection (a)(2) or (b) is 
        applicable shall be allocated--
                    ``(A)(i) first to any unrealized 
                receivables (as defined in section 751(c)) and 
                inventory items (as defined in section 
                751(d)(2)) in an amount equal to the adjusted 
                basis of each such property to the partnership, 
                and
                    ``(ii) if the basis to be allocated is less 
                than the sum of the adjusted bases of such 
                properties to the partnership, then, to the 
                extent any decrease is required in order to 
                have the adjusted bases of such properties 
                equal the basis to be allocated, in the manner 
                provided in paragraph (3), and
                    ``(B) to the extent of any basis remaining 
                after the allocation under subparagraph (A), to 
                other distributed properties--
                            ``(i) first by assigning to each 
                        such other property such other 
                        property's adjusted basis to the 
                        partnership, and
                            ``(ii) then, to the extent any 
                        increase or decrease in basis is 
                        required in order to have the adjusted 
                        bases of such other distributed 
                        properties equal such remaining basis, 
                        in the manner provided in paragraph (2) 
                        or (3), whichever is appropriate.
            ``(2) Method of allocating increase.--Any increase 
        required under paragraph (1)(B) shall be allocated 
        among the properties--
                    ``(A) first to properties with unrealized 
                appreciation in proportion to their respective 
                amounts of unrealized appreciation before such 
                increase (but only to the extent of each 
                property's unrealized appreciation), and
                    ``(B) then, to the extent such increase is 
                not allocated under subparagraph (A), in 
                proportion to their respective fair market 
                values.
            ``(3) Method of allocating decrease.--Any decrease 
        required under paragraph (1)(A) or (1)(B) shall be 
        allocated--
                    ``(A) first to properties with unrealized 
                depreciation in proportion to their respective 
                amounts of unrealized depreciation before such 
                decrease (but only to the extent of each 
                property's unrealized depreciation), and
                    ``(B) then, to the extent such decrease is 
                not allocated under subparagraph (A), in 
                proportion to their respective adjusted bases 
                (as adjusted under subparagraph (A)).''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to distributions after the date of the enactment of 
this Act.

SEC. 1062. REPEAL OF REQUIREMENT THAT INVENTORY BE SUBSTANTIALLY 
                    APPRECIATED WITH RESPECT TO SALE OR EXCHANGE OF 
                    PARTNERSHIP INTEREST.

    (a) In General.--Paragraph (2) of section 751(a) is amended 
to read as follows:
            ``(2) inventory items of the partnership,''.
    (b) Conforming Amendments.--
            (1)(A) Paragraph (1) of section 751(b) is amended 
        by striking subparagraphs (A) and (B) and inserting the 
        following new subparagraphs:
                    ``(A) partnership property which is--
                            ``(i) unrealized receivables, or
                            ``(ii) inventory items which have 
                        appreciated substantially in value,
                in exchange for all or a part of his interest 
                in other partnership property (including 
                money), or
                    ``(B) partnership property (including 
                money) other than property described in 
                subparagraph (A)(i) or (ii) in exchange for all 
                or a part of his interest in partnership 
                property described in subparagraph (A)(i) or 
                (ii),''.
            (B) Subsection (b) of section 751 is amended by 
        adding at the end the following new paragraph:
            ``(3) Substantial appreciation.--For purposes of 
        paragraph (1)--
                    ``(A) In general.--Inventory items of the 
                partnership shall be considered to have 
                appreciated substantially in value if their 
                fair market value exceeds 120 percent of the 
                adjusted basis to the partnership of such 
                property.
                    ``(B) Certain property excluded.--For 
                purposes of subparagraph (A), there shall be 
                excluded any inventory property if a principal 
                purpose for acquiring such property was to 
                avoid the provisions of this subsection 
                relating to inventory items.''
            (2) Subsection (d) of section 751 is amended to 
        read as follows:
    ``(d) Inventory Items.--For purposes of this subchapter, 
the term `inventory items' means--
            ``(1) property of the partnership of the kind 
        described in section 1221(1),
            ``(2) any other property of the partnership which, 
        on sale or exchange by the partnership, would be 
        considered property other than a capital asset and 
        other than property described in section 1231,
            ``(3) any other property of the partnership which, 
        if sold or exchanged by the partnership, would result 
        in a gain taxable under subsection (a) of section 1246 
        (relating to gain on foreign investment company stock), 
        and
            ``(4) any other property held by the partnership 
        which, if held by the selling or distributee partner, 
        would be considered property of the type described in 
        paragraph (1), (2), or (3).''.
            (3) Sections 724(d)(2), 731(a)(2)(B), 731(c)(6), 
        732(c)(1)(A) (as amended by the preceding section), 
        735(a)(2), and 735(c)(1) are each amended by striking 
        ``section 751(d)(2)'' and inserting ``section 751(d)''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to sales, exchanges, and 
        distributions after the date of the enactment of this 
        Act.
            (2) Binding contracts.--The amendments made by this 
        section shall not apply to any sale or exchange 
        pursuant to a written binding contract in effect on 
        June 8, 1997, and at all times thereafter before such 
        sale or exchange.

SEC. 1063. EXTENSION OF TIME FOR TAXING PRECONTRIBUTION GAIN.

    (a) In General.--Sections 704(c)(1)(B) and 737(b)(1) are 
each amended by striking ``5 years'' and inserting ``7 years''.
    (b) Effective Date.--
            (1) In general.--The amendment made by subsection 
        (a) shall apply to property contributed to a 
        partnership after June 8, 1997.
            (2) Binding contracts.--The amendment made by 
        subsection (a) shall not apply to any property 
        contributed pursuant to a written binding contract in 
        effect on June 8, 1997, and at all times thereafter 
        before such contribution if such contract provides for 
        the contribution of a fixed amount of property.

                     Subtitle H--Pension Provisions

SEC. 1071. PENSION ACCRUED BENEFIT DISTRIBUTABLE WITHOUT CONSENT 
                    INCREASED TO $5,000.

    (a) Amendment to 1986 Code.--
            (1) In general.--Subparagraph (A) of section 
        411(a)(11) (relating to restrictions on certain 
        mandatory distributions) is amended by striking 
        ``$3,500'' and inserting ``$5,000''.
            (2) Conforming amendments.--
                    (A) Section 411(a)(7)(B), paragraphs (1) 
                and (2) of section 417(e), and section 
                457(e)(9) are each amended by striking 
                ``$3,500'' each place it appears (other than 
                the headings) and inserting ``the dollar limit 
                under section 411(a)(11)(A)''.
                    (B) The headings for paragraphs (1) and (2) 
                of section 417(e) and subparagraph (A) of 
                section 457(e)(9) are each amended by striking 
                ``$3,500'' and inserting ``dollar limit''.
    (b) Amendments to ERISA.--
            (1) In general.--Section 203(e)(1) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 
        1053(e)(1)) is amended by striking ``$3,500'' and 
        inserting ``$5,000''.
            (2) Conforming amendments.--Sections 204(d)(1) and 
        205(g) (1) and (2) (29 U.S.C. 1054(d)(1) and 1055(g) 
        (1) and (2)) are each amended by striking ``$3,500'' 
        and inserting ``the dollar limit under section 
        203(e)(1)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to plan years beginning after the date of the 
enactment of this Act.

SEC. 1072. ELECTION TO RECEIVE TAXABLE CASH COMPENSATION IN LIEU OF 
                    NONTAXABLE PARKING BENEFITS.

    (a) In General.--Section 132(f)(4) (relating to benefits 
not in lieu of compensation) is amended by adding at the end 
the following new sentence: ``This paragraph shall not apply to 
any qualified parking provided in lieu of compensation which 
otherwise would have been includible in gross income of the 
employee, and no amount shall be included in the gross income 
of the employee solely because the employee may choose between 
the qualified parking and compensation.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 1997.

SEC. 1073. REPEAL OF EXCESS DISTRIBUTION AND EXCESS RETIREMENT 
                    ACCUMULATION TAX.

    (a) Repeal of Excess Distribution and Excess Retirement 
Accumulation Tax.--Section 4980A (relating to excess 
distributions from qualified retirement plans) is repealed.
    (b) Conforming Amendments.--
            (1) Section 691(c)(1) is amended by striking 
        subparagraph (C).
            (2) Section 2013 is amended by striking subsection 
        (g).
            (3) Section 2053(c)(1)(B) is amended by striking 
        the last sentence.
            (4) Section 6018(a) is amended by striking 
        paragraph (4).
    (c) Effective Dates.--
            (1) Excess distribution tax repeal.--Except as 
        provided in paragraph (2), the repeal made by 
        subsection (a) shall apply to excess distributions 
        received after December 31, 1996.
            (2) Excess retirement accumulation tax repeal.--The 
        repeal made by subsection (a) with respect to section 
        4980A(d) of the Internal Revenue Code of 1986 and the 
        amendments made by subsection (b) shall apply to 
        estates of decedents dying after December 31, 1996.

SEC. 1074. INCREASE IN TAX ON PROHIBITED TRANSACTIONS.

    (a) In General.--Section 4975(a) is amended by striking 
``10 percent'' and inserting ``15 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. 1075. BASIS RECOVERY RULES FOR ANNUITIES OVER MORE THAN ONE LIFE.

    (a) In General.--Section 72(d)(1)(B) is amended by adding 
at the end the following new clause:
                            ``(iv) Number of anticipated 
                        payments where more than one life.--If 
                        the annuity is payable over the lives 
                        of more than 1 individual, the number 
                        of anticipated payments shall be 
                        determined as follows:

``If the combined ages                                                  
  of annuitants are:                                      The number is:
    Not more than 110.........................................      410 
    More than 110 but not more than 120.......................      360 
    More than 120 but not more than 130.......................      310 
    More than 130 but not more than 140.......................      260 
    More than 140.............................................   210.''.

    (b) Conforming Amendment.--Section 72(d)(1)(B)(iii) is 
amended--
            (1) by inserting ``If the annuity is payable over 
        the life of a single individual, the number of 
        anticipated payments shall be determined as follows:'' 
        after the heading and before the table, and
            (2) by striking ``primary'' in the table.
    (c) Effective Date.--The amendments made by this section 
shall apply with respect to annuity starting dates beginning 
after December 31, 1997.

                  Subtitle I--Other Revenue Provisions

SEC. 1081. TERMINATION OF SUSPENSE ACCOUNTS FOR FAMILY CORPORATIONS 
                    REQUIRED TO USE ACCRUAL METHOD OF ACCOUNTING.

    (a) In General.--Subsection (i) of section 447 (relating to 
method of accounting for corporations engaged in farming) is 
amended by striking paragraphs (3) and (4), by redesignating 
paragraphs (5) and (6) as paragraphs (3) and (4), respectively, 
and by adding at the end the following new paragraph:
            ``(5) Termination.--
                    ``(A) In general.--No suspense account may 
                be established under this subsection by any 
                corporation required by this section to change 
                its method of accounting for any taxable year 
                ending after June 8, 1997.
                    ``(B) Phaseout of existing suspense 
                accounts.--
                            ``(i) In general.--Each suspense 
                        account under this subsection shall be 
                        reduced (but not below zero) for each 
                        taxable year beginning after June 8, 
                        1997, by an amount equal to the lesser 
                        of--
                                    ``(I) the applicable 
                                portion of such account, or
                                    ``(II) 50 percent of the 
                                taxable income of the 
                                corporation for the taxable 
                                year, or, if the corporation 
                                has no taxable income for such 
                                year, the amount of any net 
                                operating loss (as defined in 
                                section 172(c)) for such 
                                taxable year.
                        For purposes of the preceding sentence, 
                        the amount of taxable income and net 
                        operating loss shall be determined 
                        without regard to this paragraph.
                            ``(ii) Coordination with other 
                        reductions.--The amount of the 
                        applicable portion for any taxable year 
                        shall be reduced (but not below zero) 
                        by the amount of any reduction required 
                        for such taxable year under any other 
                        provision of this subsection.
                            ``(iv) Inclusion in income.--Any 
                        reduction in a suspense account under 
                        this paragraph shall be included in 
                        gross income for the taxable year of 
                        the reduction.
                    ``(C) Applicable portion.--For purposes of 
                subparagraph (B), the term `applicable portion' 
                means, for any taxable year, the amount which 
                would ratably reduce the amount in the account 
                (after taking into account prior reductions) to 
                zero over the period consisting of such taxable 
                year and the remaining taxable years in such 
                first 20 taxable years.
                    ``(D) Amounts after 20th year.--Any amount 
                in the account as of the close of the 20th year 
                referred to in subparagraph (C) shall be 
                treated as the applicable portion for each 
                succeeding year thereafter to the extent not 
                reduced under this paragraph for any prior 
                taxable year after such 20th year.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years ending after June 8, 1997.

SEC. 1082. MODIFICATION OF TAXABLE YEARS TO WHICH NET OPERATING LOSSES 
                    MAY BE CARRIED.

    (a) In General.--Subparagraph (A) of section 172(b)(1) 
(relating to years to which loss may be carried) is amended--
            (1) by striking ``3'' in clause (i) and inserting 
        ``2'', and
            (2) by striking ``15'' in clause (ii) and inserting 
        ``20''.
    (b) Retention of 3-Year Carryback for Certain Losses.--
Paragraph (1) of section 172(b) is amended by adding at the end 
the following new subparagraph:
                    ``(F) Retention of 3-year carryback in 
                certain cases.--
                            ``(i) In general.--Subparagraph 
                        (A)(i) shall be applied by substituting 
                        `3 years' for `2 years' with respect to 
                        the portion of the net operating loss 
                        for the taxable year which is an 
                        eligible loss with respect to the 
                        taxpayer.
                            ``(ii) Eligible loss.--For purposes 
                        of clause (i), the term `eligible loss' 
                        means--
                                    ``(I) in the case of an 
                                individual, losses of property 
                                arising from fire, storm, 
                                shipwreck, or other casualty, 
                                or from theft,
                                    ``(II) in the case of a 
                                taxpayer which is a small 
                                business, net operating losses 
                                attributable to Presidentially 
                                declared disasters (as defined 
                                in section 1033(h)(3)), and
                                    ``(III) in the case of a 
                                taxpayer engaged in the trade 
                                or business of farming (as 
                                defined in section 263A(e)(4)), 
                                net operating losses 
                                attributable to such 
                                Presidentially declared 
                                disasters.
                            ``(iii) Small business.--For 
                        purposes of this subparagraph, the term 
                        `small business' means a corporation or 
                        partnership which meets the gross 
                        receipts test of section 448(c) for the 
                        taxable year in which the loss arose 
                        (or, in the case of a sole 
                        proprietorship, which would meet such 
                        test if such proprietorship were a 
                        corporation).''.
    (c) Effective Date.--The amendments made by this section 
shall apply to net operating losses for taxable years beginning 
after the date of the enactment of this Act.

SEC. 1083. MODIFICATIONS TO TAXABLE YEARS TO WHICH UNUSED CREDITS MAY 
                    BE CARRIED.

    (a) In General.--Section 39(a) (relating to unused credits) 
is amended--
            (1) in paragraph (1), by striking ``3'' each place 
        it appears and inserting ``1'' and by striking ``15'' 
        each place it appears and inserting ``20''; and
            (2) in paragraph (2), by striking ``18'' each place 
        it appears and inserting ``22'' and by striking ``17'' 
        each place it appears and inserting ``21''.
    (b) Effective Date.--The amendments made by this section 
shall apply to credits arising in taxable years beginning after 
December 31, 1997.

SEC. 1084. EXPANSION OF DENIAL OF DEDUCTION FOR CERTAIN AMOUNTS PAID IN 
                    CONNECTION WITH INSURANCE.

    (a) Denial of Deduction for Premiums.--
            (1) In general.--Paragraph (1) of section 264(a) is 
        amended to read as follows:
            ``(1) Premiums on any life insurance policy, or 
        endowment or annuity contract, if the taxpayer is 
        directly or indirectly a beneficiary under the policy 
        or contract.''.
            (2) Exceptions.--Section 264 is amended by 
        redesignating subsections (b), (c), and (d) as 
        subsections (c), (d), and (e), respectively, and by 
        inserting after subsection (a) the following new 
        subsection:
    ``(b) Exceptions to Subsection (a)(1).--Subsection (a)(1) 
shall not apply to--
            ``(1) any annuity contract described in section 
        72(s)(5), and
            ``(2) any annuity contract to which section 72(u) 
        applies.''.
    (b) Interest on Policy Loans.--
            (1) In general.--Paragraph (4) of section 264(a) is 
        amended by striking ``individual, who'' and all that 
        follows and inserting ``individual.''.
            (2) Coordination with transfers for value.--
        Paragraph (2) of section 101(a) is amended by adding at 
        the end the following new flush sentence:
        ``The term `other amounts' in the first sentence of 
        this paragraph includes interest paid or accrued by the 
        transferee on indebtedness with respect to such 
        contract or any interest therein if such interest paid 
        or accrued is not allowable as a deduction by reason of 
        section 264(a)(4).''.
    (c) Pro Rata Allocation of Interest Expense to Policy Cash 
Values.--Section 264 is amended by adding at the end the 
following new subsection:
    ``(f) Pro Rata Allocation of Interest Expense to Policy 
Cash Values.--
            ``(1) In general.--No deduction shall be allowed 
        for that portion of the taxpayer's interest expense 
        which is allocable to unborrowed policy cash values.
            ``(2)  Allocation.--For purposes of paragraph (1), 
        the portion of the taxpayer's interest expense which is 
        allocable to unborrowed policy cash values is an amount 
        which bears the same ratio to such interest expense 
        as--
                    ``(A) the taxpayer's average unborrowed 
                policy cash values of life insurance policies, 
                and annuity and endowment contracts, issued 
                after June 8, 1997, bears to
                    ``(B) the sum of--
                            ``(i) in the case of assets of the 
                        taxpayer which are life insurance 
                        policies or annuity or endowment 
                        contracts, the average unborrowed 
                        policy cash values of such policies and 
                        contracts, and
                            ``(ii) in the case of assets of the 
                        taxpayer not described in clause (i), 
                        the average adjusted bases (within the 
                        meaning of section 1016) of such 
                        assets.
            ``(3) Unborrowed policy cash value.--For purposes 
        of this subsection, the term `unborrowed policy cash 
        value' means, with respect to any life insurance policy 
        or annuity or endowment contract, the excess of--
                    ``(A) the cash surrender value of such 
                policy or contract determined without regard to 
                any surrender charge, over
                    ``(B) the amount of any loan with respect 
                to such policy or contract.
            ``(4) Exception for certain policies and 
        contracts.--
                    ``(A) Policies and contracts covering 20-
                percent owners, officers, directors, and 
                employees.--Paragraph (1) shall not apply to 
                any policy or contract owned by an entity 
                engaged in a trade or business if such policy 
                or contract covers only 1 individual and if 
such individual is (at the time first covered by the policy or 
contract)--
                            ``(i) a 20-percent owner of such 
                        entity, or
                            ``(ii) an individual (not described 
                        in clause (i)) who is an officer, 
                        director, or employee of such trade or 
                        business.
                A policy or contract covering a 20-percent 
                owner of such entity shall not be treated as 
                failing to meet the requirements of the 
                preceding sentence by reason of covering the 
                joint lives of such owner and such owner's 
                spouse.
                    ``(B) Contracts subject to current income 
                inclusion.--Paragraph (1) shall not apply to 
                any annuity contract to which section 72(u) 
                applies.
                    ``(C) Coordination with paragraph (2).--Any 
                policy or contract to which paragraph (1) does 
                not apply by reason of this paragraph shall not 
                be taken into account under paragraph (2).
                    ``(D) 20-percent owner.--For purposes of 
                subparagraph (A), the term `20-percent owner' 
                has the meaning given such term by subsection 
                (e)(4).
            ``(5) Exception for policies and contracts held by 
        natural persons; treatment of partnerships and s 
        corporations.--
                    ``(A) Policies and contracts held by 
                natural persons.--
                            ``(i) In general.--This subsection 
                        shall not apply to any policy or 
                        contract held by a natural person.
                            ``(ii) Exception where business is 
                        beneficiary.--If a trade or business is 
                        directly or indirectly the beneficiary 
                        under any policy or contract, such 
                        policy or contract shall be treated as 
                        held by such trade or business and not 
                        by a natural person.
                            ``(iii) Special rules.--
                                    ``(I) Certain trades or 
                                businesses not taken into 
                                account.--Clause (ii) shall not 
                                apply to any trade or business 
                                carried on as a sole 
                                proprietorship and to any trade 
                                or business performing services 
                                as an employee.
                                    ``(II) Limitation on 
                                unborrowed cash value.--The 
                                amount of the unborrowed cash 
                                value of any policy or contract 
                                which is taken into account by 
                                reason of clause (ii) shall not 
                                exceed the benefit to which the 
                                trade or business is directly 
                                or indirectly entitled under 
                                the policy or contract.
                            ``(iv) Reporting.--The Secretary 
                        shall require such reporting from 
                        policyholders and issuers as is 
                        necessary to carry out clause (ii). Any 
                        report required under the preceding 
                        sentence shall be treated as a 
                        statement referred to in section 
                        6724(d)(1).
                    ``(B) Treatment of partnerships and s 
                corporations.--In the case of a partnership or 
                S corporation, this subsection shall be applied 
                at the partnership and corporate levels.
            ``(6) Special rules.--
                    ``(A) Coordination with subsection (a) and 
                section 265.--If interest on any indebtedness 
                is disallowed under subsection (a) or section 
                265--
                            ``(i) such disallowed interest 
                        shall not be taken into account for 
                        purposes of applying this subsection, 
                        and
                            ``(ii) the amount otherwise taken 
                        into account under paragraph (2)(B) 
                        shall be reduced (but not below zero) 
                        by the amount of such indebtedness.
                    ``(B) Coordination with section 263a.--This 
                subsection shall be applied before the 
                application of section 263A (relating to 
                capitalization of certain expenses where 
                taxpayer produces property).
            ``(7) Interest expense.--The term `interest 
        expense' means the aggregate amount allowable to the 
        taxpayer as a deduction for interest (within the 
        meaning of section 265(b)(4)) for the taxable year 
        (determined without regard to this subsection, section 
        265(b), and section 291).
            ``(8) Aggregation rules.--
                    ``(A) In general.--All members of a 
                controlled group (within the meaning of 
                subsection (d)(5)(B)) shall be treated as 1 
                taxpayer for purposes of this subsection.
                    ``(B) Treatment of insurance companies.--
                This subsection shall not apply to an insurance 
                company subject to tax under subchapter L, and 
                subparagraph (A) shall be applied without 
                regard to any member of an affiliated group 
                which is an insurance company.''.
    (b) Treatment of Insurance Companies.--
            (1)(A) Clause (ii) of section 805(a)(4)(C) is 
        amended by inserting ``, or out of the increase for the 
        taxable year in policy cash values (within the meaning 
        of subparagraph (F)) of life insurance policies and 
        annuity and endowment contracts to which section 264(f) 
        applies,'' after ``tax-exempt interest''.
            (B) Clause (iii) of section 805(a)(4)(D) is amended 
        by striking ``and'' and inserting ``, the increase for 
        the taxable year in policy cash values (within the 
        meaning of subparagraph (F)) of life insurance policies 
        and annuity and endowment contracts to which section 
        264(f) applies, and''.
            (C) Paragraph (4) of section 805(a) is amended by 
        adding at the end the following new subparagraph:
                    ``(F) Increase in policy cash values.--For 
                purposes of subparagraphs (C) and (D)--
                            ``(i) In general.--The increase in 
                        the policy cash value for any taxable 
                        year with respect to policy or contract 
                        is the amount of the increase in the 
                        adjusted cash value during such taxable 
                        year determined without regard to--
                                    ``(I) gross premiums paid 
                                during such taxable year, and
                                    ``(II) distributions (other 
                                than amounts includible in the 
                                policyholder's gross income) 
                                during such taxable year to 
                                which section 72(e) applies.
                            ``(ii) Adjusted cash value.--For 
                        purposes of clause (i), the term 
                        `adjusted cash value' means the cash 
                        surrender value of the policy or 
                        contract increased by the sum of--
                                    ``(I) commissions payable 
                                with respect to such policy or 
                                contract for the taxable year, 
                                and
                                    ``(II) asset management 
                                fees, surrender charges, 
                                mortality and expense charges, 
                                and any other fees or charges 
                                specified in regulations 
                                prescribed by the Secretary 
                                which are imposed (or which 
                                would be imposed were the 
                                policy or contract canceled) 
with respect to such policy or contract for the taxable year.''.
            (2)(A) Subparagraph (B) of section 807(a)(2) is 
        amended by striking ``interest,'' and inserting 
        ``interest and the amount of the policyholder's share 
        of the increase for the taxable year in policy cash 
        values (within the meaning of section 805(a)(4)(F)) of 
        life insurance policies and annuity and endowment 
        contracts to which section 264(f) applies,''.
            (B) Subparagraph (B) of section 807(b)(1) is 
        amended by striking ``interest,'' and inserting 
        ``interest and the amount of the policyholder's share 
        of the increase for the taxable year in policy cash 
        values (within the meaning of section 805(a)(4)(F)) of 
        life insurance policies and annuity and endowment 
        contracts to which section 264(f) applies,''.
            (3) Paragraph (1) of section 812(d) 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 at the end the 
        following new subparagraph:
                    ``(D) the increase for any taxable year in 
                the policy cash values (within the meaning of 
                section 805(a)(4)(F)) of life insurance 
                policies and annuity and endowment contracts to 
                which section 264(f) applies.''.
            (4) Subparagraph (B) of section 832(b)(5) is 
        amended by striking ``and'' at the end of clause (i), 
        by striking the period at the end of clause (ii) and 
        inserting ``, and'', and by adding at the end the 
        following new clause:
                            ``(iii) the increase for the 
                        taxable year in policy cash values 
                        (within the meaning of section 
                        805(a)(4)(F)) of life insurance 
                        policies and annuity and endowment 
                        contracts to which section 264(f) 
                        applies.''.
    (c) Conforming Amendment.--Subparagraph (A) of section 
265(b)(4) is amended by inserting ``, section 264,'' before 
``and section 291''.
    (d) Effective Date.--The amendments made by this section 
shall apply to contracts issued after June 8, 1997, in taxable 
years ending after such date. For purposes of the preceding 
sentence, any material increase in the death benefit or other 
material change in the contract shall be treated as a new 
contract but the addition of covered lives shall be treated as 
a new contract only with respect to such additional covered 
lives. For purposes of this subsection, an increase in the 
death benefit under a policy or contract issued in connection 
with a lapse described in section 501(d)(2) of the Health 
Insurance Portability and Accountability Act of 1996 shall not 
be treated as a new contract.

SEC. 1085. IMPROVED ENFORCEMENT OF THE APPLICATION OF THE EARNED INCOME 
                    CREDIT.

    (a) Restrictions on Availability of Earned Income Credit 
for Taxpayers who Improperly Claimed Credit in Prior Year.--
            (1) In general.--Section 32 is amended by 
        redesignating subsections (k) and (l) as subsections 
        (l) and (m), respectively, and by inserting after 
        subsection (j) the following new subsection:
    ``(k) Restrictions on Taxpayers Who Improperly Claimed 
Credit in Prior Year.--
            ``(1) Taxpayers making prior fraudulent or reckless 
        claims.--
                    ``(A) In general.--No credit shall be 
                allowed under this section for any taxable year 
                in the disallowance period.
                    ``(B) Disallowance period.--For purposes of 
                paragraph (1), the disallowance period is--
                            ``(i) the period of 10 taxable 
                        years after the most recent taxable 
                        year for which there was a final 
                        determination that the taxpayer's claim 
of credit under this section was due to fraud, and
                            ``(ii) the period of 2 taxable 
                        years after the most recent taxable 
                        year for which there was a final 
                        determination that the taxpayer's claim 
                        of credit under this section was due to 
                        reckless or intentional disregard of 
                        rules and regulations (but not due to 
                        fraud).
            ``(2) Taxpayers making improper prior claims.--In 
        the case of a taxpayer who is denied credit under this 
        section for any taxable year as a result of the 
        deficiency procedures under subchapter B of chapter 63, 
        no credit shall be allowed under this section for any 
        subsequent taxable year unless the taxpayer provides 
        such information as the Secretary may require to 
        demonstrate eligibility for such credit.''.
            (2) Due diligence requirement on income tax return 
        preparers.--Section 6695 is amended by adding at the 
        end the following new subsection:
    ``(g) Failure To Be Diligent in Determining Eligibility for 
Earned Income Credit.--Any person who is an income tax return 
preparer with respect to any return or claim for refund who 
fails to comply with due diligence requirements imposed by the 
Secretary by regulations with respect to determining 
eligibility for, or the amount of, the credit allowable by 
section 32 shall pay a penalty of $100 for each such 
failure.''.
            (3) Extension procedures applicable to mathematical 
        or clerical errors.--Paragraph (2) of section 6213(g) 
        (relating to the definition of mathematical or clerical 
        errors) is amended by striking ``and'' at the end of 
        subparagraph (H), by striking the period at the end of 
        subparagraph (I) and inserting ``, and'', and by 
        inserting after subparagraph (I) the following new 
        subparagraph:
                    ``(J) an omission of information required 
                by section 32(k)(2) (relating to taxpayers 
                making improper prior claims of earned income 
                credit).''.
    (b) Increase in Net Loss Disregarded for Modified Adjusted 
Gross Income.--Section 32(c)(5)(B)(iv) is amended by striking 
``50 percent'' and inserting ``75 percent''.
    (c) Workfare Payments Not Included in Earned Income.--
Section 32(c)(2)(B) is amended by striking ``and'' at the end 
of clause (iii), by striking the period at the end of clause 
(iv) and inserting ``, and'', and by adding at the end the 
following new clause:
                            ``(v) no amount described in 
                        subparagraph (A) received for service 
                        performed in work activities as defined 
                        in section 407(d) of the Social 
                        Security Act to which the taxpayer is 
                        assigned under any State program under 
                        part A of title IV of such Act, but 
                        only to the extent such amount is 
                        subsidized under such State program.''.
    (d) Certain Nontaxable Income Included in Modified Adjusted 
Gross Income.--Section 32(c)(5)(B) is amended--
            (1) by striking ``and'' at the end of clause (iii),
            (2) by striking the period at the end of clause 
        (iv)(III),
            (3) by inserting after clause (iv)(III) the 
        following new clauses:
                            ``(v) interest received or accrued 
                        during the taxable year which is exempt 
                        from tax imposed by this chapter, and
                            ``(vi) amounts received as a 
                        pension or annuity, and any 
                        distributions or payments received from 
                        an individual retirement plan, by the 
                        taxpayer during the taxableyear to the 
extent not included in gross income.'', and
            (4) by adding at the end the following new 
        sentence: ``Clause (vi) shall not include any amount 
        which is not includible in gross income by reason of 
        section 402(c), 403(a)(4), 403(b), 408(d) (3), (4), or 
        (5), or 457(e)(10).''.
    (e) Effective Dates.--
            (1) The amendments made by subsection (a) shall 
        apply to taxable years beginning after December 31, 
        1996.
            (2) The amendments made by subsections (b), (c), 
        and (d) shall apply to taxable years beginning after 
        December 31, 1997.

SEC. 1086. LIMITATION ON PROPERTY FOR WHICH INCOME FORECAST METHOD MAY 
                    BE USED.

    (a) Limitation.--Subsection (g) of section 167 is amended 
by adding at the end the following new paragraph:
            ``(6) Limitation on property for which income 
        forecast method may be used.--The depreciation 
        deduction allowable under this section may be 
        determined under the income forecast method or any 
        similar method only with respect to--
                    ``(A) property described in paragraph (3) 
                or (4) of section 168(f),
                    ``(B) copyrights,
                    ``(C) books,
                    ``(D) patents, and
                    ``(E) other property specified in 
                regulations.
        Such methods may not be used with respect to any 
        amortizable section 197 intangible (as defined in 
        section 197(c)).''.
    (b) Depreciation Period for Rent-To-Own Property.--
            (1) In general.--Subparagraph (A) of section 
        168(e)(3) (relating to 3-year property) is amended by 
        striking ``and'' at the end of clause (i), by striking 
        the period at the end of clause (ii) and inserting ``, 
        and'', and by adding at the end the following new 
        clause:
                            ``(iii) any qualified rent-to-own 
                        property.''.
            (2) 4-year class life.--The table contained in 
        section 168(g)(3)(B) is amended by inserting before the 
        first item the following new item:

  ``(A)(iii)............................................       4 ''.    

            (3) Definition of qualified rent-to-own property.--
        Subsection (i) of section 168 is amended by adding at 
        the end the following new paragraph:
            ``(14) Qualified rent-to-own property.--
                    ``(A) In general.--The term `qualified 
                rent-to-own property' means property held by a 
                rent-to-own dealer for purposes of being 
                subject to a rent-to-own contract.
                    ``(B) Rent-to-own dealer.--The term `rent-
                to-own dealer' means a person that, in the 
                ordinary course of business, regularly enters 
                into rent-to-own contracts with customers for 
                the use of consumer property, if a substantial 
                portion of those contracts terminate and the 
                property is returned to such person before the 
                receipt of all payments required to transfer 
                ownership of the property from such person to 
                the customer.
                    ``(C) Consumer property.--The term 
                `consumer property' means tangible personal 
                property of a type generally used within the 
                home for personal use.
                    ``(D) Rent-to-own contract.--The term 
                `rent-to-own contract' means any lease for the 
                use of consumer property between a rent-to-own 
dealer and a customer who is an individual which--
                            ``(i) is titled `Rent-to-Own 
                        Agreement' or `Lease Agreement with 
                        Ownership Option,' or uses other 
                        similar language,
                            ``(ii) provides for level (or 
                        decreasing where no payment is less 
                        than 40 percent of the largest 
                        payment), regular periodic payments 
                        (for a payment period which is a week 
                        or month),
                            ``(iii) provides that legal title 
                        to such property remains with the rent-
                        to-own dealer until the customer makes 
                        all the payments described in clause 
                        (ii) or early purchase payments 
                        required under the contract to acquire 
                        legal title to the item of property,
                            ``(iv) provides a beginning date 
                        and a maximum period of time for which 
                        the contract may be in effect that does 
                        not exceed 156 weeks or 36 months from 
                        such beginning date (including renewals 
                        or options to extend),
                            ``(v) provides for payments within 
                        the 156-week or 36-month period that, 
                        in the aggregate, generally exceed the 
                        normal retail price of the consumer 
                        property plus interest,
                            ``(vi) provides for payments under 
                        the contract that, in the aggregate, do 
                        not exceed $10,000 per item of consumer 
                        property,
                            ``(vii) provides that the customer 
                        does not have any legal obligation to 
                        make all the payments referred to in 
                        clause (ii) set forth under the 
                        contract, and that at the end of each 
                        payment period the customer may either 
                        continue to use the consumer property 
                        by making the payment for the next 
                        payment period or return such property 
                        to the rent-to-own dealer in good 
                        working order, in which case the 
                        customer does not incur any further 
                        obligations under the contract and is 
                        not entitled to a return of any 
                        payments previously made under the 
                        contract, and
                            ``(viii) provides that the customer 
                        has no right to sell, sublease, 
                        mortgage, pawn, pledge, encumber, or 
                        otherwise dispose of the consumer 
                        property until all the payments stated 
                        in the contract have been made.''.
    (c) Effective Date.--The amendment made by this section 
shall apply to property placed in service after the date of the 
enactment of this Act.

SEC. 1087. EXPANSION OF REQUIREMENT THAT INVOLUNTARILY CONVERTED 
                    PROPERTY BE REPLACED WITH PROPERTY ACQUIRED FROM AN 
                    UNRELATED PERSON.

    (a) In General.--Subsection (i) of section 1033 is amended 
to read as follows:
    ``(i) Replacement Property Must Be Acquired From Unrelated 
Person in Certain Cases.--
            ``(1) In general.--If the property which is 
        involuntarily converted is held by a taxpayer to which 
        this subsection applies, subsection (a) shall not apply 
        if the replacement property or stock is acquired from a 
        related person. The preceding sentence shall not apply 
        to the extent that the related person acquired the 
        replacement property or stock from an unrelated person 
        during the period applicable under subsection 
        (a)(2)(B).
            ``(2) Taxpayers to which subsection applies.--This 
        subsection shall apply to--
                    ``(A) a C corporation,
                    ``(B) a partnership in which 1 or more C 
                corporations own, directly or indirectly 
                (determined in accordance with section 
                707(b)(3)), more than 50 percent of the capital 
                interest, or profits interest, in such 
                partnership at the time of the involuntary 
                conversion, and
                    ``(C) any other taxpayer if, with respect 
                to property which is involuntarily converted 
                during the taxable year, the aggregate of the 
                amount of realized gain on such property on 
                which there is realized gain exceeds $100,000.
        In the case of a partnership, subparagraph (C) shall 
        apply with respect to the partnership and with respect 
        to each partner. A similar rule shall apply in the case 
        of an S corporation and its shareholders.
            ``(3) Related person.--For purposes of this 
        subsection, a person is related to another person if 
        the person bears a relationship to the other person 
        described in section 267(b) or 707(b)(1).''.
    (b) Effective Date.--The amendment made by this section 
shall apply to involuntary conversions occurring after June 8, 
1997.

SEC. 1088. TREATMENT OF EXCEPTION FROM INSTALLMENT SALES RULES FOR 
                    SALES OF PROPERTY BY A MANUFACTURER TO A DEALER.

    (a) In General.--Paragraph (2) of section 811(c) of the Tax 
Reform Act of 1986 is hereby repealed.
    (b) Effective Date.--
            (1) In general.--The amendment made by this section 
        shall apply to taxable years beginning more than 1 year 
        after the date of the enactment of this Act.
            (2) Coordination with section 481.--In the case of 
        any taxpayer required by this section to change its 
        method of accounting for any taxable year--
                    (A) such changes shall be treated as 
                initiated by the taxpayer,
                    (B) such changes shall be treated as made 
                with the consent of the Secretary of the 
                Treasury, and
                    (C) the net amount of the adjustments 
                required to be taken into account under section 
                481(a) of the Internal Revenue Code of 1986 
                shall be taken into account ratably over the 4 
                taxable year period beginning with the first 
                taxable year beginning after the date of the 
                enactment of this Act.

SEC. 1089. LIMITATIONS ON CHARITABLE REMAINDER TRUST ELIGIBILITY FOR 
                    CERTAIN TRUSTS.

    (a) Limitation on Noncharitable Distributions.--
            (1) In general.--Paragraphs (1)(A) and (2)(A) of 
        section 664(d) (relating to charitable remainder 
        trusts) are each amended by inserting ``nor more than 
        50 percent'' after ``not less than 5 percent''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply to transfers in trust after 
        June 18, 1997.
    (b) Minimum Charitable Benefit.--
            (1) Charitable remainder annuity trusts.--Paragraph 
        (1) of section 664(d) is amended by striking ``and'' at 
        the end of subparagraph (B), by striking the period at 
        the end of subparagraph (C), and by adding at the end 
        the following new subparagraph:
                    ``(D) the value (determined under section 
                7520) of such remainder interest is at least 10 
                percent of the initial net fair market value of 
                all property placed in the trust.''
            (2) Charitable remainder unitrusts.--Paragraph (2) 
        of section 664(d) is amended by striking ``and'' at the 
        end of subparagraph (B), by striking the period at the 
        end of subparagraph (C), and by adding at the end the 
        following new subparagraph:
                    ``(D) with respect to each contribution of 
                property to the trust, the value (determined 
                under section 7520) of such remainder interest 
                in such property is at least 10 percent of the 
                net fair market value of such property as of 
                the date such property is contributed to the 
                trust.''.
            (3) Void or reformed trust.--Paragraph (3) of 
        section 2055(e) is amended by adding at the end the 
        following new subparagraph:
                    ``(J) Void or reformed trust in cases of 
                insufficient remainder interests.--In the case 
                of a trust that would qualify (or could be 
                reformed to qualify pursuant to subparagraph 
                (B)) but for failure to satisfy the requirement 
                of paragraph (1)(D) or (2)(D) of section 
                664(d), such trust may be--
                            ``(i) declared null and void ab 
                        initio, or
                            ``(ii) changed by reformation, 
                        amendment, or otherwise to meet such 
                        requirement by reducing the payout rate 
                        or the duration (or both) of any 
                        noncharitable beneficiary's interest to 
                        the extent necessary to satisfy such 
                        requirement,
                pursuant to a proceeding that is commenced 
                within the period required in subparagraph 
                (C)(iii). In a case described in clause (i), no 
                deduction shall be allowed under this title for 
                any transfer to the trust and any transactions 
                entered into by the trust prior to being 
                declared void shall be treated as entered into 
                by the transferor.''
                    (4) Severance of certain additional 
                contributions.--Subsection (d) of section 664 
                is amended by adding at the end the following 
                new paragraph:
            ``(4) Severance of certain additional 
        contributions.--If--
                    ``(A) any contribution is made to a trust 
                which before the contribution is a charitable 
                remainder unitrust, and
                    ``(B) such contribution would (but for this 
                paragraph) result in such trust ceasing to be a 
                charitable unitrust by reason of paragraph 
                (2)(D), such contribution shall be treated as a 
transfer to a separate trust under regulations prescribed by the 
Secretary.''
            (5) Conforming amendment.--Section 2055(e)(3)(G) is 
        amended by inserting ``(or other proceeding pursuant to 
        subparagraph (J)'' after ``reformation''.
            (6) Effective dates.--
                    (A) In general.--Except as otherwise 
                provided in this paragraph, the amendments made 
                by this subsection shall apply to transfers in 
                trust after July 28, 1997.
                    (B) Special rule for certain decedents.--
                The amendments made by this subsection shall 
                not apply to transfers in trust under the terms 
                of a will (or other testamentary instrument) 
                executed on or before July 28, 1997, if the 
                decedent--
                            (i) dies before January 1, 1999, 
                        without having republished the will (or 
                        amended such instrument) by codicil or 
                        otherwise, or
                            (ii) was on July 28, 1997, under a 
                        mental disability to change the 
                        disposition of his property and did not 
                        regain his competence to dispose of 
                        such property before the date of his 
                        death.

SEC. 1090. EXPANDED SSA RECORDS FOR TAX ENFORCEMENT.

    (a) Expansion of Coordinated Enforcement Efforts of IRS and 
HHS Office of Child Support Enforcement.--
            (1) State reporting of ssn of child.--Section 
        454A(e)(4)(D) of the Social Security Act (42 U.S.C. 
        654a(e)(4)(D)) is amended by striking ``the birth date 
        of any child'' and inserting ``the birth date and, 
        beginning not later than October 1, 1999, the social 
        security number, of any child''.
            (2) Federal case registry of child support 
        orders.--Section 453(h) of such Act (42 U.S.C. 653(h)) 
        is amended--
                    (A) in paragraph (2), by adding at the end 
                the following: ``Beginning not later than 
                October 1, 1999, the information referred to in 
                paragraph (1) shall include the names and 
                social security numbers of the children of such 
                individuals.''; and
                    (B) by adding at the end the following:
            ``(3) Administration of federal tax laws.--The 
        Secretary of the Treasury shall have access to the 
        information described in paragraph (2) for the purpose 
        of administering those sections of the Internal Revenue 
        Code of 1986 which grant tax benefits based on support 
        or residence of children.''.
            (3) Coordination between secretaries.--The 
        Secretary of the Treasury and the Secretary of Health 
        and Human Services shall consult regarding the 
        implementation issues resulting from the amendments 
        made by this subsection, including interim deadlines 
        for States that may be able before October 1, 1999, to 
        provide the data required by such amendments. The 
        Secretaries shall report to Congress on the results of 
        such consultation.
            (4) Effective date.--The amendments made by this 
        subsection shall take effect on October 1, 1998.
    (b) Required Submission of SSN's on Applications.--
            (1) In general.--Section 205(c)(2) of the Social 
        Security Act (42 U.S.C. 405(c)(2)) is amended--
                    (A) in subparagraph (B)(ii), by adding at 
                the end the following new sentence: ``With 
                respect to an application for a social security 
                account number for an individual who has not 
                attainedthe age of 18 before such application, 
such evidence shall include the information described in subparagraph 
(C)(ii).'',
                    (B) in the second sentence of subparagraph 
                (C)(ii), insert ``the Commissioner of Social 
                Security and'' after ``available to'', and
                    (C) by adding at the end the following new 
                subparagraph:
    ``(H) The Commissioner of Social Security shall share with 
the Secretary of the Treasury the information obtained by the 
Commissioner pursuant to the second sentence of subparagraph 
(B)(ii) and to subparagraph (C)(ii) for the purpose of 
administering those sections of the Internal Revenue Code of 
1986 which grant tax benefits based on support or residence of 
children.''.
            (2) Effective dates.--
                    (A) The amendment made by paragraph (1)(A) 
                shall apply to applications made after the date 
                which is 180 days after the date of the 
                enactment of this Act.
                    (B) The amendments made by subparagraphs 
                (B) and (C) of paragraph (1) shall apply to 
                information obtained on, before, or after the 
                date of the enactment of this Act.

SEC. 1091. MODIFICATION OF ESTIMATED TAX SAFE HARBORS.

    (a) In General.--Clause (i) of section 6654(d)(1)(C) 
(relating to limitation on use of preceding year's tax) is 
amended to read as follows:
                            ``(i) In general.--If the adjusted 
                        gross income shown on the return of the 
                        individual for the preceding taxable 
                        year beginning in any calendar year 
                        exceeds $150,000, clause (ii) of 
                        subparagraph (B) shall be applied by 
                        substituting the applicable percentage 
                        for `100 percent'. For purposes of the 
                        preceding sentence, the applicable 
                        percentage shall be determined in 
                        accordance with the following table:

    ``If the preceding tax-                               The applicable
      able year begins in:                                percentage is:
    1998, 1999, or 2000.......................................      105 
    2001......................................................      112 
    2002 or thereafter........................................      110.

                        This clause shall not apply in the case 
                        of a preceding taxable year beginning 
                        in calendar year 1997.''.
    (b) Effective Date.--The amendment made by this section 
shall apply with respect to any installment payment for taxable 
years beginning after December 31, 1997.

     TITLE XI--SIMPLIFICATION AND OTHER FOREIGN-RELATED PROVISIONS

                     Subtitle A--General Provisions

SEC. 1101. CERTAIN INDIVIDUALS EXEMPT FROM FOREIGN TAX CREDIT 
                    LIMITATION.

    (a) General Rule.--Section 904 (relating to limitations on 
foreign tax credit) is amended by redesignating subsection (j) 
as subsection (k) and by inserting after subsection (i) the 
following new subsection:
    ``(j) Certain Individuals Exempt.--
            ``(1) In general.--In the case of an individual to 
        whom this subsection applies for any taxable year--
                    ``(A) the limitation of subsection (a) 
                shall not apply,
                    ``(B) no taxes paid or accrued by the 
                individual during such taxable year may be 
                deemed paid or accrued under subsection (c) in 
                any other taxable year, and
                    ``(C) no taxes paid or accrued by the 
                individual during any other taxable year may be 
                deemed paid or accrued under subsection (c) in 
                such taxable year.
            ``(2) Individuals to whom subsection applies.--This 
        subsection shall apply to an individual for any taxable 
        year if--
                    ``(A) the entire amount of such 
                individual's gross income for the taxable year 
                from sources without the United States consists 
                of qualified passive income,
                    ``(B) the amount of the creditable foreign 
                taxes paid or accrued by the individual during 
                the taxable year does not exceed $300 ($600 in 
                the case of a joint return), and
                    ``(C) such individual elects to have this 
                subsection apply for the taxable year.
            ``(3) Definitions.--For purposes of this 
        subsection--
                    ``(A) Qualified passive income.--The term 
                `qualified passive income' means any item of 
                gross income if--
                            ``(i) such item of income is 
                        passive income (as defined in 
                        subsection (d)(2)(A) without regard to 
                        clause (iii) thereof), and
                            ``(ii) such item of income is shown 
                        on a payee statement furnished to the 
                        individual.
                    ``(B) Creditable foreign taxes.--The term 
                `creditable foreign taxes' means any taxes for 
                which a credit is allowable under section 901; 
                except that such term shall not include any tax 
                unless such tax is shown on a payee statement 
                furnished to such individual.
                    ``(C) Payee statement.--The term `payee 
                statement' has the meaning given to such term 
                by section 6724(d)(2).
                    ``(D) Estates and trusts not eligible.--
                This subsection shall not apply to any estate 
                or trust.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1997.

SEC. 1102. EXCHANGE RATE USED IN TRANSLATING FOREIGN TAXES.

    (a) Accrued Taxes Translated by Using Average Rate for Year 
to Which Taxes Relate.--
            (1) In general.--Subsection (a) of section 986 
        (relating to translation of foreign taxes) is amended 
        to read as follows:
    ``(a) Foreign Income Taxes.--
            ``(1) Translation of accrued taxes.--
                    ``(A) In general.--For purposes of 
                determining the amount of the foreign tax 
                credit, in the case of a taxpayer who takes 
                foreign income taxes into account when accrued, 
                the amount of any foreign income taxes (and any 
                adjustment thereto) shall be translated into 
                dollars by using the average exchange rate for 
                the taxable year to which such taxes relate.
                    ``(B) Exception for certain taxes.--
                Subparagraph (A) shall not apply to any foreign 
                income taxes--
                            ``(i) paid after the date 2 years 
                        after the close of the taxable year to 
                        which such taxes relate, or
                            ``(ii) paid before the beginning of 
                        the taxable year to which such taxes 
                        relate.
                    ``(C) Exception for inflationary 
                currencies.--Subparagraph (A) shall not apply 
                to any foreign income taxes the liability for 
                which is denominated in any inflationary 
                currency (as determined under regulations).
                    ``(D) Cross reference.--

          ``For adjustments where tax is not paid within 2 years, see 
        section 905(c).

            ``(2) Translation of taxes to which paragraph (1) 
        does not apply.--For purposes of determiningto the 
amount of the foreign tax credit, in the case of any foreign income 
taxes to which subparagraph (A) of paragraph (1) does not apply--
                    ``(A) such taxes shall be translated into 
                dollars using the exchange rates as of the time 
                such taxes were paid to the foreign country or 
                possession of the United States, and
                    ``(B) any adjustment to the amount of such 
                taxes shall be translated into dollars using--
                            ``(i) except as provided in clause 
                        (ii), the exchange rate as of the time 
                        when such adjustment is paid to the 
                        foreign country or possession, or
                            ``(ii) in the case of any refund or 
                        credit of foreign income taxes, using 
                        the exchange rate as of the time of the 
                        original payment of such foreign income 
                        taxes.
            ``(3) Foreign income taxes.--For purposes of this 
        subsection, the term `foreign income taxes' means any 
        income, war profits, or excess profits taxes paid or 
        accrued to any foreign country or to any possession of 
        the United States.''.
            (2) Adjustment when not paid within 2 years after 
        year to which taxes relate.--Subsection (c) of section 
        905 is amended to read as follows:
    ``(c) Adjustments to Accrued Taxes.--
            ``(1) In general.--If--
                    ``(A) accrued taxes when paid differ from 
                the amounts claimed as credits by the taxpayer,
                    ``(B) accrued taxes are not paid before the 
                date 2 years after the close of the taxable 
                year to which such taxes relate, or
                    ``(C) any tax paid is refunded in whole or 
                in part,
        the taxpayer shall notify the Secretary, who shall 
        redetermine the amount of the tax for the year or years 
        affected. The Secretary may prescribe adjustments to 
        the pools of post-1986 foreign income taxes and the 
        pools of post-1986 undistributed earnings under 
        sections 902 and 960 in lieu of the redetermination 
        under the preceding sentence.
            ``(2) Special rule for taxes not paid within 2 
        years.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), in making the redetermination 
                under paragraph (1), no credit shall be allowed 
                for accrued taxes not paid before the 
datereferred to in subparagraph (B) of paragraph (1).
                    ``(B) Taxes subsequently paid.--Any such 
                taxes if subsequently paid--
                            ``(i) shall be taken into account--
                                    ``(I) in the case of taxes 
                                deemed paid under section 902 
                                or section 960, for the taxable 
                                year in which paid (and no 
                                redetermination shall be made 
                                under this section by reason of 
                                such payment), and
                                    ``(II) in any other case, 
                                for the taxable year to which 
                                such taxes relate, and
                            ``(ii) shall be translated as 
                        provided in section 986(a)(2)(A).
            ``(3) Adjustments.--The amount of tax (if any) due 
        on any redetermination under paragraph (1) shall be 
        paid by the taxpayer on notice and demand by the 
        Secretary, and the amount of tax overpaid (if any) 
        shall be credited or refunded to the taxpayer in 
        accordance with subchapter B of chapter 66 (section 
        6511 et seq.).
            ``(4) Bond requirements.--In the case of any tax 
        accrued but not paid, the Secretary, as a condition 
        precedent to the allowance of the credit provided in 
        this subpart, may require the taxpayer to give a bond, 
        with sureties satisfactory to and approved by the 
        Secretary, in such sum as the Secretary may require, 
        conditioned on the payment by the taxpayer of any 
        amount of tax found due on any such redetermination. 
        Any such bond shall contain such further conditions as 
        the Secretary may require.
            ``(5) Other special rules.--In any redetermination 
        under paragraph (1) by the Secretary of the amount of 
        tax due from the taxpayer for the year or years 
        affected by a refund, the amount of the taxes refunded 
        for which credit has been allowed under this section 
        shall be reduced by the amount of any tax described in 
        section 901 imposed by the foreign country or 
        possession of the United States with respect to such 
        refund; but no credit under this subpart, or deduction 
        under section 164, shall be allowed for any taxable 
        year with respect to any such tax imposed on the 
        refund. No interest shall be assessed or collected on 
        any amount of tax due on any redetermination by the 
        Secretary, resulting from a refund to the taxpayer, for 
        any period before the receipt of such refund, except to 
        the extent interest was paid by the foreign country or 
        possession of the United States on such refund for such 
        period.''.
    (b) Authority To Use Average Rates.--
            (1) In general.--Subsection (a) of section 986 (as 
        amended by subsection (a)) is amended by redesignating 
        paragraph (3) as paragraph (4) and inserting after 
        paragraph (2) the following new paragraph:
            ``(3) Authority to permit use of average rates.--To 
        the extent prescribed in regulations, the average 
        exchange rate for the period (specified in such 
        regulations) during which the taxes or adjustment is 
        paid may be used instead of the exchange rate as of the 
        time of such payment.''.
            (2) Determination of average rates.--Subsection (c) 
        of section 989 is amended by striking ``and'' at the 
        end of paragraph (4), by striking the period at the end 
        of paragraph (5) and inserting ``, and'', and by adding 
        at the end thereof the following new paragraph:
            ``(6) setting forth procedures for determining the 
        average exchange rate for any period.''.
            (3) Conforming amendments.--Subsection (b) of 
        section 989 is amended by striking ``weighted'' each 
        place it appears.
    (c) Effective Dates.--
            (1) In general.--The amendments made by subsections 
        (a)(1) and (b) shall apply to taxes paid or accrued in 
        taxable years beginning after December 31, 1997.
            (2) Subsection (a)(2).--The amendment made by 
        subsection (a)(2) shall apply to taxes which relate to 
        taxable years beginning after December 31, 1997.

SEC. 1103. ELECTION TO USE SIMPLIFIED SECTION 904 LIMITATION FOR 
                    ALTERNATIVE MINIMUM TAX.

    (a) General Rule.--Subsection (a) of section 59 (relating 
to alternative minimum tax foreign tax credit) is amended by 
adding at the end thereof the following new paragraph:
            ``(3) Election to use simplified section 904 
        limitation.--
                    ``(A) In general.--In determining the 
                alternative minimum tax foreign tax credit for 
                any taxable year to which an election under 
                this paragraph applies--
                            ``(i) subparagraph (B) of paragraph 
                        (1) shall not apply, and
                            ``(ii) the limitation of section 
                        904 shall be based on the proportion 
                        which--
                                    ``(I) the taxpayer's 
                                taxable income (as determined 
                                for purposes of the regular 
                                tax) from sources without the 
                                United States (but not in 
                                excess of the taxpayer's entire 
                                alternative minimum taxable 
                                income), bears to
                                    ``(II) the taxpayer's 
                                entire alternative minimum 
                                taxable income for the taxable 
                                year.
                    ``(B) Election.--
                            ``(i) In general.--An election 
                        under this paragraph may be made only 
                        for the taxpayer's first taxable year 
                        which begins after December 31, 1997, 
                        and for which the taxpayer claims an 
                        alternative minimum tax foreign tax 
                        credit.
                            ``(ii) Election revocable only with 
                        consent.--An election under this 
                        paragraph, once made, shall apply to 
                        the taxable year for which made and all 
                        subsequent taxable years unless revoked 
                        with the consent of the Secretary.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 1997.

SEC. 1104. TREATMENT OF PERSONAL TRANSACTIONS BY INDIVIDUALS UNDER 
                    FOREIGN CURRENCY RULES.

    (a) General Rule.--Subsection (e) of section 988 (relating 
to application to individuals) is amended to read as follows:
    ``(e) Application to Individuals.--
            ``(1) In general.--The preceding provisions of this 
        section shall not apply to any section 988 transaction 
        entered into by an individual which is a personal 
        transaction.
            ``(2) Exclusion for certain personal 
        transactions.--If--
                    ``(A) nonfunctional currency is disposed of 
                by an individual in any transaction, and
                    ``(B) such transaction is a personal 
                transaction,
        no gain shall be recognized for purposes of this 
        subtitle by reason of changes in exchange rates after 
        such currency was acquired by such individual and 
        before such disposition. The preceding sentence shall 
        not apply if the gain which would otherwise be 
        recognized on the transaction exceeds $200.
            ``(3) Personal transactions.--For purposes of this 
        subsection, the term `personal transaction' means any 
        transaction entered into by an individual, except that 
        such term shall not include any transaction to the 
        extent that expenses properly allocable to such 
        transaction meet the requirements of--
                    ``(A) section 162 (other than traveling 
                expenses described in subsection (a)(2) 
                thereof), or
                    ``(B) section 212 (other than that part of 
                section 212 dealing with expenses incurred in 
                connection with taxes).''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1997.

SEC. 1105. FOREIGN TAX CREDIT TREATMENT OF DIVIDENDS FROM NONCONTROLLED 
                    SECTION 902 CORPORATIONS.

    (a) Separate Basket Only To Apply to Pre-2003 Earnings.--
            (1) In general.--Subparagraph (E) of section 
        904(d)(1) is amended to read as follows:
                    ``(E) in the case of a corporation, 
                dividends from noncontrolled section 902 
                corporations out of earnings and profits 
                accumulated in taxable years beginning before 
                January 1, 2003,''.
            (2) Aggregation of non-pfics.--Subparagraph (E) of 
        section 904(d)(2) (relating to noncontrolled section 
        902 corporations) is amended by adding at the end the 
        following new clause:
                            ``(iv) All non-pfics treated as 
                        one.--All noncontrolled section 902 
                        corporations which are not passive 
                        foreign investment companies (as 
                        defined in section 1297) shall be 
                        treated as one noncontrolled section 
                        902 corporation for purposes of 
                        paragraph (1).''.
            (3) Conforming amendments.--Subparagraphs 
        (C)(iii)(II) and (D) of section 904(d)(2) are each 
        amended by inserting ``out of earnings and profits 
        accumulated in taxable years beginning before January 
        1, 2003'' after ``corporation''.
    (b) Application of Look-Thru Rules to Dividends of 
Noncontrolled Section 902 Corporations Attributable to Post-
2002 Earnings.--Section 904(d) is amended by redesignating 
paragraphs (4) and (5) as paragraphs (5) and (6), respectively, 
and by inserting after paragraph (3) the following new 
paragraph:
            ``(4) Look-thru applies to dividends from 
        noncontrolled section 902 corporations.--
                    ``(A) In general.--For purposes of this 
                subsection, any applicable dividend shall be 
                treated as income in a separate category in 
                proportion to the ratio of--
                            ``(i) the portion of the earnings 
                        and profits described in subparagraph 
                        (B)(ii) attributable to income in such 
                        category, to
                            ``(ii) the total amount of such 
                        earnings and profits.
                    ``(B) Applicable dividend.--For purposes of 
                subparagraph (A), the term `applicable 
                dividend' means any dividend--
                            ``(i) from a noncontrolled section 
                        902 corporation with respect to the 
                        taxpayer, and
                            ``(ii) paid out of earnings and 
                        profits accumulated in taxable years 
                        beginning after December 31, 2002.
                    ``(C) Special rules.--
                            ``(i) In general.--Rules similar to 
                        the rules of paragraph (3)(F) shall 
                        apply for purposes of this paragraph.
                            ``(ii) Earnings and profits.--For 
                        purposes of this paragraph and 
                        paragraph (1)(E)--
                                    ``(I) In general.--The 
                                rules of section 316 shall 
                                apply.
                                    ``(II) Regulations.--The 
                                Secretary may prescribe 
                                regulations regarding the 
                                treatment of distributions out 
                                of earnings and profits for 
                                periods prior to the taxpayer's 
                                acquisition of such stock.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 2002.

        Subtitle B--Treatment of Controlled Foreign Corporations

SEC. 1111. GAIN ON CERTAIN STOCK SALES BY CONTROLLED FOREIGN 
                    CORPORATIONS TREATED AS DIVIDENDS.

    (a) General Rule.--Section 964 (relating to miscellaneous 
provisions) is amended by adding at the end thereof the 
following new subsection:
    ``(e) Gain on Certain Stock Sales by Controlled Foreign 
Corporations Treated as Dividends.--
            ``(1) In general.--If a controlled foreign 
        corporation sells or exchanges stock in any other 
        foreign corporation, gain recognized on such sale or 
        exchange shall be included in the gross income of such 
        controlled foreign corporation as a dividend to the 
        same extent that it would have been so included under 
        section 1248(a) if such controlled foreign corporation 
        were a United States person. For purposes of 
        determining the amount which would have been so 
        includible, the determination of whether such other 
        foreign corporation was a controlled foreign 
        corporation shall be made without regard to the 
        preceding sentence.
            ``(2) Same country exception not applicable.--
        Clause (i) of section 954(c)(3)(A) shall not apply to 
        any amount treated as a dividend by reason of paragraph 
        (1).
            ``(3) Clarification of deemed sales.--For purposes 
        of this subsection, a controlled foreign corporation 
        shall be treated as having sold or exchanged any stock 
        if, under any provision of this subtitle, such 
        controlled foreign corporation is treated as having 
        gain from the sale or exchange of such stock.''.
    (b) Amendment of Section 904(d).--Clause (i) of section 
904(d)(2)(E) is amended by striking ``and except as provided in 
regulations, the taxpayer was a United States shareholder in 
such corporation''.
    (c) Effective Dates.--
            (1) The amendment made by subsection (a) shall 
        apply to gain recognized on transactions occurring 
        after the date of the enactment of this Act.
            (2) The amendment made by subsection (b) shall 
        apply to distributions after the date of the enactment 
        of this Act.

SEC. 1112. MISCELLANEOUS MODIFICATIONS TO SUBPART F.

    (a) Section 1248 Gain Taken Into Account in Determining Pro 
Rata Share.--
            (1) In general.--Paragraph (2) of section 951(a) 
        (defining pro rata share of subpart F income) is 
        amended by adding at the end thereof the following new 
        sentence: ``For purposes of subparagraph (B), any gain 
        included in the gross income of any person as a 
        dividend under section 1248 shall be treated as a 
        distribution received by such person with respect to 
        the stock involved.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply to dispositions after the 
        date of the enactment of this Act.
    (b) Basis Adjustments in Stock Held by Foreign 
Corporation.--
            (1) In general.--Section 961 (relating to 
        adjustments to basis of stock in controlled foreign 
        corporations and of other property) is amended by 
        adding at the end thereof the following new subsection:
    ``(c) Basis Adjustments in Stock Held by Foreign 
Corporation.--Under regulations prescribed by the Secretary, if 
a United States shareholder is treated under section 958(a)(2) 
as owning any stock in a controlled foreign corporation which 
is actually owned by another controlled foreign corporation, 
adjustments similar to the adjustments provided by subsections 
(a) and (b) shall be made to the basis of such stock in the 
hands of such other controlled foreign corporation, but only 
for the purposes of determining the amount included under 
section 951 in the gross income of such United States 
shareholder (or any other United States shareholder who 
acquires from any person any portion of the interest of such 
United States shareholder by reason of which such shareholder 
was treated as owning such stock, but only to the extent of 
such portion, and subject to such proof of identity of such 
interest as the Secretary may prescribe by regulations).''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply for purposes of determining 
        inclusions for taxable years of United States 
        shareholders beginning after December 31, 1997.
    (c) Clarification of Treatment of Branch Tax Exemptions or 
Reductions.--
            (1) In general.--Subsection (b) of section 952 is 
        amended by adding at the end thereof the following new 
        sentence: ``For purposes of this subsection, any 
        exemption (or reduction) with respect to the tax 
        imposed by section 884 shall not be taken into 
        account.''.
            (2) Effective date.--The amendment made by 
        paragraph (1) shall apply to taxable years beginning 
        after December 31, 1986.

SEC. 1113. INDIRECT FOREIGN TAX CREDIT ALLOWED FOR CERTAIN LOWER TIER 
                    COMPANIES.

    (a) Section 902 Credit.--
            (1) In general.--Subsection (b) of section 902 
        (relating to deemed taxes increased in case of certain 
        2nd and 3rd tier foreign corporations) is amended to 
        read as follows:
    ``(b) Deemed Taxes Increased in Case of Certain Lower Tier 
Corporations.--
            ``(1) In general.--If--
                    ``(A) any foreign corporation is a member 
                of a qualified group, and
                    ``(B) such foreign corporation owns 10 
                percent or more of the voting stock of another 
                member of such group from which it receives 
                dividends in any taxable year,
        such foreign corporation shall be deemed to have paid 
        the same proportion of such other member's post-1986 
        foreign income taxes as would be determined under 
        subsection (a) if such foreign corporation were a 
        domestic corporation.
            ``(2) Qualified group.--For purposes of paragraph 
        (1), the term `qualified group' means--
                    ``(A) the foreign corporation described in 
                subsection (a), and
                    ``(B) any other foreign corporation if--
                            ``(i) the domestic corporation owns 
                        at least 5 percent of the voting stock 
                        of such other foreign corporation 
                        indirectly through a chain of foreign 
                        corporations connected through stock 
                        ownership of at least 10 percent of 
                        their voting stock,
                            ``(ii) the foreign corporation 
                        described in subsection (a) is the 
                        first tier corporation in such chain, 
                        and
                            ``(iii) such other corporation is 
                        not below the sixth tier in such chain.
        The term `qualified group' shall not include any 
        foreign corporation below the third tier in the chain 
        referred to in clause (i) unless such foreign 
        corporation is a controlled foreign corporation (as 
        defined in section 957) and the domestic corporation is 
        a United States shareholder (as defined in section 
        951(b)) in such foreign corporation. Paragraph (1) 
        shall apply to those taxes paid by a member of the 
        qualified group below the third tier only with respect 
        to periods during which it was a controlled foreign 
        corporation.''.
            (2) Conforming amendments.--
                    (A) Subparagraph (B) of section 902(c)(3) 
                is amended by adding ``or'' at the end of 
                clause (i) and by striking clauses (ii) and 
                (iii) and inserting the following new clause:
                            ``(ii) the requirements of 
                        subsection (b)(2) are met with respect 
                        to such foreign corporation.''.
                    (B) Subparagraph (B) of section 902(c)(4) 
                is amended by striking ``3rd foreign 
                corporation'' and inserting ``sixth tier 
                foreign corporation''.
                    (C) The heading for paragraph (3) of 
                section 902(c) is amended by striking ``where 
                domestic corporation acquires 10 percent of 
                foreign corporation'' and inserting ``where 
                foreign corporation first qualifies''.
                    (D) Paragraph (3) of section 902(c) is 
                amended by striking ``ownership'' each place it 
                appears.
    (b) Section 960 Credit.--Paragraph (1) of section 960(a) 
(relating to special rules for foreign tax credits) is amended 
to read as follows:
            ``(1) Deemed paid credit.--For purposes of subpart 
        A of this part, if there is included under section 
        951(a) in the gross income of a domestic corporation 
        any amount attributable to earnings and profits of a 
        foreign corporation which is a member of a qualified 
        group (as defined in section 902(b)) with respect to 
        the domestic corporation, then, except to the extent 
        provided in regulations, section 902 shall be applied 
        as if the amount so included were a dividend paid by 
        such foreign corporation (determined by applying 
        section 902(c) in accordance with section 
        904(d)(3)(B)).''.
    (c) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to taxes of foreign corporationsfor 
taxable years of such corporations beginning after the date of 
enactment of this Act.
            (2) Special rule.--In the case of any chain of 
        foreign corporations described in clauses (i) and (ii) 
        of section 902(b)(2)(B) of the Internal Revenue Code of 
        1986 (as amended by this section), no liquidation, 
        reorganization, or similar transaction in a taxable 
        year beginning after the date of the enactment of this 
        Act shall have the effect of permitting taxes to be 
        taken into account under section 902 of the Internal 
        Revenue Code of 1986 which could not have been taken 
        into account under such section but for such 
        transaction.

     Subtitle C--Treatment of Passive Foreign Investment Companies

SEC. 1121. UNITED STATES SHAREHOLDERS OF CONTROLLED FOREIGN 
                    CORPORATIONS NOT SUBJECT TO PFIC INCLUSION.

    Section 1296 is amended by adding at the end the following 
new subsection:
    ``(e) Exception for United States Shareholders of 
Controlled Foreign Corporations.--
            ``(1) In general.--For purposes of this part, a 
        corporation shall not be treated with respect to a 
        shareholder as a passive foreign investment company 
        during the qualified portion of such shareholder's 
        holding period with respect to stock in such 
        corporation.
            ``(2) Qualified portion.--For purposes of this 
        subsection, the term `qualified portion' means the 
        portion of the shareholder's holding period--
                    ``(A) which is after December 31, 1997, and
                    ``(B) during which the shareholder is a 
                United States shareholder (as defined in 
                section 951(b)) of the corporation and the 
                corporation is a controlled foreign 
                corporation.
            ``(3) New holding period if qualified portion 
        ends.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), if the qualified portion of a 
                shareholder's holding period with respect to 
                any stock ends after December 31, 1997, solely 
                for purposes of this part, the shareholder's 
                holding period with respect to such stock shall 
                be treated as beginning as of the first day 
                following such period.
                    ``(B) Exception.--Subparagraph (A) shall 
                not apply if such stock was, with respect to 
                such shareholder, stock in a passive 
foreigninvestment company at any time before the qualified portion of 
the shareholder's holding period with respect to such stock and no 
election under section 1298(b)(1) is made.''.

SEC. 1122. ELECTION OF MARK TO MARKET FOR MARKETABLE STOCK IN PASSIVE 
                    FOREIGN INVESTMENT COMPANY.

    (a) In General.--Part VI of subchapter P of chapter 1 is 
amended by redesignating subpart C as subpart D, by 
redesignating sections 1296 and 1297 as sections 1297 and 1298, 
respectively, and by inserting after subpart B the following 
new subpart:

      ``Subpart C--Election of Mark to Market For Marketable Stock

        ``Sec. 1296. Election of mark to market for marketable stock.

``SEC. 1296. ELECTION OF MARK TO MARKET FOR MARKETABLE STOCK.

    ``(a) General Rule.--In the case of marketable stock in a 
passive foreign investment company which is owned (or treated 
under subsection (g) as owned) by a United States person at the 
close of any taxable year of such person, at the election of 
such person--
            ``(1) If the fair market value of such stock as of 
        the close of such taxable year exceeds its adjusted 
        basis, such United States person shall include in gross 
        income for such taxable year an amount equal to the 
        amount of such excess.
            ``(2) If the adjusted basis of such stock exceeds 
        the fair market value of such stock as of the close of 
        such taxable year, such United States person shall be 
        allowed a deduction for such taxable year equal to the 
        lesser of--
                    ``(A) the amount of such excess, or
                    ``(B) the unreversed inclusions with 
                respect to such stock.
    ``(b) Basis Adjustments.--
            ``(1) In general.--The adjusted basis of stock in a 
        passive foreign investment company--
                    ``(A) shall be increased by the amount 
                included in the gross income of the United 
                States person under subsection (a)(1) with 
                respect to such stock, and
                    ``(B) shall be decreased by the amount 
                allowed as a deduction to the United States 
                person under subsection (a)(2) with respect to 
                such stock.
            ``(2) Special rule for stock constructively 
        owned.--In the case of stock in a passive foreign 
        investment company which the United States person is 
        treated as owning under subsection (g)--
                    ``(A) the adjustments under paragraph (1) 
                shall apply to such stock in the hands of the 
                person actually holding such stock but only for 
                purposes of determining the subsequent 
                treatment under this chapter of the United 
                States person with respect to such stock, and
                    ``(B) similar adjustments shall be made to 
                the adjusted basis of the property by reason of 
                which the United States person is treated as 
                owning such stock.
    ``(c) Character and Source Rules.--
            ``(1) Ordinary treatment.--
                    ``(A) Gain.--Any amount included in gross 
                income under subsection (a)(1), and any gain on 
                the sale or other disposition of marketable 
                stock in a passive foreign investment company 
                (with respect to which an election under this 
                section is in effect), shall be treated as 
                ordinary income.
                    ``(B) Loss.--Any--
                            ``(i) amount allowed as a deduction 
                        under subsection (a)(2), and
                            ``(ii) loss on the sale or other 
                        disposition of marketable stock in a 
                        passive foreign investment company 
                        (with respect towhich an election under 
this section is in effect) to the extent that the amount of such loss 
does not exceed the unreversed inclusions with respect to such stock,

                shall be treated as an ordinary loss. The 
                amount so treated shall be treated as a 
                deduction allowable in computing adjusted gross 
                income.
            ``(2) Source.--The source of any amount included in 
        gross income under subsection (a)(1) (or allowed as a 
        deduction under subsection (a)(2)) shall be determined 
        in the same manner as if such amount were gain or loss 
        (as the case may be) from the sale of stock in the 
        passive foreign investment company.
    ``(d) Unreversed Inclusions.--For purposes of this section, 
the term `unreversed inclusions' means, with respect to any 
stock in a passive foreign investment company, the excess (if 
any) of--
            ``(1) the amount included in gross income of the 
        taxpayer under subsection (a)(1) with respect to such 
        stock for prior taxable years, over
            ``(2) the amount allowed as a deduction under 
        subsection (a)(2) with respect to such stock for prior 
        taxable years.

The amount referred to in paragraph (1) shall include any 
amount which would have been included in gross income under 
subsection (a)(1) with respect to such stock for any prior 
taxable year but for section 1291.
    ``(e) Marketable Stock.--For purposes of this section--
            ``(1) In general.--The term `marketable stock' 
        means--
                    ``(A) any stock which is regularly traded 
                on--
                            ``(i) a national securities 
                        exchange which is registered with the 
                        Securities and Exchange Commission or 
                        the national market system established 
                        pursuant to section 11A of the 
                        Securities and Exchange Act of 1934, or
                            ``(ii) any exchange or other market 
                        which the Secretary determines has 
                        rules adequate to carry out the 
                        purposes of this part,
                    ``(B) to the extent provided in 
                regulations, stock in any foreign corporation 
                which is comparable to a regulated investment 
                company and which offers for sale or has 
                outstanding anystock of which it is the issuer 
and which is redeemable at its net asset value, and
                    ``(C) to the extent provided in 
                regulations, any option on stock described in 
                subparagraph (A) or (B).
            ``(2) Special rule for regulated investment 
        companies.--In the case of any regulated investment 
        company which is offering for sale or has outstanding 
        any stock of which it is the issuer and which is 
        redeemable at its net asset value, all stock in a 
        passive foreign investment company which it owns 
        directly or indirectly shall be treated as marketable 
        stock for purposes of this section. Except as provided 
        in regulations, similar treatment as marketable stock 
        shall apply in the case of any other regulated 
        investment company which publishes net asset valuations 
        at least annually.
    ``(f) Treatment of Controlled Foreign Corporations Which 
are Shareholders in Passive Foreign Investment Companies.--In 
the case of a foreign corporation which is a controlled foreign 
corporation and which owns (or is treated under subsection (g) 
as owning) stock in a passive foreign investment company--
            ``(1) this section (other than subsection (c)(2)) 
        shall apply to such foreign corporation in the same 
        manner as if such corporation were a United States 
        person, and
            ``(2) for purposes of subpart F of part III of 
        subchapter N--
                    ``(A) any amount included in gross income 
                under subsection (a)(1) shall be treated as 
                foreign personal holding company income 
                described in section 954(c)(1)(A), and
                    ``(B) any amount allowed as a deduction 
                under subsection (a)(2) shall be treated as a 
                deduction allocable to foreign personal holding 
                company income so described.
    ``(g) Stock Owned Through Certain Foreign Entities.--Except 
as provided in regulations--
            ``(1) In general.--For purposes of this section, 
        stock owned, directly or indirectly, by or for a 
        foreign partnership or foreign trust or foreign estate 
        shall be considered as being owned proportionately by 
        its partners or beneficiaries. Stock considered to be 
        owned by a person by reason of the application of the 
        preceding sentence shall, for purposes of applying such 
        sentence, be treated as actually owned by such person.
            ``(2) Treatment of certain dispositions.--In any 
        case in which a United States person istreated as 
owning stock in a passive foreign investment company by reason of 
paragraph (1)--
                    ``(A) any disposition by the United States 
                person or by any other person which results in 
                the United States person being treated as no 
                longer owning such stock, and
                    ``(B) any disposition by the person owning 
                such stock,
        shall be treated as a disposition by the United States 
        person of the stock in the passive foreign investment 
        company.
    ``(h) Coordination With Section 851(b).--For purposes of 
paragraphs (2) and (3) of section 851(b), any amount included 
in gross income under subsection (a) shall be treated as a 
dividend.
    ``(i) Stock Acquired From a Decedent.--In the case of stock 
of a passive foreign investment company which is acquired by 
bequest, devise, or inheritance (or by the decedent's estate) 
and with respect to which an election under this section was in 
effect as of the date of the decedent's death, notwithstanding 
section 1014, the basis of such stock in the hands of the 
person so acquiring it shall be the adjusted basis of such 
stock in the hands of the decedent immediately before his death 
(or, if lesser, the basis which would have been determined 
under section 1014 without regard to this subsection).
    ``(j) Coordination With Section 1291 for First Year of 
Election.--
            ``(1) Taxpayers other than regulated investment 
        companies.--
                    ``(A) In general.--If the taxpayer elects 
                the application of this section with respect to 
                any marketable stock in a corporation after the 
                beginning of the taxpayer's holding period in 
                such stock, and if the requirements of 
                subparagraph (B) are not satisfied, section 
                1291 shall apply to--
                            ``(i) any distributions with 
                        respect to, or disposition of, such 
                        stock in the first taxable year of the 
                        taxpayer for which such election is 
                        made, and
                            ``(ii) any amount which, but for 
                        section 1291, would have been included 
                        in gross income under subsection (a) 
                        with respect to such stock for such 
                        taxable year in the same manner as if 
                        such amount were gain on the 
                        disposition of such stock.
                    ``(B) Requirements.--The requirements of 
                this subparagraph are met if, with respect 
toeach of such corporation's taxable years for which such corporation 
was a passive foreign investment company and which begin after December 
31, 1986, and included any portion of the taxpayer's holding period in 
such stock, such corporation was treated as a qualified electing fund 
under this part with respect to the taxpayer.
            ``(2) Special rules for regulated investment 
        companies.--
                    ``(A) In general.--If a regulated 
                investment company elects the application of 
                this section with respect to any marketable 
                stock in a corporation after the beginning of 
                the taxpayer's holding period in such stock, 
                then, with respect to such company's first 
                taxable year for which such company elects the 
                application of this section with respect to 
                such stock--
                            ``(i) section 1291 shall not apply 
                        to such stock with respect to any 
                        distribution or disposition during, or 
                        amount included in gross income under 
                        this section for, such first taxable 
                        year, but
                            ``(ii) such regulated investment 
                        company's tax under this chapter for 
                        such first taxable year shall be 
                        increased by the aggregate amount of 
                        interest which would have been 
                        determined under section 1291(c)(3) if 
                        section 1291 were applied without 
                        regard to this subparagraph.
                Clause (ii) shall not apply if for the 
                preceding taxable year the company elected to 
                mark to market the stock held by such company 
                as of the last day of such preceding taxable 
                year.
                    ``(B) Disallowance of deduction.--No 
                deduction shall be allowed to any regulated 
                investment company for the increase in tax 
                under subparagraph (A)(ii).
    ``(k) Election.--This section shall apply to marketable 
stock in a passive foreign investment company which is held by 
a United States person only if such person elects to apply this 
section with respect to such stock. Such an election shall 
apply to the taxable year for which made and all subsequent 
taxable years unless--
            ``(1) such stock ceases to be marketable stock, or
            ``(2) the Secretary consents to the revocation of 
        such election.
    ``(l) Transition Rule for Individuals Becoming Subject to 
United States Tax.--If any individual becomes a United States 
person in a taxable year beginning after December 31, 1997, 
solely for purposes of this section, the adjusted basis (before 
adjustments under subsection (b)) of any marketable stock in a 
passive foreign investment company owned by such individual on 
the first day of such taxable year shall be treated as being 
the greater of its fair market value on such first day or its 
adjusted basis on such first day.''.
    (b) Coordination With Interest Charge, Etc.--
            (1) Paragraph (1) of section 1291(d) is amended by 
        adding at the end the following new flush sentence:
        ``Except as provided in section 1296(j), this section 
        also shall not apply if an election under section 
        1296(k) is in effect for the taxpayer's taxable 
        year.''.
            (2) The subsection heading for subsection (d) of 
        section 1291 is amended by striking ``Subpart B'' and 
        inserting ``Subparts B and C''.
            (3) Subparagraph (A) of section 1291(a)(3) is 
        amended to read as follows:
                    ``(A) Holding period.--The taxpayer's 
                holding period shall be determined under 
                section 1223; except that--
                            ``(i) for purposes of applying this 
                        section to an excess distribution, such 
                        holding period shall be treated as 
                        ending on the date of such 
                        distribution, and
                            ``(ii) if section 1296 applied to 
                        such stock with respect to the taxpayer 
                        for any prior taxable year, such 
                        holding period shall be treated as 
                        beginning on the first day of the first 
                        taxable year beginning after the last 
                        taxable year for which section 1296 so 
                        applied.''.
    (c) Treatment of Mark-to-Market Gain Under Section 4982.--
            (1) Subsection (e) of section 4982 is amended by 
        adding at the end thereof the following new paragraph:
            ``(6) Treatment of gain recognized under section 
        1296.--For purposes of determining a regulated 
        investment company's ordinary income--
                    ``(A) notwithstanding paragraph (1)(C), 
                section 1296 shall be applied as if such 
                company's taxable year ended on October 31, and
                    ``(B) any ordinary gain or loss from an 
                actual disposition of stock in a passive 
                foreign investment company during the portion 
                of the calendar year after October 31 shall be 
                taken into account in determining such 
                regulated investment company's ordinary income 
                for the following calendar year.
        In the case of a company making an election under 
        paragraph (4), the preceding sentence shall be applied 
        by substituting the last day of the company's taxable 
        year for October 31.''.
            (2) Subsection (b) of section 852 is amended by 
        adding at the end thereof the following new paragraph:
            ``(10) Special rule for certain losses on stock in 
        passive foreign investment company.--To the extent 
        provided in regulations, the taxable income of a 
        regulated investment company (other than a company to 
        which an election under section 4982(e)(4) applies) 
        shall be computed without regard to any net reduction 
        in the value of any stock of a passive foreign 
        investment company with respect to which an election 
        under section 1296(k) is in effect occurring after 
        October 31 of the taxable year, and any such reduction 
        shall be treated as occurring on the first day of the 
        following taxable year.''.
            (3) Subsection (c) of section 852 is amended by 
        inserting after ``October 31 of such year'' the 
        following: ``, without regard to any net reduction in 
        the value of any stock of a passive foreign investment 
        company with respect to which an election under section 
        1296(k) is in effect occurring after October 31 of such 
        year,''.
    (d) Conforming Amendments.--
            (1) Sections 532(b)(4) and 542(c)(10) are each 
        amended by striking ``section 1296'' and inserting 
        ``section 1297''.
            (2) Subsection (f) of section 551 is amended by 
        striking ``section 1297(b)(5)'' and inserting ``section 
        1298(b)(5)''.
            (3) Subsections (a)(1) and (d) of section 1293 are 
        each amended by striking ``section 1297(a)'' and 
        inserting ``section 1298(a)''.
            (4) Paragraph (3) of section 1297(b), as 
        redesignated by subsection (a), is hereby repealed.
            (5) The table of sections for subpart D of part VI 
        of subchapter P of chapter 1, as redesignated by 
        subsection (a), is amended to read as follows:

        ``Sec. 1297. Passive foreign investment company.
        ``Sec. 1298. Special rules.''.

            (6) The table of subparts for part VI of subchapter 
        P of chapter 1 is amended by striking the last item and 
        inserting the following new items:

        ``Subpart C. Election of mark to market for marketable stock.
        ``Subpart D. General provisions.''.

    (e) Clarification of Gain Recognition Election.--The last 
sentence of section 1298(b)(1), as so redesignated, is amended 
by inserting ``(determined without regard to the preceding 
sentence)'' after ``investment company''.

SEC. 1123. VALUATION OF ASSETS FOR PASSIVE FOREIGN INVESTMENT COMPANY 
                    DETERMINATION.

    (a) In General.--Section 1297, as redesignated by section 
1122, is amended by adding at the end the following new 
subsection:
    ``(e) Methods for Measuring Assets.--
            ``(1) Determination using value.--The determination 
        under subsection (a)(2) shall be made on the basis of 
        the value of the assets of a foreign corporation if--
                    ``(A) such corporation is a publicly traded 
                corporation for the taxable year, or
                    ``(B) paragraph (2) does not apply to such 
                corporation for the taxable year.
            ``(2) Determination using adjusted bases.--The 
        determination under subsection (a)(2) shall be based on 
        the adjusted bases (as determined for the purposes of 
        computing earnings and profits) of the assets of a 
        foreign corporation if such corporation is not 
        described in paragraph (1)(A) and such corporation--
                    ``(A) is a controlled foreign corporation, 
                or
                    ``(B) elects the application of this 
                paragraph.
        An election under subparagraph (B), once made, may be 
        revoked only with the consent of the Secretary.
            ``(3) Publicly traded corporation.--For purposes of 
        this subsection, a foreign corporation shall be treated 
        as a publicly traded corporation if the stock in the 
        corporation is regularly traded on--
                    ``(A) a national securities exchange which 
                is registered with the Securities and Exchange 
                Commission or the national market system 
                established pursuant to section 11A of the 
                Securities and Exchange Act of 1934, or
                    ``(B) any exchange or other market which 
                the Secretary determines has rules adequate to 
                carry out the purposes of this subsection.''
    (b) Conforming Amendments.--Section 1297(a), as 
redesignated by section 1122, is amended--
            (1) by striking ``(by value)'' and inserting ``(as 
        determined in accordance with subsection (e))'', and
            (2) by striking the last two sentences.

SEC. 1124. EFFECTIVE DATE.

    The amendments made by this subtitle shall apply to--
            (1) taxable years of United States persons 
        beginning after December 31, 1997, and
            (2) taxable years of foreign corporations ending 
        with or within such taxable years of United States 
        persons.

   Subtitle D--Repeal of Excise Tax on Transfers to Foreign Entities

SEC. 1131. REPEAL OF EXCISE TAX ON TRANSFERS TO FOREIGN ENTITIES; 
                    RECOGNITION OF GAIN ON CERTAIN TRANSFERS TO FOREIGN 
                    TRUSTS AND ESTATES.

    (a) Repeal of Excise Tax.--Chapter 5 (relating to transfers 
to avoid income tax) is hereby repealed.
    (b) Recognition of Gain on Certain Transfers to Foreign 
Trusts and Estates.--Subpart F of part I of subchapter J of 
chapter 1 is amended by adding at the end the following new 
section:

``SEC. 684. RECOGNITION OF GAIN ON CERTAIN TRANSFERS TO CERTAIN FOREIGN 
                    TRUSTS AND ESTATES.

    ``(a) In General.--Except as provided in regulations, in 
the case of any transfer of property by a United States person 
to a foreign estate or trust, for purposes of this subtitle, 
such transfer shall be treated as a sale or exchange for an 
amount equal to the fair market value of the property 
transferred, and the transferor shall recognize as gain the 
excess of--
            ``(1) the fair market value of the property so 
        transferred, over
            ``(2) the adjusted basis (for purposes of 
        determining gain) of such property in the hands of the 
        transferor.
    ``(b) Exception.--Subsection (a) shall not apply to a 
transfer to a trust by a United States person to the extent 
that any person is treated as the owner of such trust under 
section 671.
    ``(c) Treatment of Trusts Which Become Foreign Trusts.--If 
a trust which is not a foreign trust becomes a foreign trust, 
such trust shall be treated for purposes of this section as 
having transferred, immediately before becoming a foreign 
trust, all of its assets to a foreign trust.''.
    (b) Other Anti-Avoidance Provisions Replacing Repealed 
Excise Tax.--
            (1) Gain recognition on exchanges involving foreign 
        persons.--Section 1035 is amended by redesignating 
        subsection (c) as subsection (d) and by inserting after 
        subsection (b) the following new subsection:
    ``(c) Exchanges Involving Foreign Persons.--To the extent 
provided in regulations, subsection (a) shall not apply to any 
exchange having the effect of transferring property to any 
person other than a United States person.''.
            (2) Transfers to foreign corporations.--Section 367 
        is amended by adding at the end the following new 
        subsection:
    ``(f) Other Transfers.--To the extent provided in 
regulations, if a United States person transfers property to a 
foreign corporation as paid-in surplus or as a contribution to 
capital (in a transaction not otherwise described in this 
section), such transfer shall be treated as a sale or exchange 
for an amount equal to the fair market value of the property 
transferred, and the transferor shall recognize as gain the 
excess of--
            ``(1) the fair market value of the property so 
        transferred, over
            ``(2) the adjusted basis (for purposes of 
        determining gain) of such property in the hands of the 
        transferor.''.
            (3) Certain transfers to partnerships.--Section 721 
        is amended by adding at the end the following new 
        subsection:
    ``(c) Regulations Relating to Certain Transfers to 
Partnerships.--The Secretary may provide by regulations that 
subsection (a) shall not apply to gain realized on the transfer 
of property to a partnership if such gain, when recognized, 
will be includible in the gross income of a person other than a 
United States person.''.
            (4) Repeal of u.s. source treatment of deemed 
        royalties.--Subparagraph (C) of section 367(d)(2) is 
        amended to read as follows:
                    ``(C) Amounts received treated as ordinary 
                income.--For purposes of this chapter, any 
                amount included in gross income by reason of 
                this subsection shall be treated as ordinary 
                income.''.
            (5) Transfers of intangibles to partnerships.--
                    (A) Subsection (d) of section 367 is 
                amended by adding at the end the following new 
                paragraph:
            ``(3) Regulations relating to transfers of 
        intangibles to partnerships.--The Secretary may provide 
        by regulations that the rules of paragraph (2) also 
        apply to the transfer of intangible property by a 
        United States person to a partnership in circumstances 
        consistent with the purposes of this subsection.''.
                    (B) Section 721 is amended by adding at the 
                end the following new subsection:
    ``(d) Transfers of Intangibles.--

          ``For regulatory authority to treat intangibles transferred to 
        a partnership as sold, see section 367(d)(3).''.

    (c) Technical and Conforming Amendments.--
            (1) Subsection (h) of section 814 is amended by 
        striking ``or 1491''.
            (2) Section 1057 (relating to election to treat 
        transfer to foreign trust, etc., as taxable exchange) 
        is hereby repealed.
            (3) Section 6422 is amended by striking paragraph 
        (5) and by redesignating paragraphs (6) through (13) as 
        paragraphs (5) through (12), respectively.
            (4) The table of chapters for subtitle A is amended 
        by striking the item relating to chapter 5.
            (5) The table of sections for part IV of subchapter 
        O of chapter 1 is amended by striking the item relating 
        to section 1057.
            (6) The table of sections for subpart F of part I 
        of subchapter J of chapter 1 is amended by adding at 
        the end the following new item:

        ``Sec. 684. Recognition of gain on certain transfers to certain 
                  foreign trusts and estates.''.

    (d) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

                   Subtitle E--Information Reporting

SEC. 1141. CLARIFICATION OF APPLICATION OF RETURN REQUIREMENT TO 
                    FOREIGN PARTNERSHIPS.

    (a) In General.--Section 6031 (relating to return of 
partnership income) is amended by adding at the end the 
following new subsection:
    ``(e) Foreign Partnerships.--
            ``(1) Exception for foreign partnership.--Except as 
        provided in paragraph (2), the preceding provisions of 
        this section shall not apply to a foreign partnership.
            ``(2) Certain foreign partnerships required to file 
        return.--Except as provided in regulations prescribed 
        by the Secretary, this section shall apply to a foreign 
        partnership for any taxable year if for such year, such 
        partnership has--
                    ``(A) gross income derived from sources 
                within the United States, or
                    ``(B) gross income which is effectively 
                connected with the conduct of a trade or 
                business within the United States.
        The Secretary may provide simplified filing procedures 
        for foreign partnerships to which this section 
        applies.''.
    (b) Sanction for Failure by Foreign Partnership To Comply 
With Section 6031 To Include Denial of Deductions.--Subsection 
(f) of section 6231 is amended--
            (1) by striking ``Losses and'' in the heading and 
        inserting ``Deductions, Losses, and'', and
            (2) by striking ``loss or'' each place it appears 
        and inserting ``deduction, loss, or''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

SEC. 1142. CONTROLLED FOREIGN PARTNERSHIPS SUBJECT TO INFORMATION 
                    REPORTING COMPARABLE TO INFORMATION REPORTING FOR 
                    CONTROLLED FOREIGN CORPORATIONS.

    (a) In General.--So much of section 6038 (relating to 
information with respect to certain foreign corporations) as 
precedes paragraph (2) of subsection (a) is amended to read as 
follows:

``SEC. 6038. INFORMATION REPORTING WITH RESPECT TO CERTAIN FOREIGN 
                    CORPORATIONS AND PARTNERSHIPS.

    ``(a) Requirement.--
            ``(1) In general.--Every United States person shall 
        furnish, with respect to any foreign business entity 
        which such person controls, such information as the 
        Secretary may prescribe relating to--
                    ``(A) the name, the principal place of 
                business, and the nature of business of such 
                entity, and the country under whose laws such 
                entity is incorporated (or organized in the 
                case of a partnership);
                    ``(B) in the case of a foreign corporation, 
                its post-1986 undistributed earnings (as 
                defined in section 902(c));
                    ``(C) a balance sheet for such entity 
                listing assets, liabilities, and capital;
                    ``(D) transactions between such entity 
                and--
                            ``(i) such person,
                            ``(ii) any corporation or 
                        partnership which such person controls, 
                        and
                            ``(iii) any United States person 
                        owning, at the time the transaction 
                        takes place--
                                    ``(I) in the case of a 
                                foreign corporation, 10 percent 
                                or more of the value of any 
                                class of stock outstanding of 
                                such corporation, and
                                    ``(II) in the case of a 
                                foreign partnership, at least a 
                                10-percent interest in such 
                                partnership; and
                    ``(E)(i) in the case of a foreign 
                corporation, a description of the various 
                classes of stock outstanding, and a list 
                showing the name and address of, and number of 
                shares held by, each United States person who 
                is a shareholder of record owning at any time 
                during the annual accounting period 5 percent 
                or more in value of any class of stock 
                outstanding of such foreign corporation, and
                    ``(ii) information comparable to the 
                information described in clause (i) in the case 
                of a foreign partnership.
        The Secretary may also require the furnishing of any 
        other information which is similar or related in nature 
        to that specified in the preceding sentence or which 
        the Secretary determines to be appropriate to carry out 
        the provisions of this title.''.
    (b) Definitions.--
            (1) In general.--Subsection (e) of section 6038 
        (relating to definitions) is amended--
                    (A) by redesignating paragraphs (1) and (2) 
                as paragraphs (2) and (4), respectively,
                    (B) by inserting before paragraph (2) (as 
                so redesignated) the following new paragraph:
            ``(1) Foreign business entity.--The term `foreign 
        business entity' means a foreign corporation and a 
        foreign partnership.'', and
                    (C) by inserting after paragraph (2) (as so 
                redesignated) the following new paragraph:
            ``(3) Partnership-related definitions.--
                    ``(A) Control.--A person is in control of a 
                partnership if such person owns directly or 
                indirectly more than a 50 percent interest in 
                such partnership.
                    ``(B) 50-percent interest.--For purposes of 
                subparagraph (A), a 50-percent interest in a 
                partnership is--
                            ``(i) an interest equal to 50 
                        percent of the capital interest, or 50 
                        percent of the profits interest, in 
                        such partnership, or
                            ``(ii) to the extent provided in 
                        regulations, an interest to which 50 
                        percent of the deductions or losses of 
                        such partnership are allocated.
                For purposes of the preceding sentence, rules 
                similar to the rules of section 267(c) (other 
                than paragraph (3)) shall apply.
                    ``(C) 10-percent interest.--A 10-percent 
                interest in a partnership is an interest which 
                would be described in subparagraph (B) if `10 
                percent' were substituted for `50 percent' each 
                place it appears.''.
            (2) Clerical amendment.--The paragraph heading for 
        paragraph (2) of section 6038(e) (as so redesignated) 
        is amended by inserting ``of corporation'' after 
        ``Control''.
    (c) Modification of Sanctions on Partnerships and 
Corporations for Failure To Furnish Information.--
            (1) In general.--Subsection (b) of section 6038 is 
        amended--
                    (A) by striking ``$1,000'' each place it 
                appears and inserting ``$10,000'', and
                    (B) by striking ``$24,000'' in paragraph 
                (2) and inserting ``$50,000''.
    (d) Reporting by 10-Percent Partners.--Subsection (a) of 
section 6038 is amended by adding at the end the following new 
paragraph:
            ``(5) Information required from 10-percent partner 
        of controlled foreign partnership.--In the case of a 
        foreign partnership which is controlled by United 
        States persons holding at least 10-percent interests 
        (but not by any one United States person), the 
        Secretary may require each United States person who 
        holds a 10-percent interest in such partnership to 
        furnish information relating to such partnership, 
        including information relating to such partner's 
        ownership interests in the partnership and allocations 
        to such partner of partnership items.''.
    (e) Technical Amendments.--
            (1) The following provisions of section 6038 are 
        each amended by striking ``foreign corporation'' each 
        place it appears and inserting ``foreign business 
        entity'':
                    (A) Paragraphs (2) and (3) of subsection 
                (a).
                    (B) Subsection (b).
                    (C) Subsection (c) other than paragraph 
                (1)(B) thereof.
                    (D) Subsection (d).
                    (E) Subsection (e)(4) (as redesignated by 
                subsection (b)).
            (2) Subparagraph (B) of section 6038(c)(1) is 
        amended by inserting ``in the case of a foreign 
        business entity which is a foreign corporation,'' after 
        ``(B)''.
            (3) Paragraph (8) of section 318(b) is amended by 
        striking ``6038(d)(1)'' and inserting ``6038(d)(2)''.
            (4) Paragraph (4) of section 901(k) is amended by 
        striking ``foreign corporation'' and inserting 
        ``foreign corporation or partnership''.
            (5) The table of sections for subpart A of part III 
        of subchapter A of chapter 61 is amended by striking 
        the item relating to section 6038 and inserting the 
        following new item:

        ``Sec. 6038. Information reporting with respect to certain 
                  foreign corporations and partnerships.''.

    (f) Effective Date.--The amendments made by this section 
shall apply to annual accounting periods beginning after the 
date of the enactment of this Act.

SEC. 1143. MODIFICATIONS RELATING TO RETURNS REQUIRED TO BE FILED BY 
                    REASON OF CHANGES IN OWNERSHIP INTERESTS IN FOREIGN 
                    PARTNERSHIP.

    (a) No Return Required Unless Changes Involve 10-Percent 
Interest in Partnership.--
            (1) In general.--Subsection (a) of section 6046A 
        (relating to returns as to interests in foreign 
        partnerships) is amended by adding at the end the 
        following new sentence: ``Paragraphs (1) and (2) shall 
        apply to any acquisition or disposition only if the 
        United States person directly or indirectly holds at 
        least a 10-percent interest in such partnership either 
        before or after such acquisition or disposition, and 
        paragraph (3) shall apply to any change only if the 
        change is equivalent to at least a 10-percent interest 
        in such partnership.''.
            (2) 10-percent interest.--Section 6046A is amended 
        by redesignating subsection (d) as subsection (e) and 
        by inserting after subsection (c) the following new 
        subsection:
    ``(d) 10-Percent Interest.--For purposes of subsection (a), 
a 10-percent interest in a partnership is an interest described 
in section 6038(e)(3)(C).''.
    (b) Modification of Penalty on Failure to Report Changes in 
Ownership Interests in Foreign Corporations and Partnerships.--
Subsection (a) of section 6679 (relating to failure to file 
returns, etc., with respect to foreign corporations or foreign 
partnerships) is amended to read as follows:
    ``(a) Civil Penalty.--
            ``(1) In general.--In addition to any criminal 
        penalty provided by law, any person required to file a 
        return under section 6035, 6046, or 6046A who fails to 
        file such return at the time provided in such section, 
        or who files a return which does not show the 
        information required pursuant to such section, shall 
        pay a penalty of $10,000, unless it is shown that such 
        failure is due to reasonable cause.
            ``(2) Increase in penalty where failure continues 
        after notification.--If any failure described in 
        paragraph (1) continues for more than 90 days after the 
        day on which the Secretary mails notice of such failure 
        to the United States person, such person shall pay a 
        penalty (in addition to the amount required under 
        paragraph (1)) of $10,000 for each 30-day period (or 
        fraction thereof) during which such failure continues 
        after the expiration of such 90-day period. The 
        increase in any penalty under this paragraph shall not 
        exceed $50,000.
            ``(3) Reduced penalty for returns relating to 
        foreign personal holding companies.--In the case of a 
        return required under section 6035, paragraph (1) shall 
        be applied by substituting `$1,000' for `$10,000', and 
        paragraph (2) shall not apply.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to transfers and changes after the date of the 
enactment of this Act.

SEC. 1144. TRANSFERS OF PROPERTY TO FOREIGN PARTNERSHIPS SUBJECT TO 
                    INFORMATION REPORTING COMPARABLE TO INFORMATION 
                    REPORTING FOR SUCH TRANSFERS TO FOREIGN 
                    CORPORATIONS.

    (a) In General.--Paragraph (1) of section 6038B(a) 
(relating to notice of certain transfers to foreign 
corporations) is amended to read as follows:
            ``(1) transfers property to--
                    ``(A) a foreign corporation in an exchange 
                described in section 332, 351, 354, 355, 356, 
                or 361, or
                    ``(B) a foreign partnership in a 
                contribution described in section 721 or in any 
                other contribution described in regulations 
                prescribed by the Secretary,''.
    (b) Exceptions.--Section 6038B is amended by redesignating 
subsection (b) as subsection (c) and by inserting after 
subsection (a) the following new subsection:
    ``(b) Exceptions for Certain Transfers to Foreign 
Partnerships; Special Rule.--
            ``(1) Exceptions.--Subsection (a)(1)(B) shall apply 
        to a transfer by a United States person to a foreign 
        partnership only if--
                    ``(A) the United States person holds 
                (immediately after the transfer) directly or 
                indirectly at least a 10-percent interest (as 
                defined in section 6046A(d)) in the 
                partnership, or
                    ``(B) the value of the property transferred 
                (when added to the value of the property 
                transferred by such person or any related 
                person to such partnership or a related 
                partnership during the 12-month period ending 
                on the date of the transfer) exceeds $100,000.
        For purposes of the preceding sentence, the value of 
        any transferred property is its fair market value at 
        the time of its transfer.
            ``(2) Special rule.--If by reason of an adjustment 
        under section 482 or otherwise, a contribution 
        described in subsection (a)(1) is deemed to have been 
        made, such contribution shall be treated for purposes 
        of this section as having been made not earlier than 
        the date specified by the Secretary.''.
     (c) Modification of Penalty Applicable to Foreign 
Corporations and Partnerships.--
            (1) In general.--Paragraph (1) of section 6038B(b) 
        is amended by striking ``equal to'' and all that 
        follows and inserting ``equal to 10 percent of the fair 
        market value of the property at the time of the 
        exchange (and, in the case of a contribution described 
        in subsection (a)(1)(B), such person shall recognize 
        gain as if the contributed property had been sold for 
        such value at the time of such contribution).''.
            (2) Limit on penalty.--Section 6038B(b) is amended 
        by adding at the end the following new paragraph:
            ``(3) Limit on penalty.--The penalty under 
        paragraph (1) with respect to any exchange shall not 
        exceed $100,000 unless the failure with respect to such 
        exchange was due to intentional disregard.''.
    (d) Effective Date.--
            (1) In general.--The amendments made by this 
        section shall apply to transfers made after the date of 
        the enactment of this Act.
            (2) Election of retroactive effect.--Section 
        1494(c) of the Internal Revenue Code of 1986 shall not 
        apply to any transfer after August 20, 1996, if all 
        applicable reporting requirements under section 6038B 
        of such Code (as amended by this section) are 
        satisfied. The Secretary of the Treasury or his 
        delegate may prescribe simplified reporting 
        requirements under the preceding sentence.

SEC. 1145. EXTENSION OF STATUTE OF LIMITATIONS FOR FOREIGN TRANSFERS.

    (a) In General.--Paragraph (8) of section 6501(c) (relating 
to failure to notify Secretary under section 6038B) is amended 
to read as follows:
            ``(8) Failure to notify secretary of certain 
        foreign transfers.--In the case of any information 
        which is required to be reported to the Secretary under 
        section 6038, 6038A, 6038B, 6046, 6046A, or 6048, the 
        time for assessment of any tax imposed by this title 
        with respect to any event or period to which such 
        information relates shall not expire before the date 
        which is 3 years after the date on which the Secretary 
        is furnished the information required to be reported 
        under such section.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to information the due date for the reporting of 
which is after the date of the enactment of this Act.

SEC. 1146. INCREASE IN FILING THRESHOLDS FOR RETURNS AS TO ORGANIZATION 
                    OF FOREIGN CORPORATIONS AND ACQUISITIONS OF STOCK 
                    IN SUCH CORPORATIONS.

    (a) In General.--Subsection (a) of section 6046 (relating 
to returns as to organization or reorganization of foreign 
corporations and as to acquisitions of their stock) is amended 
to read as follows:
    ``(a) Requirement of return.--
            ``(1) In general.--A return complying with the 
        requirements of subsection (b) shall be made by--
                    ``(A) each United States citizen or 
                resident who becomes an officer or director of 
                a foreign corporation if a United States person 
                (as defined in section 7701(a)(30)) meets the 
                stock ownership requirements of paragraph (2) 
                with respect to such corporation,
                    ``(B) each United States person--
                            ``(i) who acquires stock which, 
                        when added to any stock owned on the 
                        date of such acquisition, meets the 
                        stock ownership requirements of 
                        paragraph (2) with respect to a foreign 
                        corporation, or
                            ``(ii) who acquires stock which, 
                        without regard to stock owned on the 
                        date of such acquisition, meets the 
                        stock ownership requirements of 
                        paragraph (2) with respect to a foreign 
                        corporation,
                    ``(C) each person (not described in 
                subparagraph (B)) who is treated as a United 
                States shareholder under section 953(c) with 
                respect to a foreign corporation, and
                    ``(D) each person who becomes a United 
                States person while meeting the stock ownership 
                requirements of paragraph (2) with respect to 
                stock of a foreign corporation.
        In the case of a foreign corporation with respect to 
        which any person is treated as a United States 
        shareholder under section 953(c), subparagraph (A) 
        shall be treated as including a reference to each 
        United States person who is an officer or director of 
        such corporation.
            ``(2) Stock ownership requirements.--A person meets 
        the stock ownership requirements of this paragraph with 
        respect to any corporation if such person owns 10 
        percent or more of--
                    ``(A) the total combined voting power of 
                all classes of stock of such corporation 
                entitled to vote, or
                    ``(B) the total value of the stock of such 
                corporation.''.
    (b) Effective Date.--The amendment made by this section 
shall take effect on January 1, 1998.

Subtitle F--Determination of Foreign or Domestic Status of Partnerships

SEC. 1151. DETERMINATION OF FOREIGN OR DOMESTIC STATUS OF PARTNERSHIPS.

    (a) In General.--Paragraph (4) of section 7701(a) is 
amended by inserting before the period ``unless, in the case of 
a partnership, the Secretary provides otherwise by 
regulations''.
    (b) Effective Date.--Any regulations issued with respect to 
the amendment made by subsection (a) shall apply to 
partnerships created or organized after the date determined 
under section 7805(b) of the Internal Revenue Code of 1986 
(without regard to paragraph (2) thereof) with respect to such 
regulations.

              Subtitle G--Other Simplification Provisions

SEC. 1161. TRANSITION RULE FOR CERTAIN TRUSTS.

    (a) In General.--Paragraph (3) of section 1907(a) of the 
Small Business Job Protection Act of 1996 is amended by adding 
at the end the following flush sentence:
        ``To the extent prescribed in regulations by the 
        Secretary of the Treasury or his delegate, a trust 
        which was in existence on August 20, 1996 (other than a 
        trust treated as owned by the grantor under subpart E 
        of part I of subchapter J of chapter 1 of the Internal 
        Revenue Code of 1986), and which was treated as a 
        United States person on the day before the date of the 
        enactment of this Act may elect to continue to be 
        treated as a United States person notwithstanding 
        section 7701(a)(30)(E) of such Code.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect as if included in the amendments made by 
section 1907(a) of the Small Business Job Protection Act of 
1996.

SEC. 1162. REPEAL OF STOCK AND SECURITIES SAFE HARBOR REQUIREMENT THAT 
                    PRINCIPAL OFFICE BE OUTSIDE THE UNITED STATES.

    (a) In General.--The last sentence of clause (ii) of 
section 864(b)(2)(A) (relating to stock or securities) is 
amended by striking ``, or in the case of a corporation'' and 
all that follows and inserting a period.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1997.

SEC. 1163. MISCELLANEOUS CLARIFICATIONS.

    (a) Attribution of Deemed Paid Foreign Taxes to Prior 
Distributions.--Subparagraph (B) of section 902(c)(2) is 
amended by striking ``deemed paid with respect to'' and 
inserting ``attributable to''.
    (b) Financial Services Income Determined Without Regard to 
High-Taxed Income.--Subclause (II) of section 904(d)(2)(C)(i) 
is amended by striking ``subclause (I)'' and inserting 
``subclauses (I) and (III)''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

                      Subtitle H--Other Provisions

SEC. 1171. TREATMENT OF COMPUTER SOFTWARE AS FSC EXPORT PROPERTY.

    (a) In General.--Subparagraph (B) of section 927(a)(2) 
(relating to property excluded from eligibility as FSC export 
property) is amended by inserting ``, and other than computer 
software (whether or not patented)'' before ``, for commercial 
or home use''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to gross receipts attributable to periods after 
December 31, 1997, in taxable years ending after such date.

SEC. 1172. ADJUSTMENT OF DOLLAR LIMITATION ON SECTION 911 EXCLUSION.

    (a) General Rule.--Paragraph (2) of section 911(b) is 
amended by--
            (1) by striking ``of $70,000'' in subparagraph (A) 
        and inserting ``equal to the exclusion amount for the 
        calendar year in which such taxable year begins'', and
            (2) by adding at the end the following new 
        subparagraph:
                    ``(D) Exclusion amount.--
                            ``(i) In general.--The exclusion 
                        amount for any calendar year is the 
                        exclusion amount determined in 
                        accordance with the following table (as 
                        adjusted by clause (ii)):

                                                           The exclusion
``For calendar year--                                        amount is--
    1998......................................................  $72,000 
    1999......................................................   74,000 
    2000......................................................   76,000 
    2001......................................................   78,000 
    2002 and thereafter.......................................   80,000.

                            ``(ii) Inflation adjustment.--In 
                        the case of any taxable year beginning 
                        in a calendar year after 2007, the 
                        $80,000 amount in clause (i) shall be 
                        increased by an amount equal to the 
                        product of--
                                    ``(I) such dollar amount, 
                                and
                                    ``(II) the cost-of-living 
                                adjustment determined under 
                                section 1(f)(3) for the 
                                calendar year in which the 
                                taxable year begins, determined 
                                by substituting `2006' for 
                                `1992' in subparagraph (B) 
                                thereof.
                        If any increase determined under the 
                        preceding sentence is not a multiple of 
                        $100, such increase shall be rounded to 
                        the next lowest multiple of $100.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after December 31, 1997.

SEC. 1173. UNITED STATES PROPERTY NOT TO INCLUDE CERTAIN ASSETS 
                    ACQUIRED BY DEALERS IN ORDINARY COURSE OF TRADE OR 
                    BUSINESS.

    (a) In General.--Section 956(c)(2) is amended by striking 
``and'' at the end of subparagraph (H), by striking the period 
at the end of subparagraph (I) and inserting a semicolon, and 
by adding at the end the following new subparagraphs:
                    ``(J) deposits of cash or securities made 
                or received on commercial terms in the ordinary 
                course of a United States or foreign person's 
                business as a dealer in securities or in 
                commodities, but only to the extent such 
                deposits are made or received as collateral or 
                margin for (i) a securities loan, notional 
                principal contract, options contract, forward 
                contract, or futures contract, or (ii) any 
                other financial transaction in which the 
                Secretary determines that it is customary to 
                post collateral or margin; and
                    ``(K) an obligation of a United States 
                person to the extent the principal amount of 
                the obligation does not exceed the fair market 
                value of readily marketable securities sold or 
                purchased pursuant to a sale and repurchase 
                agreement or otherwise posted or received as 
                collateral for the obligation in the ordinary 
                course of its business by a United States or 
                foreign person which is a dealer in securities 
                or commodities.
        For purposes of subparagraphs (J) and (K), the term 
        `dealer in securities' has the meaning given such term 
        by section 475(c)(1), and the term `dealer in 
        commodities' has the meaning given such term by section 
        475(e), except that such term shall include a futures 
        commission merchant.''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years of foreign corporations beginning 
after December 31, 1997, and to taxable years of United States 
shareholders with or within which such taxable years of foreign 
corporations end.

SEC. 1174. TREATMENT OF NONRESIDENT ALIENS ENGAGED IN INTERNATIONAL 
                    TRANSPORTATION SERVICES.

    (a) Sourcing Rules.--
            (1) In general.--Section 861(a)(3) is amended by 
        adding at the end the following new flush sentence:
        ``In addition, except for purposes of sections 79 and 
        105 and subchapter D, compensation for labor or 
        services performed in the United States shall not be 
        deemed to be income from sources within the 
UnitedStates if the labor or services are performed by a nonresident 
alien individual in connection with the individual's temporary presence 
in the United States as a regular member of the crew of a foreign 
vessel engaged in transportation between the United States and a 
foreign country or a possession of the United States.''.
            (2) Transportation income.--Subparagraph (B) of 
        section 863(c)(2) is amended by adding at the end the 
        following flush sentence:
                ``In the case of transportation income derived 
                from, or in connection with, a vessel, this 
                subparagraph shall only apply if the taxpayer 
                is a citizen or resident alien.''.
    (b) Presence in United States.--
            (1) In general.--Paragraph (7) of section 7701(b) 
        is amended by adding at the end the following new 
        subparagraph:
                    ``(D) Crew members temporarily present.--An 
                individual who is temporarily present in the 
                United States on any day as a regular member of 
                the crew of a foreign vessel engaged in 
                transportation between the United States and a 
                foreign country or a possession of the United 
                States shall not be treated as present in the 
                United States on such day unless such 
                individual otherwise engages in any trade or 
                business in the United States on such day.''.
            (2) Conforming amendment.--Subparagraph (A) of 
        section 7701(b)(7) is amended by striking ``or (C)'' 
        and inserting ``, (C), or (D)''.
    (c) Effective Dates.--
            (1) In general.--The amendments made by this 
        section shall apply to remuneration for services 
        performed in taxable years beginning after December 31, 
        1997.
            (2) Presence.--The amendment made by subsection (b) 
        shall apply to taxable years beginning after December 
        31, 1997.

SEC. 1175. EXEMPTION FOR ACTIVE FINANCING INCOME.

    (a) Exemption From Foreign Personal Holding Company 
Income.--Section 954 is amended by adding at the end the 
following new subsection:
    ``(h) Special Rule for Income Derived in the Active Conduct 
of Banking, Financing, or Similar Businesses.--
            ``(1) In general.--For purposes of subsection 
        (c)(1), foreign personal holding company income shall 
        not include income which is--
                    ``(A) derived in the active conduct by a 
                controlled foreign corporation of a banking, 
                financing, or similar business, but only if the 
                corporation is predominantly engaged in the 
                active conduct of such business,
                    ``(B) received from a person other than a 
                related person (within the meaning of 
                subsection (d)(3)) and derived from the 
                investments made by a qualifying insurance 
                company of its reserves or of 80 percent of its 
                unearned premiums (as both are determined in 
                the manner prescribed under paragraph (4)), or
                    ``(C) received from a person other than a 
                related person (within the meaning of 
                subsection (d)(3)) and derived from investments 
                made by a qualifying insurance company of an 
                amount of its assets equal to--
                            ``(i) in the case of contracts 
                        regulated in the country in which sold 
                        as property, casualty, or health 
                        insurance contracts, one-third of its 
                        premiums earned on such insurance 
                        contracts during the taxable year (as 
                        defined in section 832(b)(4)), and
                            ``(ii) in the case of contracts 
                        regulated in the country in which sold 
                        as life insurance or annuity contracts, 
                        the greater of--
                                    ``(I) 10 percent of the 
                                reserves described in 
                                subparagraph (B) for such 
                                contracts, or
                                    ``(II) in the case of a 
                                qualifying insurance company 
                                which is a start-up company, 
                                $10,000,000.
            ``(2) Principles for determining applicable 
        income.--
                    ``(A) Banking and financing income.--The 
                determination as to whether income is described 
                in paragraph (1)(A) shall be made--
                            ``(i) except as provided in clause 
                        (ii), in accordance with the applicable 
                        principles of section 904(d)(2)(C)(ii), 
                        except that such income shall include 
                        income from all leases entered into in 
                        the ordinary course of the active 
                        conduct of a banking, financing, or 
                        similar business, and
                            ``(ii) in the case of a corporation 
                        described in paragraph (3)(B), in 
                        accordance with the applicable 
                        principles of section 1296(b) (as in 
                        effect on the day before theenactment 
of the Taxpayer Relief Act of 1997) for determining what is not passive 
income.
                    ``(B) Insurance income.--Under rules 
                prescribed by the Secretary, for purposes of 
                paragraphs (1) (B) and (C)--
                            ``(i) in the case of contracts 
                        which are separate account-type 
                        contracts (including variable contracts 
                        not meeting the requirements of section 
                        817), only income specifically 
                        allocable to such contracts shall be 
                        taken into account, and
                            ``(ii) in the case of other 
                        contracts, income not allocable under 
                        clause (i) shall be allocated ratably 
                        among such contracts.
                    ``(C) Look-thru rules.--The Secretary shall 
                prescribe regulations consistent with the 
                principles of section 904(d)(3) which provide 
                that dividends, interest, income equivalent to 
                interest, rents, or royalties received or 
                accrued from a related person (within the 
                meaning of subsection (d)(3)) shall be subject 
                to look-thru treatment for purposes of this 
                subsection.
            ``(3) Predominantly engaged.--For purposes of 
        paragraph (1)(A), a corporation shall be deemed 
        predominantly engaged in the active conduct of a 
        banking, financing, or similar business only if--
                    ``(A) more than 70 percent of its gross 
                income is derived from such business from 
                transactions with persons which are not related 
                persons (as defined in subsection (d)(3)) and 
                which are located within the country under the 
                laws of which the controlled foreign 
                corporation is created or organized, or
                    ``(B) the corporation is--
                            ``(i) engaged in the active conduct 
                        of a banking or securities business 
                        (within the meaning of section 1296(b), 
                        as in effect before the enactment of 
                        the Taxpayer Relief Act of 1997), or
                            ``(ii) a qualified bank affiliate 
                        or a qualified securities affiliate 
                        (within the meaning of the proposed 
                        regulations under such section 
                        1296(b)).
            ``(4) Methods for determining unearned premiums and 
        reserves.--For purposes of paragraph (1)(B)--
                    ``(A) Property and casualty contracts.--The 
                unearned premiums and reserves of a qualifying 
                insurance company with respectto property, 
casualty, or health insurance contracts shall be determined using the 
same methods and interest rates which would be used if such company 
were subject to tax under subchapter L.
                    ``(B) Life insurance and annuity 
                contracts.--The reserves of a qualifying 
                insurance company with respect to life 
                insurance or annuity contracts shall be 
                determined under the method described in 
                paragraph (5) which such company elects to 
                apply for purposes of this paragraph. Such 
                election shall be made at such time and in such 
                manner as the Secretary may prescribe and, once 
                made, shall be irrevocable without the consent 
                of the Secretary.
                    ``(C) Limitation on reserves.--In no event 
                shall the reserve determined under this 
                paragraph for any contract as of any time 
                exceed the amount which would be taken into 
                account with respect to such contract as of 
                such time in determining foreign annual 
                statement reserves (less any catastrophe or 
                deficiency reserves).
            ``(5) Methods.--The methods described in this 
        paragraph are as follows:
                    ``(A) U.S. method.--The method which would 
                apply if the qualifying insurance company were 
                subject to tax under subchapter L, except that 
                the interest rate used shall be an interest 
                rate determined for the foreign country in 
                which such company is created or organized and 
                which is calculated in the same manner as the 
                Federal mid-term rate under section 1274(d).
                    ``(B) Foreign method.--A preliminary term 
                method, except that the interest rate used 
                shall be the interest rate determined for the 
                foreign country in which such company is 
                created or organized and which is calculated in 
                the same manner as the Federal mid-term rate 
                under section 1274(d). If a qualifying 
                insurance company uses such a preliminary term 
                method with respect to contracts insuring risks 
                located in such foreign country, such method 
                shall apply if such company elects the method 
                under this clause.
                    ``(C) Cash surrender value.--A method under 
                which reserves are equal to the net surrender 
                value (as defined in section 807(e)(1)(A)) of 
                the contract.
            ``(6) Definitions.--For purposes of this 
        subsection--
                    ``(A) Terms relating to insurance 
                companies.--
                            ``(i) Qualifying insurance 
                        company.--The term `qualifying 
                        insurance company' means any entity 
                        which--
                                    ``(I) is subject to 
                                regulation as an insurance 
                                company under the laws of its 
                                country of incorporation,
                                    ``(II) realizes at least 50 
                                percent of its net written 
                                premiums from the insurance or 
                                reinsurance of risks located 
                                within the country in which 
                                such entity is created or 
                                organized, and
                                    ``(III) is engaged in the 
                                active conduct of an insurance 
                                business and would be subject 
                                to tax under subchapter L if it 
                                were a domestic corporation.
                            ``(ii) Start-up company.--A 
                        qualifying insurance company shall be 
                        treated as a start-up company if such 
                        company (and any predecessor) has not 
                        been engaged in the active conduct of 
                        an insurance business for more than 5 
                        years as of the beginning of the 
                        taxable year of such company.
                    ``(B) Located.--For purposes of paragraph 
                (3)(A)--
                            ``(i) In general.--A person shall 
                        be treated as located--
                                    ``(I) except as provided in 
                                subclause (II), within the 
                                country in which it maintains 
                                an office or other fixed place 
                                of business through which it 
                                engages in a trade or business 
                                and by which the transaction is 
                                effected, or
                                    ``(II) in the case of a 
                                natural person, within the 
                                country in which such person is 
                                physically located when such 
                                person enters into a 
                                transaction.
                            ``(ii) Special rule for qualified 
                        business units.--Gross income derived 
                        by a corporation's qualified business 
                        unit (within the meaning of section 
                        989(a)) from transactions with persons 
                        which are not related persons (as 
                        defined in subsection (d)(3)) and which 
                        are located inthe country in which the 
qualified business unit both maintains its principal office and 
conducts substantial business activity shall be treated as derived from 
transactions with persons which are not related persons (as defined in 
subsection (d)(3)) and which are located within the country under the 
laws of which the controlled foreign corporation is created or 
organized.
            ``(7) Anti-abuse rules.--For purposes of applying 
        this subsection, there shall be disregarded any item of 
        income, gain, loss, or deduction with respect to any 
        transaction or series of transactions one of the 
        principal purposes of which is qualifying income or 
        gain for the exclusion under this section, including 
        any change in the method of computing reserves or any 
        other transaction or series of transactions a principal 
        purpose of which is the acceleration or deferral of any 
        item in order to claim the benefits of such exclusion 
        through the application of this subsection.
            ``(8) Coordination with section 953.--This 
        subsection shall not apply to investment income 
        allocable to contracts that insure related party risks 
        or risks located in a foreign country other than the 
        country in which the qualifying insurance comapny is 
        created or organized.
            ``(9) Application.--This subsection shall apply to 
        the first full taxable year of a foreign corporation 
        beginning after December 31, 1997, and before January 
        1, 1999, and to taxable years of United States 
        shareholders with or within which such taxable year of 
        such foreign corporation ends.''.
    (b) Exemption From Foreign Base Company Services Income.--
Paragraph (2) of section 954(e) is amended by striking ``or'' 
at the end of subparagraph (A), by striking the period at the 
end of subparagraph (B) and inserting ``, or'', and by adding 
at the end the following:
                    ``(C) in the case of taxable years 
                described in subsection (h)(8), the active 
                conduct by a controlled foreign corporation of 
                a banking, financing, insurance, or similar 
                business, but only if the corporation is 
                predominantly engaged in the active conduct of 
                such business (within the meaning of subsection 
                (h)(3)) or is a qualifying insurance 
                company.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to the first full taxable year of a foreign 
corporation beginning after December 31, 1997, and before 
January 1, 1999, and to taxable years of United States 
shareholders with or within which such taxable year of such 
foreign corporation ends.

   TITLE XII--SIMPLIFICATION PROVISIONS RELATING TO INDIVIDUALS AND 
                               BUSINESSES

             Subtitle A--Provisions Relating to Individuals

SEC. 1201. BASIC STANDARD DEDUCTION AND MINIMUM TAX EXEMPTION AMOUNT 
                    FOR CERTAIN DEPENDENTS.

    (a) Basic Standard Deduction.--
            (1) In general.--Paragraph (5) of section 63(c) 
        (relating to limitation on basic standard deduction in 
        the case of certain dependents) is amended by striking 
        ``shall not exceed'' and all that follows and inserting 
        ``shall not exceed the greater of--
                    ``(A) $500, or
                    ``(B) the sum of $250 and such individual's 
                earned income.''.
            (2) Conforming amendment.--Paragraph (4) of section 
        63(c) is amended--
                    (A) by striking ``(5)(A)'' in the material 
                preceding subparagraph (A) and inserting 
                ``(5)'', and
                    (B) by striking ``by substituting'' and all 
                that follows in subparagraph (B) and inserting 
                ``by substituting for `calendar year 1992' in 
                subparagraph (B) thereof--
                            ``(i) `calendar year 1987' in the 
                        case of the dollar amounts contained in 
                        paragraph (2) or (5)(A) or subsection 
                        (f), and
                            ``(ii) `calendar year 1997' in the 
                        case of the dollar amount contained in 
                        paragraph (5)(B).''.
    (b) Minimum Tax Exemption Amount.--
            (1) In general.--Subsection (j) of section 59 is 
        amended to read as follows:
    ``(j) Treatment of Unearned Income of Minor Children.--
            ``(1) In general.--In the case of a child to whom 
        section 1(g) applies, the exemption amount for purposes 
        of section 55 shall not exceed the sum of--
                    ``(A) such child's earned income (as 
                defined in section 911(d)(2)) for the taxable 
                year, plus
                    ``(B) $5,000.
            ``(2) Inflation adjustment.--In the case of any 
        taxable year beginning in a calendar year after 1998, 
        the dollar amount in paragraph (1)(B) shall be 
        increased by an amount equal to the product of--
                    ``(A) such dollar amount, and
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for the 
                calendar year in which the taxable year begins, 
                determined by substituting `1997' for `1992' in 
                subparagraph (B) thereof.
        If any increase determined under the preceding sentence 
        is not a multiple of $50, such increase shall be 
        rounded to the nearest multiple of $50.''.
            (2) Conforming amendment.--Clause (iv) of section 
        6103(e)(1)(A) is amended by striking ``or 59(j)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1997.

SEC. 1202. INCREASE IN AMOUNT OF TAX EXEMPT FROM ESTIMATED TAX 
                    REQUIREMENTS.

    (a) In General.--Paragraph (1) of section 6654(e) (relating 
to exception where tax is small amount) is amended by striking 
``$500'' and inserting ``$1,000''.
    (b) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1997.

SEC. 1203. TREATMENT OF CERTAIN REIMBURSED EXPENSES OF RURAL MAIL 
                    CARRIERS.

    (a) In General.--Section 162 (relating to trade or business 
expenses) is amended by redesignating subsection (o) as 
subsection (p) and by inserting after subsection (n) the 
following new subsection:
    ``(o) Treatment of Certain Reimbursed Expenses of Rural 
Mail Carriers.--
            ``(1) General rule.--In the case of any employee of 
        the United States Postal Service who performs services 
        involving the collection and delivery of mail on a 
        rural route and who receives qualified reimbursements 
        for the expenses incurred by such employee for the use 
        of a vehicle in performing such services--
                    ``(A) the amount allowable as a deduction 
                under this chapter for the use of a vehicle in 
                performing such services shall be equal to the 
                amount of such qualified reimbursements; and
                    ``(B) such qualified reimbursements shall 
                be treated as paid under a reimbursement or 
                other expense allowance arrangement for 
                purposes of section 62(a)(2)(A) (and section 
                62(c) shall not apply to such qualified 
                reimbursements).
            ``(2) Definition of qualified reimbursements.--For 
        purposes of this subsection, the term `qualified 
        reimbursements' means the amounts paid by the United 
        States Postal Service to employees as an equipment 
        maintenance allowance under the 1991 collective 
        bargaining agreement between the United States Postal 
        Service and the National Rural Letter Carriers' 
        Association. Amounts paid as an equipment maintenance 
        allowance by such Postal Service under later collective 
        bargaining agreements that supersede the 1991 agreement 
        shall be considered qualified reimbursements if such 
        amounts do not exceed the amounts that would have been 
        paid under the 1991 agreement, adjusted for changes in 
        the Consumer Price Index (as defined in section 
        1(f)(5)) since 1991.''.
    (b) Technical Amendment.--Section 6008 of the Technical and 
Miscellaneous Revenue Act of 1988 is hereby repealed.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after December 31, 1997.

SEC. 1204. TREATMENT OF TRAVELING EXPENSES OF CERTAIN FEDERAL EMPLOYEES 
                    ENGAGED IN CRIMINAL INVESTIGATIONS.

    (a) In General.--Subsection (a) of section 162 is amended 
by adding at the end the following new sentence: ``The 
preceding sentence shall not apply to any Federal employee 
during any period for which such employee is certified by the 
Attorney General (or the designee thereof) as traveling on 
behalf of the United States in temporary duty status to 
investigate, or provide support services for the investigation 
of, a Federal crime.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to amounts paid or incurred with respect to taxable 
years ending after the date of the enactment of this Act.

SEC. 1205. PAYMENT OF TAX BY COMMERCIALLY ACCEPTABLE MEANS.

    (a) General Rule.--Section 6311 is amended to read as 
follows:

``SEC. 6311. PAYMENT OF TAX BY COMMERCIALLY ACCEPTABLE MEANS.

    ``(a) Authority To Receive.--It shall be lawful for the 
Secretary to receive for internal revenue taxes (or in payment 
for internal revenue stamps) any commercially acceptable means 
that the Secretary deems appropriate to the extent and under 
the conditions provided in regulations prescribed by the 
Secretary.
    ``(b) Ultimate Liability.--If a check, money order, or 
other method of payment, including payment by credit card, 
debit card, or charge card so received is not duly paid, or is 
paid and subsequently charged back to the Secretary, the person 
by whom such check, or money order, or other method of payment 
has been tendered shall remain liable for the payment of the 
tax or for the stamps, and for all legal penalties and 
additions, to the same extent as if such check, money order, or 
other method of payment had not been tendered.
    ``(c) Liability of Banks and Others.--If any certified, 
treasurer's, or cashier's check (or other guaranteed draft), or 
any money order, or any other means of payment that has been 
guaranteed by a financial institution (such as a credit card, 
debit card, or charge card transaction which has been 
guaranteed expressly by a financial institution) so received is 
not duly paid, the United States shall, in addition to its 
right to exact payment from the party originally indebted 
therefor, have a lien for--
            ``(1) the amount of such check (or draft) upon all 
        assets of the financial institution on which drawn,
            ``(2) the amount of such money order upon all the 
        assets of the issuer thereof, or
            ``(3) the guaranteed amount of any other 
        transaction upon all the assets of the institution 
        making such guarantee,
and such amount shall be paid out of such assets in preference 
to any other claims whatsoever against such financial 
institution, issuer, or guaranteeing institution, except the 
necessary costs and expenses of administration and the 
reimbursement of the United States for the amount expended in 
the redemption of the circulating notes of such financial 
institution.
    ``(d) Payment by Other Means.--
            ``(1) Authority to prescribe regulations.--The 
        Secretary shall prescribe such regulations as the 
        Secretary deems necessary to receive payment by 
        commercially acceptable means, including regulations 
        that--
                    ``(A) specify which methods of payment by 
                commercially acceptable means will be 
                acceptable,
                    ``(B) specify when payment by such means 
                will be considered received,
                    ``(C) identify types of nontax matters 
                related to payment by such means that are to be 
                resolved by persons ultimately liable for 
                payment and financial intermediaries, without 
                the involvement of the Secretary, and
                    ``(D) ensure that tax matters will be 
                resolved by the Secretary, without the 
                involvement of financial intermediaries.
            ``(2) Authority to enter into contracts.--
        Notwithstanding section 3718(f) of title 31, United 
        States Code, the Secretary is authorized to enter into 
        contracts to obtain services related to receiving 
        payment by other means where cost beneficial to the 
        Government. The Secretary may not pay any fee or 
        provide any other consideration under such contracts.
            ``(3) Special provisions for use of credit cards.--
        If use of credit cards is accepted as a method of 
        payment of taxes pursuant to subsection (a)--
                    ``(A) a payment of internal revenue taxes 
                (or a payment for internal revenue stamps) by a 
                person by use of a credit card shall not be 
                subject to section 161 of the Truth in Lending 
                Act (15 U.S.C. 1666), or to any similar 
                provisions of State law, if the error alleged 
                by the person is an error relating to the 
                underlying tax liability, rather than an error 
                relating to the credit card account such as a 
                computational error or numerical transposition 
                in the credit card transaction or an issue as 
                to whether the person authorized payment by use 
                of the credit card,
                    ``(B) a payment of internal revenue taxes 
                (or a payment for internal revenue stamps) 
                shall not be subject to section 170 of the 
                Truth in Lending Act (15 U.S.C. 1666i), or to 
                any similar provisions of State law,
                    ``(C) a payment of internal revenue taxes 
                (or a payment for internal revenue stamps) by a 
                person by use of a debit card shall not be 
                subject to section 908 of the Electronic Fund 
                Transfer Act (15 U.S.C. 1693f), or to any 
                similar provisions of State law, if the error 
                alleged by the person is an error relating to 
                the underlying tax liability, rather than an 
                error relating to the debit card account such 
                as a computational error or numerical 
                transposition in the debit card transaction or 
                an issue as to whether the person authorized 
                payment by use of the debit card,
                    ``(D) the term `creditor' under section 
                103(f) of the Truth in Lending Act (15 U.S.C. 
                1602(f)) shall not include the Secretary with 
                respect to credit card transactions in payment 
                of internal revenue taxes (or payment for 
                internal revenue stamps), and
                    ``(E) notwithstanding any other provision 
                of law to the contrary, in the case of payment 
                made by credit card or debit card transaction 
                of an amount owed to a person as the result of 
                the correction of an error under section 161 of 
                the Truth in Lending Act (15 U.S.C. 1666) or 
                section 908 of the Electronic Fund Transfer Act 
                (15 U.S.C. 1693f), the Secretary is authorized 
                to provide such amount to such person as a 
                credit to that person's credit card or debit 
                card account through the applicable credit card 
                or debit card system.
    ``(e) Confidentiality of Information.--
            ``(1) In general.--Except as otherwise authorized 
        by this subsection, no person may use or disclose any 
        information relating to credit or debit card 
        transactions obtained pursuant to section 6103(k)(8) 
        other than for purposes directly related to the 
        processing of such transactions, or the billing or 
        collection of amounts charged or debited pursuant 
        thereto.
            ``(2) Exceptions.--
                    ``(A) Debit or credit card issuers or 
                others acting on behalf of such issuers may 
                also use and disclose such information for 
                purposes directly related to servicing an 
                issuer's accounts.
                    ``(B) Debit or credit card issuers or 
                others directly involved in the processing of 
                credit or debit card transactions or the 
                billing or collection of amounts charged or 
                debited thereto may also use and disclose such 
                information for purposes directly related to--
                            ``(i) statistical risk and 
                        profitability assessment;
                            ``(ii) transferring receivables, 
                        accounts, or interest therein;
                            ``(iii) auditing the account 
                        information;
                            ``(iv) complying with Federal, 
                        State, or local law; and
                            ``(v) properly authorized civil, 
                        criminal, or regulatory investigation 
                        by Federal, State, or local 
                        authorities.
            ``(3) Procedures.--Use and disclosure of 
        information under this paragraph shall be made only to 
        the extent authorized by written procedures promulgated 
        by the Secretary.
            ``(4) Cross reference.--

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

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

        ``Sec. 6311. Payment of tax by commercially acceptable means.''.

    (c) Amendments to Sections 6103 and 7431 With Respect to 
Disclosure Authorization.--
            (1) Subsection (k) of section 6103 (relating to 
        confidentiality and disclosure of returns and return 
        information) is amended by adding at the end the 
        following new paragraph:
            ``(8) Disclosure of information to administer 
        section 6311.--The Secretary may disclose returns or 
        return information to financial institutions and others 
        to the extent the Secretary deems necessary for the 
        administration of section 6311. Disclosures of 
        information for purposes other than to accept payments 
        by checks or money orders shall be made only to the 
        extent authorized by written procedures promulgated by 
        the Secretary.''.
            (2) Section 7431 (relating to civil damages for 
        unauthorized disclosure of returns and return 
        information) is amended by adding at the end the 
        following new subsection:
    ``(g) Special Rule for Information Obtained Under Section 
6103(k)(8).--For purposes of this section, any reference to 
section 6103 shall be treated as including a reference to 
section 6311(e).''.
            (3) Section 6103(p)(3)(A) is amended by striking 
        ``or (6)'' and inserting ``(6), or (8)''.
    (d) Effective Date.--The amendments made by this section 
shall take effect on the day 9 months after the date of the 
enactment of this Act.

        Subtitle B--Provisions Relating to Businesses Generally

SEC. 1211. MODIFICATIONS TO LOOK-BACK METHOD FOR LONG-TERM CONTRACTS.

    (a) Look-Back Method Not To Apply in Certain Cases.--
Subsection (b) of section 460 (relating to percentage of 
completion method) is amended by adding at the end the 
following new paragraph:
            ``(6) Election to have look-back method not apply 
        in de minimis cases.--
                    ``(A) Amounts taken into account after 
                completion of contract.--Paragraph (1)(B) shall 
                not apply with respect to any taxable year 
                (beginning after the taxable year in which the 
                contract is completed) if--
                            ``(i) the cumulative taxable income 
                        (or loss) under the contract as of the 
                        close of such taxable year, is within
                            ``(ii) 10 percent of the cumulative 
                        look-back taxable income (or loss) 
                        under the contract as of the close of 
                        the most recent taxable year to which 
                        paragraph (1)(B) applied (or would have 
                        applied but for subparagraph (B)).
                    ``(B) De minimis discrepancies.--Paragraph 
                (1)(B) shall not apply in any case to which it 
                would otherwise apply if--
                            ``(i) the cumulative taxable income 
                        (or loss) under the contract as of the 
                        close of each prior contract year, is 
                        within
                            ``(ii) 10 percent of the cumulative 
                        look-back income (or loss) under the 
                        contract as of the close of such prior 
                        contract year.
                    ``(C) Definitions.--For purposes of this 
                paragraph--
                            ``(i) Contract year.--The term 
                        `contract year' means any taxable year 
                        for which income is taken into account 
                        under the contract.
                            ``(ii) Look-back income or loss.--
                        The look-back income (or loss) is the 
                        amount which would be the taxable 
                        income (or loss) under the contract if 
                        the allocation method set forth in 
                        paragraph (2)(A) were used in 
                        determining taxable income.
                            ``(iii) Discounting not 
                        applicable.--The amounts taken into 
                        account after the completion of the 
                        contract shall be determined without 
                        regard to any discounting under the 2nd 
                        sentence of paragraph (2).
                    ``(D) Contracts to which paragraph 
                applies.--This paragraph shall only apply if 
                the taxpayer makes an election under this 
                subparagraph. Unless revoked with the consent 
                of the Secretary, such an election shall apply 
                to all long-term contracts completed during the 
                taxable year for which election is made or 
                during any subsequent taxable year.''.
    (b) Modification of Interest Rate.--
            (1) In general.--Subparagraph (C) of section 
        460(b)(2) is amended by striking ``the overpayment rate 
        established by section 6621'' and inserting ``the 
        adjusted overpayment rate (as defined in paragraph 
        (7))''.
            (2) Adjusted overpayment rate.--Subsection (b) of 
        section 460 is amended by adding at the end the 
        following new paragraph:
            ``(7) Adjusted overpayment rate.--
                    ``(A) In general.--The adjusted overpayment 
                rate for any interest accrual period is the 
                overpayment rate in effect under section 6621 
                for the calendar quarter in which such interest 
                accrual period begins.
                    ``(B) Interest accrual period.--For 
                purposes of subparagraph (A), the term 
                `interest accrual period' means the period--
                            ``(i) beginning on the day after 
                        the return due date for any taxable 
                        year of the taxpayer, and
                            ``(ii) ending on the return due 
                        date for the following taxable year.
                For purposes of the preceding sentence, the 
                term `return due date' means the date 
                prescribed for filing the return of the tax 
                imposed by this chapter (determined without 
                regard to extensions).''.
    (c) Effective Date.--
            (1) In general.--Except as provided in paragraph 
        (2), the amendments made by this section shall apply to 
        contracts completed in taxable years ending after the 
        date of the enactment of this Act.
            (2) Subsection (b).--The amendments made by 
        subsection (b) shall apply for purposes of section 
        167(g) of the Internal Revenue Code of 1986 to property 
        placed in service after September 13, 1995.

SEC. 1212. MINIMUM TAX TREATMENT OF CERTAIN PROPERTY AND CASUALTY 
                    INSURANCE COMPANIES.

    (a) In General.--Clause (i) of section 56(g)(4)(B) 
(relating to inclusion of items included for purposes of 
computing earnings and profits) is amended by adding at the end 
the following new sentence: ``In the case of any insurance 
company taxable under section 831(b), this clause shall not 
apply to any amount not described in section 834(b).''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to taxable years beginning after December 31, 1997.

SEC. 1213. QUALIFIED LESSEE CONSTRUCTION ALLOWANCES FOR SHORT-TERM 
                    LEASES.

    (a) In General.--Part III of subchapter B of chapter 1 is 
amended by inserting after section 109 the following new 
section:

``SEC. 110. QUALIFIED LESSEE CONSTRUCTION ALLOWANCES FOR SHORT-TERM 
                    LEASES.

    ``(a) In General.--Gross income of a lessee does not 
include any amount received in cash (or treated as a rent 
reduction) by a lessee from a lessor--
            ``(1) under a short-term lease of retail space, and
            ``(2) for the purpose of such lessee's constructing 
        or improving qualified long-term real property for use 
        in such lessee's trade or business at such retail 
        space,
but only to the extent that such amount does not exceed the 
amount expended by the lessee for such construction or 
improvement.
    ``(b) Consistent Treatment by Lessor.--Qualified long-term 
real property constructed or improved in connection with any 
amount excluded from a lessee's income by reason of subsection 
(a) shall be treated as nonresidential real property of the 
lessor (including for purposes of section 168(i)(8)(B)).
    ``(c) Definitions.--For purposes of this section--
            ``(1) Qualified long-term real property.--The term 
        `qualified long-term real property' means 
        nonresidential real property which is part of, or 
        otherwise present at, the retail space referred to in 
        subsection (a) and which reverts to the lessor at the 
        termination of the lease.
            ``(2) Short-term lease.--The term `short-term 
        lease' means a lease (or other agreement for occupancy 
        or use) of retail space for 15 years or less (as 
        determined under the rules of section 168(i)(3)).
            ``(3) Retail space.--The term `retail space' means 
        real property leased, occupied, or otherwise used by a 
        lessee in its trade or business of selling tangible 
        personal property or services to the general public.
    ``(d) Information Required To Be Furnished to Secretary.--
Under regulations, the lessee and lessor described in 
subsection (a) shall, at such times and in such manner as may 
be provided in such regulations, furnish to the Secretary--
            ``(1) information concerning the amounts received 
        (or treated as a rent reduction) and expended as 
        described in subsection (a), and
            ``(2) any other information which the Secretary 
        deems necessary to carry out the provisions of this 
        section.''.
    (b) Treatment as Information Return.--Subparagraph (A) of 
section 6724(d)(1)(A) is amended by striking ``or'' at the end 
of clause (vii), by adding ``or'' at the end of clause (viii), 
and by adding at the end the following new clause:
                            ``(ix) section 110(d) (relating to 
                        qualified lessee construction 
                        allowances for short-term leases),''.
    (c) Cross Reference.--Paragraph (8) of section 168(i) 
(relating to treatment of leasehold improvements) is amended by 
adding at the end the following new subparagraph:
                    ``(C) Cross reference.--

          ``For treatment of qualified long-term real property 
        constructed or improved in connection with cash or rent 
        reduction from lessor to lessee, see section 110(b).''.

    (d) Clerical Amendment.--The table of sections for part III 
of subchapter B of chapter 1 is amended by inserting after the 
item relating to section 109 the following new item:

        ``Sec. 110. Qualified lessee construction allowances for short-
                  term leases.''.

    (e) Effective Date.--The amendments made by this section 
shall apply to leases entered into after the date of the 
enactment of this Act.

   Subtitle C--Simplification Relating to Electing Large Partnerships

                       PART I--GENERAL PROVISIONS

SEC. 1221. SIMPLIFIED FLOW-THROUGH FOR ELECTING LARGE PARTNERSHIPS.

    (a) General Rule.--Subchapter K (relating to partners and 
partnerships) is amended by adding at the end the following new 
part:

        ``PART IV--SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS

        ``Sec. 771. Application of subchapter to electing large 
                  partnerships.
        ``Sec. 772. Simplified flow-through.
        ``Sec. 773. Computations at partnership level.
        ``Sec. 774. Other modifications.
        ``Sec. 775. Electing large partnership defined.
        ``Sec. 776. Special rules for partnerships holding oil and gas 
                  properties.
        ``Sec. 777. Regulations.

``SEC. 771. APPLICATION OF SUBCHAPTER TO ELECTING LARGE PARTNERSHIPS.

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

``SEC. 772. SIMPLIFIED FLOW-THROUGH.

    ``(a) General Rule.--In determining the income tax of a 
partner of an electing large partnership, such partner shall 
take into account separately such partner's distributive share 
of the partnership's--
            ``(1) taxable income or loss from passive loss 
        limitation activities,
            ``(2) taxable income or loss from other activities,
            ``(3) net capital gain (or net capital loss)--
                    ``(A) to the extent allocable to passive 
                loss limitation activities, and
                    ``(B) to the extent allocable to other 
                activities,
            ``(4) tax-exempt interest,
            ``(5) applicable net AMT adjustment separately 
        computed for--
                    ``(A) passive loss limitation activities, 
                and
                    ``(B) other activities,
            ``(6) general credits,
            ``(7) low-income housing credit determined under 
        section 42,
            ``(8) rehabilitation credit determined under 
        section 47,
            ``(9) foreign income taxes,
            ``(10) the credit allowable under section 29, and
            ``(11) other items to the extent that the Secretary 
        determines that the separate treatment of such items is 
        appropriate.
    ``(b) Separate Computations.--In determining the amounts 
required under subsection (a) to be separately taken into 
account by any partner, this section and section 773 shall be 
applied separately with respect to such partner by taking into 
account such partner's distributive share of the items of 
income, gain, loss, deduction, or credit of the partnership.
    ``(c) Treatment at Partner Level.--
            ``(1) In general.--Except as provided in this 
        subsection, rules similar to the rules of section 
        702(b) shall apply to any partner's distributive share 
        of the amounts referred to in subsection (a).
            ``(2) Income or loss from passive loss limitation 
        activities.--For purposes of this chapter, any 
        partner's distributive share of any income or loss 
        described in subsection (a)(1) shall be treated as an 
        item of income or loss (as the case may be) from the 
        conduct of a trade or business which is a single 
        passive activity (as defined in section 469). A similar 
        rule shall apply to a partner's distributive share of 
        amounts referred to in paragraphs (3)(A) and (5)(A) of 
        subsection (a).
            ``(3) Income or loss from other activities.--
                    ``(A) In general.--For purposes of this 
                chapter, any partner's distributive share of 
                any income or loss described in subsection 
                (a)(2) shall be treated as an item of income or 
                expense (as the case may be) with respect to 
                property held for investment.
                    ``(B) Deductions for loss not subject to 
                section 67.--The deduction under section 212 
                for any loss described in subparagraph (A) 
                shall not be treated as a miscellaneous 
                itemized deduction for purposes of section 67.
            ``(4) Treatment of net capital gain or loss.--For 
        purposes of this chapter, any partner's distributive 
        share of any gain or loss described in subsection 
        (a)(3) shall be treated as a long-term capital gain or 
        loss, as the case may be.
            ``(5) Minimum tax treatment.--In determining the 
        alternative minimum taxable income of any partner, such 
        partner's distributive share of any applicable net AMT 
        adjustment shall be taken into account in lieu of 
        making the separate adjustments provided in sections 
        56, 57, and 58 with respect to the items of the 
        partnership. Except as provided in regulations, the 
        applicable net AMT adjustment shall be treated, for 
        purposes of section 53, as an adjustment or item of tax 
        preference not specified in section 53(d)(1)(B)(ii).
            ``(6) General credits.--A partner's distributive 
        share of the amount referred to in paragraph (6) of 
        subsection (a) shall be taken into account as a current 
        year business credit.
    ``(d) Operating Rules.--For purposes of this section--
            ``(1) Passive loss limitation activity.--The term 
        `passive loss limitation activity' means--
                    ``(A) any activity which involves the 
                conduct of a trade or business, and
                    ``(B) any rental activity.
        For purposes of the preceding sentence, the term `trade 
        or business' includes any activity treated as a trade 
        or business under paragraph (5) or (6) of section 
        469(c).
            ``(2) Tax-exempt interest.--The term `tax-exempt 
        interest' means interest excludable from gross income 
        under section 103.
            ``(3) Applicable net amt adjustment.--
                    ``(A) In general.--The applicable net AMT 
                adjustment is--
                            ``(i) with respect to taxpayers 
                        other than corporations, the net 
                        adjustment determined by using the 
                        adjustments applicable to individuals, 
                        and
                            ``(ii) with respect to 
                        corporations, the net adjustment 
                        determined by using the adjustments 
                        applicable to corporations.
                    ``(B) Net adjustment.--The term `net 
                adjustment' means the net adjustment in the 
                items attributable to passive loss activities 
                or other activities (as the case may be) which 
                would result if such items were determined with 
                the adjustments of sections 56, 57, and 58.
            ``(4) Treatment of certain separately stated 
        items.--
                    ``(A) Exclusion for certain purposes.--In 
                determining the amounts referred to in 
                paragraphs (1) and (2) of subsection (a), any 
                net capital gain or net capital loss (as the 
                case may be), and any item referred to in 
                subsection (a)(11), shall be excluded.
                    ``(B) Allocation rules.--The net capital 
                gain shall be treated--
                            ``(i) as allocable to passive loss 
                        limitation activities to the extent the 
                        net capital gain does not exceed the 
                        net capital gain determined by only 
                        taking into account gains and losses 
                        from sales and exchanges of property 
                        used in connection with such 
                        activities, and
                            ``(ii) as allocable to other 
                        activities to the extent such gain 
                        exceeds the amount allocated under 
                        clause (i).
                A similar rule shall apply for purposes of 
                allocating any net capital loss.
                    ``(C) Net capital loss.--The term `net 
                capital loss' means the excess of the losses 
                from sales or exchanges of capital assets over 
                the gains from sales or exchange of capital 
                assets.
            ``(5) General credits.--The term `general credits' 
        means any credit other than the low-income housing 
        credit, the rehabilitation credit, the foreign tax 
        credit, and the credit allowable under section 29.
            ``(6) Foreign income taxes.--The term `foreign 
        income taxes' means taxes described in section 901 
        which are paid or accrued to foreign countries and to 
        possessions of the United States.
    ``(e) Special Rule for Unrelated Business Tax.--In the case 
of a partner which is an organization subject to tax under 
section 511, such partner's distributive share of any items 
shall be taken into account separately to the extent necessary 
to comply with the provisions of section 512(c)(1).
    ``(f) Special Rules for Applying Passive Loss 
Limitations.--If any person holds an interest in an electing 
large partnership other than as a limited partner--
            ``(1) paragraph (2) of subsection (c) shall not 
        apply to such partner, and
            ``(2) such partner's distributive share of the 
        partnership items allocable to passive loss limitation 
        activities shall be taken into account separately to 
        the extent necessary to comply with the provisions of 
        section 469.
The preceding sentence shall not apply to any items allocable 
to an interest held as a limited partner.

``SEC. 773. COMPUTATIONS AT PARTNERSHIP LEVEL.

    ``(a) General Rule.--
            ``(1) Taxable income.--The taxable income of an 
        electing large partnership shall be computed in the 
        same manner as in the case of an individual except 
        that--
                    ``(A) the items described in section 772(a) 
                shall be separately stated, and
                    ``(B) the modifications of subsection (b) 
                shall apply.
            ``(2) Elections.--All elections affecting the 
        computation of the taxable income of an electing large 
        partnership or the computation of any credit of an 
        electing large partnership shall be made by the 
        partnership; except that the election under section 
        901, and any election under section 108, shall be made 
        by each partner separately.
            ``(3) Limitations, etc.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), all limitations and other 
                provisions affecting the computation of the 
                taxable income of an electing large partnership 
                or the computation of any credit of an electing 
                large partnership shall be applied at the 
                partnership level (and not at the partner 
                level).
                    ``(B) Certain limitations applied at 
                partner level.--The following provisions shall 
                be applied at the partner level (and not at the 
                partnership level):
                            ``(i) Section 68 (relating to 
                        overall limitation on itemized 
                        deductions).
                            ``(ii) Sections 49 and 465 
                        (relating to at risk limitations).
                            ``(iii) Section 469 (relating to 
                        limitation on passive activity losses 
                        and credits).
                            ``(iv) Any other provision 
                        specified in regulations.
            ``(4) Coordination with other provisions.--
        Paragraphs (2) and (3) shall apply notwithstanding any 
        other provision of this chapter other than this part.
    ``(b) Modifications to Determination of Taxable Income.--In 
determining the taxable income of an electing large 
partnership--
            ``(1) Certain deductions not allowed.--The 
        following deductions shall not be allowed:
                    ``(A) The deduction for personal exemptions 
                provided in section 151.
                    ``(B) The net operating loss deduction 
                provided in section 172.
                    ``(C) The additional itemized deductions 
                for individuals provided in part VII of 
                subchapter B (other than section 212 thereof).
            ``(2) Charitable deductions.--In determining the 
        amount allowable under section 170, the limitation of 
        section 170(b)(2) shall apply.
            ``(3) Coordination with section 67.--In lieu of 
        applying section 67, 70 percent of the amount of the 
        miscellaneous itemized deductions shall be disallowed.
    ``(c) Special Rules for Income From Discharge of 
Indebtedness.--If an electing large partnership has income from 
the discharge of any indebtedness--
            ``(1) such income shall be excluded in determining 
        the amounts referred to in section 772(a), and
            ``(2) in determining the income tax of any partner 
        of such partnership--
                    ``(A) such income shall be treated as an 
                item required to be separately taken into 
                account under section 772(a), and
                    ``(B) the provisions of section 108 shall 
                be applied without regard to this part.

``SEC. 774. OTHER MODIFICATIONS.

    ``(a) Treatment of Certain Optional Adjustments, Etc.--In 
the case of an electing large partnership--
            ``(1) computations under section 773 shall be made 
        without regard to any adjustment under section 743(b) 
        or 108(b), but
            ``(2) a partner's distributive share of any amount 
        referred to in section 772(a) shall be appropriately 
        adjusted to take into account any adjustment under 
        section 743(b) or 108(b) with respect to such partner.
    ``(b) Credit Recapture Determined at Partnership Level.--
            ``(1) In general.--In the case of an electing large 
        partnership--
                    ``(A) any credit recapture shall be taken 
                into account by the partnership, and
                    ``(B) the amount of such recapture shall be 
                determined as if the credit with respect to 
                which the recapture is made had been fully 
                utilized to reduce tax.
            ``(2) Method of taking recapture into account.--An 
        electing large partnership shall take into account a 
        credit recapture by reducing the amount of the 
        appropriate current year credit to the extent thereof, 
        and if such recapture exceeds the amount of such 
        current year credit, the partnership shall be liable to 
        pay such excess.
            ``(3) Dispositions not to trigger recapture.--No 
        credit recapture shall be required by reason of any 
        transfer of an interest in an electing large 
        partnership.
            ``(4) Credit recapture.--For purposes of this 
        subsection, the term `credit recapture' means any 
        increase in tax under section 42(j) or 50(a).
    ``(c) Partnership Not Terminated by Reason of Change in 
Ownership.--Subparagraph (B) of section 708(b)(1) shall not 
apply to an electing large partnership.
    ``(d) Partnership Entitled to Certain Credits.--The 
following shall be allowed to an electing large partnership and 
shall not be taken into account by the partners of such 
partnership:
            ``(1) The credit provided by section 34.
            ``(2) Any credit or refund under section 
        852(b)(3)(D).
    ``(e) Treatment of REMIC Residuals.--For purposes of 
applying section 860E(e)(6) to any electing large partnership--
            ``(1) all interests in such partnership shall be 
        treated as held by disqualified organizations,
            ``(2) in lieu of applying subparagraph (C) of 
        section 860E(e)(6), the amount subject to tax under 
        section 860E(e)(6) shall be excluded from the gross 
        income of such partnership, and
            ``(3) subparagraph (D) of section 860E(e)(6) shall 
        not apply.
    ``(f) Special Rules for Applying Certain Installment Sale 
Rules.--In the case of an electing large partnership--
            ``(1) the provisions of sections 453(l)(3) and 453A 
        shall be applied at the partnership level, and
            ``(2) in determining the amount of interest payable 
        under such sections, such partnership shall be treated 
        as subject to tax under this chapter at the highest 
        rate of tax in effect under section 1 or 11.

``SEC. 775. ELECTING LARGE PARTNERSHIP DEFINED.

    ``(a) General Rule.--For purposes of this part--
            ``(1) In general.--The term `electing large 
        partnership' means, with respect to any partnership 
        taxable year, any partnership if--
                    ``(A) the number of persons who were 
                partners in such partnership in the preceding 
                partnership taxable year equaled or exceeded 
                100, and
                    ``(B) such partnership elects the 
                application of this part.
        To the extent provided in regulations, a partnership 
        shall cease to be treated as an electing large 
        partnership for any partnership taxable year if in such 
        taxable year fewer than 100 persons were partners in 
        such partnership.
            ``(2) Election.--The election under this subsection 
        shall apply to the taxable year for which made and all 
        subsequent taxable years unless revoked with the 
        consent of the Secretary.
    ``(b) Special Rules for Certain Service Partnerships.--
            ``(1) Certain partners not counted.--For purposes 
        of this section, the term `partner' does not include 
        any individual performing substantial services in 
        connection with the activities of the partnership and 
        holding an interest in such partnership, or an 
        individual who formerly performed substantial services 
        in connection with such activities and who held an 
        interest in such partnership at the time the individual 
        performed such services.
            ``(2) Exclusion.--For purposes of this part, an 
        election under subsection (a) shall not be effective 
        with respect to any partnership if substantially all 
        the partners of such partnership--
                    ``(A) are individuals performing 
                substantial services in connection with the 
                activities of such partnership or are personal 
                service corporations (as defined in section 
                269A(b)) the owner-employees (as defined in 
                section 269A(b)) of which perform such 
                substantial services,
                    ``(B) are retired partners who had 
                performed such substantial services, or
                    ``(C) are spouses of partners who are 
                performing (or had previously performed) such 
                substantial services.
            ``(3) Special rule for lower tier partnerships.--
        For purposes of this subsection, the activities of a 
        partnership shall include the activities of any other 
        partnership in which the partnership owns directly an 
        interest in the capital and profits of at least 80 
        percent.
    ``(c) Exclusion of Commodity Pools.--For purposes of this 
part, an election under subsection (a) shall not be effective 
with respect to any partnership the principal activity of which 
is the buying and selling of commodities (not described in 
section 1221(1)), or options, futures, or forwards with respect 
to such commodities.
    ``(d) Secretary May Rely on Treatment on Return.--If, on 
the partnership return of any partnership, such partnership is 
treated as an electing large partnership, such treatment shall 
be binding on such partnership and all partners of such 
partnership but not on the Secretary.

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

    ``(a) Computation of Percentage Depletion.--In the case of 
an electing large partnership, except as provided in subsection 
(b)--
            ``(1) the allowance for depletion under section 611 
        with respect to any partnership oil or gas property 
        shall be computed at the partnership level without 
        regard to any provision of section 613A requiring such 
        allowance to be computed separately by each partner,
            ``(2) such allowance shall be determined without 
        regard to the provisions of section 613A(c) limiting 
        the amount of production for which percentage depletion 
        is allowable and without regard to paragraph (1) of 
        section 613A(d), and
            ``(3) paragraph (3) of section 705(a) shall not 
        apply.
    ``(b) Treatment of Certain Partners.--
            ``(1) In general.--In the case of a disqualified 
        person, the treatment under this chapter of such 
        person's distributive share of any item of income, 
        gain, loss, deduction, or credit attributable to any 
        partnership oil or gas property shall be determined 
        without regard to this part. Such person's distributive 
        share of any such items shall be excluded for purposes 
        of making determinations under sections 772 and 773.
            ``(2) Disqualified person.--For purposes of 
        paragraph (1), the term `disqualified person' means, 
        with respect to any partnership taxable year--
                    ``(A) any person referred to in paragraph 
                (2) or (4) of section 613A(d) for such person's 
                taxable year in which such partnership taxable 
                year ends, and
                    ``(B) any other person if such person's 
                average daily production of domestic crude oil 
                and natural gas for such person's taxable year 
                in which such partnership taxable year ends 
                exceeds 500 barrels.
            ``(3) Average daily production.--For purposes of 
        paragraph (2), a person's average daily production of 
        domestic crude oil and natural gas for any taxable year 
        shall be computed as provided in section 613A(c)(2)--
                    ``(A) by taking into account all production 
                of domestic crude oil and natural gas 
                (including such person's proportionate share of 
                any production of a partnership),
                    ``(B) by treating 6,000 cubic feet of 
                natural gas as a barrel of crude oil, and
                    ``(C) by treating as 1 person all persons 
                treated as 1 taxpayer under section 613A(c)(8) 
                or among whom allocations are required under 
                such section.

``SEC. 777. REGULATIONS.

    ``The Secretary shall prescribe such regulations as may be 
appropriate to carry out the purposes of this part.''.
    (b) Clerical Amendment.--The table of parts for subchapter 
K of chapter 1 is amended by adding at the end the following 
new item:

        ``Part IV. Special rules for electing large partnerships.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to partnership taxable years beginning after 
December 31, 1997.

SEC. 1222. SIMPLIFIED AUDIT PROCEDURES FOR ELECTING LARGE PARTNERSHIPS.

    (a) General Rule.--Chapter 63 is amended by adding at the 
end thereof the following new subchapter:

        ``Subchapter D--Treatment of electing large partnerships

        ``Part I. Treatment of partnership items and adjustments.
        ``Part II. Partnership level adjustments.
        ``Part III. Definitions and special rules.

        ``PART I--TREATMENT OF PARTNERSHIP ITEMS AND ADJUSTMENTS

        ``Sec. 6240. Application of subchapter.
        ``Sec. 6241. Partner's return must be consistent with 
                  partnership return.
        ``Sec. 6242. Procedures for taking partnership adjustments into 
                  account.

``SEC. 6240. APPLICATION OF SUBCHAPTER.

    ``(a) General Rule.--This subchapter shall only apply to 
electing large partnerships and partners in such partnerships.
    ``(b) Coordination With Other Partnership Audit 
Procedures.--
            ``(1) In general.--Subchapter C of this chapter 
        shall not apply to any electing large partnership other 
        than in its capacity as a partner in another 
        partnership which is not an electing large partnership.
            ``(2) Treatment where partner in other 
        partnership.--If an electing large partnership is a 
        partner in another partnership which is not an electing 
        large partnership--
                    ``(A) subchapter C of this chapter shall 
                apply to items of such electing large 
                partnership which are partnership items with 
                respect to such other partnership, but
                    ``(B) any adjustment under such subchapter 
                C shall be taken into account in the manner 
                provided by section 6242.

``SEC. 6241. PARTNER'S RETURN MUST BE CONSISTENT WITH PARTNERSHIP 
                    RETURN.

    ``(a) General Rule.--A partner of any electing large 
partnership shall, on the partner's return, treat each 
partnership item attributable to such partnership in a manner 
which is consistent with the treatment of such partnership item 
on the partnership return.
    ``(b) Underpayment Due to Inconsistent Treatment Assessed 
as Math Error.--Any underpayment of tax by a partner by reason 
of failing to comply with the requirements of subsection (a) 
shall be assessed and collected in the same manner as if such 
underpayment were on account of a mathematical or clerical 
error appearing on the partner's return. Paragraph (2) of 
section 6213(b) shall not apply to any assessment of an 
underpayment referred to in the preceding sentence.
    ``(c) Adjustments Not To Affect Prior Year of Partners.--
            ``(1) In general.--Except as provided in paragraph 
        (2), subsections (a) and (b) shall apply without regard 
        to any adjustment to the partnership item under part 
        II.
            ``(2) Certain changes in distributive share taken 
        into account by partner.--
                    ``(A) In general.--To the extent that any 
                adjustment under part II involves a change 
                under section 704 in a partner's distributive 
                share of the amount of any partnership item 
                shown on the partnership return, such 
                adjustment shall be taken into account in 
                applying this title to such partner for the 
                partner's taxable year for which such item was 
                required to be taken into account.
                    ``(B) Coordination with deficiency 
                procedures.--
                            ``(i) In general.--Subchapter B 
                        shall not apply to the assessment or 
                        collection of any underpayment of tax 
                        attributable to an adjustment referred 
                        to in subparagraph (A).
                            ``(ii) Adjustment not precluded.--
                        Notwithstanding any other law or rule 
                        of law, nothing in subchapter B (or in 
                        any proceeding under subchapter B) 
                        shall preclude the assessment or 
                        collection of any underpayment of tax 
                        (or the allowance of any credit or 
                        refund of any overpayment of tax) 
                        attributable to an adjustment referred 
                        to in subparagraph (A) and such 
                        assessment or collection or allowance 
                        (or any notice thereof) shall not 
                        preclude any notice, proceeding, or 
                        determination under subchapter B.
                    ``(C) Period of limitations.--The period 
                for--
                            ``(i) assessing any underpayment of 
                        tax, or
                            ``(ii) filing a claim for credit or 
                        refund of any overpayment of tax,
                attributable to an adjustment referred to in 
                subparagraph (A) shall not expire before the 
                close of the period prescribed by section 6248 
                for making adjustments with respect to the 
                partnership taxable year involved.
                    ``(D) Tiered structures.--If the partner 
                referred to in subparagraph (A) is another 
                partnership or an S corporation, the rules of 
                this paragraph shall also apply to persons 
                holding interests in such partnership or S 
                corporation (as the case may be); except that, 
                if such partner is an electing large 
                partnership, the adjustment referred to in 
                subparagraph (A) shall be taken into account in 
                the manner provided by section 6242.
    ``(d) Addition to Tax for Failure to Comply With Section.--

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

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

    ``(a) Adjustments Flow Through To Partners for Year in 
Which Adjustment Takes Effect.--
            ``(1) In general.--If any partnership adjustment 
        with respect to any partnership item takes effect 
        (within the meaning of subsection (d)(2)) during any 
        partnership taxable year and if an election under 
        paragraph (2) does not apply to such adjustment, such 
        adjustment shall be taken into account in determining 
        the amount of such item for the partnership taxable 
        year in which such adjustment takes effect. In applying 
        this title to any person who is (directly or 
        indirectly) a partner in such partnership during such 
        partnership taxable year, such adjustment shall be 
        treated as an item actually arising during such taxable 
        year.
            ``(2) Partnership liable in certain cases.--If--
                    ``(A) a partnership elects under this 
                paragraph to not take an adjustment into 
                account under paragraph (1),
                    ``(B) a partnership does not make such an 
                election but in filing its return for any 
                partnership taxable year fails to take fully 
                into account any partnership adjustment as 
                required under paragraph (1), or
                    ``(C) any partnership adjustment involves a 
                reduction in a credit which exceeds the amount 
                of such credit determined for the partnership 
                taxable year in which the adjustment takes 
                effect,
        the partnership shall pay to the Secretary an amount 
        determined by applying the rules of subsection (b)(4) 
        to the adjustments not so taken into account and any 
        excess referred to in subparagraph (C).
            ``(3) Offsetting adjustments taken into account.--
        If a partnership adjustment requires another adjustment 
        in a taxable year after the adjusted year and before 
        the partnership taxable year in which such partnership 
        adjustment takes effect, such other adjustment shall be 
        taken into account under this subsection for the 
        partnership taxable year in which such partnership 
        adjustment takes effect.
            ``(4) Coordination with part ii.--Amounts taken 
        into account under this subsection for any partnership 
        taxable year shall continue to be treated as 
        adjustments for the adjusted year for purposes of 
        determining whether such amounts may be readjusted 
        under part II.
    ``(b) Partnership Liable for Interest and Penalties.--
            ``(1) In general.--If a partnership adjustment 
        takes effect during any partnership taxable year and 
        such adjustment results in an imputed underpayment for 
        the adjusted year, the partnership--
                    ``(A) shall pay to the Secretary interest 
                computed under paragraph (2), and
                    ``(B) shall be liable for any penalty, 
                addition to tax, or additional amount as 
                provided in paragraph (3).
            ``(2) Determination of amount of interest.--The 
        interest computed under this paragraph with respect to 
        any partnership adjustment is the interest which would 
        be determined under chapter 67--
                    ``(A) on the imputed underpayment 
                determined under paragraph (4) with respect to 
                such adjustment,
                    ``(B) for the period beginning on the day 
                after the return due date for the adjusted year 
                and ending on the return due date for the 
                partnership taxable year in which such 
                adjustment takes effect (or, if earlier, in the 
                case of any adjustment to which subsection 
                (a)(2) applies, the date on which the payment 
                under subsection (a)(2) is made).
        Proper adjustments in the amount determined under the 
        preceding sentence shall be made for adjustments 
        required for partnership taxable years after the 
        adjusted year and before the year in which the 
        partnership adjustment takes effect by reason of such 
        partnership adjustment.
            ``(3) Penalties.--A partnership shall be liable for 
        any penalty, addition to tax, or additional amount for 
        which it would have been liable if such partnership had 
        been an individual subject to tax under chapter 1 for 
        the adjusted year and the imputed underpayment 
        determined under paragraph (4) were an actual 
        underpayment (or understatement) for such year.
            ``(4) Imputed underpayment.--For purposes of this 
        subsection, the imputed underpayment determined under 
        this paragraph with respect to any partnership 
        adjustment is the underpayment (if any) which would 
        result--
                    ``(A) by netting all adjustments to items 
                of income, gain, loss, or deduction and by 
                treating any net increase in income as an 
                underpayment equal to the amount of such net 
                increase multiplied by the highest rate of tax 
                in effect under section 1 or 11 for the 
                adjusted year, and
                    ``(B) by taking adjustments to credits into 
                account as increases or decreases (whichever is 
                appropriate) in the amount of tax.
        For purposes of the preceding sentence, any net 
        decrease in a loss shall be treated as an increase in 
        income and a similar rule shall apply to a net increase 
        in a loss.
    ``(c) Administrative Provisions.--
            ``(1) In general.--Any payment required by 
        subsection (a)(2) or (b)(1)(A)--
                    ``(A) shall be assessed and collected in 
                the same manner as if it were a tax imposed by 
                subtitle C, and
                    ``(B) shall be paid on or before the return 
                due date for the partnership taxable year in 
                which the partnership adjustment takes effect.
            ``(2) Interest.--For purposes of determining 
        interest, any payment required by subsection (a)(2) or 
        (b)(1)(A) shall be treated as an underpayment of tax.
            ``(3) Penalties.--
                    ``(A) In general.--In the case of any 
                failure by any partnership to pay on the date 
                prescribed therefor any amount required by 
                subsection (a)(2) or (b)(1)(A), there is hereby 
                imposed on such partnership a penalty of 10 
                percent of the underpayment. For purposes of 
                the preceding sentence, the term `underpayment' 
                means the excess of any payment required under 
                this section over the amount (if any) paid on 
                or before the date prescribed therefor.
                    ``(B) Accuracy-related and fraud penalties 
                made applicable.--For purposes of part II of 
                subchapter A of chapter 68, any payment 
                required by subsection (a)(2) shall be treated 
                as an underpayment of tax.
    ``(d) Definitions and Special Rules.--For purposes of this 
section--
            ``(1) Partnership adjustment.--The term 
        `partnership adjustment' means any adjustment in the 
        amount of any partnership item of an electing large 
        partnership.
            ``(2) When adjustment takes effect.--A partnership 
        adjustment takes effect--
                    ``(A) in the case of an adjustment pursuant 
                to the decision of a court in a proceeding 
                brought under part II, when such decision 
                becomes final,
                    ``(B) in the case of an adjustment pursuant 
                to any administrative adjustment request under 
                section 6251, when such adjustment is allowed 
                by the Secretary, or
                    ``(C) in any other case, when such 
                adjustment is made.
            ``(3) Adjusted year.--The term `adjusted year' 
        means the partnership taxable year to which the item 
        being adjusted relates.
            ``(4) Return due date.--The term `return due date' 
        means, with respect to any taxable year, the date 
        prescribed for filing the partnership return for such 
        taxable year (determined without regard to extensions).
            ``(5) Adjustments involving changes in character.--
        Under regulations, appropriate adjustments in the 
        application of this section shall be made for purposes 
        of taking into account partnership adjustments which 
        involve a change in the character of any item of 
        income, gain, loss, or deduction.
    ``(e) Payments Nondeductible.--No deduction shall be 
allowed under subtitle A for any payment required to be made by 
an electing large partnership under this section.


                ``PART II--PARTNERSHIP LEVEL ADJUSTMENTS


        ``Subpart A. Adjustments by Secretary.
        ``Subpart B. Claims for adjustments by partnership.

                 ``Subpart A--Adjustments by Secretary

        ``Sec. 6245. Secretarial authority.
        ``Sec. 6246. Restrictions on partnership adjustments.
        ``Sec. 6247. Judicial review of partnership adjustment.
        ``Sec. 6248. Period of limitations for making adjustments.

``SEC. 6245. SECRETARIAL AUTHORITY.

    ``(a) General Rule.--The Secretary is authorized and 
directed to make adjustments at the partnership level in any 
partnership item to the extent necessary to have such item be 
treated in the manner required.
    ``(b) Notice of Partnership Adjustment.--
            ``(1) In general.--If the Secretary determines that 
        a partnership adjustment is required, the Secretary is 
        authorized to send notice of such adjustment to the 
        partnership by certified mail or registered mail. Such 
        notice shall be sufficient if mailed to the partnership 
        at its last known address even if the partnership has 
        terminated its existence.
            ``(2) Further notices restricted.--If the Secretary 
        mails a notice of a partnership adjustment to any 
        partnership for any partnership taxable year and the 
        partnership files a petition under section 6247 with 
        respect to such notice, in the absence of a showing of 
        fraud, malfeasance, or misrepresentation of a material 
        fact, the Secretary shall not mail another such notice 
        to such partnership with respect to such taxable year.
            ``(3) Authority to rescind notice with partnership 
        consent.--The Secretary may, with the consent of the 
        partnership, rescind any notice of a partnership 
        adjustment mailed to such partnership. Any notice so 
        rescinded shall not be treated as a notice of a 
        partnership adjustment, for purposes of this section, 
        section 6246, and section 6247, and the taxpayer shall 
        have no right to bring a proceeding under section 6247 
        with respect to such notice. Nothing in this subsection 
        shall affect any suspension of the running of any 
        period of limitations during any periodany period 
during which the rescinded notice was outstanding.

``SEC. 6246. RESTRICTIONS ON PARTNERSHIP ADJUSTMENTS.

    ``(a) General Rule.--Except as otherwise provided in this 
chapter, no adjustment to any partnership item may be made (and 
no levy or proceeding in any court for the collection of any 
amount resulting from such adjustment may be made, begun or 
prosecuted) before--
            ``(1) the close of the 90th day after the day on 
        which a notice of a partnership adjustment was mailed 
        to the partnership, and
            ``(2) if a petition is filed under section 6247 
        with respect to such notice, the decision of the court 
        has become final.
    ``(b) Premature Action May Be Enjoined.--Notwithstanding 
section 7421(a), any action which violates subsection (a) may 
be enjoined in the proper court, including the Tax Court. The 
Tax Court shall have no jurisdiction to enjoin any action under 
this subsection unless a timely petition has been filed under 
section 6247 and then only in respect of the adjustments that 
are the subject of such petition.
    ``(c) Exceptions to Restrictions on Adjustments.--
            ``(1) Adjustments arising out of math or clerical 
        errors.--
                    ``(A) In general.--If the partnership is 
                notified that, on account of a mathematical or 
                clerical error appearing on the partnership 
                return, an adjustment to a partnership item is 
                required, rules similar to the rules of 
                paragraphs (1) and (2) of section 6213(b) shall 
                apply to such adjustment.
                    ``(B) Special rule.--If an electing large 
                partnership is a partner in another electing 
                large partnership, any adjustment on account of 
                such partnership's failure to comply with the 
                requirements of section 6241(a) with respect to 
                its interest in such other partnership shall be 
                treated as an adjustment referred to in 
                subparagraph (A), except that paragraph (2) of 
                section 6213(b) shall not apply to such 
                adjustment.
            ``(2) Partnership may waive restrictions.--The 
        partnership shall at any time (whether or not a notice 
        of partnership adjustment has been issued) have the 
        right, by a signed notice in writing filed with the 
        Secretary, to waive the restrictions provided in 
        subsection (a) on the making of any partnership 
        adjustment.
    ``(d) Limit Where No Proceeding Begun.--If no proceeding 
under section 6247 is begun with respect to any notice of a 
partnership adjustment during the 90-day period described in 
subsection (a), the amount for which the partnership is liable 
under section 6242 (and any increase in any partner's liability 
for tax under chapter 1 by reason of any adjustment under 
section 6242(a)) shall not exceed the amount determined in 
accordance with such notice.

``SEC. 6247. JUDICIAL REVIEW OF PARTNERSHIP ADJUSTMENT.

    ``(a) General Rule.--Within 90 days after the date on which 
a notice of a partnership adjustment is mailed to the 
partnership with respect to any partnership taxable year, the 
partnership may file a petition for a readjustment of the 
partnership items for such taxable year with--
            ``(1) the Tax Court,
            ``(2) the district court of the United States for 
        the district in which the partnership's principal place 
        of business is located, or
            ``(3) the Claims Court.
    ``(b) Jurisdictional Requirement for Bringing Action in 
District Court or Claims Court.--
            ``(1) In general.--A readjustment petition under 
        this section may be filed in a district court of the 
        United States or the Claims Court only if the 
        partnership filing the petition deposits with the 
        Secretary, on or before the date the petition is filed, 
        the amount for which the partnership would be liable 
        under section 6242(b) (as of the date of the filing of 
        the petition) if the partnership items were adjusted as 
        provided by the notice of partnership adjustment. The 
        court may by order provide that the jurisdictional 
        requirements of this paragraph are satisfied where 
        there has been a good faith attempt to satisfy such 
        requirement and any shortfall of the amount required to 
        be deposited is timely corrected.
            ``(2) Interest payable.--Any amount deposited under 
        paragraph (1), while deposited, shall not be treated as 
        a payment of tax for purposes of this title (other than 
        chapter 67).
    ``(c) Scope of Judicial Review.--A court with which a 
petition is filed in accordance with this section shall have 
jurisdiction to determine all partnership items of the 
partnership for the partnership taxable year to which the 
notice of partnership adjustment relates and the proper 
allocation of such items among the partners (and the 
applicability of any penalty, addition to tax, or additional 
amount for which the partnership may be liable under section 
6242(b)).
    ``(d) Determination of Court Reviewable.--Any determination 
by a court under this section shall have the force and effect 
of a decision of the Tax Court or a final judgment or decree of 
the district court or the Claims Court, as the case may be, and 
shall be reviewable as such. The date of any such determination 
shall be treated as being the date of the court's order 
entering the decision.
    ``(e) Effect of Decision Dismissing Action.--If an action 
brought under this section is dismissed other than by reason of 
a rescission under section 6245(b)(3), the decision of the 
court dismissing the action shall be considered as its decision 
that the notice of partnership adjustment is correct, and an 
appropriate order shall be entered in the records of the court.

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

    ``(a) General Rule.--Except as otherwise provided in this 
section, no adjustment under this subpart to any partnership 
item for any partnership taxable year may be made after the 
date which is 3 years after the later of--
            ``(1) the date on which the partnership return for 
        such taxable year was filed, or
            ``(2) the last day for filing such return for such 
        year (determined without regard to extensions).
    ``(b) Extension by Agreement.--The period described in 
subsection (a) (including an extension period under this 
subsection) may be extended by an agreement entered into by the 
Secretary and the partnership before the expiration of such 
period.
    ``(c) Special Rule in Case of Fraud, Etc.--
            ``(1) False return.--In the case of a false or 
        fraudulent partnership return with intent to evade tax, 
        the adjustment may be made at any time.
            ``(2) Substantial omission of income.--If any 
        partnership omits from gross income an amount properly 
        includible therein which is in excess of 25 percent of 
        the amount of gross income stated in its return, 
        subsection (a) shall be applied by substituting `6 
        years' for `3 years'.
            ``(3) No return.--In the case of a failure by a 
        partnership to file a return for any taxable year, the 
        adjustment may be made at any time.
            ``(4) Return filed by secretary.--For purposes of 
        this section, a return executed by the Secretary under 
        subsection (b) of section 6020 on behalf of the 
        partnership shall not be treated as a return of the 
        partnership.
    ``(d) Suspension When Secretary Mails Notice of 
Adjustment.--If notice of a partnership adjustment with respect 
to any taxable year is mailed to the partnership, the running 
of the period specified in subsection (a) (as modified by the 
other provisions of this section) shall be suspended--
            ``(1) for the period during which an action may be 
        brought under section 6247 (and, if a petition is filed 
        under section 6247 with respect to such notice, until 
        the decision of the court becomes final), and
            ``(2) for 1 year thereafter.


           ``Subpart B--Claims for Adjustments by Partnership


        ``Sec. 6251. Administrative adjustment requests.
        ``Sec. 6252. Judicial review where administrative adjustment 
                  request is not allowed in full.

``SEC. 6251. ADMINISTRATIVE ADJUSTMENT REQUESTS.

    ``(a) General Rule.--A partnership may file a request for 
an administrative adjustment of partnership items for any 
partnership taxable year at any time which is--
            ``(1) within 3 years after the later of--
                    ``(A) the date on which the partnership 
                return for such year is filed, or
                    ``(B) the last day for filing the 
                partnership return for such year (determined 
                without regard to extensions), and
            ``(2) before the mailing to the partnership of a 
        notice of a partnership adjustment with respect to such 
        taxable year.
    ``(b) Secretarial Action.--If a partnership files an 
administrative adjustment request under subsection (a), the 
Secretary may allow any part of the requested adjustments.
    ``(c) Special Rule in Case of Extension Under Section 
6248.--If the period described in section 6248(a) is extended 
pursuant to an agreement under section 6248(b), the period 
prescribed by subsection (a)(1) shall not expire before the 
date 6 months after the expiration of the extension under 
section 6248(b).

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

    ``(a) In General.--If any part of an administrative 
adjustment request filed under section 6251 is not allowed by 
the Secretary, the partnership may file a petition for an 
adjustment with respect to the partnership items to which such 
part of the request relates with--
            ``(1) the Tax Court,
            ``(2) the district court of the United States for 
        the district in which the principal place of business 
        of the partnership is located, or
            ``(3) the Claims Court.
    ``(b) Period for Filing Petition.--A petition may be filed 
under subsection (a) with respect to partnership items for a 
partnership taxable year only--
            ``(1) after the expiration of 6 months from the 
        date of filing of the request under section 6251, and
            ``(2) before the date which is 2 years after the 
        date of such request.

The 2-year period set forth in paragraph (2) shall be extended 
for such period as may be agreed upon in writing by the 
partnership and the Secretary.
    ``(c) Coordination With Subpart A.--
            ``(1) Notice of partnership adjustment before 
        filing of petition.--No petition may be filed under 
        this section after the Secretary mails to the 
        partnership a notice of a partnership adjustment for 
        the partnership taxable year to which the request under 
        section 6251 relates.
            ``(2) Notice of partnership adjustment after filing 
        but before hearing of petition.--If the Secretary mails 
        to the partnership a notice of a partnership adjustment 
        for the partnership taxable year to which the request 
        under section 6251 relates after the filing of a 
        petition under this subsection but before the hearing 
        of such petition, such petition shall be treated as an 
action brought under section 6247 with respect to such notice, except 
that subsection (b) of section 6247 shall not apply.
            ``(3) Notice must be before expiration of statute 
        of limitations.--A notice of a partnership adjustment 
        for the partnership taxable year shall be taken into 
        account under paragraphs (1) and (2) only if such 
        notice is mailed before the expiration of the period 
        prescribed by section 6248 for making adjustments to 
        partnership items for such taxable year.
    ``(d) Scope of Judicial Review.--Except in the case 
described in paragraph (2) of subsection (c), a court with 
which a petition is filed in accordance with this section shall 
have jurisdiction to determine only those partnership items to 
which the part of the request under section 6251 not allowed by 
the Secretary relates and those items with respect to which the 
Secretary asserts adjustments as offsets to the adjustments 
requested by the partnership.
    ``(e) Determination of Court Reviewable.--Any determination 
by a court under this section shall have the force and effect 
of a decision of the Tax Court or a final judgment or decree of 
the district court or the Claims Court, as the case may be, and 
shall be reviewable as such. The date of any such determination 
shall be treated as being the date of the court's order 
entering the decision.


                ``PART III--DEFINITIONS AND SPECIAL RULES


        ``Sec. 6255. Definitions and special rules.

``SEC. 6255. DEFINITIONS AND SPECIAL RULES.

    ``(a) Definitions.--For purposes of this subchapter--
            ``(1) Electing large partnership.--The term 
        `electing large partnership' has the meaning given to 
        such term by section 775.
            ``(2) Partnership item.--The term `partnership 
        item' has the meaning given to such term by section 
        6231(a)(3).
    ``(b) Partners Bound by Actions of Partnership, Etc.--
            ``(1) Designation of partner.--Each electing large 
        partnership shall designate (in the manner prescribed 
        by the Secretary) a partner (or other person) who shall 
        have the sole authority to act on behalf of such 
        partnership under this subchapter. In any case in which 
        such a designation is not in effect, the Secretary may 
        select any partner as the partner with such authority.
            ``(2) Binding effect.--An electing large 
        partnership and all partners of such partnership shall 
        be bound--
                    ``(A) by actions taken under this 
                subchapter by the partnership, and
                    ``(B) by any decision in a proceeding 
                brought under this subchapter.
    ``(c) Partnerships Having Principal Place of Business 
Outside the United States.--For purposes of sections 6247 and 
6252, a principal place of business located outside the United 
States shall be treated as located in the District of Columbia.
    ``(d) Treatment Where Partnership Ceases To Exist.--If a 
partnership ceases to exist before a partnership adjustment 
under this subchapter takes effect, such adjustment shall be 
taken into account by the former partners of such partnership 
under regulations prescribed by the Secretary.
    ``(e) Date Decision Becomes Final.--For purposes of this 
subchapter, the principles of section 7481(a) shall be applied 
in determining the date on which a decision of a district court 
or the Claims Court becomes final.
    ``(f) Partnerships in Cases Under Title 11 of the United 
States Code.--
            ``(1) Suspension of period of limitations on making 
        adjustment, assessment, or collection.--The running of 
        any period of limitations provided in this subchapter 
        on making a partnership adjustment (or provided by 
        section 6501 or 6502 on the assessment or collection of 
        any amount required to be paid under section 6242) 
        shall, in a case under title 11 of the United States 
        Code, be suspended during the period during which the 
        Secretary is prohibited by reason of such case from 
        making the adjustment (or assessment or collection) 
        and--
                    ``(A) for adjustment or assessment, 60 days 
                thereafter, and
                    ``(B) for collection, 6 months thereafter.
        A rule similar to the rule of section 6213(f)(2) shall 
        apply for purposes of section 6246.
            ``(2) Suspension of period of limitation for filing 
        for judicial review.--The running of the period 
        specified in section 6247(a) or 6252(b) shall, in a 
        case under title 11 of the United States Code, be 
        suspended during the period during which the 
        partnership is prohibited by reason of such case from 
        filing a petition under section 6247 or 6252 and for 60 
        days thereafter.
    ``(g) Regulations.--The Secretary shall prescribe such 
regulations as may be necessary to carry out the provisions of 
this subchapter, including regulations--
            ``(1) to prevent abuse through manipulation of the 
        provisions of this subchapter, and
            ``(2) providing that this subchapter shall not 
        apply to any case described in section 6231(c)(1) (or 
        the regulations prescribed thereunder) where the 
        application of this subchapter to such a case would 
        interfere with the effective and efficient enforcement 
        of this title.
In any case to which this subchapter does not apply by reason 
of paragraph (2), rules similar to the rules of sections 
6229(f) and 6255(f) shall apply.''.
    (b) Conforming Amendments.--
            (1) Subsection (a) of section 7421 is amended by 
        inserting ``6246(b),'' after ``6213(a),''.
            (2) Subsection (c) of section 7459 is amended by 
        striking ``or section 6228(a)'' and inserting ``, 
        6228(a), 6247, or 6252''.
            (3) Subparagraph (E) of section 7482(b)(1) is 
        amended by striking ``or 6228(a)'' and inserting ``, 
        6228(a), 6247, or 6252''.
            (4)(A) The text of section 7485(b) is amended by 
        striking ``or 6228(a)'' and inserting ``, 6228(a), 
        6247, or 6252''.
            (B) The subsection heading for section 7485(b) is 
        amended to read as follows:
    ``(b) Bond in Case of Appeal of Certain Partnership-Related 
Decisions.--''.
    (c) Clerical Amendment.--The table of subchapters for 
chapter 63 is amended by adding at the end thereof the 
following new item:

        ``Subchapter D. Treatment of electing large partnerships.''.

SEC. 1223. DUE DATE FOR FURNISHING INFORMATION TO PARTNERS OF ELECTING 
                    LARGE PARTNERSHIPS.

    (a) General Rule.--Subsection (b) of section 6031 (relating 
to copies to partners) is amended by adding at the end the 
following new sentence: ``In the case of an electing large 
partnership (as defined in section 775), such information shall 
be furnished on or before the first March 15 following the 
close of such taxable year.''.
    (b) Treatment as Information Return.--Section 6724 is 
amended by adding at the end the following new subsection:
    ``(e) Special Rule for Certain Partnership Returns.--If any 
partnership return under section 6031(a) is required under 
section 6011(e) to be filed on magnetic media or in other 
machine-readable form, for purposes of this part, each schedule 
required to be included with such return with respect to each 
partner shall be treated as a separate information return.''.

SEC. 1224. RETURNS REQUIRED ON MAGNETIC MEDIA.

    Paragraph (2) of section 6011(e) (relating to returns on 
magnetic media) is amended by adding at the end thereof the 
following new sentence:
        ``Notwithstanding the preceding sentence, the Secretary 
        shall require partnerships having more than 100 
        partners to file returns on magnetic media.''.

SEC. 1225. TREATMENT OF PARTNERSHIP ITEMS OF INDIVIDUAL RETIREMENT 
                    ACCOUNTS.

    Subsection (b) of section 6012 is amended by adding at the 
end thereof the following new paragraph:
            ``(6) IRA share of partnership income.--In the case 
        of a trust which is exempt from taxation under section 
        408(e), for purposes of this section, the trust's 
        distributive share of items of gross income and gain of 
        any partnership to which subchapter C or D of chapter 
        63 applies shall be treated as equal to the trust's 
        distributive share of the taxable income of such 
        partnership.''.

SEC. 1226. EFFECTIVE DATE.

    The amendments made by this part shall apply to partnership 
taxable years ending on or after December 31, 1997.

      PART II--PROVISIONS RELATED TO TEFRA PARTNERSHIP PROCEEDINGS

SEC. 1231. TREATMENT OF PARTNERSHIP ITEMS IN DEFICIENCY PROCEEDINGS.

    (a) In General.--Subchapter C of chapter 63 is amended by 
adding at the end the following new section:

``SEC. 6234. DECLARATORY JUDGMENT RELATING TO TREATMENT OF ITEMS OTHER 
                    THAN PARTNERSHIP ITEMS WITH RESPECT TO AN 
                    OVERSHELTERED RETURN.

    ``(a) General Rule.--If--
            ``(1) a taxpayer files an oversheltered return for 
        a taxable year,
            ``(2) the Secretary makes a determination with 
        respect to the treatment of items (other than 
        partnership items) of such taxpayer for such taxable 
        year, and
            ``(3) the adjustments resulting from such 
        determination do not give rise to a deficiency (as 
        defined in section 6211) but would give rise to a 
        deficiency if there were no net loss from partnership 
        items,
the Secretary is authorized to send a notice of adjustment 
reflecting such determination to the taxpayer by certified or 
registered mail.
    ``(b) Oversheltered Return.--For purposes of this section, 
the term `oversheltered return' means an income tax return 
which--
            ``(1) shows no taxable income for the taxable year, 
        and
            ``(2) shows a net loss from partnership items.
    ``(c) Judicial Review in the Tax Court.--Within 90 days, or 
150 days if the notice is addressed to a person outside the 
United States, after the day on which the notice of adjustment 
authorized in subsection (a) is mailed to the taxpayer, the 
taxpayer may file a petition with the Tax Court for 
redetermination of the adjustments. Upon the filing of such a 
petition, the Tax Court shall have jurisdiction to make a 
declaration with respect to all items (other than partnership 
items and affected items which require partner level 
determinations as described in section 6230(a)(2)(A)(i)) for 
the taxable year to which the notice of adjustment relates, in 
accordance with the principles of section 6214(a). Any such 
declaration shall have the force and effect of a decision of 
the Tax Court and shall be reviewable as such.
    ``(d) Failure To File Petition.--
            ``(1) In general.--Except as provided in paragraph 
        (2), if the taxpayer does not file a petition with the 
        Tax Court within the time prescribed in subsection (c), 
        the determination of the Secretary set forth in the 
        notice of adjustment that was mailed to the taxpayer 
        shall be deemed to be correct.
            ``(2) Exception.--Paragraph (1) shall not apply 
        after the date that the taxpayer--
                    ``(A) files a petition with the Tax Court 
                within the time prescribed in subsection (c) 
                with respect to a subsequent notice of 
                adjustment relating to the same taxable year, 
                or
                    ``(B) files a claim for refund of an 
                overpayment of tax under section 6511 for the 
                taxable year involved.
        If a claim for refund is filed by the taxpayer, then 
        solely for purposes of determining (for the taxable 
        year involved) the amount of any computational 
        adjustment in connection with a partnership proceeding 
        under this subchapter (other than under this section) 
        or the amount of any deficiency attributable to 
        affected items in a proceeding under section 
        6230(a)(2), the items that are the subject of the 
        notice of adjustment shall be presumed to have been 
        correctly reported on the taxpayer's return during the 
        pendency of the refund claim (and, if within the time 
        prescribed by section 6532 the taxpayer commences a 
        civil action for refund under section 7422, until the 
        decision in the refund action becomes final).
    ``(e) Limitations Period.--
            ``(1) In general.--Any notice to a taxpayer under 
        subsection (a) shall be mailed before the expiration of 
        the period prescribed by section 6501 (relating to the 
        period of limitations on assessment).
            ``(2) Suspension when secretary mails notice of 
        adjustment.--If the Secretary mails a notice of 
        adjustment to the taxpayer for a taxable year, the 
        period of limitations on the making of assessments 
        shall be suspended for the period during which the 
        Secretary is prohibited from making the assessment 
        (and, in any event, if a proceeding in respect of the 
        notice of adjustment is placed on the docket of the Tax 
        Court, until the decision of the Tax Court becomes 
        final), and for 60 days thereafter.
            ``(3) Restrictions on assessment.--Except as 
        otherwise provided in section 6851, 6852, or 6861, no 
        assessment of a deficiency with respect to any tax 
        imposed by subtitle A attributable to any item (other 
than a partnership item or any item affected by a partnership item) 
shall be made--
                    ``(A) until the expiration of the 
                applicable 90-day or 150-day period set forth 
                in subsection (c) for filing a petition with 
                the Tax Court, or
                    ``(B) if a petition has been filed with the 
                Tax Court, until the decision of the Tax Court 
                has become final.
    ``(f) Further Notices of Adjustment Restricted.--If the 
Secretary mails a notice of adjustment to the taxpayer for a 
taxable year and the taxpayer files a petition with the Tax 
Court within the time prescribed in subsection (c), the 
Secretary may not mail another such notice to the taxpayer with 
respect to the same taxable year in the absence of a showing of 
fraud, malfeasance, or misrepresentation of a material fact.
    ``(g) Coordination With Other Proceedings Under This 
Subchapter.--
            ``(1) In general.--The treatment of any item that 
        has been determined pursuant to subsection (c) or (d) 
        shall be taken into account in determining the amount 
        of any computational adjustment that is made in 
        connection with a partnership proceeding under this 
        subchapter (other than under this section), or the 
        amount of any deficiency attributable to affected items 
        in a proceeding under section 6230(a)(2), for the 
        taxable year involved. Notwithstanding any other law or 
        rule of law pertaining to the period of limitations on 
        the making of assessments, for purposes of the 
        preceding sentence, any adjustment made in accordance 
        with this section shall be taken into account 
        regardless of whether any assessment has been made with 
        respect to such adjustment.
            ``(2) Special rule in case of computational 
        adjustment.--In the case of a computational adjustment 
        that is made in connection with a partnership 
        proceeding under this subchapter (other than under this 
        section), the provisions of paragraph (1) shall apply 
        only if the computational adjustment is made within the 
        period prescribed by section 6229 for assessing any tax 
        under subtitle A which is attributable to any 
        partnership item or affected item for the taxable year 
        involved.
            ``(3) Conversion to deficiency proceeding.--If--
                    ``(A) after the notice referred to in 
                subsection (a) is mailed to a taxpayer for a 
                taxable year but before the expiration of the 
                period for filing a petition with the Tax Court 
                under subsection (c) (or, if a petition is 
                filed with the Tax Court, before the Tax Court 
                makes a declaration for that taxable year), the 
                treatment of any partnership item for the 
                taxable year is finally determined, or any such 
                item ceases to be a partnership item pursuant 
                to section 6231(b), and
                    ``(B) as a result of that final 
                determination or cessation, a deficiency can be 
                determined with respect to the items that are 
                the subject of the notice of adjustment,
        the notice of adjustment shall be treated as a notice 
        of deficiency under section 6212 and any petition filed 
        in respect of the notice shall be treated as an action 
        brought under section 6213.
            ``(4) Finally determined.--For purposes of this 
        subsection, the treatment of partnership items shall be 
        treated as finally determined if--
                    ``(A) the Secretary enters into a 
                settlement agreement (within the meaning of 
                section 6224) with the taxpayer regarding such 
                items,
                    ``(B) a notice of final partnership 
                administrative adjustment has been issued and--
                            ``(i) no petition has been filed 
                        under section 6226 and the time for 
                        doing so has expired, or
                            ``(ii) a petition has been filed 
                        under section 6226 and the decision of 
                        the court has become final, or
                    ``(C) the period within which any tax 
                attributable to such items may be assessed 
                against the taxpayer has expired.
    ``(h) Special Rules if Secretary Incorrectly Determines 
Applicable Procedure.--
            ``(1) Special rule if secretary erroneously mails 
        notice of adjustment.--If the Secretary erroneously 
        determines that subchapter B does not apply to a 
        taxable year of a taxpayer and consistent with that 
        determination timely mails a notice of adjustment to 
        the taxpayer pursuant to subsection (a) of this 
        section, the notice of adjustment shall be treated as a 
        notice of deficiency under section 6212 and any 
        petition that is filed in respect of the notice shall 
        be treated as an action brought under section 6213.
            ``(2) Special rule if secretary erroneously mails 
        notice of deficiency.--If the Secretary erroneously 
        determines that subchapter B applies to a taxable year 
        of a taxpayer and consistent with that determination 
        timely mails a notice of deficiency to the taxpayer 
        pursuant to section 6212, the notice of deficiency 
        shall be treated as a notice of adjustment under 
        subsection (a) and any petition that is filed in 
        respect of the notice shall be treated as an action 
        brought under subsection (c).''.
    (b) Treatment of Partnership Items in Deficiency 
Proceedings.--Section 6211 (defining deficiency) is amended by 
adding at the end the following new subsection:
    ``(c) Coordination With Subchapter C.--In determining the 
amount of any deficiency for purposes of this subchapter, 
adjustments to partnership items shall be made only as provided 
in subchapter C.''.
    (c) Clerical Amendment.--The table of sections for 
subchapter C of chapter 63 is amended by adding at the end the 
following new item:

        ``Sec. 6234. Declaratory judgment relating to treatment of items 
                  other than partnership items with respect to an 
                  oversheltered return.''.

    (d) Effective Date.--The amendments made by this section 
shall apply to partnership taxable years ending after the date 
of the enactment of this Act.

SEC. 1232. PARTNERSHIP RETURN TO BE DETERMINATIVE OF AUDIT PROCEDURES 
                    TO BE FOLLOWED.

    (a) In General.--Section 6231 (relating to definitions and 
special rules) is amended by adding at the end the following 
new subsection:
    ``(g) Partnership Return To Be Determinative of Whether 
Subchapter Applies.--
            ``(1) Determination that subchapter applies.--If, 
        on the basis of a partnership return for a taxable 
        year, the Secretary reasonably determines that this 
        subchapter applies to such partnership for such year 
        but such determination is erroneous, then the 
        provisions of this subchapter are hereby extended to 
        such partnership (and its items) for such taxable year 
        and to partners of such partnership.
            ``(2) Determination that subchapter does not 
        apply.--If, on the basis of a partnership return for a 
        taxable year, the Secretary reasonably determines that 
        this subchapter does not apply to such partnership for 
        such year but such determination is erroneous, then the 
        provisions of this subchapter shall not apply to such 
        partnership (and its items) for such taxable year or to 
        partners of such partnership.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to partnership taxable years ending after the date 
of the enactment of this Act.

SEC. 1233. PROVISIONS RELATING TO STATUTE OF LIMITATIONS.

    (a) Suspension of Statute Where Untimely Petition Filed.--
Paragraph (1) of section 6229(d) (relating to suspension where 
Secretary makes administrative adjustment) is amended by 
striking all that follows ``section 6226'' and inserting the 
following: ``(and, if a petition is filed under section 6226 
with respect to such administrative adjustment, until the 
decision of the court becomes final), and''.
    (b) Suspension of Statute During Bankruptcy Proceeding.--
Section 6229 is amended by adding at the end the following new 
subsection:
    ``(h) Suspension During Pendency of Bankruptcy 
Proceeding.--If a petition is filed naming a partner as a 
debtor in a bankruptcy proceeding under title 11 of the United 
States Code, the running of the period of limitations provided 
in this section with respect to such partner shall be 
suspended--
            ``(1) for the period during which the Secretary is 
        prohibited by reason of such bankruptcy proceeding from 
        making an assessment, and
            ``(2) for 60 days thereafter.''.
    (c) Tax Matters Partner in Bankruptcy.--Section 6229(b) is 
amended by redesignating paragraph (2) as paragraph (3) and by 
inserting after paragraph (1) the following new paragraph:
            ``(2) Special rule with respect to debtors in title 
        11 cases.--Notwithstanding any other law or rule of 
        law, if an agreement is entered into under paragraph 
        (1)(B) and the agreement is signed by a person who 
        would be the tax matters partner but for the fact that, 
        at the time that the agreement is executed, the person 
        is a debtor in a bankruptcy proceeding under title 11 
        of the United States Code, such agreement shall be 
        binding on all partners in the partnership unless the 
        Secretary has been notified of the bankruptcy 
        proceeding in accordance with regulations prescribed by 
        the Secretary.''.
    (d) Effective Dates.--
            (1) Subsections (a) and (b).--The amendments made 
        by subsections (a) and (b) shall apply to partnership 
        taxable years with respect to which the period under 
        section 6229 of the Internal Revenue Code of 1986 for 
        assessing tax has not expired on or before the date of 
        the enactment of this Act.
            (2) Subsection (c).--The amendment made by 
        subsection (c) shall apply to agreements entered into 
        after the date of the enactment of this Act.

SEC. 1234. EXPANSION OF SMALL PARTNERSHIP EXCEPTION.

    (a) In General.--Clause (i) of section 6231(a)(1)(B) 
(relating to exception for small partnerships) is amended to 
read as follows:
                            ``(i) In general.--The term 
                        `partnership' shall not include any 
                        partnership having 10 or fewer partners 
                        each of whom is an individual (other 
                        than a nonresident alien), a C 
                        corporation, or an estate of a deceased 
                        partner. For purposes of the preceding 
                        sentence, a husband and wife (and their 
                        estates) shall be treated as 1 
                        partner.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to partnership taxable years ending after the date 
of the enactment of this Act.

SEC. 1235. EXCLUSION OF PARTIAL SETTLEMENTS FROM 1-YEAR LIMITATION ON 
                    ASSESSMENT.

    (a) In General.--Subsection (f) of section 6229 (relating 
to items becoming nonpartnership items) is amended--
            (1) by striking ``(f) Items Becoming Nonpartnership 
        Items.--If'' and inserting the following:
    ``(f) Special Rules.--
            ``(1) Items becoming nonpartnership items.--If'',
            (2) by moving the text of such subsection 2 ems to 
        the right, and
            (3) by adding at the end the following new 
        paragraph:
            ``(2) Special rule for partial settlement 
        agreements.--If a partner enters into a settlement 
        agreement with the Secretary with respect to the 
        treatment of some of the partnership items in dispute 
        for a partnership taxable year but other partnership 
        items for such year remain in dispute, the period of 
        limitations for assessing any tax attributable to the 
        settled items shall be determined as if such agreement 
        had not been entered into.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to settlements entered into after the date of the 
enactment of this Act.

SEC. 1236. EXTENSION OF TIME FOR FILING A REQUEST FOR ADMINISTRATIVE 
                    ADJUSTMENT.

    (a) In General.--Section 6227 (relating to administrative 
adjustment requests) is amended by redesignating subsections 
(b) and (c) as subsections (c) and (d), respectively, and by 
inserting after subsection (a) the following new subsection:
    ``(b) Special Rule in Case of Extension of Period of 
Limitations Under Section 6229.--The period prescribed by 
subsection (a)(1) for filing of a request for an administrative 
adjustment shall be extended--
            ``(1) for the period within which an assessment may 
        be made pursuant to an agreement (or any extension 
        thereof) under section 6229(b), and
            ``(2) for 6 months thereafter.''.
    (b) Effective Date.--The amendment made by this section 
shall take effect as if included in the amendments made by 
section 402 of the Tax Equity and Fiscal Responsibility Act of 
1982.

SEC. 1237. AVAILABILITY OF INNOCENT SPOUSE RELIEF IN CONTEXT OF 
                    PARTNERSHIP PROCEEDINGS.

    (a) In General.--Subsection (a) of section 6230 is amended 
by adding at the end the following new paragraph:
            ``(3) Special rule in case of assertion by 
        partner's spouse of innocent spouse relief.--
                    ``(A) Notwithstanding section 6404(b), if 
                the spouse of a partner asserts that section 
                6013(e) applies with respect to a liability 
                that is attributable to any adjustment to a 
                partnership item, then such spouse may file 
                with the Secretary within 60 days after the 
                notice of computational adjustment is mailed to 
                the spouse a request for abatement of the 
                assessment specified in such notice. Upon 
                receipt of such request, the Secretary shall 
                abate the assessment. Any reassessment of the 
                tax with respect to which an abatement is made 
                under this subparagraph shall be subject to the 
                deficiency procedures prescribed by subchapter 
                B. The period for making any such reassessment 
                shall not expire before the expiration of 60 
                days after the date of such abatement.
                    ``(B) If the spouse files a petition with 
                the Tax Court pursuant to section 6213 with 
                respect to the request for abatement described 
                in subparagraph (A), the Tax Court shall only 
                have jurisdiction pursuant to this section to 
                determine whether the requirements of section 
                6013(e) have been satisfied. For purposes of 
                such determination, the treatment of 
                partnership items under the settlement, the 
                final partnership administrative adjustment, or 
                the decision of the court (whichever is 
                appropriate) that gave rise to the liability in 
                question shall be conclusive.
                    ``(C) Rules similar to the rules contained 
                in subparagraphs (B) and (C) of paragraph (2) 
                shall apply for purposes of this paragraph.''.
    (b) Claims for Refund.--Subsection (c) of section 6230 is 
amended by adding at the end the following new paragraph:
            ``(5) Rules for seeking innocent spouse relief.--
                    ``(A) In general.--The spouse of a partner 
                may file a claim for refund on the ground that 
                the Secretary failed to relieve the spouse 
                under section 6013(e) from a liability that is 
                attributable to an adjustment to a partnership 
                item.
                    ``(B) Time for filing claim.--Any claim 
                under subparagraph (A) shall be filed within 6 
                months after the day on which the 
Secretarymails to the spouse the notice of computational adjustment 
referred to in subsection (a)(3)(A).
                    ``(C) Suit if claim not allowed.--If the 
                claim under subparagraph (B) is not allowed, 
                the spouse may bring suit with respect to the 
                claim within the period specified in paragraph 
                (3).
                    ``(D) Prior determinations are binding.--
                For purposes of any claim or suit under this 
                paragraph, the treatment of partnership items 
                under the settlement, the final partnership 
                administrative adjustment, or the decision of 
                the court (whichever is appropriate) that gave 
                rise to the liability in question shall be 
                conclusive.''.
    (c) Technical Amendments.--
            (1) Paragraph (1) of section 6230(a) is amended by 
        striking ``paragraph (2)'' and inserting ``paragraph 
        (2) or (3)''.
            (2) Subsection (a) of section 6503 is amended by 
        striking ``section 6230(a)(2)(A)'' and inserting 
        ``paragraph (2)(A) or (3) of section 6230(a)''.
    (d) Effective Date.--The amendments made by this section 
shall take effect as if included in the amendments made by 
section 402 of the Tax Equity and Fiscal Responsibility Act of 
1982.

SEC. 1238. DETERMINATION OF PENALTIES AT PARTNERSHIP LEVEL.

    (a) In General.--Section 6221 (relating to tax treatment 
determined at partnership level) is amended by striking 
``item'' and inserting ``item (and the applicability of any 
penalty, addition to tax, or additional amount which relates to 
an adjustment to a partnership item)''.
    (b) Conforming Amendments.--
            (1) Subsection (f) of section 6226 is amended--
                    (A) by striking ``relates and'' and 
                inserting ``relates,'', and
                    (B) by inserting before the period ``, and 
                the applicability of any penalty, addition to 
                tax, or additional amount which relates to an 
                adjustment to a partnership item''.
            (2) Clause (i) of section 6230(a)(2)(A) is amended 
        to read as follows:
                            ``(i) affected items which require 
                        partner level determinations (other 
                        than penalties, additions to tax, and 
                        additional amounts that relate to 
                        adjustments to partnership items), 
                        or''.
            (3)(A) Subparagraph (A) of section 6230(a)(3), as 
        added by section 1237, is amended by inserting 
        ``(including any liability for any penalties, additions 
        to tax, or additional amounts relating to such 
        adjustment)'' after ``partnership item''.
            (B) Subparagraph (B) of such section is amended by 
        inserting ``(and the applicability of any penalties, 
        additions to tax, or additional amounts)'' after 
        ``partnership items''.
            (C) Subparagraph (A) of section 6230(c)(5), as 
        added by section 1237, is amended by inserting before 
        the period ``(including any liability for any 
        penalties, additions to tax, or additional amounts 
        relating to such adjustment)''.
            (D) Subparagraph (D) of section 6230(c)(5), as 
        added by section 1237, is amended by inserting ``(and 
        the applicability of any penalties, additions to tax, 
        or additional amounts)'' after ``partnership items''.
            (4) Paragraph (1) of section 6230(c) is amended by 
        striking ``or'' at the end of subparagraph (A), by 
        striking the period at the end of subparagraph (B) and 
        inserting ``, or'', and by adding at the end the 
        following new subparagraph:
                    ``(C) the Secretary erroneously imposed any 
                penalty, addition to tax, or additional amount 
                which relates to an adjustment to a partnership 
                item.''.
            (5) So much of subparagraph (A) of section 
        6230(c)(2) as precedes ``shall be filed'' is amended to 
        read as follows:
                    ``(A) Under paragraph (1) (a) or (c).--Any 
                claim under subparagraph (A) or (C) of 
                paragraph (1)''.
            (6) Paragraph (4) of section 6230(c) is amended by 
        adding at the end the following: ``In addition, the 
        determination under the final partnership 
        administrative adjustment or under the decision of the 
        court (whichever is appropriate) concerning the 
        applicability of any penalty, addition to tax, or 
        additional amount which relates to an adjustment to a 
        partnership item shall also be conclusive. 
        Notwithstanding the preceding sentence, the partner 
        shall be allowed to assert any partner level defenses 
        that may apply or to challenge the amount of the 
        computational adjustment.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to partnership taxable years ending after the date 
of the enactment of this Act.

SEC. 1239. PROVISIONS RELATING TO COURT JURISDICTION, ETC.

    (a) Tax Court Jurisdiction To Enjoin Premature Assessments 
of Deficiencies Attributable to Partnership Items.--Subsection 
(b) of section 6225 is amended by striking ``the proper 
court.'' and inserting ``the proper court, including the Tax 
Court. The Tax Court shall have no jurisdiction to enjoin any 
action or proceeding under this subsection unless a timely 
petition for a readjustment of the partnership items for the 
taxable year has been filed and then only in respect of the 
adjustments that are the subject of such petition.''.
    (b) Jurisdiction To Consider Statute of Limitations With 
Respect to Partners.--Paragraph (1) of section 6226(d) is 
amended by adding at the end the following new sentence:

        ``Notwithstanding subparagraph (B), any person treated 
        under subsection (c) as a party to an action shall be 
        permitted to participate in such action (or file a 
        readjustment petition under subsection (b) or paragraph 
        (2) of this subsection) solely for the purpose of 
        asserting that the period of limitations for assessing 
        any tax attributable to partnership items has expired 
        with respect to such person, and the court having 
        jurisdiction of such action shall have jurisdiction to 
        consider such assertion.''.
    (c) Tax Court Jurisdiction To Determine Overpayments 
Attributable to Affected Items.--
            (1) Paragraph (6) of section 6230(d) is amended by 
        striking ``(or an affected item)''.
            (2) Paragraph (3) of section 6512(b) is amended by 
        adding at the end the following new sentence:
        ``In the case of a credit or refund relating to an 
        affected item (within the meaning of section 
        6231(a)(5)), the preceding sentence shall be applied by 
        substituting the periods under sections 6229 and 
        6230(d) for the periods under section 6511 (b)(2), (c), 
        and (d).''.
    (d) Venue on Appeal.--
            (1) Paragraph (1) of section 7482(b) is amended by 
        striking ``or'' at the end of subparagraph (D), by 
        striking the period at the end of subparagraph (E) and 
        inserting ``, or'', and by inserting after subparagraph 
        (E) the following new subparagraph:
                    ``(F) in the case of a petition under 
                section 6234(c)--
                            ``(i) the legal residence of the 
                        petitioner if the petitioner is not a 
                        corporation, and
                            ``(ii) the place or office 
                        applicable under subparagraph (B) if 
                        the petitioner is a corporation.''.
            (2) The last sentence of section 7482(b)(1) is 
        amended by striking ``or 6228(a)'' and inserting ``, 
        6228(a), or 6234(c)''.
    (e) Other Provisions.--
            (1) Subsection (c) of section 7459 is amended by 
        striking ``or section 6228(a)'' and inserting ``, 
        6228(a), or 6234(c)''.
            (2) Subsection (o) of section 6501 is amended by 
        adding at the end the following new paragraph:
            ``(3) For declaratory judgment relating to 
        treatment of items other than partnership items with 
        respect to an oversheltered return, see section 
        6234.''.
            (3) Subsection (a) of section 7421, as amended by 
        section 1222, is amended by inserting ``6225(b),'' 
        after ``6213(a),''.
    (f) Effective Date.--The amendments made by this section 
shall apply to partnership taxable years ending after the date 
of the enactment of this Act.

SEC. 1240. TREATMENT OF PREMATURE PETITIONS FILED BY NOTICE PARTNERS OR 
                    5-PERCENT GROUPS.

    (a) In General.--Subsection (b) of section 6226 (relating 
to judicial review of final partnership administrative 
adjustments) is amended by redesignating paragraph (5) as 
paragraph (6) and by inserting after paragraph (4) the 
following new paragraph:
            ``(5) Treatment of premature petitions.--If--
                    ``(A) a petition for a readjustment of 
                partnership items for the taxable year involved 
                is filed by a notice partner (or a 5-percent 
                group) during the 90-day period described in 
                subsection (a), and
                    ``(B) no action is brought under paragraph 
                (1) during the 60-day period described therein 
                with respect to such taxable year which is not 
                dismissed,
        such petition shall be treated for purposes of 
        paragraph (1) as filed on the last day of such 60-day 
        period.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to petitions filed after the date of the enactment 
of this Act.

SEC. 1241. BONDS IN CASE OF APPEALS FROM CERTAIN PROCEEDING.

    (a) In General.--Subsection (b) of section 7485 (relating 
to bonds to stay assessment of collection) is amended--
            (1) by inserting ``penalties,'' after ``any 
        interest,'', and
            (2) by striking ``aggregate of such deficiencies'' 
        and inserting ``aggregate liability of the parties to 
        the action''.
    (b) Effective Date.--The amendment made by this section 
shall take effect as if included in the amendments made by 
section 402 of the Tax Equity and Fiscal Responsibility Act of 
1982.

SEC. 1242. SUSPENSION OF INTEREST WHERE DELAY IN COMPUTATIONAL 
                    ADJUSTMENT RESULTING FROM CERTAIN SETTLEMENTS.

    (a) In General.--Subsection (c) of section 6601 (relating 
to interest on underpayment, nonpayment, or extension of time 
for payment, of tax) is amended by adding at the end the 
following new sentence: ``In the case of a settlement under 
section 6224(c) which results in the conversion of partnership 
items to nonpartnership items pursuant to section 
6231(b)(1)(C), the preceding sentence shall apply to a 
computational adjustment resulting from such settlement in the 
same manner as if such adjustmentwere a deficiency and such 
settlement were a waiver referred to in the preceding sentence.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to adjustments with respect to partnership taxable 
years beginning after the date of the enactment of this Act.

SEC. 1243. SPECIAL RULES FOR ADMINISTRATIVE ADJUSTMENT REQUESTS WITH 
                    RESPECT TO BAD DEBTS OR WORTHLESS SECURITIES.

    (a) General Rule.--Section 6227 (relating to administrative 
adjustment requests) is amended by adding at the end the 
following new subsection:
    ``(e) Requests With Respect to Bad Debts or Worthless 
Securities.--In the case of that portion of any request for an 
administrative adjustment which relates to the deductibility by 
the partnership under section 166 of a debt as a debt which 
became worthless, or under section 165(g) of a loss from 
worthlessness of a security, the period prescribed in 
subsection (a)(1) shall be 7 years from the last day for filing 
the partnership return for the year with respect to which such 
request is made (determined without regard to extensions).''.
    (b) Effective Date.--
            (1) In general.--The amendment made by subsection 
        (a) shall take effect as if included in the amendments 
        made by section 402 of the Tax Equity and Fiscal 
        Responsibility Act of 1982.
            (2) Treatment of requests filed before date of 
        enactment.--In the case of that portion of any request 
        (filed before the date of the enactment of this Act) 
        for an administrative adjustment which relates to the 
        deductibility of a debt as a debt which became 
        worthless or the deductibility of a loss from the 
        worthlessness of a security--
                    (A) paragraph (2) of section 6227(a) of the 
                Internal Revenue Code of 1986 shall not apply,
                    (B) the period for filing a petition under 
                section 6228 of the Internal Revenue Code of 
                1986 with respect to such request shall not 
                expire before the date 6 months after the date 
                of the enactment of this Act, and
                    (C) such a petition may be filed without 
                regard to whether there was a notice of the 
                beginning of an administrative proceeding or a 
                final partnership administrative adjustment.

  PART III--PROVISION RELATING TO CLOSING OF PARTNERSHIP TAXABLE YEAR 
                 WITH RESPECT TO DECEASED PARTNER, ETC.

SEC. 1246. CLOSING OF PARTNERSHIP TAXABLE YEAR WITH RESPECT TO DECEASED 
                    PARTNER, ETC.

    (a) General Rule.--Subparagraph (A) of section 706(c)(2) 
(relating to disposition of entire interest) is amended to read 
as follows:
                    ``(A) Disposition of entire interest.--The 
                taxable year of a partnership shall close with 
                respect to a partner whose entire interest in 
                the partnership terminates (whether by reason 
                of death, liquidation, or otherwise).''.
    (b) Clerical Amendment.--The paragraph heading for 
paragraph (2) of section 706(c) is amended to read as follows:
            ``(2) Treatment of dispositions.--''.
    (c) Effective Date.--The amendments made by this section 
shall apply to partnership taxable years beginning after 
December 31, 1997.

    Subtitle D--Provisions Relating to Real Estate Investment Trusts

SEC. 1251. CLARIFICATION OF LIMITATION ON MAXIMUM NUMBER OF 
                    SHAREHOLDERS.

    (a) Rules Relating to Determination of Ownership.--
            (1) Failure to issue shareholder demand letter not 
        to disqualify reit.--Section 857(a) (relating to 
        requirements applicable to real estate investment 
        trusts) is amended by striking paragraph (2) and by 
        redesignating paragraph (3) as paragraph (2).
            (2) Shareholder demand letter requirement; 
        penalty.--Section 857 (relating to taxation of real 
        estate investment trusts and their beneficiaries) is 
        amended by redesignating subsection (f) as subsection 
        (g) and by inserting after subsection (e) the following 
        new subsection:
    ``(f) Real Estate Investment Trusts To Ascertain 
Ownership.--
            ``(1) In general.--Each real estate investment 
        trust shall each taxable year comply with regulations 
        prescribed by the Secretary for the purposes of 
        ascertaining the actual ownership of the outstanding 
        shares, or certificates of beneficial interest, of such 
        trust.
            ``(2) Failure to comply.--
                    ``(A) In general.--If a real estate 
                investment trust fails to comply with the 
                requirements of paragraph (1) for a taxable 
                year, such trust shall pay (on notice and 
                demand by the Secretary and in the same manner 
                as tax) a penalty of $25,000.
                    ``(B) Intentional disregard.--If any 
                failure under paragraph (1) is due to 
                intentional disregard of the requirement under 
                paragraph (1), the penalty under subparagraph 
                (A) shall be $50,000.
                    ``(C) Failure to comply after notice.--The 
                Secretary may require a real estate investment 
                trust to take such actions as the Secretary 
                determines appropriate to ascertain actual 
                ownership if the trust fails to meet the 
                requirements of paragraph (1). If the trust 
                fails to take such actions, the trust shall pay 
                (on notice and demand by the Secretary and in 
                the same manner as tax) an additional penalty 
                equal to the penalty determined under 
                subparagraph (A) or (B), whichever is 
                applicable.
                    ``(D) Reasonable cause.--No penalty shall 
                be imposed under this paragraph with respect to 
                any failure if it is shown that such failure is 
                due to reasonable cause and not to willful 
                neglect.''.
    (b) Compliance With Closely Held Prohibition.--
            (1) In general.--Section 856 (defining real estate 
        investment trust) is amended by adding at the end the 
        following new subsection:
    ``(k) Requirement That Entity Not Be Closely Held Treated 
as Met in Certain Cases.--A corporation, trust, or 
association--
            ``(1) which for a taxable year meets the 
        requirements of section 857(f)(1), and
            ``(2) which does not know, or exercising reasonable 
        diligence would not have known, whether the entity 
        failed to meet the requirement of subsection (a)(6),
shall be treated as having met the requirement of subsection 
(a)(6) for the taxable year.''.
            (2) Conforming amendment.--Paragraph (6) of section 
        856(a) is amended by inserting ``subject to the 
        provisions of subsection (k),'' before ``which is 
        not''.

SEC. 1252. DE MINIMIS RULE FOR TENANT SERVICES INCOME.

    (a) In General.--Paragraph (2) of section 856(d) (defining 
rents from real property) is amended by striking subparagraph 
(C) and the last sentence and inserting:
                    ``(C) any impermissible tenant service 
                income (as defined in paragraph (7)).''.
    (b) Impermissible Tenant Service Income.--Section 856(d) is 
amended by adding at the end the following new paragraph:
            ``(7) Impermissible tenant service income.--For 
        purposes of paragraph (2)(C)--
                    ``(A) In general.--The term `impermissible 
                tenant service income' means, with respect to 
                any real or personal property, any amount 
                received or accrued directly or indirectly by 
                the real estate investment trust for--
                            ``(i) services furnished or 
                        rendered by the trust to the tenants of 
                        such property, or
                            ``(ii) managing or operating such 
                        property.
                    ``(B) Disqualification of all amounts where 
                more than de minimis amount.--If the amount 
                described in subparagraph (A) with respect to a 
                property for any taxable year exceeds 1 percent 
                of all amounts received or accrued during such 
                taxable year directly or indirectly by the real 
                estate investment trust with respect to such 
                property, the impermissible tenant service 
                income of the trust with respect to the 
                property shall include all such amounts.
                    ``(C) Exceptions.--For purposes of 
                subparagraph (A)--
                            ``(i) services furnished or 
                        rendered, or management or operation 
                        provided, through an independent 
                        contractor from whom the trust itself 
                        does not derive or receive any income 
                        shall not be treated as furnished, 
                        rendered, or provided by the trust, and
                            ``(ii) there shall not be taken 
                        into account any amount which would be 
                        excluded from unrelated business 
                        taxable income under section 512(b)(3) 
                        if received by an organization 
                        described in section 511(a)(2).
                    ``(D) Amount attributable to impermissible 
                services.--For purposes of subparagraph (A), 
                the amount treated as received for any service 
                (or management or operation) shall not be less 
                than 150 percent of the direct cost of the 
                trust in furnishing or rendering the service 
                (or providing the management or operation).
                    ``(E) Coordination with limitations.--For 
                purposes of paragraphs (2) and (3) of 
                subsection (c), amounts described in 
                subparagraph (A) shall be included in the gross 
                income of the corporation, trust, or 
                association.''.

SEC. 1253. ATTRIBUTION RULES APPLICABLE TO STOCK OWNERSHIP.

    Section 856(d)(5) (relating to constructive ownership of 
stock) is amended by striking ``except that'' and all that 
follows and inserting ``except that--
                    ``(A) `10 percent' shall be substituted for 
                `50 percent' in subparagraph (C) of paragraphs 
                (2) and (3) of section 318(a), and
                    ``(B) section 318(a)(3)(A) shall be applied 
                in the case of a partnership by taking into 
                account only partners who own (directly or 
                indirectly) 25 percent or more of the capital 
                interest, or the profits interest, in the 
                partnership.''.

SEC. 1254. CREDIT FOR TAX PAID BY REIT ON RETAINED CAPITAL GAINS.

    (a) General Rule.--Paragraph (3) of section 857(b) 
(relating to capital gains) is amended by redesignating 
subparagraph (D) as subparagraph (E) and by inserting after 
subparagraph (C) the following new subparagraph:
                    ``(D) Treatment by shareholders of 
                undistributed capital gains.--
                            ``(i) Every shareholder of a real 
                        estate investment trust at the close of 
                        the trust's taxable year shall include, 
                        in computing his long-term capital 
                        gains in his return for his taxable 
                        year in which the last day of the 
                        trust's taxable year falls, such amount 
                        as the trust shall designate in respect 
                        of such shares in a written notice 
                        mailed to its shareholders at any time 
                        prior to the expiration of 60 days 
                        after the close of its taxable year (or 
                        mailed to its shareholders or holders 
                        of beneficial interests with its annual 
                        report for the taxable year), but the 
                        amount so includible by any shareholder 
                        shall not exceed that part of the 
                        amount subjected to tax in subparagraph 
                        (A)(ii) which he would have received if 
                        all of such amount had been distributed 
                        as capital gain dividends by the trust 
                        to the holders of such shares at the 
                        close of its taxable year.
                            ``(ii) For purposes of this title, 
                        every such shareholder shall be deemed 
                        to have paid, for his taxable year 
                        under clause (i), the tax imposed by 
                        subparagraph (A)(ii) on the amounts 
                        required by this subparagraph to be 
                        included in respect of such shares in 
                        computing his long-term capital gains 
                        for that year; and such shareholders 
                        shall be allowed credit or refund as 
                        the case may be, for the tax so deemed 
                        to have been paid by him.
                            ``(iii) The adjusted basis of such 
                        shares in the hands of the holder shall 
                        be increased with respect to the 
                        amounts required by this subparagraph 
                        to be included in computing his long-
                        term capital gains, by the difference 
                        between the amount of such includible 
                        gains and the tax deemed paid by such 
                        shareholder in respect of such shares 
                        under clause (ii).
                            ``(iv) In the event of such 
                        designation, the tax imposed by 
                        subparagraph (A)(ii) shall be paid by 
                        the real estate investment trust within 
                        30 days after the close of its taxable 
                        year.
                            ``(v) The earnings and profits of 
                        such real estate investment trust, and 
                        the earnings and profits of any such 
                        shareholder which is a corporation, 
                        shall be appropriately adjusted in 
                        accordance with regulations prescribed 
                        by the Secretary.
                            ``(vi) As used in this 
                        subparagraph, the terms `shares' and 
                        `shareholders' shall include beneficial 
                        interests and holders of beneficial 
                        interests, respectively.''.
    (b) Conforming Amendments.--
            (1) Clause (i) of section 857(b)(7)(A) is amended 
        by striking ``subparagraph (B)'' and inserting 
        ``subparagraph (B) or (D)''.
            (2) Clause (iii) of section 852(b)(3)(D) is amended 
        by striking ``by 65 percent'' and all that follows and 
        inserting ``by the difference between the amount of 
        such includible gains and the tax deemed paid by such 
        shareholder in respect of such shares under clause 
        (ii).''.

SEC. 1255. REPEAL OF 30-PERCENT GROSS INCOME REQUIREMENT.

    (a) General Rule.--Subsection (c) of section 856 (relating 
to limitations) is amended--
            (1) by adding ``and'' at the end of paragraph (3),
            (2) by striking paragraphs (4) and (8), and
            (3) by redesignating paragraphs (5), (6), and (7) 
        as paragraphs (4), (5), and (6), respectively.
    (b) Conforming Amendments.--
            (1) Subparagraph (G) of section 856(c)(5), as 
        redesignated by subsection (a), is amended by striking 
        ``and such agreement shall be treated as a security for 
        purposes of paragraph (4)(A)''.
            (2) Paragraph (5) of section 857(b) is amended by 
        striking ``section 856(c)(7)'' and inserting ``section 
        856(c)(6)''.
            (3) Subparagraph (C) of section 857(b)(6) is 
        amended by striking ``section 856(c)(6)(B)'' and 
        inserting ``section 856(c)(5)(B)''.

SEC. 1256. MODIFICATION OF EARNINGS AND PROFITS RULES FOR DETERMINING 
                    WHETHER REIT HAS EARNINGS AND PROFITS FROM NON-REIT 
                    YEAR.

    Subsection (d) of section 857 is amended by adding at the 
end the following new paragraph:
            ``(3) Distributions to meet requirements of 
        subsection (a)(2)(B).--Any distribution which is made 
        in order to comply with the requirements of subsection 
        (a)(2)(B)--
                    ``(A) shall be treated for purposes of this 
                subsection and subsection (a)(2)(B) as made 
                from the earliest accumulated earnings and 
                profits (other than earnings and profits to 
                which subsection (a)(2)(A) applies) rather than 
                the most recently accumulated earnings and 
                profits, and
                    ``(B) to the extent treated under 
                subparagraph (A) as made from accumulated 
                earnings and profits, shall not be treated as a 
                distribution for purposes of subsection 
                (b)(2)(B).''.

SEC. 1257. TREATMENT OF FORECLOSURE PROPERTY.

    (a) Grace Periods.--
            (1) Initial period.--Paragraph (2) of section 
        856(e) (relating to special rules for foreclosure 
        property) is amended by striking ``on the date which is 
        2 years after the date the trust acquired such 
        property'' and inserting ``as of the close of the 3d 
        taxable year following the taxable year in which the 
        trust acquired such property''.
            (2) Extension.--Paragraph (3) of section 856(e) is 
        amended--
                    (A) by striking ``or more extensions'' and 
                inserting ``extension'', and
                    (B) by striking the last sentence and 
                inserting: ``Any such extension shall not 
                extend the grace period beyond the close of the 
                3d taxable year following the last taxable year 
                in the period under paragraph (2).''.
    (b) Revocation of Election.--Paragraph (5) of section 
856(e) is amended by striking the last sentence and inserting: 
``A real estate investment trust may revoke any such election 
for a taxable year by filing the revocation (in the manner 
provided by the Secretary) on or before the due date (including 
any extension of time) for filing its return of tax under this 
chapter for the taxable year. If a trust revokes an election 
for any property, no election may be made by the trust under 
this paragraph with respect to the property for any subsequent 
taxable year.''.
    (c) Certain Activities Not To Disqualify Property.--
Paragraph (4) of section 856(e) is amended by adding at the end 
the following new flush sentence:
        ``For purposes of subparagraph (C), property shall not 
        be treated as used in a trade or business by reason of 
        any activities of the real estate investment trust with 
        respect to such property to the extent that such 
        activities would not result in amounts received or 
        accrued, directly or indirectly, with respect to such 
        property being treated as other than rents from real 
        property.''.

SEC. 1258. PAYMENTS UNDER HEDGING INSTRUMENTS.

    Section 856(c)(5)(G) (relating to treatment of certain 
interest rate agreements), as redesignated by section 1255, is 
amended to read as follows:
                    ``(G) Treatment of certain hedging 
                instruments.--Except to the extent provided by 
                regulations, any--
                            ``(i) payment to a real estate 
                        investment trust under an interest rate 
                        swap or cap agreement, option, futures 
                        contract, forward rate agreement, or 
                        any similar financial instrument, 
                        entered into by the trust in a 
                        transaction to reduce the interest rate 
                        risks with respect to any indebtedness 
                        incurred or to be incurred by the trust 
                        to acquire or carry real estate assets, 
                        and
                            ``(ii) gain from the sale or other 
                        disposition of any such investment,
                shall be treated as income qualifying under 
                paragraph (2).''.

SEC. 1259. EXCESS NONCASH INCOME.

    Section 857(e)(2) (relating to determination of amount of 
excess noncash income) is amended--
            (1) by striking subparagraph (B),
            (2) by striking the period at the end of 
        subparagraph (C) and inserting a comma,
            (3) by redesignating subparagraph (C) (as amended 
        by paragraph (2)) as subparagraph (B), and
            (4) by adding at the end the following new 
        subparagraphs:
                    ``(C) the amount (if any) by which--
                            ``(i) the amounts includible in 
                        gross income with respect to 
                        instruments to which section 860E(a) or 
                        1272 applies, exceed
                            ``(ii) the amount of money and the 
                        fair market value of other property 
                        received during the taxable year under 
                        such instruments, and
                    ``(D) amounts includible in income by 
                reason of cancellation of indebtedness.''.

SEC. 1260. PROHIBITED TRANSACTION SAFE HARBOR.

    Clause (iii) of section 857(b)(6)(C) (relating to certain 
sales not to constitute prohibited transactions) is amended by 
striking ``(other than foreclosure property)'' in subclauses 
(I) and (II) and inserting ``(other than sales of foreclosure 
property or sales to which section 1033 applies)''.

SEC. 1261. SHARED APPRECIATION MORTGAGES.

    (a) Bankruptcy Safe Harbor.--Section 856(j) (relating to 
treatment of shared appreciation mortgages) is amended by 
redesignating paragraph (4) as paragraph (5) and by inserting 
after paragraph (3) the following new paragraph:
            ``(4) Coordination with 4-year holding period.--
                    ``(A) In general.--For purposes of section 
                857(b)(6)(C), if a real estate investment trust 
                is treated as having sold secured property 
                under paragraph (3)(A), the trust shall be 
                treated as having held such property for at 
                least 4 years if--
                            ``(i) the secured property is sold 
                        or otherwise disposed of pursuant to a 
                        case under title 11 of the United 
                        States Code,
                            ``(ii) the seller is under the 
                        jurisdiction of the court in such case, 
                        and
                            ``(iii) the disposition is required 
                        by the court or is pursuant to a plan 
                        approved by the court.
                    ``(B) Exception.--Subparagraph (A) shall 
                not apply if--
                            ``(i) the secured property was 
                        acquired by the seller with the intent 
                        to evict or foreclose, or
                            ``(ii) the trust knew or had reason 
                        to know that default on the obligation 
                        described in paragraph (5)(A) would 
                        occur.''.
    (b) Clarification of Definition of Shared Appreciation 
Provision.--Clause (ii) of section 856(j)(5)(A) is amended by 
inserting before the period ``or appreciation in value as of 
any specified date''.

SEC. 1262. WHOLLY OWNED SUBSIDIARIES.

    Section 856(i)(2) (defining qualified REIT subsidiary) is 
amended by striking ``at all times during the period such 
corporation was in existence''.

SEC. 1263. EFFECTIVE DATE.

    The amendments made by this part shall apply to taxable 
years beginning after the date of the enactment of this Act.

   Subtitle E--Provisions Relating to Regulated Investment Companies

SEC. 1271. REPEAL OF 30-PERCENT GROSS INCOME LIMITATION.

    (a) General Rule.--Subsection (b) of section 851 (relating 
to limitations) is amended by striking paragraph (3), by adding 
``and'' at the end of paragraph (2), and by redesignating 
paragraph (4) as paragraph (3).
    (b) Technical Amendments.--
            (1) The material following paragraph (3) of section 
        851(b) (as redesignated by subsection (a)) is amended--
                    (A) by striking out ``paragraphs (2) and 
                (3)'' and inserting ``paragraph (2)'', and
                    (B) by striking out the last sentence 
                thereof.
            (2) Subsection (c) of section 851 is amended by 
        striking ``subsection (b)(4)'' each place it appears 
        (including the heading) and inserting ``subsection 
        (b)(3)''.
            (3) Subsection (d) of section 851 is amended by 
        striking ``subsections (b)(4)'' and inserting 
        ``subsections (b)(3)''.
            (4) Paragraph (1) of section 851(e) is amended by 
        striking ``subsection (b)(4)'' and inserting 
        ``subsection (b)(3)''.
            (5) Paragraph (4) of section 851(e) is amended by 
        striking ``subsections (b)(4)'' and inserting 
        ``subsections (b)(3)''.
            (6) Section 851 is amended by striking subsection 
        (g) and redesignating subsection (h) as subsection (g).
            (7) Subsection (g) of section 851 (as redesignated 
        by paragraph (6)) is amended by striking paragraph (3).
            (8) Section 817(h)(2) is amended--
                    (A) by striking ``851(b)(4)'' in 
                subparagraph (A) and inserting ``851(b)(3)'', 
                and
                    (B) by striking ``851(b)(4)(A)(i)'' in 
                subparagraph (B) and inserting 
                ``851(b)(3)(A)(i)''.
            (9) Section 1092(f)(2) is amended by striking 
        ``Except for purposes of section 851(b)(3), the'' and 
        inserting ``The''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

                    Subtitle F--Taxpayer Protections

SEC. 1281. REASONABLE CAUSE EXCEPTION FOR CERTAIN PENALTIES.

    (a) Information on Deductible Employee Contributions.--
Subsection (g) of section 6652 (relating to information 
required in connection with deductible employee contributions) 
is amended by adding at the end the following new sentence: 
``No penalty shall be imposed under this subsection on any 
failure which is shown to be due to reasonable cause and not 
willful neglect.''.
    (b) Reports on Status as Qualified Small Business.--
Subsection (k) of section 6652 (relating to failure to make 
reports required under section 1202) is amended by adding at 
the end the following new sentence: ``No penalty shall be 
imposed under this subsection on any failure which is shown to 
be due to reasonable cause and not willful neglect.''.
    (c) Returns of Personal Holding Company Tax by Foreign 
Corporations.--Section 6683 (relating to failure of foreign 
corporation to file return of personal holding company tax) is 
amended by adding at the end the following new sentence: ``No 
penalty shall be imposed under this section on any failure 
which is shown to be due to reasonable cause and not willful 
neglect.''.
    (d) Failure To Make Required Payments.--Subparagraph (A) of 
section 7519(f)(4) is amended by adding at the end the 
following new sentence: ``No penalty shall be imposed under 
this subparagraph on any failure which is shown to be due to 
reasonable cause and not willful neglect.''.
    (e) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

SEC. 1282. CLARIFICATION OF PERIOD FOR FILING CLAIMS FOR REFUNDS.

    (a) In General.--Paragraph (3) of section 6512(b) (relating 
to overpayment determined by Tax Court) is amended by adding at 
the end the following flush sentence:
        ``In a case described in subparagraph (B) where the 
        date of the mailing of the notice of deficiency is 
        during the third year after the due date (with 
        extensions) for filing the return of tax and no return 
        was filed before such date, the applicable period under 
        subsections (a) and (b)(2) of section 6511 shall be 3 
        years.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to claims for credit or refund for taxable years 
ending after the date of the enactment of this Act.

SEC. 1283. REPEAL OF AUTHORITY TO DISCLOSE WHETHER PROSPECTIVE JUROR 
                    HAS BEEN AUDITED.

    (a) In General.--Subsection (h) of section 6103 (relating 
to disclosure to certain Federal officers and employees for 
purposes of tax administration, etc.) is amended by striking 
paragraph (5) and by redesignating paragraph (6) as paragraph 
(5).
    (b) Conforming Amendment.--Paragraph (4) of section 6103(p) 
is amended by striking ``(h)(6)'' each place it appears and 
inserting ``(h)(5)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to judicial proceedings commenced after the date of 
the enactment of this Act.

SEC. 1284. CLARIFICATION OF STATUTE OF LIMITATIONS.

    (a) In General.--Subsection (a) of section 6501 (relating 
to limitations on assessment and collection) is amended by 
adding at the end thereof the following new sentence: ``For 
purposes of this chapter, the term `return' means the return 
required to be filed by the taxpayer (and does not include a 
return of any person from whom the taxpayer has received an 
item of income, gain, loss, deduction, or credit).''.
    (b) Effective Date.--The amendment made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

SEC. 1285. AWARDING OF ADMINISTRATIVE COSTS.

    (a) Right to Appeal Tax Court Decision.--Subsection (f) of 
section 7430 (relating to right of appeal) is amended by adding 
at the end the following new paragraph:
            ``(3) Appeal of tax court decision.--An order of 
        the Tax Court disposing of a petition underparagraph 
(2) shall be reviewable in the same manner as a decision of the Tax 
Court, but only with respect to the matters determined in such 
order.''.
    (b) Period for Applying to IRS for Costs.--Subsection (b) 
of section 7430 (relating to limitations) is amended by adding 
at the end the following new paragraph:
            ``(5) Period for applying to irs for administrative 
        costs.--An award may be made under subsection (a) by 
        the Internal Revenue Service for reasonable 
        administrative costs only if the prevailing party files 
        an application with the Internal Revenue Service for 
        such costs before the 91st day after the date on which 
        the final decision of the Internal Revenue Service as 
        to the determination of the tax, interest, or penalty 
        is mailed to such party.''.
    (c) Period for Petitioning of Tax Court for Review of 
Denial of Costs.--Paragraph (2) of section 7430(f) (relating to 
right of appeal) is amended--
            (1) by striking ``appeal to'' and inserting ``the 
        filing of a petition for review with'', and
            (2) by adding at the end the following new 
        sentence: ``If the Secretary sends by certified or 
        registered mail a notice of such decision to the 
        petitioner, no proceeding in the Tax Court may be 
        initiated under this paragraph unless such petition is 
        filed before the 91st day after the date of such 
        mailing.''.
    (d) Effective Date.--The amendments made by this section 
shall apply to civil actions or proceedings commenced after the 
date of the enactment of this Act.

TITLE XIII--SIMPLIFICATION PROVISIONS RELATING TO ESTATE AND GIFT TAXES

SEC. 1301. GIFTS TO CHARITIES EXEMPT FROM GIFT TAX FILING REQUIREMENTS.

    (a) In General.--Section 6019 is amended by striking ``or'' 
at the end of paragraph (1), by adding ``or'' at the end of 
paragraph (2), and by inserting after paragraph (2) the 
following new paragraph:
            ``(3) a transfer with respect to which a deduction 
        is allowed under section 2522 but only if--
                    ``(A)(i) such transfer is of the donor's 
                entire interest in the property transferred, 
                and
                    ``(ii) no other interest in such property 
                is or has been transferred (for less than 
                adequate and full consideration in money or 
                money's worth) from the donor to a person, or 
                for a use, not described in subsection (a) or 
                (b) of section 2522, or
                    ``(B) such transfer is described in section 
                2522(d),''.
    (b) Effective Date.--The amendment made by this section 
shall apply to gifts made after the date of the enactment of 
this Act.

SEC. 1302. CLARIFICATION OF WAIVER OF CERTAIN RIGHTS OF RECOVERY.

    (a) Amendment to Section 2207A.--Paragraph (2) of section 
2207A(a) (relating to right of recovery in the case of certain 
marital deduction property) is amended to read as follows:
            ``(2) Decedent may otherwise direct.--Paragraph (1) 
        shall not apply with respect to any property to the 
        extent that the decedent in his will (or a revocable 
        trust) specifically indicates an intent to waive any 
        right of recovery under this subchapter with respect to 
        such property.''.
    (b) Amendment to Section 2207B.--Paragraph (2) of section 
2207B(a) (relating to right of recovery where decedent retained 
interest) is amended to read as follows:
            ``(2) Decedent may otherwise direct.--Paragraph (1) 
        shall not apply with respect to any property to the 
        extent that the decedent in his will (or a revocable 
        trust) specifically indicates an intent to waive any 
        right of recovery under this subchapter with respect to 
        such property.''.
    (c) Effective Date.--The amendments made by this section 
shall apply with respect to the estates of decedents dying 
after the date of the enactment of this Act.

SEC. 1303. TRANSITIONAL RULE UNDER SECTION 2056A.

    (a) General Rule.--In the case of any trust created under 
an instrument executed before the date of the enactment of the 
Revenue Reconciliation Act of 1990, such trust shall be treated 
as meeting the requirements of paragraph (1) of section 
2056A(a) of the Internal Revenue Code of 1986 if the trust 
instrument requires that all trustees of the trust be 
individual citizens of the United States or domestic 
corporations.
    (b) Effective Date.--The provisions of subsection (a) shall 
take effect as if included in the provisions of section 
11702(g) of the Revenue Reconciliation Act of 1990.

SEC. 1304. TREATMENT FOR ESTATE TAX PURPOSES OF SHORT-TERM OBLIGATIONS 
                    HELD BY NONRESIDENT ALIENS.

    (a) In General.--Subsection (b) of section 2105 is amended 
by striking ``and'' at the end of paragraph (2), by striking 
the period at the end of paragraph (3) and inserting ``, and'', 
and by inserting after paragraph (3) the following new 
paragraph:
            ``(4) obligations which would be original issue 
        discount obligations as defined in section 871(g)(1) 
        but for subparagraph (B)(i) thereof, if any interest 
        thereon (were such interest received by the decedent at 
        the time of his death) would not be effectively 
        connected with the conduct of a trade or business 
        within the United States.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to estates of decedents dying after the date of the 
enactment of this Act.

SEC. 1305. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF ESTATE.

    (a) In General.--Subpart A of part I of subchapter J 
(relating to estates, trusts, beneficiaries, and decedents) is 
amended by adding at the end the following new section:

``SEC. 646. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF ESTATE.

    ``(a) General Rule.--For purposes of this subtitle, if both 
the executor (if any) of an estate and the trustee of a 
qualified revocable trust elect the treatment provided in this 
section, such trust shall be treated and taxed as part of such 
estate (and not as a separate trust) for all taxable years of 
the estate ending after the date of the decedent's death and 
before the applicable date.
    ``(b) Definitions.--For purposes of subsection (a)--
            ``(1) Qualified revocable trust.--The term 
        `qualified revocable trust' means any trust (or portion 
        thereof) which was treated under section 676 as owned 
        by the decedent of the estate referred to in subsection 
        (a) by reason of a power in the grantor (determined 
        without regard to section 672(e)).
            ``(2) Applicable date.--The term `applicable date' 
        means--
                    ``(A) if no return of tax imposed by 
                chapter 11 is required to be filed, the date 
                which is 2 years after the date of the 
                decedent's death, and
                    ``(B) if such a return is required to be 
                filed, the date which is 6 months after the 
                date of the final determination of the 
                liability for tax imposed by chapter 11.
    ``(c) Election.--The election under subsection (a) shall be 
made not later than the time prescribed for filing the return 
of tax imposed by this chapter for the first taxable year of 
the estate (determined with regard to extensions) and, once 
made, shall be irrevocable.''.
    (b) Comparable Treatment Under Generation-Skipping Tax.--
Paragraph (1) of section 2652(b) is amended by adding at the 
end the following new sentence: ``Such term shall not include 
any trust during any period the trust is treated as part of an 
estate under section 646.''.
    (c) Clerical Amendment.--The table of sections for such 
subpart A is amended by adding at the end the following new 
item:

        ``Sec. 646. Certain revocable trusts treated as part of 
                  estate.''.

    (d) Effective Date.--The amendments made by this section 
shall apply with respect to estates of decedents dying after 
the date of the enactment of this Act.

SEC. 1306. DISTRIBUTIONS DURING FIRST 65 DAYS OF TAXABLE YEAR OF 
                    ESTATE.

    (a) In General.--Subsection (b) of section 663 (relating to 
distributions in first 65 days of taxable year) is amended by 
inserting ``an estate or'' before ``a trust'' each place it 
appears.
    (b) Conforming Amendment.--Paragraph (2) of section 663(b) 
is amended by striking ``the fiduciary of such trust'' and 
inserting ``the executor of such estate or the fiduciary of 
such trust (as the case may be)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

SEC. 1307. SEPARATE SHARE RULES AVAILABLE TO ESTATES.

    (a) In General.--Subsection (c) of section 663 (relating to 
separate shares treated as separate trusts) is amended--
            (1) by inserting before the last sentence the 
        following new sentence: ``Rules similar to the rules of 
        the preceding provisions of this subsection shall apply 
        to treat substantially separate and independent shares 
        of different beneficiaries in an estate having more 
        than 1 beneficiary as separate estates.'', and
            (2) by inserting ``or estates'' after ``trusts'' in 
        the last sentence.
    (b) Conforming Amendment.--The subsection heading of 
section 663(c) is amended by inserting ``Estates or'' before 
``Trusts''.
    (c) Effective Date.--The amendments made by this section 
shall apply to estates of decedents dying after the date of the 
enactment of this Act.

SEC. 1308. EXECUTOR OF ESTATE AND BENEFICIARIES TREATED AS RELATED 
                    PERSONS FOR DISALLOWANCE OF LOSSES, ETC.

    (a) Disallowance of Losses.--Subsection (b) of section 267 
(relating to losses, expenses, and interest with respect to 
transactions between related taxpayers) is amended by striking 
``or'' at the end of paragraph (11), by striking the period at 
the end of paragraph (12) and inserting ``; or'', and by adding 
at the end the following new paragraph:
            ``(13) Except in the case of a sale or exchange in 
        satisfaction of a pecuniary bequest, an executor of an 
        estate and a beneficiary of such estate.''.
    (b) Ordinary Income From Gain From Sale of Depreciable 
Property.--Subsection (b) of section 1239 is amended by 
striking the period at the end of paragraph (2) and inserting 
``, and'' and by adding at the end the following new paragraph:
            ``(3) except in the case of a sale or exchange in 
        satisfaction of a pecuniary bequest, an executor of an 
        estate and a beneficiary of such estate.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years beginning after the date of the 
enactment of this Act.

SEC. 1309. TREATMENT OF FUNERAL TRUSTS.

    (a) In General.--Subpart F of part I of subchapter J of 
chapter 1 is amended by adding at the end the following new 
section:

``SEC. 685. TREATMENT OF FUNERAL TRUSTS.

    ``(a) In General.--In the case of a qualified funeral 
trust--
            ``(1) subparts B, C, D, and E shall not apply, and
            ``(2) no deduction shall be allowed by section 
        642(b).
    ``(b) Qualified Funeral Trust.--For purposes of this 
subsection, the term `qualified funeral trust' means any trust 
(other than a foreign trust) if--
            ``(1) the trust arises as a result of a contract 
        with a person engaged in the trade or business of 
        providing funeral or burial services or property 
        necessary to provide such services,
            ``(2) the sole purpose of the trust is to hold, 
        invest, and reinvest funds in the trust and to use such 
        funds solely to make payments for such services or 
        property for the benefit of the beneficiaries of the 
        trust,
            ``(3) the only beneficiaries of such trust are 
        individuals with respect to whom such services or 
        property are to be provided at their death under 
        contracts described in paragraph (1),
            ``(4) the only contributions to the trust are 
        contributions by or for the benefit of such 
        beneficiaries,
            ``(5) the trustee elects the application of this 
        subsection, and
            ``(6) the trust would (but for the election 
        described in paragraph (5)) be treated as owned under 
        subpart E by the purchasers of the contracts described 
        in paragraph (1).
    ``(c) Dollar Limitation on Contributions.--
            ``(1) In general.--The term `qualified funeral 
        trust' shall not include any trust which accepts 
        aggregate contributions by or for the benefit of an 
        individual in excess of $7,000.
            ``(2) Related trusts.--For purposes of paragraph 
        (1), all trusts having trustees which are related 
        persons shall be treated as 1 trust. For purposes of 
        the preceding sentence, persons are related if--
                    ``(A) the relationship between such persons 
                is described in section 267 or 707(b),
                    ``(B) such persons are treated as a single 
                employer under subsection (a) or (b) of section 
                52, or
                    ``(C) the Secretary determines that 
                treating such persons as related is necessary 
                to prevent avoidance of the purposes of this 
                section.
            ``(3) Inflation adjustment.--In the case of any 
        contract referred to in subsection (b)(1) which is 
        entered into during any calendar year after 1998, the 
        dollar amount referred to paragraph (1) shall be 
        increased by an amount equal to--
                    ``(A) such dollar amount, multiplied by
                    ``(B) the cost-of-living adjustment 
                determined under section 1(f)(3) for such 
                calendar year, by substituting `calendar year 
                1997' for `calendar year 1992' in subparagraph 
                (B) thereof.
        If any dollar amount after being increased under the 
        preceding sentence is not a multiple of $100, such 
        dollar amount shall be rounded to the nearest multiple 
        of $100.
    ``(d) Application of Rate Schedule.--Section 1(e) shall be 
applied to each qualified funeral trust by treating each 
beneficiary's interest in each such trust as a separate trust.
    ``(e) Treatment of Amounts Refunded to Purchaser on 
Cancellation.--No gain or loss shall be recognized to a 
purchaser of a contract described in subsection (b)(1) by 
reason of any payment from such trust to such purchaser by 
reason of cancellation of such contract. If any payment 
referred to in the preceding sentence consists of property 
other than money, the basis of such property in the hands of 
such purchaser shall be the same as the trust's basis in such 
property immediately before the payment.
    ``(f) Simplified Reporting.--The Secretary may prescribe 
rules for simplified reporting of all trusts having a single 
trustee.''.
    (b) Clerical Amendment.--The table of sections for subpart 
F of part I of subchapter J of chapter 1 is amended by adding 
at the end the following new item:

        ``Sec. 685. Treatment of funeral trusts.''.

    (c) Effective Date.--The amendments made by this section 
shall apply to taxable years ending after the date of the 
enactment of this Act.

SEC. 1310. ADJUSTMENTS FOR GIFTS WITHIN 3 YEARS OF DECEDENT'S DEATH.

    (a) General Rule.--Section 2035 is amended to read as 
follows:

``SEC. 2035. ADJUSTMENTS FOR CERTAIN GIFTS MADE WITHIN 3 YEARS OF 
                    DECEDENT'S DEATH.

    ``(a) Inclusion of Certain Property in Gross Estate.--If--
            ``(1) the decedent made a transfer (by trust or 
        otherwise) of an interest in any property, or 
        relinquished a power with respect to any property, 
        during the 3-year period ending on the date of the 
        decedent's death, and
            ``(2) the value of such property (or an interest 
        therein) would have been included in the decedent's 
        gross estate under section 2036, 2037, 2038, or 2042 if 
        such transferred interest or relinquished power had 
        been retained by the decedent on the date of his death,
the value of the gross estate shall include the value of any 
property (or interest therein) which would have been so 
included.
    ``(b) Inclusion of Gift Tax on Gifts Made During 3 Years 
Before Decedent's Death.--The amount of the gross estate 
(determined without regard to this subsection) shall be 
increased by the amount of any tax paid under chapter 12 by the 
decedent or his estate on any gift made by the decedent or his 
spouse during the 3-year period ending on the date of the 
decedent's death.
    ``(c) Other Rules Relating to Transfers Within 3 Years of 
Death.--
            ``(1) In general.--For purposes of--
                    ``(A) section 303(b) (relating to 
                distributions in redemption of stock to pay 
                death taxes),
                    ``(B) section 2032A (relating to special 
                valuation of certain farms, etc., real 
                property), and
                    ``(C) subchapter C of chapter 64 (relating 
                to lien for taxes),
        the value of the gross estate shall include the value 
        of all property to the extent of any interest therein 
        of which the decedent has at any time made a 
transfer,by trust or otherwise, during the 3-year period ending on the 
date of the decedent's death.
            ``(2) Coordination with section 6166.--An estate 
        shall be treated as meeting the 35 percent of adjusted 
        gross estate requirement of section 6166(a)(1) only if 
        the estate meets such requirement both with and without 
        the application of paragraph (1).
            ``(3) Marital and small transfers.--Paragraph (1) 
        shall not apply to any transfer (other than a transfer 
        with respect to a life insurance policy) made during a 
        calendar year to any donee if the decedent was not 
        required by section 6019 (other than by reason of 
        section 6019(2)) to file any gift tax return for such 
        year with respect to transfers to such donee.
    ``(d) Exception.--Subsection (a) shall not apply to any 
bona fide sale for an adequate and full consideration in money 
or money's worth.
    ``(e) Treatment of Certain Transfers From Revocable 
Trusts.--For purposes of this section and section 2038, any 
transfer from any portion of a trust during any period that 
such portion was treated under section 676 as owned by the 
decedent by reason of a power in the grantor (determined 
without regard to section 672(e)) shall be treated as a 
transfer made directly by the decedent.''.
    (b) Clerical Amendment.--The table of sections for part III 
of subchapter A of chapter 11 is amended by striking ``gifts'' 
in the item relating to section 2035 and inserting ``certain 
gifts''.
    (c) Effective Date.--The amendments made by this section 
shall apply to the estates of decedents dying after the date of 
the enactment of this Act.

SEC. 1311. CLARIFICATION OF TREATMENT OF SURVIVOR ANNUITIES UNDER 
                    QUALIFIED TERMINABLE INTEREST RULES.

    (a) In General.--Subparagraph (C) of section 2056(b)(7) is 
amended by inserting ``(or, in the case of an interest in an 
annuity arising under the community property laws of a State, 
included in the gross estate of the decedent under section 
2033)'' after ``section 2039''.
    (b) Effective Date.--The amendment made by this section 
shall apply to estates of decedents dying after the date of the 
enactment of this Act.

SEC. 1312. TREATMENT UNDER QUALIFIED DOMESTIC TRUST RULES OF FORMS OF 
                    OWNERSHIP WHICH ARE NOT TRUSTS.

    (a) In General.--Subsection (c) of section 2056A (defining 
qualified domestic trust) is amended by adding at the end the 
following new paragraph:
            ``(3) Trust.--To the extent provided in regulations 
        prescribed by the Secretary, the term `trust' includes 
        other arrangements which have substantially the same 
        effect as a trust.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to estates of decedents dying after the date of the 
enactment of this Act.

SEC. 1313. OPPORTUNITY TO CORRECT CERTAIN FAILURES UNDER SECTION 2032A.

    (a) General Rule.--Paragraph (3) of section 2032A(d) 
(relating to modification of election and agreement to be 
permitted) is amended to read as follows:
            ``(3) Modification of election and agreement to be 
        permitted.--The Secretary shall prescribe procedures 
        which provide that in any case in which the executor 
        makes an election under paragraph (1) (and submits the 
        agreement referred to in paragraph (2)) within the time 
        prescribed therefor, but--
                    ``(A) the notice of election, as filed, 
                does not contain all required information, or
                    ``(B) signatures of 1 or more persons 
                required to enter into the agreement described 
                in paragraph (2) are not included on the 
                agreement as filed, or the agreement does not 
                contain all required information,
        the executor will have a reasonable period of time (not 
        exceeding 90 days) after notification of such failures 
        to provide such information or signatures.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to the estates of decedents dying after the date of 
the enactment of this Act.

SEC. 1314. AUTHORITY TO WAIVE REQUIREMENT OF UNITED STATES TRUSTEE FOR 
                    QUALIFIED DOMESTIC TRUSTS.

    (a) In General.--Subparagraph (A) of section 2056A(a)(1) is 
amended by inserting ``except as provided in regulations 
prescribed by the Secretary,'' before ``requires''.
    (b) Effective Date.--The amendment made by this section 
shall apply to estates of decedents dying after the date of the 
enactment of this Act.

  TITLE XIV--SIMPLIFICATION PROVISIONS RELATING TO EXCISE TAXES, TAX-
                    EXEMPT BONDS, AND OTHER MATTERS

                 Subtitle A--Excise Tax Simplification

          PART I--EXCISE TAXES ON HEAVY TRUCKS AND LUXURY CARS

SEC. 1401. INCREASE IN DE MINIMIS LIMIT FOR AFTER-MARKET ALTERATIONS 
                    FOR HEAVY TRUCKS AND LUXURY CARS.

    (a) In General.--Sections 4003(a)(3)(C) and 4051(b)(2)(B) 
(relating to exceptions) are each amended by striking ``$200'' 
and inserting ``$1,000''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall apply to installations on vehicles sold after the date of 
the enactment of this Act.

SEC. 1402. CREDIT FOR TIRE TAX IN LIEU OF EXCLUSION OF VALUE OF TIRES 
                    IN COMPUTING PRICE.

    (a) In General.--Subsection (e) of section 4051 is amended 
to read as follows:
    ``(e) Credit Against Tax for Tire Tax.--If--
            ``(1) tires are sold on or in connection with the 
        sale of any article, and
            ``(2) tax is imposed by this subchapter on the sale 
        of such tires,
there shall be allowed as a credit against the tax imposed by 
this subchapter an amount equal to the tax (if any) imposed by 
section 4071 on such tires.''.
    (b) Conforming Amendment.--Subparagraph (B) of section 
4052(b)(1) is amended by striking clause (iii), by adding 
``and'' at the end of clause (ii), and by redesignating clause 
(iv) as clause (iii).
    (c) Effective Date.--The amendments made by this section 
shall take effect on January 1, 1998.

   PART II--PROVISIONS RELATED TO DISTILLED SPIRITS, WINES, AND BEER

SEC. 1411. CREDIT OR REFUND FOR IMPORTED BOTTLED DISTILLED SPIRITS 
                    RETURNED TO DISTILLED SPIRITS PLANT.

    (a) In General.--Section 5008(c)(1) (relating to distilled 
spirits returned to bonded premises) is amended by striking 
``withdrawn from bonded premises on payment or determination of 
tax'' and inserting ``on which tax has been determined or 
paid''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect on the 1st day of the 1st calendar quarter 
that begins at least 180 days after the date of the enactment 
of this Act.

SEC. 1412. AUTHORITY TO CANCEL OR CREDIT EXPORT BONDS WITHOUT 
                    SUBMISSION OF RECORDS.

    (a) In General.--Section 5175(c) (relating to cancellation 
of credit of export bonds) is amended by striking ``on the 
submission of'' and all that follows and inserting ``if there 
is such proof of exportation as the Secretary may by 
regulations require.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect on the 1st day of the 1st calendar quarter 
that begins at least 180 days after the date of the enactment 
of this Act.

SEC. 1413. REPEAL OF REQUIRED MAINTENANCE OF RECORDS ON PREMISES OF 
                    DISTILLED SPIRITS PLANT.

    (a) In General.--Section 5207(c) (relating to preservation 
and inspection) is amended by striking ``shall be kept on the 
premises where the operations covered by the record are carried 
on and''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect on the 1st day of the 1st calendar quarter 
that begins at least 180 days after the date of the enactment 
of this Act.

SEC. 1414. FERMENTED MATERIAL FROM ANY BREWERY MAY BE RECEIVED AT A 
                    DISTILLED SPIRITS PLANT.

    (a) In General.--Section 5222(b)(2) (relating to receipt) 
is amended to read as follows:
            ``(2) beer conveyed without payment of tax from 
        brewery premises, beer which has been lawfully removed 
        from brewery premises upon determination of tax, or''.
    (b) Clarification of Authority To Permit Removal of Beer 
Without Payment of Tax for Use as Distilling Material.--Section 
5053 (relating to exemptions) is amended by redesignating 
subsection (f) as subsection (i) and by inserting after 
subsection (e) the following new subsection:
    ``(f) Removal for Use as Distilling Material.--Subject to 
such regulations as the Secretary may prescribe, beer may be 
removed from a brewery without payment of tax to any distilled 
spirits plant for use as distilling material.''.
    (c) Clarification of Refund and Credit of Tax.--Section 
5056 (relating to refund and credit of tax, or relief from 
liability) is amended--
            (1) by redesignating subsection (c) as subsection 
        (d) and by inserting after subsection (b) the following 
        new subsection:
    ``(c) Beer Received at a Distilled Spirits Plant.--Any tax 
paid by any brewer on beer produced in the United States may be 
refunded or credited to the brewer, without interest, or if the 
tax has not been paid, the brewer may be relieved of liability 
therefor, under regulations as the Secretary may prescribe, if 
such beer is received on the bonded premises of a distilled 
spirits plant pursuant to the provisions of section 5222(b)(2), 
for use in the production of distilled spirits.'', and
            (2) by striking ``or rendering unmerchantable'' in 
        subsection (d) (as so redesignated) and inserting 
        ``rendering unmerchantable, or receipt on the bonded 
        premises of a distilled spirits plant''.
    (d) Effective Date.--The amendments made by this section 
shall take effect on the 1st day of the 1st calendar quarter 
that begins at least 180 days after the date of the enactment 
of this Act.

SEC. 1415. REPEAL OF REQUIREMENT FOR WHOLESALE DEALERS IN LIQUORS TO 
                    POST SIGN.

    (a) In General.--Section 5115 (relating to sign required on 
premises) is hereby repealed.
    (b) Conforming Amendments.--
            (1) Section 5681(a) is amended by striking ``, and 
        every wholesale dealer in liquors,'' and by striking 
        ``section 5115(a) or''.
            (2) Section 5681(c) is amended--
                    (A) by striking ``or wholesale liquor 
                establishment, on which no sign required by 
                section 5115(a) or'' and inserting ``on which 
                no sign required by'', and
                    (B) by striking ``or wholesale liquor 
                establishment, or who'' and inserting ``or 
                who''.
            (3) The table of sections for subpart D of part II 
        of subchapter A of chapter 51 is amended by striking 
        the item relating to section 5115.
    (c) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 1416. REFUND OF TAX TO WINE RETURNED TO BOND NOT LIMITED TO 
                    UNMERCHANTABLE WINE.

    (a) In General.--Section 5044(a) (relating to refund of tax 
on unmerchantable wine) is amended by striking ``as 
unmerchantable''.
    (b) Conforming Amendments.--
            (1) Section 5361 is amended by striking 
        ``unmerchantable''.
            (2) The section heading for section 5044 is amended 
        by striking ``UNMERCHANTABLE''.
            (3) The item relating to section 5044 in the table 
        of sections for subpart C of part I of subchapter A of 
        chapter 51 is amended by striking ``unmerchantable''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on the 1st day of the 1st calendar quarter 
that begins at least 180 days after the date of the enactment 
of this Act.

SEC. 1417. USE OF ADDITIONAL AMELIORATING MATERIAL IN CERTAIN WINES.

    (a) In General.--Section 5384(b)(2)(D) (relating to 
ameliorated fruit and berry wines) is amended by striking 
``loganberries, currants, or gooseberries,'' and inserting 
``any fruit or berry with a natural fixed acid of 20 parts per 
thousand or more (before any correction of such fruit or 
berry)''.
    (b) Effective Date.--The amendment made by this section 
shall take effect on the 1st day of the 1st calendar quarter 
that begins at least 180 days after the date of the enactment 
of this Act.

SEC. 1418. DOMESTICALLY PRODUCED BEER MAY BE WITHDRAWN FREE OF TAX FOR 
                    USE OF FOREIGN EMBASSIES, LEGATIONS, ETC.

    (a) In General.--Section 5053 (relating to exemptions), as 
amended by section 1414(b), is amended by inserting after 
subsection (f) the following new subsection:
    ``(g) Removals for Use of Foreign Embassies, Legations, 
Etc.--
            ``(1) In general.--Subject to such regulations as 
        the Secretary may prescribe--
                    ``(A) beer may be withdrawn from the 
                brewery without payment of tax for transfer to 
                any customs bonded warehouse for entry pending 
                withdrawal therefrom as provided in 
                subparagraph (B), and
                    ``(B) beer entered into any customs bonded 
                warehouse under subparagraph (A) may be 
                withdrawn for consumption in the United States 
                by, and for the official and family use of, 
                such foreign governments, organizations, and 
                individuals as are entitled to withdraw 
                imported beer from such warehouses free of tax.
        Beer transferred to any customs bonded warehouse under 
        subparagraph (A) shall be entered, stored, and 
        accounted for in such warehouse under such regulations 
        and bonds as the Secretary may prescribe, and may be 
        withdrawn therefrom by such governments, organizations, 
        and individuals free of tax under the same conditions 
        and procedures as imported beer.
            ``(2) Other rules to apply.--Rules similar to the 
        rules of paragraphs (2) and (3) of section 5362(e) 
        shall apply for purposes of this subsection.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect on the 1st day of the 1st calendar quarter 
that begins at least 180 days after the date of the enactment 
of this Act.

SEC. 1419. BEER MAY BE WITHDRAWN FREE OF TAX FOR DESTRUCTION.

    (a) In General.--Section 5053 (relating to exemptions), as 
amended by section 1418(a), is amended by inserting after 
subsection (g) the following new subsection:
    ``(h) Removals for Destruction.--Subject to such 
regulations as the Secretary may prescribe, beer may be removed 
from the brewery without payment of tax for destruction.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect on the 1st day of the 1st calendar quarter 
that begins at least 180 days after the date of the enactment 
of this Act.

SEC. 1420. AUTHORITY TO ALLOW DRAWBACK ON EXPORTED BEER WITHOUT 
                    SUBMISSION OF RECORDS.

    (a) In General.--The first sentence of section 5055 
(relating to drawback of tax on beer) is amended by striking 
``found to have been paid'' and all that follows and inserting 
``paid on such beer if there is such proof of exportation as 
the Secretary may by regulations require.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect on the 1st day of the 1st calendar quarter 
that begins at least 180 days after the date of the enactment 
of this Act.

SEC. 1421. TRANSFER TO BREWERY OF BEER IMPORTED IN BULK WITHOUT PAYMENT 
                    OF TAX.

    (a) In General.--Part II of subchapter G of chapter 51 is 
amended by adding at the end the following new section:

``SEC. 5418. BEER IMPORTED IN BULK.

    ``Beer imported or brought into the United States in bulk 
containers may, under such regulations as the Secretary may 
prescribe, be withdrawn from customs custody and transferred in 
such bulk containers to the premises of a brewery without 
payment of the internal revenue tax imposed on such beer. The 
proprietor of a brewery to which such beer is transferred shall 
become liable for the tax on the beer withdrawn from customs 
custody under this section upon release of the beer from 
customs custody, and the importer, or the person bringing such 
beer into the United States, shall thereupon be relieved of the 
liability for such tax.''.
    (b) Clerical Amendment.--The table of sections for such 
part II is amended by adding at the end the following new item:

        ``Sec. 5418. Beer imported in bulk.''.

    (c) Effective Date.--The amendments made by this section 
shall take effect on the 1st day of the 1st calendar quarter 
that begins at least 180 days after the date of the enactment 
of this Act.

SEC. 1422. TRANSFER TO BONDED WINE CELLARS OF WINE IMPORTED IN BULK 
                    WITHOUT PAYMENT OF TAX.

    (a) In General.--Part II of subchapter F of chapter 51 is 
amended by inserting after section 5363 the following new 
section:

``SEC. 5364. WINE IMPORTED IN BULK.

    ``Wine imported or brought into the United States in bulk 
containers may, under such regulations as the Secretary may 
prescribe, be withdrawn from customs custody and transferred in 
such bulk containers to the premises of a bonded wine cellar 
without payment of the internal revenue tax imposed on such 
wine. The proprietor of a bonded wine cellar to which such wine 
is transferred shall become liable for the tax on the wine 
withdrawn from customs custody under this section upon release 
of the wine from customs custody, and the importer, or the 
person bringing such wine into the United States, shall 
thereupon be relieved of the liability for such tax.''.
    (b) Clerical Amendment.--The table of sections for such 
part II is amended by inserting after the item relating to 
section 5363 the following new item:

        ``Sec. 5364. Wine imported in bulk.''.

    (c) Effective Date.--The amendments made by this section 
shall take effect on the 1st day of the 1st calendar quarter 
that begins at least 180 days after the date of the enactment 
of this Act.

                 PART III--OTHER EXCISE TAX PROVISIONS

SEC. 1431. AUTHORITY TO GRANT EXEMPTIONS FROM REGISTRATION 
                    REQUIREMENTS.

    (a) In General.--Section 4222(b)(2) (relating to export) is 
amended--
            (1) by striking ``in the case of any sale or resale 
        for export,'', and
            (2) by striking ``Export'' and inserting ``Under 
        regulations''.
    (b) Effective Date.--The amendments made by subsection (a) 
shall take effect on the date of the enactment of this Act.

SEC. 1432. REPEAL OF EXPIRED PROVISIONS.

    (a) Piggy-Back Trailers.--Section 4051 (relating to 
imposition of tax on heavy trucks and trailers sold at retail) 
is amended by striking subsection (d) and by redesignating 
subsection (e) as subsection (d).
    (b) Deep Seabed Mining.--
            (1) In general.--Subchapter F of chapter 36 
        (relating to tax on removal of hard mineral resources 
        from deep seabed) is hereby repealed.
            (2) Conforming amendment.--The table of subchapters 
        for chapter 36 is amended by striking the item relating 
        to subchapter F.
    (c) Ozone-Depleting Chemicals.--
            (1) Paragraph (1) of section 4681(b) is amended by 
        striking subparagraphs (B) and (C) and inserting the 
        following new subparagraph:
                    ``(B) Base tax amount.--The base tax amount 
                for purposes of subparagraph (A) with respect 
                to any sale or use during any calendar year 
                after 1995 shall be $5.35 increased by 45 cents 
                for each year after 1995.''.
            (2) Subsection (g) of section 4682 is amended to 
        read as follows:
    ``(g) Chemicals Used as Propellants in Metered-Dose 
Inhalers.--
            ``(1) Exemption from tax.--
                    ``(A) In general.--No tax shall be imposed 
                by section 4681 on--
                            ``(i) any use of any substance as a 
                        propellant in metered-dose inhalers, or
                            ``(ii) any qualified sale by the 
                        manufacturer, producer, or importer of 
                        any substance.
                    ``(B) Qualified sale.--For purposes of 
                subparagraph (A), the term `qualified sale' 
                means any sale by the manufacturer, producer, 
                or importer of any substance--
                            ``(i) for use by the purchaser as a 
                        propellant in metered dose inhalers, or
                            ``(ii) for resale by the purchaser 
                        to a 2d purchaser for such use by the 
                        2d purchaser.

                The preceding sentence shall apply only if the 
                manufacturer, producer, and importer, and the 
                1st and 2d purchasers (if any) meet such 
                registration requirements as may be prescribed 
                by the Secretary.
            ``(2) Overpayments.--If any substance on which tax 
        was paid under this subchapter is used by any person as 
        a propellant in metered-dose inhalers, credit or refund 
        without interest shall be allowed to such person in an 
        amount equal to the tax so paid. Amounts payable under 
        the preceding sentence with respect to uses during the 
        taxable year shall be treated as described in section 
        34(a) for such year unless claim thereof has been 
        timely filed under this paragraph.''.

SEC. 1433. SIMPLIFICATION OF IMPOSITION OF EXCISE TAX ON ARROWS.

    (a) In General.--Subsection (b) of section 4161 (relating 
to imposition of tax) is amended to read as follows:
    ``(b) Bows and Arrows, Etc.--
            ``(1) Bows.--
                    ``(A) In general.--There is hereby imposed 
                on the sale by the manufacturer, producer, or 
                importer of any bow which has a draw weight of 
                10 pounds or more, a tax equal to 11 percent of 
                the price for which so sold.
                    ``(B) Parts and accessories.--There is 
                hereby imposed upon the sale by the 
                manufacturer, producer, or importer--
                            ``(i) of any part of accessory 
                        suitable for inclusion in or attachment 
                        to a bow described in subparagraph (A), 
                        and
                            ``(ii) of any quiver suitable for 
                        use with arrows described in paragraph 
                        (2),a tax equivalent to 11 percent of 
the price for which so sold.
            ``(2) Arrows.--There is hereby imposed on the sale 
        by the manufacturer, producer, or importer of any 
        shaft, point, nock, or vane of a type used in the 
        manufacture of any arrow which after its assembly--
                    ``(A) measures 18 inches overall or more in 
                length, or
                    ``(B) measures less than 18 inches overall 
                in length but is suitable for use with a bow 
                described in paragraph (1)(A),
        a tax equal to 12.4 percent of the price for which so 
        sold.
            ``(3) Coordination with subsection (a).--No tax 
        shall be imposed under this subsection with respect to 
        any article taxable under subsection (a).''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply to articles sold by the manufacturer, producer, or 
importer after September 30 1997.

SEC. 1434. MODIFICATIONS TO RETAIL TAX ON HEAVY TRUCKS.

    (a) Certain Repairs and Modifications Not Treated as 
Manufacture.--Section 4052 is amended by redesignating the 
subsection defining a long-term lease as subsection (e) and by 
adding at the end the following new subsection:
    ``(f) Certain Repairs and Modifications Not Treated as 
Manufacture.--
            ``(1) In general.--An article described in section 
        4051(a)(1) shall not be treated as manufactured or 
        produced solely by reason of repairs or modifications 
        to the article (including any modification which 
        changes the transportation function of the article or 
        restores a wrecked article to a functional condition) 
        if the cost of such repairs and modifications does not 
        exceed 75 percent of the retail price of a comparable 
        new article.
            ``(2) Exception.--Paragraph (1) shall not apply if 
        the article (as repaired or modified) would, if new, be 
        taxable under section 4051 and the article when new was 
        not taxable under this section or the corresponding 
        provision of prior law.''.
    (b) Simplification of Certification Procedures With Respect 
to Sales of Taxable Articles.--
            (1) Repeal of registration requirement.--Subsection 
        (d) of section 4052 is amended by striking ``rules of--
        '' and all that follows through ``shall apply'' and 
        inserting ``rules of subsections (c)and (d) of section 
4216 (relating to partial payments) shall apply''.
            (2) Requirement to modify regulations.--Section 
        4052 is amended by adding at the end the following new 
        subsection:
    ``(g) Regulations.--The Secretary shall prescribe 
regulations which permit, in lieu of any other certification, 
persons who are purchasing articles taxable under this 
subchapter for resale or leasing in a long-term lease to 
execute a statement (made under penalties of perjury) on the 
sale invoice that such sale is for resale. The Secretary shall 
not impose any registration requirement as a condition of using 
such procedure.''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on January 1, 1998.

SEC. 1435. SKYDIVING FLIGHTS EXEMPT FROM TAX ON TRANSPORTATION OF 
                    PERSONS BY AIR.

    (a) In General.--Section 4261 (relating to imposition of 
tax on transportation of persons by air), as previously amended 
by this Act, is amended by redesignating subsection (h) as 
subsection (i) and by inserting after subsection (g) the 
following new subsection:
    ``(h) Exemption for Skydiving Uses.--No tax shall be 
imposed by this section or section 4271 on any air 
transportation exclusively for the purpose of skydiving.''.
    (b) Transportation Treated as Noncommercial Aviation.--The 
last sentence of section 4041(c)(2) is amended by inserting 
before the period ``or by reason of section 4261(h)''.
    (c) Effective Dates.--
            (1) Subsection (a).--The amendment made by 
        subsection (a) shall apply to amounts paid after 
        September 30, 1997.
            (2) Subsection (b).--The amendment made by 
        subsection (b) shall take effect on October 1, 1997.

SEC. 1436. ALLOWANCE OR CREDIT OF REFUND FOR TAX-PAID AVIATION FUEL 
                    PURCHASED BY REGISTERED PRODUCER OF AVIATION FUEL.

    (a) In General.--Section 4091 (relating to aviation fuel) 
is amended by adding at the end the following new subsection:
    ``(d) Refund of Tax-Paid Aviation Fuel to Registered 
Producer of Fuel.--If--
            ``(1) a producer of aviation fuel is registered 
        under section 4101, and
            ``(2) such producer establishes to the satisfaction 
        of the Secretary that a prior tax was paid (and not 
        credited or refunded) on aviation fuel held by such 
        producer,
then an amount equal to the tax so paid shall be allowed as a 
refund (without interest) to such producer in the same manner 
as if it were an overpayment of tax imposed by this section.''.
    (b) Conforming Amendment.--The last sentence of section 
6416(d) is amended by inserting before the period ``or to the 
tax imposed by section 4091 in the case of refunds described in 
section 4091(d)''.
    (c) Effective Date.--The amendments made by this section 
shall apply to fuel acquired by the producer after September 
30, 1997.

                 Subtitle B--Tax-Exempt Bond Provisions

SEC. 1441. REPEAL OF $100,000 LIMITATION ON UNSPENT PROCEEDS UNDER 1-
                    YEAR EXCEPTION FROM REBATE.

    Subclause (I) of section 148(f)(4)(B)(ii) (relating to 
additional period for certain bonds) is amended by striking 
``the lesser of 5 percent of the proceeds of the issue or 
$100,000'' and inserting ``5 percent of the proceeds of the 
issue''.

SEC. 1442. EXCEPTION FROM REBATE FOR EARNINGS ON BONA FIDE DEBT SERVICE 
                    FUND UNDER CONSTRUCTION BOND RULES.

    Subparagraph (C) of section 148(f)(4) is amended by adding 
at the end the following new clause:
                            ``(xvii) Treatment of bona fide 
                        debt service funds.--If the spending 
                        requirements of clause (ii) are met 
                        with respect to the available 
                        construction proceeds of a construction 
                        issue, then paragraph (2) shall not 
                        apply to earnings on a bona fide debt 
                        service fund for such issue.''.

SEC. 1443. REPEAL OF DEBT SERVICE-BASED LIMITATION ON INVESTMENT IN 
                    CERTAIN NONPURPOSE INVESTMENTS.

    Subsection (d) of section 148 (relating to special rules 
for reasonably required reserve or replacement fund) is amended 
by striking paragraph (3).

SEC. 1444. REPEAL OF EXPIRED PROVISIONS.

    (a) Paragraph (2) of section 148(c) is amended by striking 
subparagraph (B) and by redesignating subparagraphs (C), (D), 
and (E) as subparagraphs (B), (C), and (D), respectively.
    (b) Paragraph (4) of section 148(f) is amended by striking 
subparagraph (E).

SEC. 1445. EFFECTIVE DATE.

    The amendments made by this subtitle shall apply to bonds 
issued after the date of the enactment of this Act.

                    Subtitle C--Tax Court Procedures

SEC. 1451. OVERPAYMENT DETERMINATIONS OF TAX COURT.

    (a) Appeal of Order.--Paragraph (2) of section 6512(b) 
(relating to jurisdiction to enforce) is amended by adding at 
the end the following new sentence: ``An order of the Tax Court 
disposing of a motion under this paragraph shall be reviewable 
in the same manner as a decision of the Tax Court, but only 
with respect to the matters determined in such order.''.
    (b) Denial of Jurisdiction Regarding Certain Credits and 
Reductions.--Subsection (b) of section 6512 (relating to 
overpayment determined by Tax Court) is amended by adding at 
the end the following new paragraph:
            ``(4) Denial of jurisdiction regarding certain 
        credits and reductions.--The Tax Court shall have no 
        jurisdiction under this subsection to restrain or 
        review any credit or reduction made by the Secretary 
        under section 6402.''.
    (c) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 1452. REDETERMINATION OF INTEREST PURSUANT TO MOTION.

    (a) In General.--Subsection (c) of section 7481 (relating 
to jurisdiction over interest determinations) is amended to 
read as follows:
    ``(c) Jurisdiction Over Interest Determinations.--
            ``(1) In general.--Notwithstanding subsection (a), 
        if, within 1 year after the date the decision of the 
        Tax Court becomes final under subsection (a) in a case 
        to which this subsection applies, the taxpayer files a 
        motion in the Tax Court for a redetermination of the 
        amount of interest involved, then the Tax Court may 
        reopen the case solely to determine whether the 
        taxpayer has made an overpayment of such interest or 
        the Secretary has made an underpayment of such interest 
        and the amount thereof.
            ``(2) Cases to which this subsection applies.--This 
        subsection shall apply where--
                    ``(A)(i) an assessment has been made by the 
                Secretary under section 6215 which includes 
                interest as imposed by this title, and
                    ``(ii) the taxpayer has paid the entire 
                amount of the deficiency plus interest claimed 
                by the Secretary, and
                    ``(B) the Tax Court finds under section 
                6512(b) that the taxpayer has made an 
                overpayment.
            ``(3) Special rules.--If the Tax Court determines 
        under this subsection that the taxpayer has made an 
        overpayment of interest or that the Secretary has made 
        an underpayment of interest, then that determination 
        shall be treated under section 6512(b)(1) as a 
        determination of an overpayment of tax. An order of the 
        Tax Court redetermining interest, when entered upon the 
        records of the court, shall be reviewable in the same 
        manner as a decision of the Tax Court.''.
    (b) Effective Date.--The amendment made by this section 
shall take effect on the date of the enactment of this Act.

SEC. 1453. APPLICATION OF NET WORTH REQUIREMENT FOR AWARDS OF 
                    LITIGATION COSTS.

    (a) In General.--Paragraph (4) of section 7430(c) (defining 
prevailing party) is amended by adding at the end thereof the 
following new subparagraph:
                    ``(D) Special rules for applying net worth 
                requirement.--In applying the requirements of 
                section 2412(d)(2)(B) of title 28, United 
                States Code, for purposes of subparagraph 
                (A)(iii) of this paragraph--
                            ``(i) the net worth limitation in 
                        clause (i) of such section shall apply 
                        to--
                                    ``(I) an estate but shall 
                                be determined as of the date of 
                                the decedent's death, and
                                    ``(II) a trust but shall be 
                                determined as of the last day 
                                of the taxable year involved in 
                                the proceeding, and
                            ``(ii) individuals filing a joint 
                        return shall be treated as separate 
                        individuals for purposes of clause (i) 
                        of such section.''.
    (b) Effective Date.--The amendment made by this section 
shall apply to proceedings commenced after the date of the 
enactment of this Act.

SEC. 1454. PROCEEDINGS FOR DETERMINATION OF EMPLOYMENT STATUS.

    (a) In General.--Subchapter B of chapter 76 (relating to 
proceedings by taxpayers and third parties) is amended by 
redesignating section 7436 as section 7437 and by inserting 
after section 7435 the following new section:

``SEC. 7436. PROCEEDINGS FOR DETERMINATION OF EMPLOYMENT STATUS.

    ``(a) Creation of Remedy.--If, in connection with an audit 
of any person, there is an actual controversy involving a 
determination by the Secretary as part of an examination that--
            ``(1) one or more individuals performing services 
        for such person are employees of such person for 
        purposes of subtitle C, or
            ``(2) such person is not entitled to the treatment 
        under subsection (a) of section 530 of the Revenue Act 
        of 1978 with respect to such an individual,
upon the filing of an appropriate pleading, the Tax Court may 
determine whether such a determination by the Secretary is 
correct. Any such redetermination by the Tax Court shall have 
the force and effect of a decision of the Tax Court and shall 
be reviewable as such.
    ``(b) Limitations.--
            ``(1) Petitioner.--A pleading may be filed under 
        this section only by the person for whom the services 
        are performed.
            ``(2) Time for filing action.--If the Secretary 
        sends by certified or registered mail notice to the 
        petitioner of a determination by the Secretary 
        described in subsection (a), no proceeding may be 
        initiated under this section with respect to such 
        determination unless the pleading is filed before the 
        91st day after the date of such mailing.
            ``(3) No adverse inference from treatment while 
        action is pending.--If, during the pendency of any 
        proceeding brought under this section, the petitioner 
        changes his treatment for employment tax purposes of 
        any individual whose employment status as an employee 
        is involved in such proceeding (or of any individual 
        holding a substantially similar position) to treatment 
        as an employee, such change shall not be taken into 
        account in the Tax Court's determination under this 
        section.
    ``(c) Small Case Procedures.--
            ``(1) In general.--At the option of the petitioner, 
        concurred in by the Tax Court or a division thereof 
        before the hearing of the case, proceedings under this 
        section may (notwithstanding the provisions of section 
        7453) be conducted subject to the rules of evidence, 
        practice, and procedure applicable under section 7463 
        if the amount of employment taxes placed in dispute is 
        $10,000 or less for each calendar quarter involved.
            ``(2) Finality of decisions.--A decision entered in 
        any proceeding conducted under this subsection shall 
        not be reviewed in any other court andshall not be 
treated as a precedent for any other case not involving the same 
petitioner and the same determinations.
            ``(3) Certain rules to apply.--Rules similar to the 
        rules of the last sentence of subsection (a), and 
        subsections (c), (d), and (e), of section 7463 shall 
        apply to proceedings conducted under this subsection.
    ``(d) Special Rules.--
            ``(1) Restrictions on assessment and collection 
        pending action, etc.--The principles of subsections 
        (a), (b), (c), (d), and (f) of section 6213, section 
        6214(a), section 6215, section 6503(a), section 6512, 
        and section 7481 shall apply to proceedings brought 
        under this section in the same manner as if the 
        Secretary's determination described in subsection (a) 
        were a notice of deficiency.
            ``(2) Awarding of costs and certain fees.--Section 
        7430 shall apply to proceedings brought under this 
        section.
    ``(e) Employment Tax.--The term `employment tax' means any 
tax imposed by subtitle C.''.
    (b) Conforming Amendments.--
            (1) Subsection (d) of section 6511 is amended by 
        adding at the end the following new paragraph:
            ``(7) Special period of limitation with respect to 
        self-employment tax in certain cases.--If--
                    ``(A) the claim for credit or refund 
                relates to an overpayment of the tax imposed by 
                chapter 2 (relating to the tax on self-
                employment income) attributable to Tax Court 
                determination in a proceeding under section 
                7436, and
                    ``(B) the allowance of a credit or refund 
                of such overpayment is otherwise prevented by 
                the operation of any law or rule of law other 
                than section 7122 (relating to compromises),
        such credit or refund may be allowed or made if claim 
        therefor is filed on or before the last day of the 
        second year after the calendar year in which such 
        determination becomes final.''.
            (2) Subsection (a) of section 7421 is amended by 
        striking ``and 7429(b)'' and inserting ``7429(b), and 
        7436''.
            (3) Sections 7453 and 7481(b) are each amended by 
        striking ``section 7463'' and inserting ``section 
        7436(c) or 7463''.
            (4) The table of sections for subchapter B of 
        chapter 76 is amended by striking the last item and 
        inserting the following:

        ``Sec. 7436. Proceedings for determination of employment status.
        ``Sec. 7437. Cross references.''.

    (c) Effective Date.--The amendments made by this section 
shall take effect on the date of the enactment of this Act.

                      Subtitle D--Other Provisions

SEC. 1461. EXTENSION OF DUE DATE OF FIRST QUARTER ESTIMATED TAX PAYMENT 
                    BY PRIVATE FOUNDATIONS.

    (a) In General.--Paragraph (3) of section 6655(g) is 
amended by adding at the end the following new sentence: ``In 
the case of a private foundation, subsection (c)(2) shall be 
applied by substituting `May 15' for `April 15'.''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply for purposes of determining underpayments of 
estimated tax for taxable years beginning after the date of the 
enactment of this Act.

SEC. 1462. CLARIFICATION OF AUTHORITY TO WITHHOLD PUERTO RICO INCOME 
                    TAXES FROM SALARIES OF FEDERAL EMPLOYEES.

    (a) In General.--Subsection (c) of section 5517 of title 5, 
United States Code, is amended by striking ``or territory or 
possession'' and inserting ``, territory, possession, or 
commonwealth''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall take effect on January 1, 1998.

SEC. 1463. CERTAIN NOTICES DISREGARDED UNDER PROVISION INCREASING 
                    INTEREST RATE ON LARGE CORPORATE UNDERPAYMENTS.

    (a) General Rule.--Subparagraph (B) of section 6621(c)(2) 
(defining applicable date) is amended by adding at the end the 
following new clause:
                            ``(iii) Exception for letters or 
                        notices involving small amounts.--For 
                        purposes of this paragraph, any letter 
                        or notice shall be disregarded if the 
                        amount of the deficiency or proposed 
                        deficiency (or the assessment or 
                        proposed assessment) set forth in such 
                        letter or notice is not greater than 
                        $100,000 (determined by not taking into 
                        account any interest, penalties, or 
                        additions to tax).''.
    (b) Effective Date.--The amendment made by subsection (a) 
shall apply for purposes of determining interest for periods 
after December 31, 1997.

                TITLE XV--PENSIONS AND EMPLOYEE BENEFITS

                       Subtitle A--Simplification

SEC. 1501. MATCHING CONTRIBUTIONS OF SELF-EMPLOYED INDIVIDUALS NOT 
                    TREATED AS ELECTIVE EMPLOYER CONTRIBUTIONS.

    (a) In General.--Section 402(g) (relating to limitation on 
exclusion for elective deferrals) is amended by adding at the 
end the following:
            ``(9) Matching contributions on behalf of self-
        employed individuals not treated as elective employer 
        contributions.--Except as provided in section 
        401(k)(3)(D)(ii), any matching contribution described 
        in section 401(m)(4)(A) which is made on behalf of a 
        self-employed individual (as defined in section 401(c)) 
        shall not be treated as an elective employer 
        contribution under a qualified cash or deferred 
        arrangement (as defined in section 401(k)) for purposes 
        of this title.''.
    (b) Conforming Amendment for Simple Retirement Accounts.--
Section 408(p) (relating to simple retirement accounts) is 
amended by adding at the end the following:
            ``(8) Matching contributions on behalf of self-
        employed individuals not treated as elective employer 
        contributions.--Any matching contribution described in 
        paragraph (2)(A)(iii) which is made on behalf of a 
        self-employed individual (as defined in section 401(c)) 
        shall not be treated as an elective employer 
        contribution to a simple retirement account for 
        purposes of this title.''.
    (c) Effective Dates.--
            (1) Elective deferrals.--The amendment made by 
        subsection (a) shall apply to years beginning after 
        December 31, 1997.
            (2) Simple retirement accounts.--The amendment made 
        by subsection (b) shall apply to years beginning after 
        December 31, 1996.

SEC. 1502. MODIFICATION OF PROHIBITION OF ASSIGNMENT OR ALIENATION.

    (a) Amendment to ERISA.--Section 206(d) of the Employee 
Retirement Income Security Act of 1974 (29 U.S.C. 1056(d)) is 
amended by adding at the end the following:
    ``(4) Paragraph (1) shall not apply to any offset of a 
participant's benefits provided under an employee pension 
benefit plan against an amount that the participant is ordered 
or required to pay to the plan if--
            ``(A) the order or requirement to pay arises--
                    ``(i) under a judgment of conviction for a 
                crime involving such plan,
                    ``(ii) under a civil judgment (including a 
                consent order or decree) entered by a court in 
                an action brought in connection with a 
                violation (or alleged violation) of part 4 of 
                this subtitle, or
                    ``(iii) pursuant to a settlement agreement 
                between the Secretary and the participant, or a 
                settlement agreement between the Pension 
                Benefit Guaranty Corporation and the 
                participant, in connection with a violation (or 
                alleged violation) of part 4 of this subtitle 
                by a fiduciary or any other person,
            ``(B) the judgment, order, decree, or settlement 
        agreement expressly provides for the offset of all or 
        part of the amount ordered or required to be paid to 
        the plan against the participant's benefits provided 
        under the plan, and
            ``(C) in a case in which the survivor annuity 
        requirements of section 205 apply with respect to 
        distributions from the plan to the participant, if the 
        participant has a spouse at the time at which the 
        offset is to be made--
                    ``(i) either--
                            ``(I) such spouse has consented in 
                        writing to such offset and such consent 
                        is witnessed by a notary public or 
                        representative of the plan (or it is 
                        established to the satisfaction of a 
                        plan representative that such consent 
                        may not be obtained by reason of 
                        circumstances described in section 
                        205(c)(2)(B)), or
                            ``(II) an election to waive the 
                        right of the spouse to a qualified 
                        joint and survivor annuity or a 
                        qualified preretirement survivor 
                        annuity is in effect in accordance with 
                        the requirements of section 205(c),
                    ``(ii) such spouse is ordered or required 
                in such judgment, order, decree, or settlement 
                to pay an amount to the plan in connection with 
                a violation of part 4 of this subtitle, or
                    ``(iii) in such judgment, order, decree, or 
                settlement, such spouse retains the right to 
                receive the survivor annuity under a qualified 
                joint and survivor annuity provided pursuant to 
                section 205(a)(1) and under a qualified 
                preretirement survivor annuity provided 
                pursuant to section 205(a)(2), determined in 
                accordance with paragraph (5).
A plan shall not be treated as failing to meet the requirements 
of section 205 solely by reason of an offset under this 
paragraph.
    ``(5)(A) The survivor annuity described in paragraph 
(4)(C)(iii) shall be determined as if--
            ``(i) the participant terminated employment on the 
        date of the offset,
            ``(ii) there was no offset,
            ``(iii) the plan permitted commencement of benefits 
        only on or after normal retirement age,
            ``(iv) the plan provided only the minimum-required 
        qualified joint and survivor annuity, and
            ``(v) the amount of the qualified preretirement 
        survivor annuity under the plan is equal to the amount 
        of the survivor annuity payable under the minimum-
        required qualified joint and survivor annuity.
    ``(B) For purposes of this paragraph, the term `minimum-
required qualified joint and survivor annuity' means the 
qualified joint and survivor annuity which is the actuarial 
equivalent of the participant's accrued benefit (within the 
meaning of section 3(23)) and under which the survivor annuity 
is 50 percent of the amount of the annuity which is payable 
during the joint lives of the participant and the spouse.''.
    (b) Amendment to 1986 Code.--Section 401(a)(13) (relating 
to assignment and alienation) is amended by adding at the end 
the following:
                    ``(C) Special rule for certain judgments 
                and settlements.--Subparagraph (A) shall not 
                apply to any offset of a participant's benefits 
                provided under a plan against an amount that 
                the participant is ordered or required to pay 
                to the plan if--
                            ``(i) the order or requirement to 
                        pay arises--
                                    ``(I) under a judgment of 
                                conviction for a crime 
                                involving such plan,
                                    ``(II) under a civil 
                                judgment (including a consent 
                                order or decree) entered by a 
                                court in an action brought in 
                                connection with a violation (or 
                                alleged violation) of part 4 of 
                                subtitle B of title I of the 
                                Employee Retirement Income 
                                Security Act of 1974, or
                                    ``(III) pursuant to a 
                                settlement agreement between 
                                the Secretary of Labor and the 
                                participant, or a settlement 
                                agreement between the Pension 
                                Benefit Guaranty Corporation 
                                and the participant, in 
                                connection with a violation (or 
                                alleged violation) of part 4 of 
                                such subtitle by a fiduciary or 
                                any other person,
                            ``(ii) the judgment, order, decree, 
                        or settlement agreement expressly 
                        provides for the offset of all or part 
                        of the amount ordered or required to be 
                        paid to the plan against the 
                        participant's benefits provided under 
                        the plan, and
                            ``(iii) in a case in which the 
                        survivor annuity requirements of 
                        section 401(a)(11) apply with respect 
                        to distributions from the plan to the 
                        participant, if the participant has a 
                        spouse at the time at which the offset 
                        is to be made--
                                    ``(I) either such spouse 
                                has consented in writing to 
                                such offset and such consent is 
                                witnessed by a notary public or 
                                representative of the plan (or 
                                it is established to the 
                                satisfaction of a plan 
                                representative that such 
                                consent may not be obtained by 
                                reason of circumstances 
                                described in section 
                                417(a)(2)(B)), or an election 
                                to waive the right of the 
                                spouse to either a qualified 
                                joint and survivor annuity or a 
                                qualified preretirement 
                                survivor annuity is in effect 
                                in accordance with the 
                                requirements of section 417(a),
                                    ``(II) such spouse is 
                                ordered or required in such 
                                judgment, order, decree, or 
                                settlement to pay an amount to 
                                the plan in connection with a 
                                violation of part 4 of such 
                                subtitle, or
                                    ``(III) in such judgment, 
                                order, decree, or settlement, 
                                such spouse retains the right 
                                to receive the survivor annuity 
                                under a qualified joint and 
                                survivor annuity provided 
                                pursuant to section 
                                401(a)(11)(A)(i) and under a 
                                qualified preretirement 
                                survivor annuity provided 
                                pursuant to section 
                                401(a)(11)(A)(ii), determined 
                                in accordance with subparagraph 
                                (D).
                A plan shall not be treated as failing to meet 
                the requirements of this subsection, subsection 
                (k), section 403(b), or section 409(d) solely 
                by reason of an offset described in this 
                subparagraph.
                    ``(D) Survivor annuity.--
                            ``(i) In general.--The survivor 
                        annuity described in subparagraph 
                        (C)(iii)(III) shall be determined as 
                        if--
                                    ``(I) the participant 
                                terminated employment on the 
                                date of the offset,
                                    ``(II) there was no offset,
                                    ``(III) the plan permitted 
                                commencement of benefits only 
                                on or after normal retirement 
                                age,
                                    ``(IV) the plan provided 
                                only the minimum-required 
                                qualified joint and survivor 
                                annuity, and
                                    ``(V) the amount of the 
                                qualified preretirement 
                                survivor annuity under the plan 
                                is equal to the amount of the 
                                survivor annuity payable under 
                                the minimum-required qualified 
                                joint and survivor annuity.
                            ``(ii) Definition.--For purposes of 
                        this subparagraph, the term `minimum-
                        required qualified joint and survivor 
                        annuity' means the qualified joint and 
                        survivor annuity which is the actuarial 
                        equivalent of the participant's accrued 
                        benefit (within the meaning of section 
                        411(a)(7)) and under which the survivor 
                        annuity is 50 percent of the amount of 
                        the annuity which is payable during the 
                        joint lives of the participant and the 
                        spouse.''.
    (c) Effective Date.--The amendments made by this section 
shall apply to judgments, orders, and decrees issued, and 
settlement agreements entered into, on or after the date of the 
enactment of this Act.

SEC. 1503. ELIMINATION OF PAPERWORK BURDENS ON PLANS.

    (a) Elimination of Unnecessary Filing Requirements.--
Section 101(b) of the Employee Retirement Income Security Act 
of 1974 (29 U.S.C. 1021(b)) is amended by striking paragraphs 
(1), (2), and (3) and by redesignating paragraphs (4) and (5) 
as paragraphs (1) and (2), respectively.
    (b) Elimination of Plan Description.--
            (1) In general.--Section 102(a) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 
        1022(a)) is amended--
                    (A) by striking paragraph (2), and
                    (B) by striking ``(a)(1)'' and inserting 
                ``(a)''.
            (2) Conforming amendments.--
                    (A) Section 102(b) of such Act (29 U.S.C. 
                1022(b)) is amended by striking ``The plan 
                description and summary plan description shall 
                contain'' and inserting ``The summary plan 
                description shall contain''.
                    (B) The heading for section 102 of such Act 
                is amended by striking ``plan description 
                and''.
    (c) Furnishing of Reports.--
            (1) In general.--Section 104(a)(1) of the Employee 
        Retirement Income Security Act of 1974 (29 U.S.C. 
        1024(a)(1)) is amended to read as follows:
    ``Sec. 104. (a)(1) The administrator of any employee 
benefit plan subject to this part shall file with the Secretary 
the annual report for a plan year within 210 days after the 
close of such year (or within such time as may be required by 
regulations promulgated by the Secretary in order to reduce 
duplicative filing). The Secretary shall make copies of such 
annual reports available for inspection in the public document 
room of the Department of Labor.''.
            (2) Secretary may request documents.--
                    (A) In general.--Section 104(a) of such Act 
                (29 U.S.C. 1024(a)) is amended by adding at the 
                end the following:
    ``(6) The administrator of any employee benefit plan 
subject to this part shall furnish to the Secretary, upon 
request, any documents relating to the employee benefit plan, 
including but not limited to, the latest summary plan 
description (including any summaries of plan changes not 
contained in the summary plan description), and the bargaining 
agreement, trust agreement, contract, or other instrument under 
which the plan is established or operated.''.
                    (B) Penalty.--Section 502(c) of such Act 
                (29 U.S.C. 1132(c)) is amended by redesignating 
                paragraph (6) as paragraph (7) and by inserting 
                after paragraph (5) the following:
    ``(6) If, within 30 days of a request by the Secretary to a 
plan administrator for documents under section 104(a)(6), the 
plan administrator fails to furnish the material requested to 
the Secretary, the Secretary may assess a civil penalty against 
the plan administrator of up to $100 a day from the date of 
such failure (but in no event in excess of $1,000 per request). 
No penalty shall be imposed under this paragraph for any 
failure resulting frommatters reasonably beyond the control of 
the plan administrator.''.
    (d) Conforming Amendments.--
            (1) Section 104(b)(1) of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1024(b)(1)) is 
        amended by striking ``section 102(a)(1)'' each place it 
        appears and inserting ``section 102(a)''.
            (2) Section 104(b)(2) of such Act (29 U.S.C. 
        1024(b)(2)) is amended by striking ``the plan 
        description and'' and inserting ``the latest updated 
        summary plan description and''.
            (3) Section 104(b)(4) of such Act (29 U.S.C. 
        1024(b)(4)) is amended by striking ``plan 
        description''.
            (4) Section 106(a) of such Act (29 U.S.C. 1026(a)) 
        is amended by striking ``descriptions,''.
            (5) Section 107 of such Act (29 U.S.C. 1027) is 
        amended by striking ``description or''.
            (6) Section 108(2)(B) of such Act (29 U.S.C. 
        1028(2)(B)) is amended by striking ``plan descriptions, 
        annual reports,'' and inserting ``annual reports''.
            (7) Section 502(a)(6) of such Act (29 U.S.C. 
        1132(a)(6)) is amended by striking ``or (5)'' and 
        inserting ``(5), or (6)''.
    (e) Technical Correction.--Section 1144(c) of the Social 
Security Act (42 U.S.C. 1320b-14(c)) is amended by 
redesignating paragraph (9) as paragraph (8).

SEC. 1504. MODIFICATION OF 403(B) EXCLUSION ALLOWANCE TO CONFORM TO 415 
                    MODIFICATIONS.

    (a) Definition of Compensation.--
            (1) In general.--Section 403(b)(3) (defining 
        includible compensation) is amended by adding at the 
        end the following: ``Such term includes--
                    ``(A) any elective deferral (as defined in 
                section 402(g)(3)), and
                    ``(B) any amount which is contributed or 
                deferred by the employer at the election of the 
                employee and which is not includible in the 
                gross income of the employee by reason of 
                section 125 or 457.''.
            (2) Effective date.--The amendment made by this 
        subsection shall apply to years beginning after 
        December 31, 1997.
    (b) Repeal of Rules in Section 415(e).--The Secretary of 
the Treasury shall modify the regulations regardingthe 
exclusion allowance under section 403(b)(2) of the Internal Revenue 
Code of 1986 to reflect the amendment made by section 1452(a) of the 
Small Business Job Protection Act of 1996. Such modification shall take 
effect for years beginning after December 31, 1999.

SEC. 1505. EXTENSION OF MORATORIUM ON APPLICATION OF CERTAIN 
                    NONDISCRIMINATION RULES TO STATE AND LOCAL 
                    GOVERNMENTS.

    (a) General Nondiscrimination and Participation Rules.--
            (1) Nondiscrimination requirements.--Section 
        401(a)(5) (relating to qualified pension, profit-
        sharing, and stock bonus plans) is amended by adding at 
        the end the following:
                    ``(G) State and local governmental plans.--
                Paragraphs (3) and (4) shall not apply to a 
                governmental plan (within the meaning of 
                section 414(d)) maintained by a State or local 
                government or political subdivision thereof (or 
                agency or instrumentality thereof).''.
            (2) Additional participation requirements.--Section 
        401(a)(26)(H) (relating to additional participation 
        requirements) is amended to read as follows:
                    ``(H) Exception for state and local 
                governmental plans.--This paragraph shall not 
                apply to a governmental plan (within the 
                meaning of section 414(d)) maintained by a 
                State or local government or political 
                subdivision thereof (or agency or 
                instrumentality thereof).''.
            (3) Minimum participation standards.--Section 
        410(c)(2) (relating to application of participation 
        standards to certain plans) is amended to read as 
        follows:
            ``(2) A plan described in paragraph (1) shall be 
        treated as meeting the requirements of this section for 
        purposes of section 401(a), except that in the case of 
        a plan described in subparagraph (B), (C), or (D) of 
        paragraph (1), this paragraph shall apply only if such 
        plan meets the requirements of section 401(a)(3) (as in 
        effect on September 1, 1974).''.
    (b) Participation and Discrimination Standards for 
Qualified Cash or Deferred Arrangements.--Section 401(k)(3) 
(relating to application of participation and discrimination 
standards) is amended by adding at the end the following:
                    ``(G) A governmental plan (within the 
                meaning of section 414(d)) maintained by aState 
or local government or political subdivision thereof (or agency or 
instrumentality thereof) shall be treated as meeting the requirements 
of this paragraph.''.
    (c) Nondiscrimination Rules for Section 40