Omnibus Budget Reconciliation Act of 1989 (P.L. 101-239) (Title VII--Revenue Reconciliation Act of 1989) (Title X--Miscellaneous and Technical Social Security Act Amendments of 1989)
Omnibus Budget Reconciliation Act of 1989 (P.L. 101-239) (Title VII--Revenue Reconciliation Act of 1989) (Title X--Miscellaneous and Technical Social Security Act Amendments of 1989)
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H.R. 3299, Enrolled Bill
H.R.3299
One Hundred First Congress
of the
United States of America
AT THE FIRST SESSION
Begun and held at the City of Washington on Tuesday,
the third day of January, one thousand nine hundred and eighty-nine
An Act
To provide for reconciliation pursuant to section 5 of the concurrent resolution on the budget for the fiscal year 1990.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the 'Omnibus Budget Reconciliation Act of 1989'.
SEC. 2. TABLE OF CONTENTS.
Title VI--Medicare, Medicaid, Maternal and Child Health, and Other Health Provisions.
Title VII--Revenue Provisions.
* * * * * * *
Title X--Miscellaneous and Technical Social Security Act Amendments.
* * * * * * *
* * * * * * *
TITLE VI--MEDICARE, MEDICAID, MATERNAL AND CHILD HEALTH, AND OTHER HEALTH PROVISIONS
TABLE OF CONTENTS OF TITLE
Subtitle A--Medicare
* * * * * * *
Part 3--Provisions Relating to Parts A and B
Part 1--Extension of Coverage for Disabled Employees
Subtitle A--Medicare
* * * * * * *
PART 3--PROVISIONS RELATING TO PARTS A AND B
Subpart A--General Provisions
* * * * * * *
SEC. 6202. MEDICARE AS SECONDARY PAYER.
(a) IDENTIFICATION OF MEDICARE SECONDARY PAYER SITUATIONS.--
(1) DISCLOSURE OF CERTAIN TAXPAYER IDENTITY INFORMATION FOR VERIFICATION OF EMPLOYMENT STATUS OF MEDICARE BENEFICIARY AND SPOUSE OF MEDICARE BENEFICIARY.--
(A) IN GENERAL.--Subsection (l) of section 6103 of the Internal Revenue Code of 1986 (relating to disclosure of returns and return information for purposes other than tax administration) is amended by adding at the end thereof the following new paragraph:
'(12) DISCLOSURE OF CERTAIN TAXPAYER IDENTITY INFORMATION FOR VERIFICATION OF EMPLOYMENT STATUS OF MEDICARE BENEFICIARY AND SPOUSE OF MEDICARE BENEFICIARY.--
'(A) RETURN INFORMATION FROM INTERNAL REVENUE SERVICE.--The Secretary shall, upon written request from the Commissioner of Social Security, disclose to the Commissioner available filing status and taxpayer identity information from the individual master files of the Internal Revenue Service relating to whether any Medicare beneficiary identified by the Commissioner was a married individual (as defined in section 7703) for any specified year after 1986, and, if so, the name of the spouse of such individual and such spouse's TIN.
'(B) RETURN INFORMATION FROM SOCIAL SECURITY ADMINISTRATION.--The Commissioner of Social Security shall, upon written request from the Administrator of the Health Care Financing Administration, disclose to the Administrator the following information:
'(i) The name and TIN of each Medicare beneficiary who is identified as having received wages (as defined in section 3401(a)) from a qualified employer in a previous year.
'(ii) For each Medicare beneficiary who was identified as married under subparagraph (A) and whose spouse is identified as having received wages from a qualified employer in a previous year--
'(I) the name and TIN of the Medicare beneficiary, and
'(II) the name and TIN of the spouse.
'(iii) With respect to each such qualified employer, the name, address, and TIN of the employer and the number of individuals with respect to whom written statements were furnished under section 6051 by the employer with respect to such previous year.
'(C) DISCLOSURE BY HEALTH CARE FINANCING ADMINISTRATION.--With respect to the information disclosed under subparagraph (B), the Administrator of the Health Care Financing Administration may disclose--
'(i) to the qualified employer referred to in such subparagraph the name and TIN of each individual identified under such subparagraph as having received wages from the employer (hereinafter in this subparagraph referred to as the 'employee') for purposes of determining during what period such employee or the employee's spouse may be (or have been) covered under a group health plan of the employer and what benefits are or were covered under the plan (including the name, address, and identifying number of the plan),
'(ii) to any group health plan which provides or provided coverage to such an employee or spouse, the name of such employee and the employee's spouse (if the spouse is a Medicare beneficiary) and the name and address of the employer, and, for the purpose of presenting a claim to the plan--
'(I) the TIN of such employee if benefits were paid under title XVIII of the Social Security Act with respect to the employee during a period in which the plan was a primary plan (as defined in section 1862(b)(2)(A) of the Social Security Act), and
'(II) the TIN of such spouse if benefits were paid under such title with respect to the spouse during such period, and
'(iii) to any agent of such Administrator the information referred to in subparagraph (B) for purposes of carrying out clauses (i) and (ii) on behalf of such Administrator.
'(D) SPECIAL RULES.--
'(i) RESTRICTIONS ON DISCLOSURE.--Information may be disclosed under this paragraph only for purposes of, and to the extent necessary in, determining the extent to which any Medicare beneficiary is covered under any group health plan.
'(ii) TIMELY RESPONSE TO REQUESTS.--Any request made under subparagraph (A) or (B) shall be complied with as soon as possible but in no event later than 120 days after the date the request was made.
'(E) DEFINITIONS.--For purposes of this paragraph--
'(i) MEDICARE BENEFICIARY.--The term 'Medicare beneficiary' means an individual entitled to benefits under part A, or enrolled under part B, of title XVIII of the Social Security Act, but does not include such an individual enrolled in part A under section 1818.
'(ii) GROUP HEALTH PLAN.--The term 'group health plan' means--
'(I) any group health plan (as defined in section 5000(b)(1)), and
'(II) any large group health plan (as defined in section 5000(b)(2)).
'(iii) QUALIFIED EMPLOYER.--The term 'qualified employer' means, for a calendar year, an employer which has furnished written statements under section 6051 with respect to at least 20 individuals for wages paid in the year.
'(F) TERMINATION.--Subparagraphs (A) and (B) shall not apply to--
'(i) any request made after September 30, 1991, and
'(ii) any request made before such date for information relating to--
'(I) 1990 or thereafter in the case of subparagraph (A), or
'(II) 1991 or thereafter in the case of subparagraph (B).'
(i) Paragraph (3) of section 6103(a) of such Code is amended by inserting '(l)(12),' after '(e)(1)(D)(iii),'.
(ii) Subparagraph (A) of section 6103(p)(3) of such Code is amended by striking 'or (11)' and inserting '(11), or (12)'.
(iii) Paragraph (4) of section 6103(p) of such Code is amended in the material preceding subparagraph (A) by striking 'or (9) shall' and inserting '(9), or (12) shall'.
(iv) Clause (ii) of section 6103(p)(4)(F) of such Code is amended by striking 'or (11)' and inserting '(11), or (12)'.
(v) The next to the last sentence of paragraph (4) of section 6103(p) of such Code is amended by inserting 'or which receives any information under subsection (l)(12)(B) and which discloses any such information to any agent' before ', this paragraph'.
(C) PENALTY.--Paragraph (2) of section 7213(a) of such Code is amended by striking 'or (10)' and inserting '(10), or (12)'.
(D) EFFECTIVE DATE.--The amendments made by this paragraph shall take effect on the date of the enactment of this Act.
(2) RESPONSIBILITIES OF HCFA.--
(A) IN GENERAL.--Section 1862(b) of the Social Security Act (42 U.S.C. 1395y(b)), as amended by subsection (b)(1) of this section, is amended by inserting after paragraph (4) the following new paragraph:
'(5) IDENTIFICATION OF SECONDARY PAYER SITUATIONS.--
'(A) REQUESTING MATCHING INFORMATION.--
'(i) COMMISSIONER OF SOCIAL SECURITY.--The Commissioner of Social Security shall, not less often than annually, transmit to the Secretary of the Treasury a list of the names and TINs of Medicare beneficiaries (as defined in section 6103(l)(12) of the Internal Revenue Code of 1986) and request that the Secretary disclose to the Commissioner the information described in subparagraph (A) of such section.
'(ii) ADMINISTRATOR.--The Administrator of the Health Care Financing Administration shall request, not less often than annually, the Commissioner of the Social Security Administration to disclose to the Administrator the information described in subparagraph (B) of section 6103(l)(12) of the Internal Revenue Code of 1986.
'(B) DISCLOSURE TO FISCAL INTERMEDIARIES AND CARRIERS.--In addition to any other information provided under this title to fiscal intermediaries and carriers, the Administrator shall disclose to such intermediaries and carriers (or to such a single intermediary or carrier as the Secretary may designate) the information received under subparagraph (A) for the purposes of carrying out this subsection.
'(C) CONTACTING EMPLOYERS.--
'(i) IN GENERAL.--With respect to each individual (in this subparagraph referred to as an 'employee') who was furnished a written statement under section 6051 of the Internal Revenue Code of 1986 by a qualified employer (as defined in section 6103(l)(12)(D)(iii) of such Code), as disclosed under subparagraph (B), the appropriate fiscal intermediary or carrier shall contact the employer in order to determine during what period the employee or employee's spouse may be (or have been) covered under a group health plan of the employer and the nature of the coverage that is or was provided under the plan (including the name, address, and identifying number of the plan).
'(ii) EMPLOYER RESPONSE.--Within 30 days of the date of receipt of the inquiry, the employer shall notify the intermediary or carrier making the inquiry as to the determinations described in clause (i). An employer (other than a Federal or other governmental entity) who willfully or repeatedly fails to provide timely and accurate notice in accordance with the previous sentence shall be subject to a civil money penalty of not to exceed $1,000 for each individual with respect to which such an inquiry is made. The provisions of section 1128A (other than subsections (a) and (b)) shall apply to a civil money penalty under the previous sentence in the same manner as such provisions apply to a penalty or proceeding under section 1128A(a).
'(iii) SUNSET ON REQUIREMENT.--Clause (ii) shall not apply to inquiries made after September 30, 1991.'.
(B) DEADLINE FOR FIRST REQUEST.--The Commissioner of Social Security shall first--
(i) transmit to the Secretary of the Treasury information under paragraph (5)(A)(i) of section 1862(b) of the Social Security Act (as inserted by subparagraph (A)), and
(ii) request from the Secretary disclosure of information described in section 6013(l)(12)(A) of the Internal Revenue Code of 1986,
by not later than 14 days after the date of the enactment of this Act.
(1) IN GENERAL.--Section 1862 of the Social Security Act (42 U.S.C. 1395y) is amended--
(A) in the heading, by adding at the end the following: 'AND MEDICARE AS SECONDARY PAYER'; and
(B) by amending subsection (b) to read as follows:
'(1) REQUIREMENTS OF GROUP HEALTH PLANS.--
'(A) WORKING AGED UNDER GROUP HEALTH PLANS.--
'(i) IN GENERAL.--A group health plan--
'(I) may not take into account, for any item or service furnished to an individual 65 years of age or older at the time the individual is covered under the plan by reason of the current employment of the individual (or the individual's spouse), that the individual is entitled to benefits under this title under section 226(a), and
'(II) shall provide that any employee age 65 or older, and any employee's spouse age 65 or older, shall be entitled to the same benefits under the plan under the same conditions as any employee, and the spouse of such employee, under age 65.
'(ii) EXCLUSION OF GROUP HEALTH PLAN OF A SMALL EMPLOYER.--Clause (i) shall not apply to a group health plan unless the plan is sponsored by or contributed to by an employer that has 20 or more employees for each working day in each of 20 or more calendar weeks in the current calendar year or the preceding calendar year.
'(iii) EXCEPTION FOR SMALL EMPLOYERS IN MULTIEMPLOYER OR MULTIPLE EMPLOYER GROUP HEALTH PLANS.--Clause (i) also shall not apply with respect to individuals enrolled in a multiemployer or multiple employer group health plan if the coverage of the individuals under the plan is by virtue of employment with an employer that does not have 20 or more employees for each working day in each of 20 or more calendar weeks in the current calendar year or the preceding calendar year; except that the exception provided in this clause shall only apply if the plan elects treatment under this clause.
'(iv) EXCEPTION FOR INDIVIDUALS WITH END STAGE RENAL DISEASE.--Clause (i) shall not apply to an item or service furnished in a month to an individual if for the month the individual is, or would upon application be, entitled to benefits under section 226A.
'(v) GROUP HEALTH PLAN DEFINED.--In this subparagraph, and subparagraph (C), the term 'group health plan' has the meaning given such term in section 5000(b)(1) of the Internal Revenue Code of 1986.
'(B) DISABLED ACTIVE INDIVIDUALS IN LARGE GROUP HEALTH PLANS.--
'(i) IN GENERAL.--A large group health plan (as defined in clause (iv)(II)) may not take into account that an active individual (as defined in clause (iv)(I)) is entitled to benefits under this title under section 226(b).
'(ii) EXCEPTION FOR INDIVIDUALS WITH END STAGE RENAL DISEASE.--Clause (i) shall not apply to an item or service furnished in a month to an individual if for the month the individual is, or would upon application be, entitled to benefits under section 226A.
'(iii) SUNSET.--Clause (i) shall only apply to items and services furnished on or after January 1, 1987, and before January 1, 1992.
'(iv) DEFINITIONS.--In this subparagraph:
'(I) ACTIVE INDIVIDUAL.--The term 'active individual' means an employee (as may be defined in regulations), the employer, self-employed individual (such as the employer), an individual associated with the employer in a business relationship, or a member of the family of any of such persons.
'(II) LARGE GROUP HEALTH PLAN.--The term 'large group health plan' has the meaning given such term in section 5000(b)(2) of the Internal Revenue Code of 1986.
'(i) may not take into account that an individual is entitled to benefits under this title solely by reason of section 226A during the 12-month period which begins with the earlier of--
'(I) the month in which a regular course of renal dialysis is initiated, or
'(II) in the case of an individual who receives a kidney transplant, the first month in which he would be eligible for benefits under part A (if he had filed an application for such benefits) under the provisions of section 226A(b)(1)(B); and
'(ii) may not differentiate in the benefits it provides between individuals having end stage renal disease and other individuals covered by such plan on the basis of the existence of end stage renal disease, the need for renal dialysis, or in any other manner;
except that clause (ii) shall not prohibit a plan from taking into account that an individual is entitled to benefits under this title solely by reason of section 226A after the end of the 12-month period described in clause (i).
'(2) MEDICARE SECONDARY PAYER.--
'(A) IN GENERAL.--Payment under this title may not be made, except as provided in subparagraph (B), with respect to any item or service to the extent that--
'(i) payment has been made, or can reasonably be expected to be made, with respect to the item or service as required under paragraph (1), or
'(ii) payment has been made, or can reasonably be expected to be made promptly (as determined in accordance with regulations) under a workmen's compensation law or plan of the United States or a State or under an automobile or liability insurance policy or plan (including a self-insured plan) or under no fault insurance.
In this subsection, the term 'primary plan' means a group health plan or large group health plan, to the extent that clause (i) applies, and a workmen's compensation law or plan, an automobile or liability insurance policy or plan (including a self-insured plan) or no fault insurance, to the extent that clause (ii) applies.
'(B) CONDITIONAL PAYMENT.--
'(i) PRIMARY PLANS.--Any payment under this title with respect to any item or service to which subparagraph (A) applies shall be conditioned on reimbursement to the appropriate Trust Fund established by this title when notice or other information is received that payment for such item or service has been or could be made under such subparagraph.
'(ii) ACTION BY UNITED STATES.--In order to recover payment under this title for such an item or service, the United States may bring an action against any entity which is required or responsible under this subsection to pay with respect to such item or service (or any portion thereof) under a primary plan (and may, in accordance with paragraph (3)(A) collect double damages against that entity), or against any other entity (including any physician or provider) that has received payment from that entity with respect to the item or service, and may join or intervene in any action related to the events that gave rise to the need for the item or service.
'(iii) SUBROGATION RIGHTS.--The United States shall be subrogated (to the extent of payment made under this title for such an item or service) to any right under this subsection of an individual or any other entity to payment with respect to such item or service under a primary plan.
'(iv) WAIVER OF RIGHTS.--The Secretary may waive (in whole or in part) the provisions of this subparagraph in the case of an individual claim if the Secretary determines that the waiver is in the best interests of the program established under this title.
'(A) PRIVATE CAUSE OF ACTION.--There is established a private cause of action for damages (which shall be in an amount double the amount otherwise provided) in the case of a primary plan which fails to provide for primary payment (or appropriate reimbursement) in accordance with such paragraphs (1) and (2)(A).
'(B) REFERENCE TO EXCISE TAX WITH RESPECT TO NONCONFORMING GROUP HEALTH PLANS.--For provision imposing an excise tax with respect to nonconforming group health plans, see section 5000 of the Internal Revenue Code of 1986.
'(4) COORDINATION OF BENEFITS.--Where payment for an item or service by a primary plan is less than the amount of the charge for such item or service and is not payment in full, payment may be made under this title (without regard to deductibles and coinsurance under this title) for the remainder of such charge, but--
'(A) payment under this title may not exceed an amount which would be payable under this title for such item or service if paragraph (2)(A) did not apply; and
'(B) payment under this title, when combined with the amount payable under the primary plan, may not exceed--
'(i) in the case of an item or service payment for which is determined under this title on the basis of reasonable cost (or other cost-related basis) or under section 1886, the amount which would be payable under this title on such basis, and
'(ii) in the case of an item or service for which payment is authorized under this title on another basis--
'(I) the amount which would be payable under the primary plan (without regard to deductibles and coinsurance under such plan), or
'(II) the reasonable charge or other amount which would be payable under this title (without regard to deductibles and coinsurance under this title),
whichever is greater.'.
(A) by striking 'LARGE' in the heading;
(B) in subsection (a), by striking 'large' each place it appears; and
(C) by amending subsections (b) and (c) to read as follows:
'(1) GROUP HEALTH PLAN.--The term 'group health plan' means any plan of, or contributed to by, an employer (including a self-insured plan) to provide health care (directly or otherwise) to the employer's employees, former employees, or the families of such employees or former employees.
'(2) LARGE GROUP HEALTH PLAN.--The term 'large group health plan' means a plan of, or contributed to by, an employer or employee organization (including a self-insured plan) to provide health care (directly or otherwise) to the employees, former employees, the employer, others associated or formerly associated with the employer in a business relationship, or their families, that covers employees of at least one employer that normally employed at least 100 employees on a typical business day during the previous calendar year.
'(c) NONCONFORMING GROUP HEALTH PLAN.--For purposes of this section, the term 'nonconforming group health plan' means a group health plan or large group health plan that at any time during a calendar year does not comply with the requirements of subparagraphs (A) and (C) or subparagraph (B), respectively, of section 1862(b)(1) of the Social Security Act.'.
(3) REPEAL OF CERTAIN ALTERNATIVE ENFORCEMENT PROVISIONS.--
(A) DENIAL OF DEDUCTION FOR GROUP HEALTH PLANS.--Subsection (i) of section 162 of such Code (relating to group health plans) is repealed.
(B) CONFORMING AMENDMENT.--Section 4980B(g)(2) of such Code is amended by striking '162(i)' and inserting '5000(b)(1)'.
(C) AGE DISCRIMINATION IN EMPLOYMENT ACT.--The Age Discrimination in Employment Act of 1967 is amended--
(i) by striking subsection (g) of section 4, and
(ii) in section 12(a), by striking '(except the provisions of section 4(g))'.
(A) Chapter 47 of the Internal Revenue Code of 1986 is amended--
(i) in the heading, by striking 'LARGE', and
(ii) in the table of sections, by striking 'large'.
(B) The item in the table of chapters of subtitle D of such Code relating to chapter 47 is amended by striking 'large'.
(C) Sections 1837(i) and 1839(b) of the Social Security Act (42 U.S.C. 1395p(i), 1395r(b)) are each amended by striking '1862(b)(3)(A)(iv)' and '1862(b)(4)(B)' each place each appears and inserting '1862(b)(1)(A)(v)' and '1862(b)(1)(B)(iv)', respectively.
(5) EFFECTIVE DATE.--The amendments made by this subsection shall apply to items and services furnished after the date of the enactment of this Act.
(c) SPECIAL ENROLLMENT PERIOD FOR DISABLED EMPLOYEES.--
(1) IN GENERAL.--Section 1837(i) of the Social Security Act (42 U.S.C. 1395p(i)) is amended--
(A) in paragraph (1)--
(i) by striking subparagraph (A),
(ii) by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively, and
(iii) in the second sentence, by inserting 'not described in the previous sentence' after 'In the case of an individual'; and
(B) in paragraph (2)--
(i) in subparagraph (B)(i), by striking '(1)(B)' and inserting '(1)(A)',
(ii) by striking subparagraph (A),
(iii) by redesignating subparagraphs (B) through (D) as subparagraphs (A) through (C), respectively, and
(iv) in the second sentence, by inserting 'not described in the previous sentence' after 'In the case of an individual'.
(3) EFFECTIVE DATE.--The amendments made by this subsection shall apply to enrollments occurring after, and premiums for months after, the second calendar quarter beginning after the date of the enactment of this Act.
(d) NO MATCHING BASED ON PRIVATE ACTIVITIES REQUIRED IN FISCAL INTERMEDIARY AGREEMENTS AND CARRIER CONTRACTS.--
(1) FISCAL INTERMEDIARY AGREEMENTS.--Section 1816(c)(1) of the Social Security Act (42 U.S.C. 1395h(c)(1)) is amended by adding at the end the following: 'The Secretary may not require, as a condition of entering into or renewing an agreement under this section or under section 1871, that a fiscal intermediary match data obtained other than in its activities under this part with data used in the administration of this part for purposes of identifying situations in which the provisions of section 1862(b) may apply.'.
(2) CARRIER CONTRACTS.--Section 1842(b)(2)(A) of such Act (42 U.S.C. 1395u(b)(2)(A)) is amended by adding at the end the following: 'The Secretary may not require, as a condition of entering into or renewing a contract under this section or under section 1871, that a carrier match data obtained other than in its activities under this part with data used in the administration of this part for purposes of identifying situations in which section 1862(b) may apply.'.
(3) EFFECTIVE DATE.--The amendments made by this subsection shall apply to agreements and contracts entered into or renewed on or after the date of the enactment of this Act.
(e) TREATMENT OF EMPLOYMENT AS A MEMBER OF A RELIGIOUS ORDER.--
(1) IN GENERAL.--Section 1862(b)(1) of the Social Security Act (42 U.S.C. 1395y(b)(1)), as amended by subsection (b)(1) of this section, is amended by adding at the end the following new subparagraph:
'(D) TREATMENT OF CERTAIN MEMBERS OF RELIGIOUS ORDERS.--In this subsection, an individual shall not be considered to be employed, or an employee, with respect to the performance of services as a member of a religious order which are considered employment only by virtue of an election made by the religious order under section 3121(r) of the Internal Revenue Code of 1986.'.
(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall apply to items and services furnished on or after October 1, 1989.
SEC. 6205. COSTS OF NURSING AND ALLIED HEALTH EDUCATION.
(a) RECOGNITION OF COSTS OF CERTAIN HOSPITAL-BASED NURSING SCHOOLS.--
(1) IN GENERAL.--
(A) The reasonable costs incurred by a hospital in training students of a hospital-based nursing school shall be allowable as reasonable costs under title XVIII of the Social Security Act and reimbursed under such title on the same basis as if they were allowable direct costs of a hospital-operated educational program (other than an approved graduate medical education program) if, before June 15, 1989, and thereafter, the hospital demonstrates that for each year, it incurs at least 50 percent of the costs of training nursing students at such school, the nursing school and the hospital share some common board members, and all instruction is provided at the hospital or, if in another building, a building on the immediate grounds of the hospital.
(B) Section 8411(b) of the Technical and Miscellaneous Revenue Act of 1988 is amended by striking '1989, 1990, and' and inserting '1986 through'.
(2) EFFECTIVE DATE.--Paragraph (1)(A) shall apply with respect to cost reporting periods beginning on or after the date of the enactment of this Act and on or before the date on which the Secretary issues regulations pursuant to subsection (b)(2)(A).
(b) DELAY IN RECOUPMENT OF CERTAIN NURSING AND ALLIED EDUCATION COSTS.--
(1) The Secretary of Health and Human Services (in this subsection referred to as the 'Secretary') shall not, before October 1, 1990, recoup from, or otherwise reduce or adjust payments under title XVIII of the Social Security Act to, hospitals because of alleged overpayments to such hospitals under such title due to a determination that costs which were reported by a hospital on its Medicare cost reports relating to approved nursing and allied health education programs were allowable costs and are included in the definition of 'operating costs of inpatient hospital services' pursuant to section 1886(a)(4) of such Act, so that no pass-through of such costs was permitted under that section.
(2)(A) Before July 1, 1990, the Secretary shall issue regulations respecting payment of costs described in paragraph (1).
(B) In issuing such regulations--
(i) the Secretary shall allow a comment period of not less than 60 days,
(ii) the Secretary shall consult with the Prospective Payment Assessment Commission, and
(iii) any final rule shall not be effective prior to October 1, 1990, or 30 days after publication of the final rule in the Federal Register, whichever is later.
(C) Such regulations shall specify--
(i) the relationship required between an approved nursing or allied health education program and a hospital for the program's costs to be attributed to the hospital;
(ii) the types of costs related to nursing or allied health education programs that are allowable by Medicare;
(iii) the distinction between costs of approved educational activities as recognized under section 1886(a)(3) of the Social Security Act and educational costs treated as operating costs of inpatient hospital services; and
(iv) the treatment of other funding sources for the program.
Subtitle E--Provisions With Respect to COBRA Continuation Coverage
PART 1--EXTENSION OF COVERAGE FOR DISABLED EMPLOYEES
SEC. 6701. EXTENSION, UNDER INTERNAL REVENUE CODE, OF COVERAGE FROM 18 TO 29 MONTHS FOR THOSE WITH A DISABILITY AT TIME OF TERMINATION OF EMPLOYMENT.
(a) IN GENERAL.--Paragraph (2)(B) of section 4980B(f) of the Internal Revenue Code of 1986, as added by section 3011(a) of the Technical and Miscellaneous Revenue Act of 1988 (Public Law 100-647), (relating to maximum required period of continuation coverage), is amended--
(1) in clause (i) by adding after and below subclause (IV) the following new sentence:
SEC. 7001. SHORT TITLE; ETC.
(a) SHORT TITLE.--This title may be cited as the 'Revenue Reconciliation Act of 1989'.
(b) AMENDMENT OF 1986 CODE.--Except as otherwise expressly provided, whenever in this title an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.
(c) TABLE OF CONTENTS.--
Sec. 7102. Employer-provided group legal services.
Sec. 7103. Extension and modification of targeted jobs credit.
Sec. 7104. Extension of qualified mortgage bonds.
Sec. 7105. Extension of qualified small issue bonds.
Sec. 7106. Extension of energy investment credit for solar, geothermal, and ocean thermal property.
Sec. 7107. Extension of special rules for health insurance costs of self-employed individuals.
Sec. 7108. Extension and modification of low-income housing credit.
Sec. 7109. Low-income housing credit exempt from income phaseout of $25,000 exemption from passive loss rules.
Sec. 7110. Extension and modification of research credit.
Sec. 7111. Allocation of research and experimental expenditures.
Sec. 7202. Treatment of certain high yield original issue discount obligations.
Sec. 7203. Securities treated as boot under section 351.
Sec. 7204. Provisions related to regulated investment companies.
Sec. 7205. Limitation on threshold requirement under section 382 built-in gain and loss provisions.
Sec. 7206. Distributions on certain preferred stock treated as extraordinary dividends.
Sec. 7207. Repeal of election to reduce excess loss account recapture by reducing basis of indebtedness.
Sec. 7208. Other provisions relating to treatment of stock and debt; etc.
Sec. 7209. Estimated tax payments required for S corporations.
Sec. 7210. Limitation on deduction for certain interest paid to related person.
Part I--Employee Stock Ownership Plan Provisions
Sec. 7301. Limitations on partial exclusion of interest on loans used to acquire employer securities.
Sec. 7302. Limitations on deductions for dividends paid on employer securities.
Sec. 7303. 3-year holding period required before section 1042 sale.
Sec. 7304. Repeal of certain provisions relating to employee stock ownership plans.
Part II--Section 401(h) Accounts
Sec. 7402. Limitation on use of deconsolidation to avoid foreign tax credit limitations.
Sec. 7403. Information with respect to certain foreign-owned corporations.
Sec. 7404. Repeal of special treatment of interest on certain foreign loans.
Sec. 7502. Acceleration of deposit requirements for airline ticket tax.
Sec. 7503. Increase in international air passenger departure tax.
Sec. 7504. Ship passengers international departure tax.
Sec. 7505. Oil Spill Liability Trust Fund tax to take effect on January 1, 1990.
Sec. 7507. Acceleration of deposit requirements for gasoline excise tax.
Sec. 7508. Taxation of bulk cigar imports.
Part I--Limitation on Nonrecognition for Certain Exchanges
Sec. 7601. Like kind exchanges between related persons.
Part II--Minimum Tax Provisions
Sec. 7611. Simplification of adjusted current earnings preference.
Sec. 7612. Other modifications to minimum tax.
Part III--Accounting Provisions
Sec. 7621. Repeal of completed contract method of accounting for long-term contracts.
Sec. 7622. Changes in treatment of transfers of franchises, trademarks, and trade names.
Part IV--Employment Tax Provisions
Sec. 7631. Treatment of agricultural workers under wage withholding.
Sec. 7632. Acceleration of deposit requirements.
Part V--Other Provisions
Sec. 7641. Limitation on section 104 exclusion.
Sec. 7642. Treatment of distributions by partnerships of contributed property.
Sec. 7643. Depreciation treatment of cellular telephones.
Sec. 7644. Elimination of retroactive certification of employees for work incentive jobs credit.
Sec. 7645. Disallowance of depreciation for certain term interests.
Sec. 7646. Reporting of points on mortgage loans.
Sec. 7647. Treatment of certain investment-oriented life insurance contracts.
Part VI--Tax-Exempt Bond Provisions
Part I--Document and Information Return Penalties
Sec. 7711. Uniform penalties for failures to comply with certain information reporting requirements.
Sec. 7712. Information required with respect to certain foreign corporations.
Sec. 7713. Uniform requirements for returns on magnetic media.
Sec. 7714. Study of procedures to prevent mismatching.
Sec. 7715. Study of service bureaus.
Part II--Revision of Accuracy-Related Penalties
Sec. 7721. Revision of accuracy-related penalties.
Part III--Preparer, Promoter, and Protester Penalties
Sec. 7731. Penalty for instituting proceedings before tax court primarily for delay, etc.
Sec. 7732. Modifications to penalties on return preparers for certain understatements.
Sec. 7733. Modifications to other assessable penalties with respect to return preparers.
Sec. 7734. Modifications to penalty for promoting abusive tax shelters, etc.
Sec. 7735. Modifications to penalties for aiding and abetting understatement of tax liability.
Sec. 7736. Modification to penalty for frivolous income tax return.
Sec. 7737. Authority to counterclaim for balance of penalty in partial refund suits.
Sec. 7738. Repeal of bonding requirement under section 7407.
Sec. 7739. Certain disclosures of information by preparers permitted.
Part IV--Failures To File or Pay
Part I--Amendments Related to Technical and Miscellaneous Revenue Act of 1988
Sec. 7811. Amendments related to title I of the 1988 Act.
Sec. 7812. Amendments related to title II of the 1988 Act.
Sec. 7813. Amendments related to title III of the 1988 Act.
Sec. 7814. Amendments related to title IV of the 1988 Act.
Sec. 7815. Amendments related to title V of the 1988 Act.
Sec. 7816. Amendments related to title VI of the 1988 Act.
Sec. 7817. Effective date.
Part II--Amendments Related to Revenue Act of 1987
Sec. 7821. Amendments related to subtitle B.
Sec. 7822. Amendments related to subtitle C and following subtitles.
Sec. 7823. Effective date.
Part III--Amendments Related to Tax Reform Act of 1986
Part IV--Miscellaneous Changes
Sec. 7841. Miscellaneous changes.
Part V--Amendments Related to Pension Provisions
Sec. 7851. Definitions.
Sec. 7862. Amendments related to title XVIII of the Reform Act.
Sec. 7863. Effective date.
Sec. 7882. Effective date.
Sec. 7892. Amendments relating to the Pension Protection Act.
Sec. 7893. Amendments relating to the Single-Employer Pension Plan Amendments Act of 1986.
Sec. 7894. Other amendments to ERISA.
SEC. 7101. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE.
(a) EXTENSION.--
(1) IN GENERAL.--Subsection (d) of section 127 (relating to educational assistance programs) is amended by striking 'December 31, 1988' and inserting 'September 30, 1990'.
(2) SPECIAL RULE.--In the case of any taxable year beginning in 1990, only amounts paid before October 1, 1990, by the employer for educational assistance for the employee shall be taken into account in determining the amount excluded under section 127 of the Internal Revenue Code of 1986 with respect to such employee for such taxable year.
(b) CERTAIN OTHERWISE TAXABLE EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE MAY BE EXCLUDIBLE AS WORKING CONDITION FRINGE.--Subsection (h) of section 132 is amended by adding at the end thereof the following new paragraph:
'(9) APPLICATION OF SECTION TO OTHERWISE TAXABLE EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE.--Amounts which would be excludible from gross income under section 127 but for subsection (a)(2) thereof or the last sentence of subsection (c)(1) thereof shall be excluded from gross income under this section if (and only if) such amounts are a working condition fringe.'
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to taxable years beginning after December 31, 1988.
SEC. 7102. EMPLOYER-PROVIDED GROUP LEGAL SERVICES.
(a) EXTENSION.--
(1) IN GENERAL.--Subsection (e) of section 120 (relating to group legal services plans) is amended by striking 'ending after December 31, 1988' and inserting 'beginning after September 30, 1990'.
(2) SPECIAL RULE.--In the case of any taxable year beginning in 1990, only amounts paid before October 1, 1990, by the employer for coverage for the employee, his spouse, or his dependents under a qualified group legal services plan for periods before October 1, 1990, shall be taken into account in determining the amount excluded under section 120 of the Internal Revenue Code of 1986 with respect to such employee for such taxable year.
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply to taxable years ending after December 31, 1988.
SEC. 7103. EXTENSION AND MODIFICATION OF TARGETED JOBS CREDIT.
(a) EXTENSION.--Paragraph (4) of section 51(c) (relating to termination) is amended by striking 'December 31, 1989' and inserting 'September 30, 1990'.
(b) EXTENSION OF AUTHORIZATION.--Paragraph (2) of section 261(f) of the Economic Recovery Tax Act of 1981 is amended by striking 'and 1989' and inserting '1989, and 1990'.
(c) MODIFICATION OF REQUEST FOR CERTIFICATION.--
(1) IN GENERAL.--Paragraph (16) of section 51(d) is amended by adding at the end thereof the following new subparagraph:
'(C) EMPLOYER REQUEST MUST SPECIFY POTENTIAL BASIS FOR ELIGIBILITY.--In any request for a certification of an individual as a member of a targeted group, the employer shall--
'(i) specify each subparagraph (but not more than 2) of paragraph (1) by reason of which the employer believes that such individual is such a member, and
'(ii) certify that a good faith effort was made to determine that such individual is such a member.'
(a) IN GENERAL.--Subparagraph (B) of section 143(a)(1) (defining qualified mortgage bond) is amended by striking 'December 31, 1989' each place it appears and inserting 'September 30, 1990'.
(b) MORTGAGE CREDIT CERTIFICATES.--Subsection (h) of section 25 is amended by striking 'for any calendar year after 1989' and inserting 'for any period after September 30, 1990'.
SEC. 7105. EXTENSION OF QUALIFIED SMALL ISSUE BONDS.
Subparagraph (B) of section 144(a)(12) is amended by striking 'substituting '1989' for '1986' and inserting 'substituting 'September 30, 1990' for 'December 31, 1986'.
SEC. 7106. EXTENSION OF ENERGY INVESTMENT CREDIT FOR SOLAR, GEOTHERMAL, AND OCEAN THERMAL PROPERTY.
The table contained in section 46(b)(2)(A) (relating to energy percentage) is amended by striking 'Dec. 31, 1989' in clauses (viii), (ix), and (x) and inserting 'Sept. 30, 1990'.
SEC. 7107. EXTENSION OF SPECIAL RULES FOR HEALTH INSURANCE COSTS OF SELF-EMPLOYED INDIVIDUALS.
(a) EXTENSION.--
(1) GENERAL RULE.--Paragraph (5) of section 162(1) (relating to special rules for health insurance costs of self-employed individuals) is amended by striking 'December 31, 1989' and inserting 'September 30, 1990'.
(2) SPECIAL RULE.--In the case of any taxable year beginning in 1990--
(A) only amounts paid before October 1, 1990, by the individual for insurance coverage for periods before October 1, 1990, shall be taken into account in determining the amount deductible under section 162(l) of the Internal Revenue Code of 1986 with respect to such individual for such taxable year, and
(B) for purposes of section 162(l)(2)(A) of such Code, the amount of the earned income described in such paragraph taken into account for such taxable year shall be the amount which bears the same ratio to the total amount of such earned income as the number of months in such taxable year ending before October 1, 1990, bears to the number of months in such taxable year.
'(5) TREATMENT OF CERTAIN S CORPORATION SHAREHOLDERS.--This subsection shall apply in the case of any individual treated as a partner under section 1372(a), except that--
'(A) for purposes of this subsection, such individual's wages (as defined in section 3121) from the S corporation shall be treated as such individual's earned income (within the meaning of section 401(c)(1)), and
'(B) there shall be such adjustments in the application of this subsection as the Secretary may by regulations prescribe.'
SEC. 7108. EXTENSION AND MODIFICATION OF LOW-INCOME HOUSING CREDIT.
(a) EXTENSION.--
(1) IN GENERAL.--Subsection (n) of section 42 (relating to low-income housing credit) is amended to read as follows--
'(n) TERMINATION.--
'(1) IN GENERAL.--Except as provided in paragraph (2), for any calendar year after 1990--
'(A) clause (i) of subsection (h)(3)(C) shall not apply, and
'(B) subsection (h)(4) shall not apply to any building placed in service after 1990.
'(2) EXCEPTION FOR BOND-FINANCED BUILDINGS IN PROGRESS.--For purposes of paragraph (1)(B), a building shall be treated as placed in service before 1990 if--
'(A) the bonds with respect to such building are issued before 1990,
'(B) such building is constructed, reconstructed, or rehabilitated by the taxpayer,
'(C) more than 10 percent of the reasonably anticipated cost of such construction, reconstruction, or rehabilitation has been incurred as of January 1, 1990, and some of such cost is incurred on or after such date, and
'(D) such building is placed in service before January 1, 1992.'
(2) SPECIAL RULE.--In the case of calendar year 1990, section 42(h)(3)(C)(i) of the Internal Revenue Code of 1986 (as amended by subsection (b)(1)) shall be applied by substituting '$.9375' for '$1.25'.
(b) 1-YEAR CARRYOVER OF UNUSED CREDIT AUTHORITY, ETC.--
(1) IN GENERAL.--Section 42(h)(3) (relating to housing credit dollar amount for agencies) is amended by redesignating subparagraphs (D), (E), and (F) as subparagraphs (E), (F), and (G), respectively, and by striking subparagraph (C) and inserting the following new subparagraphs:
'(C) STATE HOUSING CREDIT CEILING.--The State housing credit ceiling applicable to any State for any calendar year shall be an amount equal to the sum of--
'(i) $1.25 multiplied by the State population,
'(ii) the unused State housing credit ceiling (if any) of such State for the preceding calendar year,
'(iii) the amount of State housing credit ceiling returned in the calendar year, plus
'(iv) the amount (if any) allocated under subparagraph (D) to such State by the Secretary.
For purposes of clause (ii), the unused State housing credit ceiling for any calendar year is the excess (if any) of the amount described in clause (i) over the aggregate housing credit dollar amount allocated for such year. For purposes of clause (iii), the amount of State housing credit ceiling returned in the calendar year equals the housing credit dollar amount previously allocated within the State to any project which does not become a qualified low-income housing project within the period required by this section or the terms of the allocation or to any project with respect to which an allocation is cancelled by mutual consent of the housing credit agency and the allocation recipient.
'(D) UNUSED HOUSING CREDIT CARRYOVERS ALLOCATED AMONG CERTAIN STATES.--
'(i) IN GENERAL.--The unused housing credit carryover of a State for any calendar year shall be assigned to the Secretary for allocation among qualified States for the succeeding calendar year.
'(ii) UNUSED HOUSING CREDIT CARRYOVER.--For purposes of this subparagraph, the unused housing credit carryover of a State for any calendar year is the excess (if any) of the unused State housing credit ceiling for such year (as defined in subparagraph (C)(ii)) over the excess (if any) of--
'(I) the aggregate housing credit dollar amount allocated for such year, over
'(II) the amount described in clause (i) of subparagraph (C).
'(iii) FORMULA FOR ALLOCATION OF UNUSED HOUSING CREDIT CARRYOVERS AMONG QUALIFIED STATES.--The amount allocated under this subparagraph to a qualified State for any calendar year shall be the amount determined by the Secretary to bear the same ratio to the aggregate unused housing credit carryovers of all States for the preceding calendar year as such State's population for the calendar year bears to the population of all qualified States for the calendar year. For purposes of the preceding sentence, population shall be determined in accordance with section 146(j).
'(iv) QUALIFIED STATE.--For purposes of this subparagraph, the term 'qualified State' means, with respect to a calendar year, any State--
'(I) which allocated its entire State housing credit ceiling for the preceding calendar year, and
'(II) for which a request is made (not later than May 1 of the calendar year) to receive an allocation under clause (iii).'
(A) Subparagraph (E) of section 42(h)(5) is amended by striking 'subparagraph (E)' and inserting 'subparagraph (F)'.
(B) Paragraph (6) of section 42(h) is amended by striking subparagraph (B) and by redesignating subparagraphs (C), (D), and (E) as subparagraphs (B), (C), and (D), respectively.
(1) IN GENERAL.--Section 42(h) (relating to limitation on aggregate credit allowable with respect to projects located in a State) is amended by redesignating paragraphs (6) and (7) as paragraphs (7) and (8), respectively, and by inserting after paragraph (5) the following new paragraph:
'(6) BUILDINGS ELIGIBLE FOR CREDIT ONLY IF MINIMUM LONG-TERM COMMITMENT TO LOW-INCOME HOUSING.--
'(A) IN GENERAL.--No credit shall be allowed by reason of this section with respect to any building for the taxable year unless an extended low-income housing commitment is in effect as of the end of such taxable year.
'(B) EXTENDED LOW-INCOME HOUSING COMMITMENT.--For purposes of this paragraph, the term 'extended low-income housing commitment' means any agreement between the taxpayer and the housing credit agency--
'(i) which requires that the applicable fraction (as defined in subsection (c)(1)) for the building for each taxable year in the extended use period will not be less than the applicable fraction specified in such agreement,
'(ii) which allows individuals who meet the income limitation applicable to the building under subsection (g) (whether prospective, present, or former occupants of the building) the right to enforce in any State court the requirement of clause (i),
'(iii) which is binding on all successors of the taxpayer, and
'(iv) which, with respect to the property, is recorded pursuant to State law as a restrictive covenant.
'(C) ALLOCATION OF CREDIT MAY NOT EXCEED AMOUNT NECESSARY TO SUPPORT COMMITMENT.--
'(i) IN GENERAL.--The housing credit dollar amount allocated to any building may not exceed the amount necessary to support the applicable fraction specified in the extended low-income housing commitment for such building, including any increase in such fraction pursuant to the application of subsection (f)(3) if such increase is reflected in an amended low-income housing commitment.
'(ii) BUILDINGS FINANCED BY TAX-EXEMPT BONDS.--If paragraph (4) applies to any building the amount of credit allowed in any taxable year may not exceed the amount necessary to support the applicable fraction specified in the extended low-income housing commitment for such building. Such commitment may be amended to increase such fraction.
'(D) EXTENDED USE PERIOD.--For purposes of this paragraph, the term 'extended use period' means the period--
'(i) beginning on the 1st day in the compliance period on which such building is part of a qualified low-income housing project, and
'(ii) ending on the later of--
'(I) the date specified by such agency in such agreement, or
'(II) the date which is 15 years after the close of the compliance period.
'(i) IN GENERAL.--The extended use period for any building shall terminate--
'(I) on the date the building is acquired by foreclosure (or instrument in lieu of foreclosure), or
'(II) on the last day of the period specified in subparagraph (I) if the housing credit agency is unable to present during such period a qualified contract for the acquisition of the low-income portion of the building by any person who will continue to operate such portion as a qualified low-income building.
Subclause (II) shall not apply to the extent more stringent requirements are provided in the agreement or in State law.
'(ii) EVICTION, ETC. OF EXISTING LOW-INCOME TENANTS NOT PERMITTED.--The termination of an extended use period under clause (i) shall not be construed to permit before the close of the 3-year period following such termination--
'(I) the eviction or the termination of tenancy (other than for good cause) of an existing tenant of any low-income unit, or
'(II) any increase in the gross rent with respect to such unit.
'(i) the sum of--
'(I) the outstanding indebtedness secured by, or with respect to, the building,
'(II) the adjusted investor equity in the building, plus
'(III) other capital contributions not reflected in the amounts described in subclause (I) or (II), reduced by
'(ii) cash distributions from (or available for distribution from) the project.
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out this paragraph, including regulations to prevent the manipulation of the amount determined under the preceding sentence.
'(G) ADJUSTED INVESTOR EQUITY.--
'(i) IN GENERAL.--For purposes of subparagraph (E), the term 'adjusted investor equity' means, with respect to any calendar year, the aggregate amount of cash taxpayers invested with respect to the project increased by the amount equal to--
'(I) such amount, multiplied by
'(II) the cost-of-living adjustment for such calendar year, determined under section 1(f)(3) by substituting the base calendar year for 'calendar year 1987'.
An amount shall be taken into account as an investment in the project only to the extent there was an obligation to invest such amount as of the beginning of the credit period and to the extent such amount is reflected in the adjusted basis of the project.
'(ii) COST-OF-LIVING INCREASES IN EXCESS OF 5 PERCENT NOT TAKEN INTO ACCOUNT.--Under regulations prescribed by the Secretary, if the CPI for any calendar year (as defined in section 1(f)(4)) exceeds the CPI for the preceding calendar year by more than 5 percent, the CPI for the base calendar year shall be increased such that such excess shall never be taken into account under clause (i).
'(iii) BASE CALENDAR YEAR.--For purposes of this subparagraph, the term 'base calendar year' means the calendar year with or within which the 1st taxable year of the credit period ends.
'(H) LOW-INCOME PORTION.--For purposes of this paragraph, the low-income portion of a building is the portion of such building equal to the applicable fraction specified in the extended low-income housing commitment for the building.
'(I) PERIOD FOR FINDING BUYER.--The period referred to in this subparagraph is the 1-year period beginning on the date (after the 14th year of the compliance period) the taxpayer submits a written request to the housing credit agency to find a person to acquire the taxpayer's interest in the low-income portion of the building.
'(J) SALES OF LESS THAN LOW-INCOME PORTION OF BUILDING.--In the case of a sale or exchange of only a portion of the low-income portion of the building, only the same portion (as the portion sold or exchanged) of the amount determined under subparagraph (F) shall be taken into account thereunder.
'(K) EFFECT OF NONCOMPLIANCE.--If, during a taxable year, there is a determination that an extended low-income housing agreement was not in effect as of the beginning of such year, such determination shall not apply to any period before such year and subparagraph (A) shall be applied without regard to such determination if the failure is corrected within 1 year from the date of the determination.
'(L) PROJECTS WHICH CONSIST OF MORE THAN 1 BUILDING.--The application of this paragraph to projects which consist of more than 1 building shall be made under regulations prescribed by the Secretary.'
(2) CONFORMING AMENDMENT.--Subparagraph (C) of section 42(b)(3) is amended by striking 'subsection (h)(6))' and inserting 'subsection (h)(7)'.
(d) CREDIT FOR ACQUISITION OF EXISTING BUILDING TO APPLY ONLY IF BUILDING TO BE REHABILITATED; INCREASE IN REQUIRED REHABILITATION EXPENDITURES.--
(1) IN GENERAL.--Subparagraph (B) of section 42(d)(2) is amended by striking 'and' at the end of clause (ii), by striking the period at the end of clause (iii) and inserting ', and', and by adding at the end thereof the following new clause:
'(5) CREDIT PERIOD FOR EXISTING BUILDINGS NOT TO BEGIN BEFORE REHABILITATION CREDIT ALLOWED.--
'(A) IN GENERAL.--The credit period for an existing building shall not begin before the 1st taxable year of the credit period for rehabilitation expenditures with respect to the building.
'(B) ACQUISITION CREDIT ALLOWED FOR CERTAIN BUILDINGS NOT ALLOWED A REHABILITATION CREDIT.--
'(i) IN GENERAL.--In the case of a building described in clause (ii)--
'(I) subsection (d)(2)(B)(iv) shall not apply, and
'(II) the credit period for such building shall not begin before the taxable year which would be the 1st taxable year of the credit period for rehabilitation expenditures with respect to the building under the modifications described in clause (ii)(II).
'(ii) BUILDING DESCRIBED.--A building is described in this clause if--
'(I) a waiver is granted under subsection (d)(6)(C) with respect to the acquisition of the building, and
'(II) a credit would be allowed for rehabilitation expenditures with respect to such building if subsection (e)(3)(A)(ii)(I) did not apply and if subsection (e)(3)(A)(ii)(II) were applied by substituting '$2,000' for '$3,000'.'
'(3) MINIMUM EXPENDITURES TO QUALIFY.--
'(A) IN GENERAL.--Paragraph (1) shall apply to rehabilitation expenditures with respect to any building only if--
'(i) the expenditures are allocable to 1 or more low-income units or substantially benefit such units, and
'(ii) the amount of such expenditures during any 24-month period meets the requirements of whichever of the following subclauses requires the greater amount of such expenditures:
'(I) The requirement of this subclause is met if such amount is not less than 10 percent of the adjusted basis of the building (determined as of the 1st day of such period and without regard to paragraphs (2) and (3) of section 1016(a)).
'(II) The requirement of this subclause is met if the qualified basis attributable to such amount, when divided by the number of low-income units in the building, is $3,000 or more.
(1) RENT RESTRICTION DETERMINED ON BASIS OF NUMBER OF BEDROOMS.--
(A) Section 42(g)(2) is amended by redesignating subparagraph (C) as subparagraph (E) and by inserting after subparagraph (B) the following new subparagraphs:
'(C) IMPUTED INCOME LIMITATION APPLICABLE TO UNIT.--For purposes of this paragraph, the imputed income limitation applicable to a unit is the income limitation which would apply under paragraph (1) to individuals occupying the unit if the number of individuals occupying the unit were as follows:
'(i) In the case of a unit which does not have a separate bedroom, 1 individual.
'(ii) In the case of a unit which has 1 or more separate bedrooms, 1.5 individuals for each separate bedroom.
In the case of a project with respect to which a credit is allowable by reason of this section and for which financing is provided by a bond described in section 142(a)(7), the imputed income limitation shall apply in lieu of the otherwise applicable income limitation for purposes of applying section 142(d)(4)(B)(ii).
'(D) TREATMENT OF UNITS OCCUPIED BY INDIVIDUALS WHOSE INCOMES RISE ABOVE LIMIT.--
'(i) IN GENERAL.--Except as provided in clause (ii), notwithstanding an increase in the income of the occupants of a low-income unit above the income limitation applicable under paragraph (1), such unit shall continue to be treated as a low-income unit if the income of such occupants initially met such income limitation.
'(ii) NEXT AVAILABLE UNIT MUST BE RENTED TO LOW-INCOME TENANT IF INCOME RISES ABOVE 140 PERCENT OF INCOME LIMIT.--If the income of the occupants of the unit increases above 140 percent of the income limitation applicable under paragraph (1), clause (i) shall cease to apply to such unit if any residential rental unit in the building (of a size comparable to, or smaller than, such unit) is occupied by a new resident whose income exceeds such income limitation.'
(B) Subparagraph (A) of section 42(g)(2) is amended by striking 'the income limitation under paragraph (1) applicable to individuals occupying such unit' and inserting 'the imputed income limitation applicable to such unit'.
(2) REDUCTION IN AREA MEDIAN GROSS INCOME NOT TO REQUIRE REDUCTION OF RENT.--Subparagraph (A) of section 42(g)(2) (relating to rent-restricted units) is amended by adding at the end thereof the following new sentence:
'For purposes of the preceding sentence, the amount of the income limitation under paragraph (1) applicable for any period shall not be less than such limitation applicable for the earliest period the building (which contains the unit) was included in the determination of whether the project is a qualified low-income housing project.'
(3) EXCLUSION WITH RESPECT TO CONTINUING CARE FACILITIES NOT TO APPLY IN DETERMINING INCOME.--Subparagraph (B) of section 142(d)(2) is amended by adding at the end thereof the following:
'Section 7872(g) shall not apply in determining the income of individuals under this subparagraph.'
'(i) the mortgage on such building is eligible for prepayment under subtitle B of the Emergency Low Income Housing Preservation Act of 1987 or under section 502(c) of the Housing Act of 1949 at any time within 1 year after the date of the application for such a waiver,
'(ii) the appropriate Federal official certifies to the Secretary that it is reasonable to expect that, if the waiver is not granted, such building will cease complying with its low-income occupancy requirements, and
'(iii) the eligibility to prepay such mortgage without the approval of the appropriate Federal official is waived by all persons who are so eligible and such waiver is binding on all successors of such persons.
'(D) BUILDINGS ACQUIRED FROM INSURED DEPOSITORY INSTITUTIONS IN DEFAULT.--A waiver may be granted under subparagraph (A) (without regard to any clause thereof) with respect to any building acquired from an insured depository institution in default (as defined in section 3 of the Federal Deposit Insurance Act) or from a receiver or conservator of such an institution.'
'(i) IN GENERAL.--In the case of any building located in a qualified census tract or difficult development area which is designated for purposes of this subparagraph--
'(I) in the case of a new building, the eligible basis of such building shall be 130 percent of such basis determined without regard to this subparagraph, and
'(II) in the case of an existing building, the rehabilitation expenditures taken into account under subsection (e) shall be 130 percent of such expenditures determined without regard to this subparagraph.
'(ii) QUALIFIED CENSUS TRACT.--
'(I) IN GENERAL.--The term 'qualified census tract' means any census tract in which 50 percent or more of the households have an income which is less than 60 percent of the area median gross income.
'(II) LIMIT ON MSA's DESIGNATED.--The portion of a metropolitan statistical area which may be designated for purposes of this subparagraph shall not exceed an area having 20 percent of the population of such metropolitan statistical area.
'(III) DETERMINATION OF AREAS.--For purposes of this clause, each metropolitan statistical area shall be treated as a separate area and all nonmetropolitan areas in a State shall be treated as 1 area.
'(iii) DIFFICULT DEVELOPMENT AREAS.--
'(I) IN GENERAL.--The term 'difficult development areas' means any area designated by the Secretary of Housing and Urban Development as an area which has high construction, land, and utility costs relative to area median gross income.
'(II) LIMIT ON AREAS DESIGNATED.--The portions of metropolitan statistical areas which may be designated for purposes of this subparagraph shall not exceed an aggregate area having 20 percent of the population of such metropolitan statistical areas. A comparable rule shall apply to nonmetropolitan areas.
'(iv) SPECIAL RULES AND DEFINITIONS.--For purposes of this subparagraph--
'(I) population shall be determined on the basis of the most recent decennial census for which data are available,
'(II) area median gross income shall be determined in accordance with subsection (g)(4),
'(III) the term 'metropolitan statistical area' has the same meaning as when used in section 143(k)(2)(B), and
'(IV) the term 'nonmetropolitan area' means any county (or portion thereof) which is not within a metropolitan statistical area.'
(1) SINGLE-ROOM OCCUPANCY UNITS RENTED ON A MONTHLY BASIS.--Subparagraph (B) of section 42(i)(3) (relating to low income unit) is amended by adding at the end thereof the following new sentence:
'For purposes of the preceding sentence, a single-room occupancy unit shall not be treated as used on a transient basis merely because it is rented on a month-by-month basis.'
(2) SPECIAL NEEDS HOUSING.--Subparagraph (B) of section 42(g)(2) (relating to gross rent) is amended--
(A) in clause (i), by striking 'and' at the end,
(B) in clause (ii), by striking the period at the end and inserting ', and', and
(C) by adding at the end the following:
'(iii) does not include any fee for a supportive service which is paid to the owner of the unit (on the basis of the low-income status of the tenant of the unit) by any governmental program of assistance (or by an organization described in section 501(c)(3) and exempt from tax under section 501(a)) if such program (or organization) provides assistance for rent and the amount of assistance provided for rent is not separable from the amount of assistance provided for supportive services.
For purposes of clause (iii), the term 'supportive service' means any service provided under a planned program of services designed to enable residents of a residential rental property to remain independent and avoid placement in a hospital, nursing home, or intermediate care facility for the mentally or physically handicapped. In the case of a single-room occupancy unit or a building described in subsection (i)(3)(B)(iii), such term includes any service provided to assist tenants in locating and retaining permanent housing.'
(3) SCATTERED SITE PROJECTS.--Section 42(g) (relating to qualified low-income housing project) is amended by adding at the end thereof the following new paragraph:
'(7) SCATTERED SITE PROJECTS.--Buildings which would (but for their lack of proximity) be treated as a project for purposes of this section shall be so treated if all of the dwelling units in each of the buildings are rent-restricted (within the meaning of paragraph (2)) residential rental units.'
(4) OWNER-OCCUPIED BUILDINGS HAVING 4 OR FEWER UNITS ELIGIBLE FOR CREDIT WHERE DEVELOPMENT PLAN.--Section 42(i)(3) (defining low-income unit), as amended by subtitle H, is amended by adding at the end thereof the following new subparagraph:
'(E) OWNER-OCCUPIED BUILDINGS HAVING 4 OR FEWER UNITS ELIGIBLE FOR CREDIT WHERE DEVELOPMENT PLAN.--
'(i) IN GENERAL.--Subparagraph (C) shall not apply to the acquisition or rehabilitation of a building pursuant to a development plan of action sponsored by a State or local government or a qualified nonprofit organization (as defined in subsection (h)(5)(C)).
'(ii) LIMITATION ON CREDIT.--In the case of a building to which clause (i) applies, the applicable fraction shall not exceed 80 percent of the unit fraction.
'(iii) CERTAIN UNRENTED UNITS TREATED AS OWNER-OCCUPIED.--In the case of a building to which clause (i) applies, any unit which is not rented for 90 days or more shall be treated as occupied by the owner of the building as of the 1st day it is not rented.'
'A building shall not be treated as described in subparagraph (B) if, at any time during the credit period, moderate rehabilitation assistance is provided with respect to such building under section 8(e)(2) of the United States Housing Act of 1937.'
(i) APPLICATION OF CREDIT TO TRANSITIONAL HOUSING FOR THE HOMELESS; DENIAL OF CREDIT FOR SUBSTANDARD HOUSING.--
(1) IN GENERAL.--Subparagraph (B) of section 42(i)(3) (defining low-income unit) is amended to read as follows:
'(B) EXCEPTIONS.--
'(i) IN GENERAL.--A unit shall not be treated as a low-income unit unless the unit is suitable for occupancy and used other than on a transient basis.
'(ii) SUITABILITY FOR OCCUPANCY.--For purposes of clause (i), the suitability of a unit for occupancy shall be determined under regulations prescribed by the Secretary taking into account local health, safety, and building codes.
'(iii) TRANSITIONAL HOUSING FOR HOMELESS.--For purposes of clause (i), a unit shall be considered to be used other than on a transient basis if the unit contains sleeping accommodations and kitchen and bathroom facilities and is located in a building--
'(I) which is used exclusively to facilitate the transition of homeless individuals (within the meaning of section 103 of the Stewart B. McKinney Homeless Assistance Act (42 U.S.C. 11302), as in effect on the date of the enactment of this clause) to independent living within 24 months, and
'(II) in which a governmental entity or qualified nonprofit organization (as defined in subsection (h)(5)) provides such individuals with temporary housing and supportive services designed to assist such individuals in locating and retaining permanent housing.
'(iv) SINGLE-ROOM OCCUPANCY UNITS.--For purposes of clause (i), a single-room occupancy unit shall not be treated as used on a transient basis merely because it is rented on a month-by-month basis.'
'(E) QUALIFIED BASIS TO INCLUDE PORTION OF BUILDING USED TO PROVIDE SUPPORTIVE SERVICES FOR HOMELESS.--In the case of a qualified low-income building described in subsection (i)(3)(B)(iii), the qualified basis of such building for any taxable year shall be increased by the lesser of--
'(i) so much of the eligible basis of such building as is used throughout the year to provide supportive services designed to assist tenants in locating and retaining permanent housing, or
'(ii) 20 percent of the qualified basis of such building (determined without regard to this subparagraph).'
(k) BUILDING NOT TREATED AS FEDERALLY SUBSIDIZED BY REASON OF COMMUNITY DEVELOPMENT BLOCK GRANT.--Subparagraph (D) of section 42(i)(2) (defining below market Federal loan) is amended by adding at the end thereof the following new sentence:
(1) NEW BUILDINGS.--Paragraph (1) of section 42(d) (relating to eligible basis for new buildings) is amended by inserting before the period 'as of the close of the 1st taxable year of the credit period'.
(2) EXISTING BUILDINGS.--Subparagraph (A) of section 42(d)(2) (relating to eligible basis for existing buildings) is amended by striking 'subparagraph (B)' and all that follows through the end of clause (i) and inserting 'subparagraph (B), its adjusted basis as of the close of the 1st taxable year of the credit period, and'.
(3) CONFORMING AMENDMENTS.--
(A) Subparagraph (C) of section 42(d)(2) is amended by striking 'ACQUISITION COST' in the heading and inserting 'ADJUSTED BASIS' and by striking 'cost' in the text and inserting 'adjusted basis'.
(B) Paragraph (5) of section 42(d), as amended by subsection (g), is further amended by striking subparagraph (A), by redesignating subparagraphs (B), (C), and (D) as subparagraphs (A), (B), and (C), respectively, and by striking the paragraph heading and inserting the following:
'(5) SPECIAL RULES FOR DETERMINING ELIGIBLE BASIS.--'.
(C) Paragraph (5) of section 42(e) is amended by striking 'subsection (d)(2)(A)(i)(II)' and inserting 'subsection (d)(2)(A)(i)'.
(1) IN GENERAL.--Section 42(h)(1) (relating to credit may not exceed credit amount allocated to building) is amended by adding at the end thereof the following new subparagraph:
'(F) ALLOCATION OF CREDIT ON A PROJECT BASIS.--
'(i) IN GENERAL.--In the case of a project which includes (or will include) more than 1 building, an allocation meets the requirements of this subparagraph if--
'(I) the allocation is made to the project for a calendar year during the project period,
'(II) the allocation only applies to buildings placed in service during or after the calendar year for which the allocation is made, and
'(III) the portion of such allocation which is allocated to any building in such project is specified not later than the close of the calendar year in which the building is placed in service.
'(ii) PROJECT PERIOD.--For purposes of clause (i), the term 'project period' means the period--
'(I) beginning with the 1st calendar year for which an allocation may be made for the 1st building placed in service as part of such project, and
'(II) ending with the calendar year the last building is placed in service as part of such project.'
(3) PROJECTS WITH MORE THAN 1 BUILDING MUST BE IDENTIFIED.--Section 42(g)(3) (relating to date for meeting requirements) is amended by adding at the end thereof the following new subparagraph:
'(D) PROJECTS WITH MORE THAN 1 BUILDING MUST BE IDENTIFIED.--For purposes of this section, a project shall be treated as consisting of only 1 building unless, before the close of the 1st calendar year in the project period (as defined in subsection (h)(1)(F)(ii)), each building which is (or will be) part of such project is identified in such form and manner as the Secretary may provide.'
(1) Clause (iii) of section 142(d)(4)(B) (relating to deep rent skewed project) is amended by striking '1/3' and inserting '1/2'.
(2) Section 42(g)(4) (relating to certain rules made applicable) is amended by striking '(other than section 142(d)(4)(B)(iii))'.
(o) INCREASED RESPONSIBILITIES FOR HOUSING CREDIT AGENCIES.--Section 42 is amended by redesignating subsections (m) and (n) as subsections (n) and (o), respectively, and by inserting after subsection (l) the following new subsection:
'(m) RESPONSIBILITIES OF HOUSING CREDIT AGENCIES.--
'(1) PLANS FOR ALLOCATION OF CREDIT AMONG PROJECTS.--
'(A) IN GENERAL.--Notwithstanding any other provision of this section, the housing credit dollar amount with respect to any building shall be zero unless--
'(i) such amount was allocated pursuant to a qualified allocation plan of the housing credit agency which is approved by the governmental unit (in accordance with rules similar to the rules of section 147(f)(2) (other than subparagraph (B)(ii) thereof)) of which such agency is a part, and
'(ii) such agency notifies the chief executive officer (or the equivalent) of the local jurisdiction within which the building is located of such project and provides such individual a reasonable opportunity to comment on the project.
'(B) QUALIFIED ALLOCATION PLAN.--For purposes of this paragraph, the term 'qualified allocation plan' means any plan--
'(i) which sets forth selection criteria to be used to determine housing priorities of the housing credit agency which are appropriate to local conditions,
'(ii) which gives the highest priority to those projects as to which the highest percentage of the housing credit dollar amount is to be used for project costs other than the cost of intermediaries unless granting such priority would impede the development of projects in hard-to-develop areas,
'(iii) which also gives preference in allocating housing credit dollar amounts among selected projects to--
'(I) projects serving the lowest income tenants, and
'(II) projects obligated to serve qualified tenants for the longest periods, and
'(iv) which provides a procedure that the agency will follow in notifying the Internal Revenue Service of noncompliance with the provisions of this section which such agency becomes aware of.
'(C) CERTAIN SELECTION CRITERIA MUST BE USED.--The selection criteria set forth in a qualified allocation plan must include--
'(i) project location,
'(ii) housing needs characteristics,
'(iii) project characteristics,
'(iv) sponsor characteristics,
'(v) participation of local tax-exempt organizations,
'(vi) tenant populations with special housing needs, and
'(vii) public housing waiting lists.
'(D) APPLICATION TO BOND FINANCED PROJECTS.--Subsection (h)(4) shall not apply to any project unless the project satisfies the requirements for allocation of a housing credit dollar amount under the qualified allocation plan applicable to the area in which the project is located.
'(2) CREDIT ALLOCATED TO BUILDING NOT TO EXCEED AMOUNT NECESSARY TO ASSURE PROJECT FEASIBILITY.--
'(A) IN GENERAL.--The housing credit dollar amount allocated to a project shall not exceed the amount the housing credit agency determines is necessary for the financial feasibility of the project and its viability as a qualified low-income housing project throughout the credit period.
'(B) AGENCY EVALUATION.--In making the determination under subparagraph (A), the housing credit agency shall consider--
'(i) the sources and uses of funds and the total financing planned for the project, and
'(ii) any proceeds or receipts expected to be generated by reason of tax benefits.
Such a determination shall not be construed to be a representation or warranty as to the feasibility or viability of the project.
'(C) DETERMINATION MADE WHEN CREDIT AMOUNT APPLIED FOR AND WHEN BUILDING PLACED IN SERVICE.--
'(i) IN GENERAL.--A determination under subparagraph (A) shall be made as of each of the following times:
'(I) The application for the housing credit dollar amount.
'(II) The allocation of the housing credit dollar amount.
'(III) The date the building is placed in service.
'(ii) CERTIFICATION AS TO AMOUNT OF OTHER SUBSIDIES.--Prior to each determination under clause (i), the taxpayer shall certify to the housing credit agency the full extent of all Federal, State, and local subsidies which apply (or which the taxpayer expects to apply) with respect to the building.
'(D) APPLICATION TO BOND FINANCED PROJECTS.--Subsection (h)(4) shall not apply to any project unless the governmental unit which issued the bonds (or on behalf of which the bonds were issued) makes a determination under rules similar to the rules of subparagraphs (A) and (B).'
(1) by striking 'Not later than the 90th day following' and inserting 'Following', and
(2) by inserting 'at such time and' before 'in such form'.
(q) IMPACT OF TENANT'S RIGHT OF 1ST REFUSAL TO ACQUIRE PROPERTY.--Subsection (i) of section 42 is amended by adding at the end thereof the following new paragraph:
'(8) IMPACT OF TENANT'S RIGHT OF 1ST REFUSAL TO ACQUIRE PROPERTY.--
'(A) IN GENERAL.--No Federal income tax benefit shall fail to be allowable to the taxpayer with respect to any qualified low-income building merely by reason of a right of 1st refusal held by the tenants of such building to purchase the property after the close of the compliance period for a price which is not less than the minimum purchase price determined under subparagraph (B).
'(B) MINIMUM PURCHASE PRICE.--For purposes of subparagraph (A), the minimum purchase price under this subparagraph is an amount equal to the sum of--
'(i) the principal amount of outstanding indebtedness secured by the building (other than indebtedness incurred within the 5-year period ending on the date of the sale to the tenants), and
'(ii) all Federal, State, and local taxes attributable to such sale.
Except in the case of Federal income taxes, there shall not be taken into account under clause (ii) any additional tax attributable to the application of clause (ii).'
(1) IN GENERAL.--Except as otherwise provided in this subsection, the amendments made by this section shall apply to determinations under section 42 of the Internal Revenue Code of 1986 with respect to housing credit dollar amounts allocated from State housing credit ceilings for calendar years after 1989.
(2) BUILDINGS NOT SUBJECT TO ALLOCATION LIMITS.--Except as otherwise provided in this subsection, to the extent paragraph (1) of section 42(h) of such Code does not apply to any building by reason of paragraph (4) thereof, the amendments made by this section shall apply to buildings placed in service after December 31, 1989.
(3) ONE-YEAR CARRYOVER OF UNUSED CREDIT AUTHORITY, ETC.--The amendments made by subsection (b) shall apply to calendar years after 1989, but clauses (ii), (iii), and (iv) of section 42(h)(3)(C) of such Code (as added by this section) shall be applied without regard to allocations for 1989 or any preceding year.
(4) ADDITIONAL BUILDINGS ELIGIBLE FOR WAIVER OF 10-YEAR RULE.--The amendments made by subsection (f) shall take effect on the date of the enactment of this Act.
(5) CERTIFICATIONS WITH RESPECT TO 1ST YEAR OF CREDIT PERIOD.--The amendment made by subsection (p) shall apply to taxable years ending on or after December 31, 1989.
(6) CERTAIN RULES WHICH APPLY TO BONDS.--Paragraphs (1)(D) and (2)(D) of section 42(m) of such Code, as added by this section, shall apply to obligations issued December 31, 1989.
(7) CLARIFICATIONS.--The amendments made by the following provisions of this section shall apply as if included in the amendments made by section 252 of the Tax Reform Act of 1986:
(A) Paragraph (1) of subsection (h) (relating to units rented on a monthly basis).
(B) Subsection (l) (relating to eligible basis for new buildings to include expenditures before close of 1st year of credit period).
(8) GUIDANCE ON DIFFICULT DEVELOPMENT AREAS AND POSTING OF BOND TO AVOID RECAPTURE.--Not later than 180 days after the date of the enactment of this Act--
(A) the Secretary of Housing and Urban Development shall publish initial guidance on the designation of difficult development areas under section 42(d)(5)(C) of such Code, as added by this section, and
(B) the Secretary of the Treasury shall publish initial guidance under section 42(j)(6) of such Code (relating to no recapture on disposition of building (or interest therein) where bond posted).
(a) IN GENERAL.--Paragraph (3) of section 469(i) (relating to phase-out of exemption) is amended by redesignating subparagraph (D) as subparagraph (E) and by striking subparagraphs (B) and (C) and inserting the following new subparagraphs:
'(C) EXCEPTION FOR LOW-INCOME HOUSING CREDIT.--Subparagraph (A) shall not apply to any portion of the passive activity credit for any taxable year which is attributable to any credit determined under section 42.
'(D) ORDERING RULES TO REFLECT EXCEPTION AND SEPARATE PHASE-OUT.--If subparagraph (B) or (C) applies for any taxable year, paragraph (1) shall be applied--
'(i) first to the passive activity loss,
'(ii) second to the portion of the passive activity credit to which subparagraph (B) or (C) does not apply,
'(iii) third to the portion of such credit to which subparagraph (B) applies, and
'(iv) then to the portion of such credit to which subparagraph (C) applies.'
(1) IN GENERAL.--Except as provided in paragraph (2), the amendments made by this section shall apply to property placed in service after December 31, 1989, in taxable years ending after such date.
(2) SPECIAL RULE WHERE INTEREST HELD IN PASS-THRU ENTITY.--In the case of a taxpayer who holds an indirect interest in property described in paragraph (1), the amendments made by this section shall apply only if such interest is acquired after December 31, 1989.
(a) EXTENSION.--
(1) IN GENERAL.--Subsection (h) of section 41 (relating to termination), as redesignated by subtitle H, is amended--
(A) by striking 'December 31, 1989' each place it appears and inserting 'December 31, 1990', and
(B) by striking 'January 1, 1990' each place it appears and inserting 'January 1, 1991'.
(2) SPECIAL RULES.--
(A) In the case of any taxable year which begins before October 1, 1990, and ends after September 30, 1990, the amount treated as the qualified research expenses for such taxable year for purposes of section 41 of the Internal Revenue Code of 1986 shall be the amount which bears the same ratio to the amount which would have been determined for such taxable year without regard to this subparagraph as the number of days in such taxable year before October 1, 1990, bears to the total number of days in such taxable year before January 1, 1991.
(B) In the case of a taxable year described in subparagraph (A), paragraph (2) of section 41(h) of such Code, as so redesignated, shall be applied by substituting 'October 1, 1990' for 'January 1, 1991' each place it appears and by substituting 'September 30, 1990' for 'December 31, 1990'.
(3) CONFORMING AMENDMENT.--Subparagraph (D) of section 28(b)(1) is amended by striking 'December 31, 1989' and inserting 'December 31, 1990'.
(b) CHANGES IN COMPUTATION OF INCREMENTAL CREDIT.--
(1) IN GENERAL.--Subsection (c) of section 41 is amended to read as follows:
'(c) BASE AMOUNT.--
'(1) IN GENERAL.--The term 'base amount' means the product of--
'(A) the fixed-base percentage, and
'(B) the average annual gross receipts of the taxpayer for the 4 taxable years preceding the taxable year for which the credit is being determined (hereinafter in this subsection referred to as the 'credit year').
'(2) MINIMUM BASE AMOUNT.--In no event shall the base amount be less than 50 percent of the qualified research expenses for the credit year.
'(3) FIXED-BASE PERCENTAGE.--
'(A) IN GENERAL.--Except as otherwise provided in this paragraph, the fixed-base percentage is the percentage which the aggregate qualified research expenses of the taxpayer for taxable years beginning after December 31, 1983, and before January 1, 1989, is of the aggregate gross receipts of the taxpayer for such taxable years.
'(B) START-UP COMPANIES.--
'(i) TAXPAYERS TO WHICH SUBPARAGRAPH APPLIES.--The fixed-base percentage shall be determined under this subparagraph if there are fewer than 3 taxable years beginning after December 31, 1983, and before January 1, 1989, in which the taxpayer had both gross receipts and qualified research expenses.
'(ii) FIXED-BASE PERCENTAGE.--In a case to which this subparagraph applies, the fixed-base percentage is 3 percent.
'(iii) TREATMENT OF DE MINIMIS AMOUNTS OF GROSS RECEIPTS AND QUALIFIED RESEARCH EXPENSES.--The Secretary may prescribe regulations providing that de minimis amounts of gross receipts and qualified research expenses shall be disregarded under clause (i).
'(C) MAXIMUM FIXED-BASE PERCENTAGE.--In no event shall the fixed-base percentage exceed 16 percent.
'(D) ROUNDING.--The percentages determined under subparagraph (A) shall be rounded to the nearest 1/100th of 1 percent.
'(4) CONSISTENT TREATMENT OF EXPENSES REQUIRED.--
'(A) IN GENERAL.--Notwithstanding whether the period for filing a claim for credit or refund has expired for any taxable year taken into account in determining the fixed-base percentage, the qualified research expenses taken into account in computing such percentage shall be determined on a basis consistent with the determination of qualified research expenses for the credit year.
'(B) PREVENTION OF DISTORTIONS.--The Secretary may prescribe regulations to prevent distortions in calculating a taxpayer's qualified research expenses or gross receipts caused by a change in accounting methods used by such taxpayer between the current year and a year taken into account in computing such taxpayer's fixed-base percentage.
'(5) GROSS RECEIPTS.--For purposes of this subsection, gross receipts for any taxable year shall be reduced by returns and allowances made during the taxable year. In the case of a foreign corporation, there shall be taken into account only gross receipts which are effectively connected with the conduct of a trade or business within the United States.'
(2) CONFORMING AMENDMENTS.--
(A) Subparagraph (B) of section 41(a)(1) is amended to read as follows:
'(B) the base amount, and'.
(B) Clause (ii) of section 41(e)(7)(C) is amended by striking 'base period research expenses' and inserting 'base amount'.
(C) Paragraph (1) of section 41(f) (relating to aggregation of expenditures) is amended by striking 'proportionate share of the increase in qualified research expenses' each place it appears and inserting 'proportionate shares of the qualified research expenses and basic research payments'.
(D) Subparagraph (A) of section 41(f)(3) is amended--
(i) by striking 'June 30, 1980' and inserting 'December 31, 1983', and
(ii) by inserting before the period ', and the gross receipts of the taxpayer for such periods shall be increased by so much of the gross receipts of such predecessor with respect to the acquired trade or business as is attributable to such portion'.
(E) Subparagraph (B) of section 41(f)(3) is amended--
(i) by striking 'June 30, 1980' and inserting 'December 31, 1983', and
(ii) by inserting before the period ', and the gross receipts of the taxpayer for such periods shall be decreased by so much of the gross receipts as is attributable to such portion'.
(F)(i) Subparagraph (C) of section 41(f)(3) is amended by striking 'for the base period' and all that follows and inserting 'for the taxable years taken into account in computing the fixed-base percentage shall be increased by the lesser of--
'(i) the amount of the decrease under subparagraph (B) which is allocable to taxable years so taken into account, or
'(ii) the product of the number of taxable years so taken into account, multiplied by the amount of the reimbursement described in this subparagraph.'
(ii) The heading for such subparagraph (C) is amended to read as follows:
'(C) CERTAIN REIMBURSEMENTS TAKEN INTO ACCOUNT IN DETERMINING FIXED-BASE PERCENTAGE.--'.
(G) Paragraph (4) of section 41(f) is amended by inserting 'and gross receipts' after 'qualified research expenses'.
(H) Paragraph (2) of section 41(h), as redesignated by subtitle H, is amended--
(i) by striking 'BASE PERIOD EXPENSES' in the heading and inserting 'BASE AMOUNT', and
(ii) by striking 'any amount for any base period' and all that follows through 'such base period' and inserting 'the base amount with respect to such taxable year shall be the amount which bears the same ratio to the base amount for such year (determined without regard to this paragraph)'.
'(4) TRADE OR BUSINESS REQUIREMENT DISREGARDED FOR IN-HOUSE RESEARCH EXPENSES OF CERTAIN STARTUP VENTURES.--In the case of in-house research expenses, a taxpayer shall be treated as meeting the trade or business requirement of paragraph (1) if, at the time such in-house research expenses are paid or incurred, the principal purpose of the taxpayer in making such expenditures is to use the results of the research in the active conduct of a future trade or business--
'(A) of the taxpayer, or
'(B) of 1 or more other persons who with the taxpayer are treated as a single taxpayer under subsection (f)(1).'
(1) Subsection (c) of section 280C, as amended by subtitle H, is further amended by striking '50 percent of' each place it appears.
(2) Paragraph (2) of section 196(d) is amended by inserting before the period 'for a taxable year beginning before January 1, 1990'.
(d) ONLY REASONABLE RESEARCH EXPENDITURES ELIGIBLE FOR SECTION 174.--Section 174 is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection:
'(e) ONLY REASONABLE RESEARCH EXPENDITURES ELIGIBLE.--This section shall apply to a research or experimental expenditure only to the extent that the amount thereof is reasonable under the circumstances.'
(e) EFFECTIVE DATE.--The amendments made by this section (other than subsection (a)) shall apply to taxable years beginning after December 31, 1989.
SEC. 7111. ALLOCATION OF RESEARCH AND EXPERIMENTAL EXPENDITURES.
Section 864 (relating to definitions and special rule) is amended by adding at the end thereof the following new subsection:
'(f) ALLOCATION OF RESEARCH AND EXPERIMENTAL EXPENDITURES.--
'(1) IN GENERAL.--For purposes of sections 861(b), 862(b), and 863(b), qualified research and experimental expenditures shall be allocated and apportioned as follows:
'(A) Any qualified research and experimental expenditures expended solely to meet legal requirements imposed by a political entity with respect to the improvement or marketing of specific products or processes for purposes not reasonably expected to generate gross income (beyond de minimis amounts) outside the jurisdiction of the political entity shall be allocated only to gross income from sources within such jurisdiction.
'(B) In the case of any qualified research and experimental expenditures (not allocated under subparagraph (A)) to the extent--
'(i) that such expenditures are attributable to activities conducted in the United States, 64 percent of such expenditures shall be allocated and apportioned to income from sources within the United States and deducted from such income in determining the amount of taxable income from sources within the United States, and
'(ii) that such expenditures are attributable to activities conducted outside the United States, 64 percent of such expenditures shall be allocated and apportioned to income from sources outside the United States and deducted from such income in determining the amount of taxable income from sources outside the United States.
'(C) The remaining portion of qualified research and experimental expenditures (not allocated under subparagraphs (A) and (B)) shall be apportioned, at the annual election of the taxpayer, on the basis of gross sales or gross income, except that, if the taxpayer elects to apportion on the basis of gross income, the amount apportioned to income from sources outside the United States shall at least be 30 percent of the amount which would be so apportioned on the basis of gross sales.
'(2) QUALIFIED RESEARCH AND EXPERIMENTAL EXPENDITURES.--For purposes of this section, the term 'qualified research and experimental expenditures' means amounts which are research and experimental expenditures within the meaning of section 174. For purposes of this paragraph, rules similar to the rules of subsection (c) of section 174 shall apply. Any qualified research and experimental expenditures treated as deferred expenses under subsection (b) of section 174 shall be taken into account under this subsection for the taxable year for which such expenditures are allowed as a deduction under such subsection.
'(3) SPECIAL RULES FOR EXPENDITURES ATTRIBUTABLE TO ACTIVITIES CONDUCTED IN SPACE, ETC.--
'(A) IN GENERAL.-Any qualified research and experimental expenditures described in subparagraph (B)--
'(i) if incurred by a United States person, shall be allocated and apportioned under this section in the same manner as if they were attributable to activities conducted in the United States, and
'(ii) if incurred by a person other than a United States person, shall be allocated and apportioned under this section in the same manner as if they were attributable to activities conducted outside the United States.
'(B) DESCRIPTION OF EXPENDITURES.--For purposes of subparagraph (A), qualified research and experimental expenditures are described in this subparagraph if such expenditures are attributable to activities conducted--
'(i) in space,
'(ii) on or under water not within the jurisdiction (as recognized by the United States) of a foreign country, possession of the United States, or the United States, or
'(iii) in Antarctica.
'(A) Except as provided in subparagraph (B), the allocation and apportionment required by paragraph (1) shall be determined as if all members of the affiliated group (as defined in subsection (e)(5)) were a single corporation.
'(B) For purposes of the allocation and apportionment required by paragraph (1)--
'(i) sales and gross income from products produced in whole or in part in a possession by an electing corporation (within the meaning of section 936(h)(5)(E)), and
'(ii) dividends from an electing corporation,
shall not be taken into account, except that this subparagraph shall not apply to sales of (and gross income and dividends attributable to sales of) products with respect to which an election under section 936(h)(5)(F) is not in effect.
'(C) The qualified research and experimental expenditures taken into account for purposes of paragraph (1) shall be adjusted to reflect the amount of such expenditures included in computing the cost-sharing amount (determined under section 936(h)(5)(C)(i)(I)).
'(D) The Secretary may prescribe such regulations as may be necessary to carry out the purposes of this paragraph, including regulations providing for the source of gross income and the allocation and apportionment of deductions to take into account the adjustments required by subparagraph (C).
'(E) Paragraph (6) of subsection (e) shall not apply to qualified research and experimental expenditures.
'(5) YEAR TO WHICH RULE APPLIES.--
'(A) IN GENERAL.--Except as provided in this paragraph, this subsection shall apply to the taxpayer's first taxable year beginning after August 1, 1989, and before August 2, 1990.
'(B) REDUCTION.--Notwithstanding subparagraph (A), this subsection shall only apply to that portion of the qualified research and experimental expenditures for the taxable year referred to in subparagraph (A) which bears the same ratio to the total amount of such expenditures as--
'(i) the lesser of 9 months or the number of months in the taxable year, bears to
'(ii) the number of months in the taxable year.'
SEC. 7201. LIMITATION ON USE OF GROUP LOSSES TO OFFSET INCOME OF SUBSIDIARY PAYING PREFERRED DIVIDENDS.
(a) GENERAL RULE.--Section 1503 (relating to computation and payment of tax) is amended by adding at the end thereof the following new subsection:
'(f) LIMITATION ON USE OF GROUP LOSSES TO OFFSET INCOME OF SUBSIDIARY PAYING PREFERRED DIVIDENDS.--
'(1) IN GENERAL.--In the case of any subsidiary distributing during any taxable year dividends on any applicable preferred stock--
'(A) no group loss item shall be allowed to reduce the disqualified separately computed income of such subsidiary for such taxable year, and
'(B) no group credit item shall be allowed against the tax imposed by this chapter on such disqualified separately computed income.
'(2) GROUP ITEMS.--For purposes of this subsection--
'(A) GROUP LOSS ITEM.--The term 'group loss item' means any of the following items of any other member of the affiliated group which includes the subsidiary:
'(i) Any net operating loss and any net operating loss carryover or carryback under section 172.
'(ii) Any loss from the sale or exchange of any capital asset and any capital loss carryover or carryback under section 1212.
'(B) GROUP CREDIT ITEM.--The term 'group credit item' means any credit allowable under part IV of subchapter A of chapter 1 (other than section 34) to any other member of the affiliated group which includes the subsidiary and any carryover or carryback of any such credit.
'(3) OTHER DEFINITIONS.--For purposes of this subsection--
'(A) DISQUALIFIED SEPARATELY COMPUTED INCOME.--The term 'disqualified separately computed income' means the portion of the separately computed taxable income of the subsidiary which does not exceed the dividends distributed by the subsidiary during the taxable year on applicable preferred stock.
'(B) SEPARATELY COMPUTED TAXABLE INCOME.--The term 'separately computed taxable income' means the separate taxable income of the subsidiary for the taxable year determined--
'(i) by taking into account gains and losses from the sale or exchange of a capital asset and section 1231 gains and losses,
'(ii) without regard to any net operating loss or capital loss carryover or carryback, and
'(iii) with such adjustments as the Secretary may prescribe.
'(C) SUBSIDIARY.--The term 'subsidiary' means any corporation which is a member of an affiliated group filing a consolidated return other than the common parent.
'(D) APPLICABLE PREFERRED STOCK.--The term 'applicable preferred stock' means stock described in section 1504(a)(4) in the subsidiary which is--
'(i) issued after November 17, 1989, and
'(ii) held by a person other than a member of the same affiliated group as the subsidiary.
'(A) to prevent the avoidance of this subsection through the transfer of built-in losses to the subsidiary,
'(B) to provide rules for cases in which the subsidiary owns (directly or indirectly) stock in another member of the affiliated group, and
'(C) to provide for the application of this subsection where dividends are not paid currently, where the redemption and liquidation rights of the applicable preferred stock exceed the issue price for such stock, or where the stock is otherwise structured to avoid the purposes of this subsection.'
(1) IN GENERAL.--The amendment made by this section shall apply to taxable years ending after November 17, 1989.
(2) BINDING CONTRACT EXCEPTION.--For purposes of section 1503(f)(3)(D) of the Internal Revenue Code of 1986, stock issued after November 17, 1989, pursuant to a written binding contract in effect on November 17, 1989, and at all times thereafter before such issuance, shall be treated as issued on November 17, 1989.
(3) SPECIAL RULE WHEN SUBSIDIARY LEAVES GROUP.--If, by reason of a transaction after November 17, 1989, a corporation ceases to be, or becomes, a member of an affiliated group, the stock of such corporation shall be treated, for purposes of section 1503(f)(3)(D) of such Code, as issued on the date of such cessation or commencement, unless such transaction is of a kind which would not result in the recognition of any deferred intercompany gain under the consolidated return regulations by reason of the acquisition of the entire group.
(4) RETIRED STOCK.--
(A) Except as provided in subparagraph (B), if stock issued before November 18, 1989, (or described in paragraph (2)), is retired or acquired after November 17, 1989, by the corporation or another member of the same affiliated group, such stock shall be treated, for purposes of section 1503(f)(3)(D) of such Code, as issued on the date of such retirement or acquisition.
(B) Subparagraph (A) shall not apply to any retirement or acquisition pursuant to an obligation to reissue under a binding written contract in effect on November 17, 1989, and at all times thereafter before such retirement or acquisition.
(5) AUCTION RATE PREFERRED.--For purposes of section 1503(f)(3)(D) of such Code, auction rate preferred stock shall be treated as issued when the contract requiring the auction became binding.
(6) SPECIAL RULE FOR CERTAIN AUCTION RATE PREFERRED.--For purposes of section 1503(f)(3)(D) of the Internal Revenue Code of 1986, any auction rate preferred stock shall be treated as issued before November 18, 1989, if--
(A) a subsidiary was incorporated before July 10, 1989 for the special purpose of issuing such stock,
(B) a rating agency was retained before July 10, 1989, and
(C) such stock is issued before the date 30 days after the date of the enactment of this Act.
(a) GENERAL RULE.--Subsection (e) of section 163 (relating to interest deductions on original issue discount obligations) is amended by redesignating paragraph (5) as paragraph (6) and by inserting after paragraph (4) the following new paragraph:
'(5) SPECIAL RULES FOR ORIGINAL ISSUE DISCOUNT ON CERTAIN HIGH YIELD OBLIGATIONS.--
'(A) IN GENERAL.--In the case of an applicable high yield discount obligation issued by a corporation--
'(i) no deduction shall be allowed under this chapter for the disqualified portion of the original issue discount on such obligation, and
'(ii) the remainder of such original issue discount shall not be allowable as a deduction until paid.
For purposes of clause (ii), rules similar to the rules of subsection (i)(3)(B) shall apply in determining the time when the original issue discount is paid.
'(B) DISQUALIFIED PORTION TREATED AS STOCK DISTRIBUTION FOR PURPOSES OF DIVIDEND RECEIVED DEDUCTION.--
'(i) IN GENERAL.--Solely for purposes of sections 243, 245, 246, and 246A, the dividend equivalent portion of any amount includible in gross income of a corporation under section 1272(a) in respect of an applicable high yield discount obligation shall be treated as a dividend received by such corporation from the corporation issuing such obligation.
'(ii) DIVIDEND EQUIVALENT PORTION.--For purposes of clause (i), the dividend equivalent portion of any amount includible in gross income under section 1272(a) in respect of an applicable high yield discount obligation is the portion of the amount so includible--
'(I) which is attributable to the disqualified portion of the original issue discount on such obligation, and
'(II) which would have been treated as a dividend if it had been a distribution made by the issuing corporation with respect to stock in such corporation.
'(i) IN GENERAL.--For purposes of this paragraph, the disqualified portion of the original issue discount on any applicable high yield discount obligation is the lesser of--
'(I) the amount of such original issue discount, or
'(II) the portion of the total return on such obligation which bears the same ratio to such total return as the disqualified yield on such obligation bears to the yield to maturity on such obligation.
'(ii) DEFINITIONS.--For purposes of clause (i), the term 'disqualified yield' means the excess of the yield to maturity on the obligation over the sum referred to subsection (i)(1)(B) plus 1 percentage point, and the term 'total return' is the amount which would have been the original issue discount on the obligation if interest described in the parenthetical in section 1273(a)(2) were included in the stated redemption price at maturity.
'(D) EXCEPTION FOR S CORPORATIONS.--This paragraph shall not apply to any obligation issued by any corporation for any period for which such corporation is an S corporation.
'(E) EFFECT ON EARNINGS AND PROFITS.--This paragraph shall not apply for purposes of determining earnings and profits; except that, for purposes of determining the dividend equivalent portion of any amount includible in gross income under section 1272(a) in respect of an applicable high yield discount obligation, no reduction shall be made for any amount attributable to the disqualified portion of any original issue discount on such obligation.
'(F) CROSS REFERENCE.--
'For definition of applicable high yield discount obligation, see subsection (i).'
'(i) APPLICABLE HIGH YIELD DISCOUNT OBLIGATION.--
'(1) IN GENERAL.--For purposes of this section, the term 'applicable high yield discount obligation' means any debt instrument if--
'(A) the maturity date of such instrument is more than 5 years from the date of issue,
'(B) the yield to maturity on such instrument equals or exceeds the sum of--
'(i) the applicable Federal rate in effect under section 1274(d) for the calendar month in which the obligation is issued, plus
'(ii) 5 percentage points, and
'(C) such instrument has significant original issue discount.
For purposes of subparagraph (B)(i), the Secretary may by regulation permit a rate to be used with respect to any debt instrument which is higher than the applicable Federal rate if the taxpayer establishes to the satisfaction of the Secretary that such higher rate is based on the same principles as the applicable Federal rate and is appropriate for the term of the instrument.
'(2) SIGNIFICANT ORIGINAL ISSUE DISCOUNT.--For purposes of paragraph (1)(C), a debt instrument shall be treated as having significant original issue discount if--
'(A) the aggregate amount which would be includible in gross income with respect to such instrument for periods before the close of any accrual period (as defined in section 1272(a)(5)) ending after the date 5 years after the date of issue, exceeds--
'(B) the sum of--
'(i) the aggregate amount of interest to be paid under the instrument before the close of such accrual period, and
'(ii) the product of the issue price of such instrument (as defined in sections 1273(b) and 1274(a)) and its yield to maturity.
'(A) any payment under the instrument shall be assumed to be made on the last day permitted under the instrument, and
'(B) any payment to be made in the form of another obligation (or stock) of the issuer (or a related person within the meaning of section 453(f)(1)) shall be assumed to be made when such obligation (or stock) is required to be paid in cash or in property other than such obligation (or stock).
'(4) DEBT INSTRUMENT.--For purposes of this subsection, the term 'debt instrument' means any instrument which is a debt instrument as defined in section 1275(a).
'(5) REGULATIONS.--The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this subsection and subsection (e)(5), including--
'(A) regulations providing for modifications to the provisions of this subsection and subsection (e)(5) in the case of varying rates of interest, put or call options, indefinite maturities, contingent payments, assumptions of debt instruments, conversion rights, or other circumstances where such modifications are appropriate to carry out the purposes of this subsection and subsection (e)(5), and
'(B) regulations to prevent avoidance of the purposes of this subsection and subsection (e)(5) through the use of issuers other than C corporations, agreements to borrow amounts due under the debt instrument, or other arrangements.'
(1) IN GENERAL.--Except as provided in paragraph (2), the amendments made by this section shall apply to instruments issued after July 10, 1989.
(2) EXCEPTIONS.--
(A) The amendments made by this section shall not apply to any instrument if--
(i) such instrument is issued in connection with an acquisition--
(I) which is made on or before July 10, 1989,
(II) for which there was a written binding contract in effect on July 10, 1989, and at all times thereafter before such acquisition, or
(III) for which a tender offer was filed with the Securities and Exchange Commission on or before July 10, 1989,
(ii) the term of such instrument is not greater than--
(I) the term specified in the written documents described in clause (iii), or
(II) if no term is determined under subclause (I), 10 years, and
(iii) the use of such instrument in connection with such acquisition (and the maximum amount of proceeds from such instrument) was determined on or before July 10, 1989, and such determination is evidenced by written documents--
(I) which were transmitted on or before July 10, 1989, between the issuer and any governmental regulatory bodies or prospective parties to the issuance or acquisition, and
(II) which are customarily used for the type of acquisition or financing involved.
(C) The amendments made by this section shall not apply to any instrument issued to refinance an original issue discount debt instrument to which the amendments made by this section do not apply if--
(i) the maturity date of the refinancing instrument is not later than the maturity date of the refinanced instrument,
(ii) the issue price of the refinancing instrument does not exceed the adjusted issue price of the refinanced instrument,
(iii) the stated redemption price at maturity of the refinancing instrument is not greater than the stated redemption price at maturity of the refinanced instrument, and
(iv) the interest payments required under the refinancing instrument before maturity are not less than (and are paid not later than) the interest payments required under the refinanced instrument.
(D) The amendments made by this section shall not apply to instruments issued after July 10, 1989, pursuant to a reorganization plan in a title 11 or similar case (as defined in section 368(a)(3) of the Internal Revenue Code of 1986) if the amount of proceeds of such instruments, and the maturities of such instruments, do not exceed the amount or maturities specified in the last reorganization plan filed in such case on or before July 10, 1989.
(a) GENERAL RULE.--Section 351(a) (relating to nonrecognition in cases of transfers to corporations controlled by transferor) is amended by striking 'or securities'.
(b) CONFORMING AMENDMENTS.--
(1) Subsections (b), (d), and (e)(2) of section 351 are each amended by striking 'or securities'.
(2) Paragraph (2) of section 351(g) is amended by striking 'stock, securities, or property' and inserting 'stock or property'.
(c) EFFECTIVE DATE.--
(1) IN GENERAL.--Except as provided in this subsection, the amendments made by this section shall apply to transfers after October 2, 1989, in taxable years ending after such date.
(2) BINDING CONTRACT.--The amendments made by this section shall not apply to any transfer pursuant to a written binding contract in effect on October 2, 1989, and at all times thereafter before such transfer.
(3) CORPORATE TRANSFERS.--In the case of property transferred (directly or indirectly through a partnership or otherwise) by a C corporation, paragraphs (1) and (2) shall be applied by substituting 'July 11, 1989' for 'October 2, 1989'. The preceding sentence shall not apply where the corporation meets the requirements of section 1504(a)(2) of the Internal Revenue Code of 1986 with respect to the transferee corporation (and where the transfer is not part of a plan pursuant to which the transferor subsequently fails to meet such requirements).
(a) REQUIREMENT TO DISTRIBUTE 98 PERCENT OF ORDINARY INCOME.--
(1) IN GENERAL.--Subparagraph (A) of section 4982(b)(1) (defining required distribution) is amended by striking '97 percent' and inserting '98 percent'.
(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall apply to calendar years ending after July 10, 1989.
(b) TREATMENT OF CERTAIN MUTUAL FUND LOAD CHARGES.--
(1) IN GENERAL.--Section 852 (relating to taxation of regulated investment companies and their shareholders) is amended by adding at the end thereof the following new subsection:
'(f) TREATMENT OF CERTAIN LOAD CHARGES.--
'(1) IN GENERAL.--If--
'(A) the taxpayer incurs a load charge in acquiring stock in a regulated investment company and, by reason of incurring such charge or making such acquisition, the taxpayer acquires a reinvestment right,
'(B) such stock is disposed of before the 91st day after the date on which such stock was acquired, and
'(C) the taxpayer subsequently acquires stock in such regulated investment company or in another regulated investment company and the otherwise applicable load charge is reduced by reason of the reinvestment right,
the load charge referred to in subparagraph (A) (to the extent it does not exceed the reduction referred to in subparagraph (C)) shall not be taken into account for purposes of determining the amount of gain or loss on the disposition referred to in subparagraph (B). To the extent such charge is not taken into account in determining the amount of such gain or loss, such charge shall be treated as incurred in connection with the acquisition referred to in subparagraph (C) (including for purposes of reapplying this paragraph).
'(2) DEFINITIONS AND SPECIAL RULES.--For purposes of this subsection--
'(A) LOAD CHARGE.--The term 'load charge' means any sales or similar charge incurred by a person in acquiring stock of a regulated investment company. Such term does not include any charge incurred by reason of the reinvestment of a dividend.
'(B) REINVESTMENT RIGHT.--The term 'reinvestment right' means any right to acquire stock of 1 or more regulated investment companies without the payment of a load charge or with the payment of a reduced charge.
'(C) NONRECOGNITION TRANSACTIONS.--If the taxpayer acquires stock in a regulated investment company from another person in a transaction in which gain or loss is not recognized, the taxpayer shall succeed to the treatment of such other person under this subsection.'
(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall apply to charges incurred after October 3, 1989, in taxable years ending after such date.
(c) REGULATED INVESTMENT COMPANIES REQUIRED TO ACCRUE DIVIDENDS ON THE EX-DIVIDEND DATE.--
(1) IN GENERAL.--Subsection (b) of section 852 (relating to treatment of companies and shareholders) is amended by adding at the end thereof the following new paragraph:
'(9) DIVIDENDS TREATED AS RECEIVED BY COMPANY ON EX-DIVIDEND DATE.--For purposes of this title, if a regulated investment company is the holder of record of any share of stock on the record date for any dividend payable with respect to such stock, such dividend shall be included in gross income by such company as of the later of--
'(A) the date such share became ex-dividend with respect to such dividend, or
'(B) the date such company acquired such share.'
(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall apply to dividends in cases where the stock becomes ex-dividend after the date of the enactment of this Act.
(a) GENERAL RULE.--Clause (i) of section 382(h)(3)(B) (relating to threshold requirement) is amended to read as follows:
'(I) 15 percent of the amount determined for purposes of subparagraph (A)(i)(I), or
'(II) $10,000,000,
the net unrealized built-in gain or net unrealized built-in loss shall be zero.'
then the adjusted basis of each asset of such corporation (immediately after the ownership change) shall be its proportionate share (determined on the basis of respective fair market values) of the fair market value of the assets of such corporation (determined under section 382(h)) immediately before the ownership change.'
(1) IN GENERAL.--Except as otherwise provided in this subsection, the amendments made by this section shall apply to ownership changes and acquisitions after October 2, 1989, in taxable years ending after such date.
(2) BINDING CONTRACT.--The amendments made by this section shall not apply to any ownership change or acquisition pursuant to a written binding contract in effect on October 2, 1989, and at all times thereafter before such change or acquisition.
(3) BANKRUPTCY PROCEEDINGS.--In the case of a reorganization described in section 368(a)(1)(G) of the Internal Revenue Code of 1986, or an exchange of debt for stock in a title 11 or similar case (as defined in section 368(a)(3) of such Code), the amendments made by this section shall not apply to any ownership change resulting from such a reorganization or proceeding if a petition in such case was filed with the court before October 3, 1989.
(4) SUBSIDIARIES OF BANKRUPT PARENT.--The amendments made by this section shall not apply to any built-in loss of a corporation which is a member (on October 2, 1989) of an affiliated group the common parent of which (on such date) was subject to title 11 or similar case (as defined in section 368(a)(3) of such Code). The preceding sentence shall apply only if the ownership change or acquisition is pursuant to the plan approved in such proceeding and is before the date 2 years after the date on which the petition which commenced such proceeding was filed.
(a) GENERAL RULE.--Section 1059 (relating to corporate shareholder's basis in stock reduced by nontaxed portion of extraordinary dividends) is amended by striking subsection (f) and inserting the following:
'(f) TREATMENT OF DIVIDENDS ON CERTAIN PREFERRED STOCK.--
'(1) IN GENERAL.--Any dividend with respect to disqualified preferred stock 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 the stock.
'(2) DISQUALIFIED PREFERRED STOCK.--For purposes of this subsection, the term 'disqualified preferred stock' means any stock which is preferred as to dividends if--
'(A) when issued, such stock has a dividend rate which declines (or can reasonably be expected to decline) in the future,
'(B) the issue price of such stock exceeds its liquidation rights or its stated redemption price, or
'(C) such stock is otherwise structured--
'(i) to avoid the other provisions of this section, and
'(ii) to enable corporate shareholders to reduce tax through a combination of dividend received deductions and loss on the disposition of the stock.
'(1) providing for the application of this section in the case of stock dividends, stock splits, reorganizations, and other similar transactions and in the case of stock held by pass-thru entities, and
'(2) providing that the rules of subsection (f) shall apply in the case of stock which is not preferred as to dividends in cases where stock is structured to avoid the purposes of this section.'
(b) EFFECTIVE DATE.--
(1) IN GENERAL.--Except as provided in paragraph (2), the amendment made by subsection (a) shall apply to stock issued after July 10, 1989, in taxable years ending after such date.
(2) BINDING CONTRACT.--The amendment made by subsection (a) shall not apply to any stock issued pursuant to a written binding contract in effect on July 10, 1989, and at all times thereafter before the stock is issued.
(a) GENERAL RULE.--Subsection (e) of section 1503 (relating to special rule for determining adjustment to basis) is amended by adding at the end thereof the following new paragraph:
'(4) ELIMINATION OF ELECTION TO REDUCE BASIS OF INDEBTEDNESS.--Nothing in the regulations prescribed under section 1502 shall permit any reduction in the amount otherwise included in gross income by reason of an excess loss account if such reduction is on account of a reduction in the basis of indebtedness.'
(b) EFFECTIVE DATE.--
(1) IN GENERAL.--Except as provided in paragraph (2), the amendment made by subsection (a) shall apply to dispositions after July 10, 1989, in taxable years ending after such date.
(2) BINDING CONTRACT.--The amendment made by subsection (a) shall not apply to any disposition pursuant to a written binding contract in effect on July 10, 1989, and at all times thereafter before such disposition.
(a) CLARIFICATION OF REGULATORY AUTHORITY UNDER SECTION 385.--
(1) IN GENERAL.--Subsection (a) of section 385 (relating to treatment of certain interests in corporations as stock or indebtedness) is amended by inserting '(or as in part stock and in part indebtedness)' before the period at the end thereof.
(2) REGULATIONS NOT TO BE APPLIED RETROACTIVELY.--Any regulations issued pursuant to the authority granted by the amendment made by paragraph (1) shall only apply with respect to instruments issued after the date on which the Secretary of the Treasury or his delegate provides public guidance as to the characterization of such instruments whether by regulation, ruling, or otherwise.
(b) REPORTING OF CERTAIN ACQUISITIONS OR RECAPITALIZATIONS.--
(1) IN GENERAL.--Section 6043 is amended by striking subsection (c) and inserting the following new subsections:
'(c) CHANGES IN CONTROL AND RECAPITALIZATIONS.--If--
'(1) control (as defined in section 304(c)(1)) of a corporation is acquired by any person (or group of persons) in a transaction (or series of related transactions), or
'(2) there is a recapitalization of a corporation or other substantial change in the capital structure of a corporation,
when required by the Secretary, such corporation shall make a return (at such time and in such manner as the Secretary may prescribe) setting forth the identity of the parties to the transaction, the fees involved, the changes in the capital structure involved, and such other information as the Secretary may require with respect to such transaction.
'(d) CROSS REFERENCES.--
'For provisions relating to penalties for failure to file--
'(1) a return under subsection (b), see section 6652(c), or
'(2) a return under subsection (c), see section 6652(1).'
(2) PENALTY.--Section 6652 is amended by redesignating subsection (l) as subsection (m) and by inserting after subsection (k) the following new subsection:
'(l) FAILURE TO FILE RETURN WITH RESPECT TO CERTAIN CORPORATE TRANSACTIONS.--In the case of any failure to make a return required under section 6043(c) containing the information required by such section on the date prescribed therefor (determined with regard to any extension of time for filing), unless it is shown that such failure is due to reasonable cause, there shall be paid (on notice and demand by the Secretary and in the same manner as tax) by the person failing to file such return, an amount equal to $500 for each day during which such failure continues, but the total amount imposed under this subsection with respect to any return shall not exceed $100,000.'
(3) CONFORMING AMENDMENTS.--
(A) The subsection heading for subsection (a) of section 6043 is amended by striking 'CORPORATIONS' and inserting 'CORPORATE LIQUIDATING, ETC., TRANSACTIONS'.
(B) The section heading for section 6043 is amended to read as follows:
(a) IN GENERAL.--Subsection (g) of section 6655 (relating to failure by corporation to pay estimated income tax) is amended by adding at the end thereof the following new paragraph:
'(4) APPLICATION OF SECTION TO CERTAIN TAXES IMPOSED ON S CORPORATIONS.--In the case of an S corporation, for purposes of this section--
'(A) The following taxes shall be treated as imposed by section 11:
'(i) The tax imposed by section 1374(a) (or the corresponding provisions of prior law).
'(ii) The tax imposed by section 1375(a).
'(iii) Any tax for which the S corporation is liable by reason of section 1371(d)(2).
'(B) Paragraph (2) of subsection (d) shall not apply.
'(C) Clause (ii) of subsection (d)(1)(B) shall be applied as if it read as follows:
'(ii) the sum of--
'(I) the amount determined under clause (i) by only taking into account the taxes referred to in clauses (i) and (iii) of subsection (g)(4)(A), and
'(II) 100 percent of the tax imposed by section 1375(a) which was shown on the return of the corporation for the preceding taxable year.'
'(E) Any reference in subsection (e) to taxable income shall be treated as including a reference to the net recognized built-in gain or the excess passive income (as the case may be).'
SEC. 7210. LIMITATION ON DEDUCTION FOR CERTAIN INTEREST PAID TO RELATED PERSON.
(a) GENERAL RULE.--Section 163 (as amended by section 7202) is amended by redesignating subsection (j) as subsection (k) and by inserting after subsection (i) the following new subsection:
'(j) LIMITATION ON DEDUCTION FOR CERTAIN INTEREST PAID BY CORPORATION TO RELATED PERSON.--
'(1) LIMITATION.--
'(A) IN GENERAL.--If this subsection applies to any corporation for any taxable year, no deduction shall be allowed under this chapter for disqualified interest paid or accrued by such corporation during such taxable year. The amount disallowed under the preceding sentence shall not exceed the corporation's excess interest expense for the taxable year.
'(B) DISALLOWED AMOUNT CARRIED TO SUCCEEDING TAXABLE YEAR.--Any amount disallowed under subparagraph (A) for any taxable year shall be treated as disqualified interest paid or accrued in the succeeding taxable year.
'(2) CORPORATIONS TO WHICH SUBSECTION APPLIES.--
'(A) IN GENERAL.--This subsection shall apply to any corporation for any taxable year if--
'(i) such corporation has excess interest expense for such taxable year, and
'(ii) the ratio of debt to equity of such corporation as of the close of such taxable year (and on such other days during the taxable year as the Secretary may by regulations prescribe) exceeds 1.5 to 1.
'(B) EXCESS INTEREST EXPENSE.--
'(i) IN GENERAL.--For purposes of this subsection, the term 'excess interest expense' means the excess (if any) of--
'(I) the corporation's net interest expense, over
'(II) the sum of 50 percent of the adjusted taxable income of the corporation plus any excess limitation carryforward under clause (ii).
'(ii) EXCESS LIMITATION CARRYFORWARD.--If a corporation has an excess limitation for any taxable year, the amount of such excess limitation shall be an excess limitation carryforward to the 1st succeeding taxable year and to the 2nd and 3rd succeeding taxable years to the extent not previously taken into account under this clause. The amount of such a carryforward taken into account for any such succeeding taxable year shall not exceed the excess interest expense for such succeeding taxable year (determined without regard to the carryforward from the taxable year of such excess limitation).
'(iii) EXCESS LIMITATION.--For purposes of clause (i), the term 'excess limitation' means the excess (if any) of--
'(I) 50 percent of the adjusted taxable income of the corporation, over
'(II) the corporation's net interest expense.
'(i) the amount taken into account with respect to any asset shall be the adjusted basis thereof for purposes of determining gain,
'(ii) the amount taken into account with respect to any indebtedness with original issue discount shall be its issue price plus the portion of the original issue discount previously accrued as determined under the rules of section 1272 (determined without regard to subsection (a)(7) or (b)(4) thereof), and
'(iii) there shall be such other adjustments as the Secretary may by regulations prescribe.
'(A) IN GENERAL.--Except as provided in subparagraph (B), the term 'disqualified interest' means any interest paid or accrued by the taxpayer (directly or indirectly) to a related person if no tax is imposed by this subtitle with respect to such interest.
'(B) EXCEPTION FOR CERTAIN EXISTING INDEBTEDNESS.--The term 'disqualified interest' does not include any interest paid or accrued under indebtedness with a fixed term--
'(i) which was issued on or before July 10, 1989, or
'(ii) which was issued after such date pursuant to a written binding contract in effect on such date and all times thereafter before such indebtedness was issued.
'(A) IN GENERAL.--Except as provided in subparagraph (B), the term 'related person' means any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer.
'(B) SPECIAL RULE FOR CERTAIN PARTNERSHIPS.--
'(i) IN GENERAL.--Any interest paid or accrued to a partnership which (without regard to this subparagraph) is a related person shall not be treated as paid or accrued to a related person if less than 10 percent of the profits and capital interests in such partnership are held by persons with respect to whom no tax is imposed by this subtitle on such interest. The preceding sentence shall not apply to any interest allocable to any partner in such partnership who is a related person to the taxpayer.
'(ii) SPECIAL RULE WHERE TREATY REDUCTION.--If any treaty between the United States and any foreign country reduces the rate of tax imposed by this subtitle on a partner's share of any interest paid or accrued to a partnership, such partner's interests in such partnership shall, for purposes of clause (i), be treated as held in part by a tax-exempt person and in part by a taxable person under rules similar to the rules of paragraph (5)(B).
'(A) TREATMENT OF PASS-THRU ENTITIES.--In the case of any interest paid or accrued to a partnership, the determination of whether any tax is imposed by this subtitle on such interest shall be made at the partner level. Rules similar to the rules of the preceding sentence shall apply in the case of any pass-thru entity other than a partnership and in the case of tiered partnerships and other entities.
'(B) INTEREST TREATED AS TAX-EXEMPT TO EXTENT OF TREATY REDUCTION.--If any treaty between the United States and any foreign country reduces the rate of tax imposed by this subtitle on any interest paid or accrued by the taxpayer to a related person, such interest shall be treated as interest on which no tax is imposed by this subtitle to the extent of the same proportion of such interest as--
'(i) the rate of tax imposed without regard to such treaty, reduced by the rate of tax imposed under the treaty, bears to
'(ii) the rate of tax imposed without regard to the treaty.
'(A) ADJUSTED TAXABLE INCOME.--The term 'adjusted taxable income' means the taxable income of the taxpayer--
'(i) computed without regard to--
'(I) any deduction allowable under this chapter for the net interest expense,
'(II) the amount of any net operating loss deduction under section 172, and
'(III) any deduction allowable for depreciation, amortization, or depletion, and
'(ii) computed with such other adjustments as the Secretary may by regulations prescribe.
'(B) NET INTEREST EXPENSE.--The term 'net interest expense' means the excess (if any) of--
'(i) the interest paid or accrued by the taxpayer during the taxable year, over
'(ii) the amount of interest includible in the gross income of such taxpayer for such taxable year.
The Secretary may by regulations provide for adjustments in determining the amount of net interest expense.
'(C) TREATMENT OF AFFILIATED GROUP.--All members of the same affiliated group (within the meaning of section 1504(a)) shall be treated as 1 taxpayer.
'(7) REGULATIONS.--The Secretary shall prescribe such regulations as may be appropriate to carry out the purposes of this subsection, including--
'(A) such regulations as may be appropriate to prevent the avoidance of the purposes of this subsection,
'(B) regulations providing such adjustments in the case of corporations which are members of an affiliated group as may be appropriate to carry out the purposes of this subsection, and
'(C) regulations for the coordination of this subsection with section 884.'
(1) IN GENERAL.--The amendment made by this section shall apply to interest paid or accrued in taxable years beginning after July 10, 1989.
(2) SPECIAL RULE FOR DEMAND LOANS, ETC.--In the case of any demand loan (or other loan without a fixed term) which was outstanding on July 10, 1989, interest on such loan to the extent attributable to periods before September 1, 1989, shall not be treated as disqualified interest for purposes of section 163(j) of the Internal Revenue Code of 1986 (as added by subsection (a)).
(a) IN GENERAL.-- Paragraph (1) of section 172(b) (relating to years to which loss may be carried) is amended by adding at the end thereof the following new subparagraph:
'(i) IN GENERAL.--If--
'(I) there is a corporate equity reduction transaction, and
'(II) an applicable corporation has a corporate equity reduction interest loss for any loss limitation year ending after August 2, 1989,
then the corporate equity reduction interest loss shall be a net operating loss carryback and carryover to the taxable years described in subparagraphs (A) and (B), except that such loss shall not be carried back to a taxable year preceding the taxable year in which the corporate equity reduction transaction occurs.
'(ii) LOSS LIMITATION YEAR.--For purposes of clause (i) and subsection (m), the term 'loss limitation year' means, with respect to any corporate equity reduction transaction, the taxable year in which such transaction occurs and each of the 2 succeeding taxable years.
'(iii) APPLICABLE CORPORATION.--For purposes of clause (i), the term 'applicable corporation' means a C corporation--
'(I) which acquires stock, or the stock of which is acquired, in a major stock acquisition,
'(II) a corporation making distributions with respect to, or redeeming, its stock in connection with an excess distribution, or
'(III) any successor corporation of a corporation described in subclause (I) or (II).
'(iv) OTHER DEFINITIONS.--
'For definitions of terms used in this subparagraph, see subsection (m).'
'(m) CORPORATE EQUITY REDUCTION INTEREST LOSSES.--For purposes of this section--
'(1) IN GENERAL.--The term 'corporate equity reduction interest loss' means, with respect to any loss limitation year, the excess (if any) of--
'(A) the net operating loss for such taxable year, over
'(B) the net operating loss for such taxable year determined without regard to any allocable interest deductions otherwise taken into account in computing such loss.
'(2) ALLOCABLE INTEREST DEDUCTIONS.--
'(A) IN GENERAL.--The term 'allocable interest deductions' means deductions allowed under this chapter for interest on the portion of any indebtedness allocable to a corporate equity reduction transaction.
'(B) METHOD OF ALLOCATION.--Except as provided in regulations and subparagraph (E), indebtedness shall be allocated to a corporate equity reduction transaction in the manner prescribed under clause (ii) of section 263A(f)(2)(A) (without regard to clause (i) thereof).
'(C) ALLOCABLE DEDUCTIONS NOT TO EXCEED INTEREST INCREASES.--Allocable interest deductions for any loss limitation year shall not exceed the excess (if any) of--
'(i) the amount allowable as a deduction for interest paid or accrued by the taxpayer during the loss limitation year, over
'(ii) the average of such amounts for the 3 taxable years preceding the taxable year in which the corporate equity reduction transaction occurred.
'(D) DE MINIMIS RULE.--A taxpayer shall be treated as having no allocable interest deductions for any taxable year if the amount of such deductions (without regard to this subparagraph) is less than $1,000,000.
'(E) SPECIAL RULE FOR CERTAIN UNFORESEEABLE EVENTS.--If an unforeseeable extraordinary adverse event occurs during a loss limitation year but after the corporate equity reduction transaction--
'(i) indebtedness shall be allocated in the manner described in subparagraph (B) to unreimbursed costs paid or incurred in connection with such event before being allocated to the corporate equity reduction transaction, and
'(ii) the amount determined under subparagraph (C)(i) shall be reduced by the amount of interest on indebtedness described in clause (i).
'(F) TRANSITION RULE.--If any of the 3 taxable years described in subparagraph (C)(ii) end on or before August 2, 1989, the taxpayer may substitute for the amount determined under such subparagraph an amount equal to the interest paid or accrued (determined on an annualized basis) during the taxpayer's taxable year which includes August 3, 1989, on indebtedness of the taxpayer outstanding on August 2, 1989.
'(3) CORPORATE EQUITY READUCTION TRANSACTION.--
'(A) IN GENERAL.--The term 'corporate equity reduction transaction' means--
'(i) a major stock acquisition, or
'(ii) an excess distribution.
'(B) MAJOR STOCK ACQUISITION.--
'(i) IN GENERAL.--The term 'major stock acquisition' means the acquisition by a corporation pursuant to a plan of such corporation (or any group of persons acting in concert with such corporation) of stock in another corporation representing 50 percent or more (by vote or value) of the stock in such other corporation,
'(ii) EXCEPTIONS.--The term 'major stock acquisition' shall not include--
'(I) a qualified stock purchase (within the meaning of section 338) to which an election under section 338 applies, or
'(II) except as provided in regulations, an acquisition in which a corporation acquires stock of another corporation which, immediately before the acquisition, was a member of an affiliated group (within the meaning of section 1504(a)) other than the common parent of such group.
'(i) the aggregate distributions (including redemptions) made during a taxable year by a corporation with respect to its stock, over
'(ii) the greater of--
'(I) 150 percent of the average of such distributions during the 3 taxable years immediately preceding such taxable year, or
'(II) 10 percent of the fair market value of the stock of such corporation as of the beginning of such taxable year.
'(i) PLANS TO ACQUIRE STOCK.--All plans referred to in subparagraph (B) by any corporation (or group of persons acting in concert with such corporation) with respect to another corporation shall be treated as 1 plan.
'(ii) ACQUISITIONS DURING 24-MONTH PERIOD.--All acquisitions during any 24-month period shall be treated as pursuant to 1 plan.
'(E) RULES FOR APPLYING SUBPARAGRAPH (C).--For purposes of subparagraph (C)--
'(i) CERTAIN PREFERRED STOCK DISREGARDED.--Stock described in section 1504(a)(4), and distributions (including redemptions) with respect to such stock, shall be disregarded.
'(ii) ISSUANCE OF STOCK.--The amounts determined under clauses (i) and (ii)(I) of subparagraph (C) shall be reduced by the aggregate amount of stock issued by the corporation during the applicable period in exchange for money or property other than stock in the corporation.
'(A) ORDERING RULE.--For purposes of paragraph (1), in determining the allocable interest deductions taken into account in computing the net operating loss for any taxable year, taxable income for such taxable year shall be treated as having been computed by taking allocable interest deductions into account after all other deductions.
'(B) COORDINATION WITH SUBSECTION (b)(2).--In applying paragraph (2) of subsection (b), the corporate equity reduction interest loss shall be treated in a manner similar to the manner in which a foreign expropriation loss is treated.
'(C) MEMBERS OF AFFILIATED GROUPS.--Except as provided by regulations, all members of an affiliated group filing a consolidated return under section 1501 shall be treated as 1 taxpayer for purposes of this subsection and subsection (b)(1)(M).
'(5) REGULATIONS.--The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations--
'(A) for applying this subsection to successor corporations and in cases where a taxpayer becomes, or ceases to be, a member of an affiliated group filing a consolidated return under section 1501,
'(B) to prevent the avoidance of this subsection through related parties, pass-through entities, and intermediaries, and
'(C) for applying this subsection where more than 1 corporation is involved in a corporate equity reduction transaction.
(1) IN GENERAL.--Except as provided in this subsection, the amendments made by this section shall apply to corporate equity reduction transactions occurring after August 2, 1989, in taxable years ending after August 2, 1989.
(2) EXCEPTIONS.--In determining whether a corporate equity reduction transaction has occurred after August 2, 1989, there shall not be taken into account--
(A) acquisitions or redemptions of stock, or distributions with respect to stock, occurring on or before August 2, 1989,
(B) acquisitions or redemptions of stock after August 2, 1989, pursuant to a binding written contract (or tender offer filed with the Securities and Exchange Commission) in effect on August 2, 1989, and at all times thereafter before such acquisition or redemption, or
(C) any distribution with respect to stock after August 2, 1989, which was declared on or before August 2, 1989.
Any distribution to which the preceding sentence applies shall be taken into account under section 172(m)(3)(C)(ii)(I) of the Internal Revenue Code of 1986 (relating to base period for distributions).
SEC. 7301. LIMITATIONS ON PARTIAL EXCLUSION OF INTEREST ON LOANS USED TO ACQUIRE EMPLOYER SECURITIES.
(a) EXCLUSION AVAILABLE ONLY WHERE EMPLOYEES RECEIVE SIGNIFICANT OWNERSHIP INTEREST.--Subsection (b) of section 133 (defining securities acquisition loans) is amended by adding at the end thereof the following new paragraph:
'(6) PLAN MUST HOLD MORE THAN 50 PERCENT OF STOCK AFTER ACQUISITION OR TRANSFER.--
'(A) IN GENERAL.--A loan shall not be treated as a securities acquisition loan for purposes of this section unless, immediately after the acquisition or transfer referred to in subparagraph (A) or (B) of paragraph (1), respectively, the employee stock ownership plan owns more than 50 percent of--
'(i) each class of outstanding stock of the corporation issuing the employer securities, or
'(ii) the total value of all outstanding stock of the corporation.
'(B) FAILURE TO RETAIN MINIMUM STOCK INTEREST.--
'(i) IN GENERAL.--Subsection (a) shall not apply to any interest received with respect to a securities acquisition loan which is allocable to any period during which the employee stock ownership plan does not own stock meeting the requirements of subparagraph (A).
'(ii) EXCEPTION.--To the extent provided by the Secretary, clause (i) shall not apply to any period if, within 90 days of the first date on which the failure occurred (or such longer period not in excess of 180 days as the Secretary may prescribe), the plan acquires stock which results in its meeting the requirements of subparagraph (A).
'(C) STOCK.--For purposes of subparagraph (A)--
'(i) IN GENERAL.--The term 'stock' means stock other than stock described in section 1504(a)(4).
'(ii) TREATMENT OF CERTAIN RIGHTS.--The Secretary may provide that warrants, options, contracts to acquire stock, convertible debt interests and other similar interests be treated as stock for 1 or more purposes under subparagraph (A).
'(D) AGGREGATION RULE.--For purposes of determining whether the requirements of subparagraph (A) are met, an employee stock ownership plan shall be treated as owning stock in the corporation issuing the employer securities which is held by any other employee stock ownership plan which is maintained by--
'(i) the employer maintaining the plan, or
'(ii) any member of a controlled group of corporations (within the meaning of section 409(l)(4)) of which the employer described in clause (i) is a member.'
'The term 'securities acquisition loan' shall not include a loan with a term greater than 15 years.'
(c) VOTING RIGHTS.--Subsection (b) of section 133, as amended by subsection (a), is amended by adding at the end thereof the following new paragraph:
'(7) VOTING RIGHTS OF EMPLOYER SECURITIES.--A loan shall not be treated as a securities acquisition loan for purposes of this section unless--
'(A) the employee stock ownership plan meets the requirements of section 409(e)(2) with respect to all employer securities acquired by, or transferred to, the plan in connection with such loan (without regard to whether or not the employer has a registration-type class of securities), and
'(B) no stock described in section 409(l)(3) is acquired by, or transferred to, the plan in connection with such loan unless--
'(i) such stock has voting rights equivalent to the stock to which it may be converted, and
'(ii) the requirements of subparagraph (A) are met with respect to such voting rights.'.
(1) IN GENERAL.--Chapter 43 is amended by inserting after section 4978A the following new section:
'(a) IMPOSITION OF TAX.--In the case of an employee stock ownership plan which has acquired section 133 securities, there is hereby imposed a tax on each taxable event in an amount equal to the amount determined under subsection (b).
'(b) AMOUNT OF TAX.--
'(1) IN GENERAL.--The amount of the tax imposed by subsection (a) shall be equal to 10 percent of the amount realized on the disposition to the extent allocable to section 133 securities under section 4978(b)(2).
'(2) DISPOSITIONS OTHER THAN SALES OR EXCHANGES.--For purposes of paragraph (1), in the case of a disposition of employer securities which is not a sale or exchange, the amount realized on such disposition shall be the fair market value of such securities at the time of disposition.
'(c) TAXABLE EVENT.--For purposes of this section, the term 'taxable event' means any of the following dispositions:
'(1) DISPOSITIONS WITHIN 3 YEARS.--Any disposition of any employer securities by an employee stock ownership plan within 3 years after such plan acquired section 133 securities if--
'(A) the total number of employer securities held by such plan after such disposition is less than the total number of employer securities held after such acquisition, or
'(B) except to the extent provided in regulations, the value of employer securities held by such plan after the disposition is 50 percent or less of the total value of all employer securities as of the time of the disposition.
For purposes of subparagraph (B), the aggregation rule of section 133(b)(6)(D) shall apply.
'(2) STOCK DISPOSED OF BEFORE ALLOCATION.--Any disposition of section 133 securities to which paragraph (1) does not apply if--
'(A) such disposition occurs before such securities are allocated to accounts of participants or their beneficiaries, and
'(B) the proceeds from such disposition are not so allocated.
'(1) IN GENERAL.--This section shall not apply to any disposition described in paragraph (1), (3), or (4) of section 4978(d).
'(2) CERTAIN REORGANIZATIONS.--For purposes of this section, any exchange of section 133 securities for employer securities of another corporation in any reorganization described in section 368(a)(1) shall not be treated as a disposition, but the employer securities received shall be treated as section 133 securities and as having been held by the plan during the period the securities which were exchanged were held.
'(3) FORCED DISPOSITION OCCURRING BY OPERATION OF STATE LAW.--Any forced disposition of section 133 securities by an employee stock ownership plan occurring by operation of a State law shall not be treated as a disposition. This paragraph shall only apply to securities which, at the time the securities were acquired by the plan, were regularly traded on an established securities market.
'(e) DEFINITIONS AND SPECIAL RULES.--For purposes of this section--
'(1) LIABILITY FOR PAYMENT OF TAXES.--The tax imposed by this section shall be paid by the employer.
'(2) SECTION 133 SECURITIES.--The term 'section 133 securities' means employer securities acquired by an employee stock ownership plan in a transaction to which section 133 applied, except that such term shall not include--
'(A) qualified securities (as defined in section 4978(e)(2)), or
'(B) qualified employer securities (as defined in section 4978A(f)(2), as in effect on the day before the date of the enactment of this section).
'(3) DISPOSITION.--The term 'disposition' includes any distribution.
'(4) ORDERING RULES.--For ordering rules for dispositions of employer securities, see section 4978(b)(2).'
(2) CONFORMING AMENDMENT.--The table of sections for chapter 43 is amended by inserting after the item relating to section 4978A the following new item:
(e) REPORTING REQUIREMENTS.--Section 6047 (relating to information reports relating to certain trusts or annuity plans) is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection:
'(e) EMPLOYEE STOCK OWNERSHIP PLANS.--The Secretary shall require--
'(1) any employer maintaining, or the plan administrator (within the meaning of section 414(g)) of, an employee stock ownership plan--
'(A) which acquired stock in a transaction to which section 133 applies, or
'(B) which holds stock with respect to which section 404(k) applies to dividends paid on such stock,
'(2) any person making or holding a loan to which section 133 applies, or
'(3) both such employer or plan administrator and such person,
to make returns and reports regarding such plan, transaction, or loan to the Secretary and to such other persons as the Secretary may prescribe. Such returns and reports shall be made in such form, shall be made at such time, and shall contain such information as the Secretary may prescribe.'
(f) EFFECTIVE DATES.--
(1) IN GENERAL.--Except as provided in this subsection, the amendments made by this section shall apply to loans made after July 10, 1989.
(2) BINDING COMMITMENT EXCEPTIONS.--
(A) The amendments made by this section shall not apply to any loan--
(i) which is made pursuant to a binding written commitment in effect on June 6, 1989, and at all times thereafter before such loan is made, or
(ii) to the extent that the proceeds of such loan are used to acquire employer securities pursuant to a written binding contract (or tender offer registered with the Securities and Exchange Commission) in effect on June 6, 1989, and at all times thereafter before such securities are acquired.
(B) The amendments made by this section shall not apply to any loan to which subparagraph (A) does not apply which is made pursuant to a binding written commitment in effect on July 10, 1989, and at all times thereafter before such loan is made. The preceding sentence shall only apply to the extent that the proceeds of such loan are used to acquire employer securities pursuant to a written binding contract (or tender offer registered with the Securities and Exchange Commission) in effect on July 10, 1989, and at all times thereafter before such securities are acquired.
(C) The amendments made by this section shall not apply to any loan made on or before July 10, 1992, pursuant to a written agreement entered into on or before July 10, 1989, if such agreement evidences the intent of the borrower on a periodic basis to enter into securities acquisition loans described in section 133(b)(1)(B) of the Internal Revenue Code of 1986 (as in effect on the day before the date of the enactment of this Act). The preceding sentence shall apply only if one or more securities acquisition loans were made to the borrower on or before July 10, 1989.
(3) REFINANCINGS.--The amendments made by this section shall not apply to loans made after July 10, 1989, to refinance securities acquisition loans (determined without regard to section 133(b)(2) of the Internal Revenue Code of 1986) made on or before such date or to refinance loans described in this paragraph or paragraph (2), (4), or (5) if--
(A) such refinancing loans meet the requirements of such section 133 of such Code (as in effect before such amendments) applicable to such loans,
(B) immediately after the refinancing the principal amount of the loan resulting from the refinancing does not exceed the principal amount of the refinanced loan (immediately before the refinancing), and
(C) the term of such refinancing loan does not extend beyond the later of--
(i) the last day of the term of the original securities acquisition loan, or
(ii) the last day of the 7-year period beginning on the date the original securities acquisition loan was made.
(4) COLLECTIVE BARGAINING AGREEMENTS.--The amendments made by this section shall not apply to any loan to the extent such loan is used to acquire employer securities for an employee stock ownership plan pursuant to a collective bargaining agreement which sets forth the material terms of such employee stock ownership plan and which was agreed to on or before June 6, 1989, by one or more employers and employee representatives (and ratified on or before such date or within a reasonable period thereafter).
(5) FILINGS WITH UNITED STATES.--The amendments made by this section shall not apply to any loan the aggregate principal amount of which was specified in a filing with an agency of the United States on or before June 6, 1989, if--
(A) such filing specifies such loan is to be a securities acquisition loan for purposes of section 133 of the Internal Revenue Code of 1986 and such filing is for the registration required to permit the offering of such loan, or
(B) such filing is for the approval required in order for the employee stock ownership plan to acquire more than a certain percentage of the stock of the employer.
(6) 30-PERCENT TEST SUBSTITUTED FOR 50-PERCENT TEST IN CASE OF CERTAIN LOANS.--In the case of a loan to which the amendments made by this section apply--
(A) which is made before November 18, 1989, or
(B) with respect to which such amendments would not apply if paragraph (2)(A) were applied by substituting 'November 17, 1989' for 'June 6, 1989' each place it appears,
section 133(b)(6)(A) of the Internal Revenue Code of 1986 (as added by subsection (a)) shall be applied by substituting 'at least 30 percent' for 'more than 50 percent' and section 4978B(c)(1)(B) of such Code (as added by subsection (d)) shall be applied by substituting 'less than 30 percent' for '50 percent or less'. The preceding sentence shall apply to any loan which is used to refinance a loan described in such sentence if the requirements of subparagraphs (A), (B), and (C) of paragraph (3) are met with respect to the refinancing loan.
(a) IN GENERAL.--Subsection (k) of section 404 is amended to read as follows:
'(k) DEDUCTIONS FOR DIVIDENDS PAID ON CERTAIN EMPLOYER SECURITIES.--
'(1) GENERAL RULE.--In the case of a corporation, there shall be allowed as a deduction for a taxable year the amount of any applicable dividend paid in cash by such corporation during the taxable year with respect to applicable employer securities. Such deduction shall be in addition to the deductions allowed under subsection (a).
'(2) APPLICABLE DIVIDEND.--For purposes of this subsection--
'(A) IN GENERAL.--The term 'applicable dividend' means any dividend which, in accordance with the plan provisions--
'(i) is paid in cash to the participants in the plan or their beneficiaries,
'(ii) is paid to the plan and is distributed in cash to participants in the plan or their beneficiaries not later than 90 days after the close of the plan year in which paid, or
'(iii) is used to make payments on a loan described in subsection (a)(9) the proceeds of which were used to acquire the employer securities (whether or not allocated to participants) with respect to which the dividend is paid.
'(B) LIMITATION ON CERTAIN DIVIDENDS.--A dividend described in subparagraph (A)(iii) which is paid with respect to any employer security which is allocated to a participant shall not be treated as an applicable dividend unless the plan provides that employer securities with a fair market value of not less than the amount of such dividend are allocated to such participant for the year which (but for subparagraph (A)) such dividend would have been allocated to such participant.
'(3) APPLICABLE EMPLOYER SECURITIES.--For purposes of this subsection, the term 'applicable employer securities' means, with respect to any dividend, employer securities which are held on the record date for such dividend by an employee stock ownership plan which is maintained by--
'(A) the corporation paying such dividend, or
'(B) any other corporation which is a member of a controlled group of corporations (within the meaning of section 409(l)(4)) which includes such corporation.
'(4) TIME FOR DEDUCTION.--
'(A) IN GENERAL.--The deduction under paragraph (1) shall be allowable in the taxable year of the corporation in which the dividend is paid or distributed to a participant or his beneficiary.
'(B) REPAYMENT OF LOANS.--In the case of an applicable dividend described in clause (iii) of paragraph (2)(A), the deduction under paragraph (1) shall be allowable in the taxable year of the corporation in which such dividend is used to repay the loan described in such clause.
'(5) OTHER RULES.--For purposes of this subsection--
'(A) DISALLOWANCE OF DEDUCTION.--The Secretary may disallow the deduction under paragraph (1) for any dividend if the Secretary determines that such dividend constitutes, in substance, an evasion of taxation.
'(B) PLAN QUALIFICATION.--A plan shall not be treated as violating the requirements of section 401, 409, or 4975(e)(7), or as engaging in a prohibited transaction for purposes of section 4975(d)(3), merely by reason of any payment or distribution described in paragraph (2)(A).
'(6) DEFINITIONS.--For purposes of this subsection--
'(A) EMPLOYER SECURITIES.--The term 'employer securities' has the meaning given such term by section 409(l).
'(B) EMPLOYEE STOCK OWNERSHIP PLAN.--The term 'employee stock ownership plan' has the meaning given such term by section 4975(e)(7). Such term includes a tax credit employee stock ownership plan (as defined in section 409).'
(1) IN GENERAL.--The amendment made by this section shall apply to employer securities acquired after August 4, 1989.
(2) SECURITIES ACQUIRED WITH CERTAIN LOANS.--The amendment made by this section shall not apply to employer securities acquired after August 4, 1989, which are acquired--
(A) with the proceeds of any loan which was made pursuant to a binding written commitment in effect on August 4, 1989, and at all times thereafter before such loan is made, and
(B) pursuant to a written binding contract (or tender offer registered with the Securities and Exchange Commission) in effect on August 4, 1989, and at all times thereafter before such securities are acquired.
(a) IN GENERAL.--Section 1042(b) (relating to requirements to qualify for nonrecognition) is amended by adding at the end thereof the following new paragraph:
'(4) 3-YEAR HOLDING PERIOD.--The taxpayer's holding period with respect to the qualified securities is at least 3 years (determined as of the time of the sale).'
(b) EFFECTIVE DATE.--The amendment made by this section shall apply to sales after July 10, 1989.
SEC. 7304. REPEAL OF CERTAIN PROVISIONS RELATING TO EMPLOYEE STOCK OWNERSHIP PLANS.
(a) ESTATE TAX DEDUCTION.--
(1) IN GENERAL.--Section 2057 (relating to sales of employer securities to employee stock ownership plans or worker-owned corporations) is hereby repealed.
(2) CONFORMING AMENDMENTS.--
(A) Paragraph (1) of section 409(n) is amended--
(i) by striking 'or section 2057' each place it appears,
(ii) by striking 'or any decedent if the executor of the estate of such decedent makes a qualified sale to which section 2057 applies' in subparagraph (A)(i) thereof, and
(iii) by striking 'or the decedent' in subparagraph (A)(ii) thereof.
(B) Paragraphs (2)(C)(i) and (3)(A)(ii) of section 409(n) are each amended by striking 'or section 2057'.
(C)(i) Section 4978A is hereby repealed.
(ii) Section 4978(b)(2) is amended by striking '(determined as if such securities were disposed of in the order described in section 4978A(e)).' and inserting 'determined as if such securities were disposed of--
'(A) first, from section 133 securities (as defined in section 4978B(e)(2)) acquired during the 3-year period ending on the date of such disposition, beginning with the securities first so acquired.
'(B) second, from section 133 securities (as so defined) acquired before such 3-year period unless such securities (or proceeds from the disposition) have been allocated to accounts of participants or beneficiaries.'
'(C) third, from qualified securities to which section 1042 applied acquired during the 3-year period ending on the date of the disposition, beginning with the securities first so acquired, and
'(D) then from any other employer securities.
If subsection (d) or section 4978B(d) applies to a disposition, the disposition shall be treated as made from employer securities in the opposite order of the preceding sentence.'
(D) Section 4979A is amended--
(i) by striking 'or section 2057' in subsection (b)(1), and
(ii) by striking 'or section 2057(d)' in subsection (c)(2).
(E) The table of sections for part IV of subchapter A of chapter 11 is amended by striking the item relating to section 2057.
(3) EFFECTIVE DATE.--The amendments made by this subsection shall apply to the estates of decedents dying after the date of the enactment of this Act.
(b) LIABILITY FOR PAYMENT OF ESTATE TAX.--
(1) IN GENERAL.--Section 2210 (relating to liability for payment in case of transfer of employer securities) is hereby repealed.
(2) CONFORMING AMENDMENTS.--
(A) Section 2002 is amended by striking 'Except as provided in section 2210, the' and inserting 'The'.
(B) Section 6018 is amended by striking subsection (c).
(C) The table of sections for subchapter C of chapter 11 is amended by striking the item relating to section 2210.
(3) EFFECTIVE DATE.--The amendments made by this subsection shall apply to estates of decedents dying after July 12, 1989.
(c) LIMITATIONS ON DEFINED CONTRIBUTION PLANS.--
(1) IN GENERAL.--Paragraph (6) of section 415(c) is amended to read as follows:
'(6) SPECIAL RULE FOR EMPLOYEE STOCK OWNERSHIP PLANS.--If no more than one-third of the employer contributions to an employee stock ownership plan (as described in section 4975(e)(7)) for a year which are deductible under paragraph (9) of section 404(a) are allocated to highly compensated employees (within the meaning of section 414(q)), the limitations imposed by this section shall not apply to--
'(A) forfeitures of employer securities (within the meaning of section 409) under such an employee stock ownership plan if such securities were acquired with the proceeds of a loan (as described in section 404(a)(9)(A)), or
'(B) employer contributions to such an employee stock ownership plan which are deductible under section 404(a)(9)(B) and charged against the participant's account.'
(2) EFFECTIVE DATE.--The amendment made by this subsection shall apply to years beginning after July 12, 1989.
(d) SPECIAL RULES RELATING TO NET OPERATING LOSSES.--
(1) IN GENERAL.--Section 382(l)(3) is amended by striking subparagraph (C) and by redesignating subparagraph (D) as subparagraph (C).
(2) EFFECTIVE DATE.--The amendments made by this subsection shall apply to acquisitions of employer securities after July 12, 1989, except that such amendments shall not apply to acquisitions after July 12, 1989, pursuant to a written binding contract in effect on July 12, 1989, and at all times thereafter before such acquisition.
SEC. 7311. LIMITATION ON CONTRIBUTIONS TO SECTION 401(h) ACCOUNTS.
(a) IN GENERAL.--Section 401(h) is amended by adding at the end thereof the following new sentence:
'In no event shall the requirements of paragraph (1) be treated as met if the aggregate actual contributions for medical benefits, when added to actual contributions for life insurance protection under the plan, exceed 25 percent of the total actual contributions to the plan (other than contributions to fund past service credits) after the date on which the account is established.'
(b) EFFECTIVE DATE.--
(1) IN GENERAL.--The amendment made by this section shall apply to contributions after October 3, 1989.
(2) TRANSITION.--The amendment made by this section shall not apply to contributions made before January 1, 1990, if--
(A) the employer requested before October 3, 1989, a private letter ruling or determination letter with respect to the qualification of the plan maintaining the account under section 401(h) of the Internal Revenue Code of 1986,
(B) the request sets forth a method under which the amount of contributions to the account are to be determined on the basis of cost,
(C) such method is permissible under section 401(h) of such Code under the provisions of General Counsel Memorandum 39785, and
(D) the Internal Revenue Service issued before October 4, 1989, a private letter ruling, determination letter, or other letter providing that the specific plan involved qualifies under section 401(a) of such Code when such method is used, that contributions to the account are deductible, or acknowledging that the account would not adversely affect the qualified status of the plan (contingent on all phases of the particular plan being approved).
SEC. 7401. TAXABLE YEAR OF CERTAIN FOREIGN CORPORATIONS.
(a) GENERAL RULE.--Subpart D of part II of subchapter N of chapter 1 (relating to miscellaneous provisions) is amended by adding at the end thereof the following new section:
'SEC. 898. TAXABLE YEAR OF CERTAIN FOREIGN CORPORATIONS.
'(a) GENERAL RULE.--For purposes of this title, the taxable year of any specified foreign corporation shall be the required year determined under subsection (c).
'(b) SPECIFIED FOREIGN CORPORATION.--For purposes of this section--
'(1) IN GENERAL.--The term 'specified foreign corporation' means any foreign corporation--
'(A) which is--
'(i) treated as a controlled foreign corporation for any purpose under subpart F of part III of this subchapter, or
'(ii) a foreign personal holding company (as defined in section 552), and
'(B) with respect to which the ownership requirements of paragraph (2) are met.
'(2) OWNERSHIP REQUIREMENTS.--
'(A) IN GENERAL.--The ownership requirements of this paragraph are met with respect to any foreign corporation if a United States shareholder owns, on each testing day, more than 50 percent of--
'(i) the total voting power of all classes of stock of such corporation entitled to vote, or
'(ii) the total value of all classes of stock of such corporation.
'(B) OWNERSHIP.--For purposes of subparagraph (A), the rules of subsections (a) and (b) of section 958 and sections 551(f) and 554, whichever are applicable, shall apply in determining ownership.
'(3) UNITED STATES SHAREHOLDER.--
'(A) IN GENERAL.--The term 'United States shareholder' has the meaning given to such term by section 951(b), except that, in the case of a foreign corporation having related person insurance income (as defined in section 953(c)(2)), the Secretary may treat any person as a United States shareholder for purposes of this section if such person is treated as a United States shareholder under section 953(c)(1).
'(B) FOREIGN PERSONAL HOLDING COMPANIES.--In the case of any foreign personal holding company (as defined in section 552) which is not a specified foreign corporation by reason of paragraph (1)(A)(i), the term 'United States shareholder' means any person who is treated as a United States shareholder under section 551.
'(1) CONTROLLED FOREIGN CORPORATIONS.--
'(A) IN GENERAL.--In the case of a specified foreign corporation described in subsection (b)(1)(A)(i), the required year is--
'(i) the majority U.S. shareholder year, or
'(ii) if there is no majority U.S. shareholder year, the taxable year prescribed under regulations.
'(B) 1-MONTH DEFERRAL ALLOWED.--A specified foreign corporation may elect, in lieu of the taxable year under subparagraph (A)(i), a taxable year beginning 1 month earlier than the majority U.S. shareholder year.
'(C) MAJORITY U.S. SHAREHOLDER YEAR.--
'(i) IN GENERAL.--For purposes of this subsection, the term 'majority U.S. shareholder year' means the taxable year (if any) which, on each testing day, constituted the taxable year of--
'(I) each United States shareholder described in subsection (b)(2)(A), and
'(II) each United States shareholder not described in subclause (I) whose stock was treated as owned under subsection (b)(2)(B) by any shareholder described in such subclause.
'(ii) TESTING DAY.--The testing days shall be--
'(I) the first day of the corporation's taxable year (determined without regard to this section), or
'(II) the days during such representative period as the Secretary may prescribe.
(b) TREATMENT OF DIVIDENDS PAID AFTER CLOSE OF TAXABLE YEAR.--
(1) IN GENERAL.--Section 563 is amended by redesignating subsection (c) as subsection (d) and by inserting after subsection (b) the following new subsection:
'(c) FOREIGN PERSONAL HOLDING COMPANY TAX.--
'(1) IN GENERAL.--In the determination of the dividends paid deduction for purposes of part III, a dividend paid after the close of any taxable year and on or before the 15th day of the 3rd month following the close of such taxable year shall, to the extent the company designates such dividend as being taken into account under this subsection, be considered as paid during such taxable year. The amount allowed as a deduction by reason of the application of this subsection with respect to any taxable year shall not exceed the undistributed foreign personal holding company income of the corporation for the taxable year computed without regard to this subsection.
'(2) SPECIAL RULES.--In the case of any distribution referred to in paragraph (1)--
'(A) paragraph (1) shall apply only if such distribution is to the person who was the shareholder of record (as of the last day of the taxable year of the foreign personal holding company) with respect to the stock for which such distribution is made,
'(B) the determination of the person required to include such distribution in gross income shall be made under the principles of section 551(f), and
'(C) any person required to include such distribution in gross or distributable net income shall include such distribution in income for such person's taxable year in which the taxable year of the foreign personal holding company ends.'
(2) CONFORMING AMENDMENT.--Subsection (d) of section 563 (as redesignated by paragraph (1)) is amended by striking 'subsection (a) or (b)' and inserting 'subsection (a), (b), or (c)'.
(c) CLERICAL AMENDMENT.--The table of sections for subpart D of part II of subchapter N of chapter 1 is amended by adding at the end thereof the following new item:
'Sec. 898. Taxable year of certain foreign corporations.'
(d) EFFECTIVE DATE.--
(1) IN GENERAL.--The amendments made by this section shall apply to taxable years of foreign corporations beginning after July 10, 1989.
(2) SPECIAL RULES.--If any foreign corporation is required by the amendments made by this section to change its taxable year for its first taxable year beginning after July 10, 1989--
(A) such change shall be treated as initiated by the taxpayer,
(B) such change shall be treated as having been made with the consent of the Secretary of the Treasury or his delegate, and
(C) if, by reason of such change, any United States person is required to include in gross income for 1 taxable year amounts attributable to 2 taxable years of such foreign corporation, the amount which would otherwise be required to be included in gross income for such 1 taxable year by reason of the short taxable year of the foreign corporation resulting from such change shall be included in gross income ratably over the 4-taxable-year period beginning with such 1 taxable year.
(a) GENERAL RULE.--Section 904 (relating to limitations on foreign tax credit) is amended by redesignating subsection (i) as subsection (j) and by inserting after subsection (h) the following new subsection:
'(i) LIMITATION ON USE OF DECONSOLIDATION TO AVOID FOREIGN TAX CREDIT LIMITATIONS.--If 2 or more domestic corporations would be members of the same affiliated group if--
'(1) section 1504(b) were applied without regard to the exceptions contained therein, and
'(2) the constructive ownership rules of section 1563(e) applied for purposes of section 1504(a),
the Secretary may by regulations provide for resourcing the income of any of such corporations or for modifications to the consolidated return regulations to the extent that such resourcing or modifications are necessary to prevent the avoidance of the provisions of this subpart.'
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply to taxable years beginning after July 10, 1989.
SEC. 7403. INFORMATION WITH RESPECT TO CERTAIN FOREIGN-OWNED CORPORATIONS.
(a) 25-PERCENT FOREIGN-OWNED CORPORATIONS REQUIRED TO REPORT.--
(1) Paragraph (2) of section 6038A(a) is amended to read as follows:
'(2) is 25-percent foreign-owned,'.
(2) Subsection (c) of section 6038A is amended to read as follows:
'(c) DEFINITIONS.--For purposes of this section--
'(1) 25-PERCENT FOREIGN-OWNED.--A corporation is 25-percent foreign-owned if at least 25 percent of--
'(A) the total voting power of all classes of stock of such corporation entitled to vote, or
'(B) the total value of all classes of stock of such corporation,
is owned at any time during the taxable year by 1 foreign person (hereinafter in this section referred to as a '25-percent foreign shareholder').
'(2) RELATED PARTY.--The term 'related party' means--
'(A) any 25-percent foreign shareholder of the reporting corporation,
'(B) any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the reporting corporation or to a 25-percent foreign shareholder of the reporting corporation, and
'(C) any other person who is related (within the meaning of section 482) to the reporting corporation.
'(4) FOREIGN PERSON.--The term 'foreign person' means any person who is not a United States person. For purposes of the preceding sentence, the term 'United States person' has the meaning given to such term by section 7701(a)(30), except that any individual who is a citizen of any possession of the United States (but not otherwise a citizen of the United States) and who is not a resident of the United States shall not be treated as a United States person.
'(5) RECORDS.--The term 'records' includes any books, papers, or other data.
'(6) SECTION 318 TO APPLY.--Section 318 shall apply for purposes of paragraphs (1) and (2), except that--
'(A) '10 percent' shall be substituted for '50 percent' in section 318(a)(2)(C), and
'(B) subparagraphs (A), (B), and (C) of section 318(a)(3) shall not be applied so as to consider a United States person as owning stock which is owned by a person who is not a United States person.'
'and such corporation shall maintain (in the location, in the manner, and to the extent prescribed in regulations) such records as may be appropriate to determine the correct treatment of transactions with related parties as the Secretary shall by regulations prescribe (or shall cause another person to so maintain such records)'.
(c) INCREASE IN PENALTY.--Subsection (d) of section 6038A is amended to read as follows:
'(d) PENALTY FOR FAILURE TO FURNISH INFORMATION OR MAINTAIN RECORDS.--
'(1) IN GENERAL.--If a reporting corporation--
'(A) fails to furnish (within the time prescribed by regulations) any information described in subsection (b), or
'(B) fails to maintain (or cause another to maintain) records as required by subsection (a),
such corporation shall pay a penalty of $10,000 for each taxable year with respect to which such failure occurs.
'(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 reporting corporation, such corporation 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.
'(3) REASONABLE CAUSE.--For purposes of this subsection, the time prescribed by regulations to furnish information or maintain records (and the beginning of the 90-day period after notice by the Secretary) shall be treated as not earlier than the last day on which (as shown to the satisfaction of the Secretary) reasonable cause existed for failure to furnish the information or maintain the records.'
(d) ENFORCEMENT OF INFORMATION REQUESTS.--Section 6038A is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection:
'(e) ENFORCEMENT OF REQUESTS FOR CERTAIN RECORDS.--
'(1) AGREEMENT TO TREAT CORPORATION AS AGENT.--The rules of paragraph (3) shall apply to any transaction between the reporting corporation and any related party who is a foreign person unless such related party agrees (in such manner and at such time as the Secretary shall prescribe) to authorize the reporting corporation to act as such related party's limited agent solely for purposes of applying sections 7602, 7603, and 7604 with respect to any request by the Secretary to examine records or produce testimony related to any such transaction or with respect to any summons by the Secretary for such records or testimony. The appearance of persons or production of records by reason of the reporting corporation being such an agent shall not subject such persons or records to legal process for any purpose other than determining the correct treatment under this title of any transaction between the reporting corporation and such related party.
'(2) RULES WHERE INFORMATION NOT FURNISHED.--If--
'(A) for purposes of determining the correct treatment under this title of any transaction between the reporting corporation and a related party who is a foreign person, the Secretary issues a summons to such corporation to produce (either directly or as agent for such related party) any records or testimony,
'(B) such summons is not quashed in a proceeding begun under paragraph (4) and is not determined to be invalid in a proceeding begun under section 7604(b) to enforce such summons, and
'(C) the reporting corporation does not substantially comply in a timely manner with such summons and the Secretary has sent by certified or registered mail a notice to such reporting corporation that such reporting corporation has not so substantially complied,
the Secretary may apply the rules of paragraph (3) with respect to such transaction (whether or not the Secretary begins a proceeding to enforce such summons). If the reporting corporation fails to maintain (or cause another to maintain) records as required by subsection (a), and by reason of that failure, the summons is quashed in a proceeding described in subparagraph (B) or the reporting corporation is not able to provide the records requested in the summons, the Secretary may apply the rules of paragraph (3) with respect to any transaction to which the records relate.
'(3) APPLICABLE RULES IN CASES OF NONCOMPLIANCE.--If the rules of this paragraph apply to any transaction--
'(A) the amount of the deduction allowed under subtitle A for any amount paid or incurred by the reporting corporation to the related party in connection with such transaction, and
'(B) the cost to the reporting corporation of any property acquired in such transaction from the related party (or transferred by such corporation in such transaction to the related party),
shall be the amount determined by the Secretary in the Secretary's sole discretion from the Secretary's own knowledge or from such information as the Secretary may obtain through testimony or otherwise.
'(4) JUDICIAL PROCEEDINGS.--
'(A) PROCEEDINGS TO QUASH.--Notwithstanding any law or rule of law, any reporting corporation to which the Secretary issues a summons referred to in paragraph (2)(A) shall have the right to begin a proceeding to quash such summons not later than the 90th day after such summons was issued. In any such proceeding, the Secretary may seek to compel compliance with such summons.
'(B) REVIEW OF SECRETARIAL DETERMINATION OF NONCOMPLIANCE.--Notwithstanding any law or rule of law, any reporting corporation which has been notified by the Secretary that the Secretary has determined that such corporation has not substantially complied with a summons referred to in paragraph (2) shall have the right to begin a proceeding to review such determination not later than the 90th day after the day on which the notice referred to in paragraph (2)(C) was mailed. If such a proceeding is not begun on or before such 90th day, such determination by the Secretary shall be binding and shall not be reviewed by any court.
'(C) JURISDICTION.--The United States district court for the district in which the person (to whom the summons is issued) resides or is found shall have jurisdiction to hear any proceeding brought under subparagraph (A) or (B). Any order or other determination in such a proceeding shall be treated as a final order which may be appealed.
'(D) SUSPENSION OF STATUTE OF LIMITATIONS.--If the reporting corporation brings an action under subparagraph (A) or (B), the running of any period of limitations under section 6501 (relating to assessment and collection of tax) or under section 6531 (relating to criminal prosecutions) with respect to any transaction to which the summons relates shall be suspended for the period during which such proceeding, and appeals therein, are pending. In no event shall any such period expire before the 90th day after the day on which there is a final determination in such proceeding.'
SEC. 7404. REPEAL OF SPECIAL TREATMENT OF INTEREST ON CERTAIN FOREIGN LOANS.
(a) GENERAL RULE.--Paragraph (2) of section 1201(e) of the Tax Reform Act of 1986 is hereby repealed.
(b) EFFECTIVE DATE.--The repeal made by subsection (a) shall apply to taxable years beginning after December 31, 1989.
(c) EXCEPTION FOR CERTAIN TAXPAYERS WITH SUBSTANTIAL LOAN LOSS RESERVES.--
(1) IN GENERAL.--The repeal made by subsection (a) shall not apply to any taxpayer if, on any financial statement filed by such taxpayer for regulatory purposes with respect to any quarter ending during the period beginning on March 31, 1989, and ending on December 31, 1989, such taxpayer showed loss reserves against its qualified loans equal to at least 25 percent of the amount of such loans.
(2) DEFINITIONS AND SPECIAL RULES.--For purposes of this subsection--
(A) QUALIFIED LOAN.--The term 'qualified loan' has the meaning given such term by section 1201(e)(2)(H) of the Tax Reform Act of 1986 (as in effect before its repeal by subsection (a)).
(B) PARENT-SUBSIDIARY CONTROLLED GROUPS.--In the case of any taxpayer which is a member of a parent-subsidiary controlled group (as defined in section 585(c)(5)(A)), this subsection shall be applied by treating all members of such group as 1 taxpayer.
SEC. 7501. 1-YEAR SUSPENSION OF AUTOMATIC REDUCTION IN AVIATION-RELATED TAXES.
(a) IN GENERAL.--Subsection (a) of section 4283 (relating to reduction in aviation-related taxes in certain cases) is amended by striking '1990' and inserting '1991'.
(b) CONFORMING AMENDMENTS.--
(1) Clause (i) of section 4283(b)(1)(A) is amended by striking '1988 and 1989' and inserting '1989 and 1990'.
(2) Paragraph (3) of section 4283(b) is amended--
(A) by striking '1990' and inserting '1991', and
(B) by striking '1989' and inserting '1990'.
(3) Subsection (q) of section 6427 is amended by striking '1990' each place it appears and inserting '1991'.
(a) IN GENERAL.--Section 6302 (relating to mode or time of collection) is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection:
'(e) TIME FOR DEPOSIT OF TAXES ON AIRLINE TICKETS.--If, under regulations prescribed by the Secretary, a person is required to make deposits of any tax imposed by subsection (a) or (b) of section 4261 with respect to amounts considered collected by such person during any semimonthly period, such deposit shall be made not later than the 3rd day (not including Saturdays, Sundays, or legal holidays) after the close of the 1st week of the 2nd semimonthly period following the period to which such amounts relate.'
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply to payments of taxes considered collected for semimonthly periods beginning after June 30, 1990.
SEC. 7503. INCREASE IN INTERNATIONAL AIR PASSENGER DEPARTURE TAX.
(a) IN GENERAL.--Section 4261(c) (relating to tax on use of international travel facilities) is amended by striking '$3' and inserting '$6'.
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply with respect to transportation beginning after December 31, 1989, which was not paid for before such date.
SEC. 7504. SHIP PASSENGERS INTERNATIONAL DEPARTURE TAX.
(a) IN GENERAL.--Chapter 36 (relating to certain other excise taxes) is amended by inserting after subchapter A the following new subchapter:
'Subchapter B--Transportation by Water
'Sec. 4471. Imposition of tax.
'Sec. 4472. Definitions and special rules.
'SEC. 4471. IMPOSITION OF TAX.
'(a) IN GENERAL.--There is hereby imposed a tax of $3 per passenger on a covered voyage.
'(b) BY WHOM PAID.--The tax imposed by this section shall be paid by the person providing the covered voyage.
'(c) TIME OF IMPOSITION.--The tax imposed by this section shall be imposed only once for each passenger on a covered voyage, either at the time of first embarkation or disembarkation in the United States.
'SEC. 4472. DEFINITIONS.
'For purposes of this subchapter--
'(1) COVERED VOYAGE.--
'(A) IN GENERAL.--The term 'covered voyage' means a voyage of--
'(i) a commercial passenger vessel which extends over 1 or more nights, or
'(ii) a commercial vessel transporting passengers engaged in gambling aboard the vessel beyond the territorial waters of the United States,
during which passengers embark or disembark the vessel in the United States. Such term shall not include any voyage on any vessel owned or operated by the United States, a State, or any agency or subdivision thereof.
'(B) EXCEPTION FOR CERTAIN VOYAGES ON PASSENGER VESSELS.--The term 'covered voyage' shall not include a voyage of a passenger vessel of less than 12 hours between 2 ports in the United States.
'(2) PASSENGER VESSEL.--The term 'passenger vessel' means any vessel having berth or stateroom accommodations for more than 16 passengers.'
(b) CLERICAL AMENDMENTS.--The table of subchapters for chapter 36 is amended by inserting after the item relating to subchapter A the following new item:
'SUBCHAPTER B. Transportation by water.'
(c) EFFECTIVE DATE.--
(1) IN GENERAL.--The amendments made by this section shall apply to voyages beginning after December 31, 1989, which were not paid for before such date.
(2) NO DEPOSITS REQUIRED BEFORE APRIL 1, 1990.--No deposit of any tax imposed by subchapter B of chapter 36 of the Internal Revenue Code of 1986, as added by this section, shall be required to be made before April 1, 1990.
(a) TAX TO TAKE EFFECT ON JANUARY 1, 1990.--
(1) IN GENERAL.--Subsection (f) of section 4611 (relating to application of Oil Spill Liability Trust Fund financing rate) is amended to read as follows:
'(f) APPLICATION OF OIL SPILL LIABILITY TRUST FUND FINANCING RATE.--
'(1) IN GENERAL.--Except as provided in paragraph (2), the Oil Spill Liability Trust Fund financing rate under subsection (c) shall apply after December 31, 1989, and before January 1, 1995.
'(2) NO TAX IF UNOBLIGATED BALANCE IN FUND EXCEEDS $1,000,000,000.--The Oil Spill Liability Trust Fund financing rate shall not apply during any calendar quarter if the Secretary estimates that as of the close of the preceding calendar quarter the unobligated balance in the Oil Spill Liability Trust Fund exceeds $1,000,000,000.'
(b) 5 CENT RATE OF TAX.--Subparagraph (B) of section 4611(c)(2) is amended by striking '1.3 cents' and inserting '5 cents'.
(c) CREDIT AGAINST OIL SPILL TAX FOR EXCESS AMOUNTS IN THE TRANS-ALASKA PIPELINE LIABILITY FUND.--Subsection (d) of section 4612 is amended by adding at the end thereof the following new sentence:
'The preceding sentence shall also apply to amounts paid by the taxpayer into the Trans-Alaska Pipeline Liability Fund to the extent of amounts transferred from such Fund into the Oil Spill Liability Trust Fund. Amounts may be transferred from the Trans-Alaska Pipeline Liability Fund into the Oil Spill Liability Trust Fund only to the extent the administrators of the Trans-Alaska Pipeline Liability Fund determine that such amounts are not needed to satisfy claims against such Fund.'
(d) OIL SPILL LIABILITY TRUST FUND TO BE OPERATING FUND.--
(1) IN GENERAL.--For purposes of sections 8032(d) and 8033(c) of the Omnibus Budget Reconciliation Act of 1986, the commencement date is January 1, 1990.
(2) CONFORMING AMENDMENTS.--
(A) Section 9509 (relating to Oil Spill Liability Trust Fund) is amended by adding at the end thereof the following new subsection:
(C) Paragraph (1) of section 9509(c) is amended by striking the last sentence.
(a) IN GENERAL.--Chapter 38 (relating to environmental taxes) is amended by adding at the end thereof the following new subchapter:
'Subchapter D--Ozone-Depleting Chemicals, Etc.
'Sec. 4681. Imposition of tax.
'Sec. 4682. Definitions and special rules.
'SEC. 4681. IMPOSITION OF TAX.
'(a) GENERAL RULE.--There is hereby imposed a tax on--
'(1) any ozone-depleting chemical sold or used by the manufacturer, producer, or importer thereof, and
'(2) any imported taxable product sold or used by the importer thereof.
'(b) AMOUNT OF TAX.--
'(1) OZONE-DEPLETING CHEMICALS.--
'(A) IN GENERAL.--The amount of the tax imposed by subsection (a) on each pound of ozone-depleting chemical shall be an amount equal to--
'(i) the base tax amount, multiplied by
'(ii) the ozone-depletion factor for such chemical.
'(B) BASE TAX AMOUNT FOR YEARS BEFORE 1995.--The base tax amount for purposes of subparagraph (A) with respect to any sale or use during a calendar year before 1995 is the amount determined under the following table for such calendar year:
'Calendar year: amount
1990 or 1991 $1.37
1992 1.67
1993 or 1994 2.65.
'(2) IMPORTED TAXABLE PRODUCT.--
'(A) IN GENERAL.--The amount of the tax imposed by subsection (a) on any imported taxable product shall be the amount of tax which would have been imposed by subsection (a) on the ozone-depleting chemicals used as materials in the manufacture or production of such product if such ozone-depleting chemicals had been sold in the United States on the date of the sale of such imported taxable product.
'(B) CERTAIN RULES TO APPLY.--Rules similar to the rules of paragraphs (2) and (3) of section 4671(b) shall apply.
'(a) OZONE-DEPLETING CHEMICAL.--For purposes of this subchapter--
'(1) IN GENERAL.--The term 'ozone-depleting chemical' means any substance--
'(A) which, at the time of the sale or use by the manufacturer, producer, or importer, is listed as an ozone-depleting chemical in the table contained in paragraph (2), and
'(B) which is manufactured or produced in the United States or entered into the United States for consumption, use, or warehousing.
'(2) OZONE-DEPLETING CHEMICALS.--
CFC-11 trichlorofluoromethane
CFC-12 dichlorodifluoromethane
CFC-113 trichlorotrifluoroethane
CFC-114 1,2-dichloro-1,1,2,2-tetra-fluoroethane
CFC-115 chloropentafluoroethane
Halon-1211 bromochlorodifluoromethane
Halon-1301 bromotrifluoromethane
Halon-2402 dibromotetrafluoroethane.
'Ozone-depleting chemical: Ozone-depletion factor:
CFC-11 1.0
CFC-12 1.0
CFC-113 0.8
CFC-114 1.0
CFC-115 0.6
Halon-1211 3.0
Halon-1301 10.0
Halon-2402 6.0.
'(1) IN GENERAL.--The term 'imported taxable product' means any product (other than an ozone-depleting chemical) entered into the United States for consumption, use, or warehousing if any ozone-depleting chemical was used as material in the manufacture or production of such product.
'(2) DE MINIMIS EXCEPTION.--The term 'imported taxable product' shall not include any product specified in regulations prescribed by the Secretary as using a de minimis amount of ozone-depleting chemicals as materials in the manufacture or production thereof. The preceding sentence shall not apply to any product in which any ozone-depleting chemical is used for purposes of refrigeration or air conditioning, creating an aerosol or foam, or manufacturing electronic components.
'(d) EXCEPTIONS.--
'(1) RECYCLING.--No tax shall be imposed by section 4681 on any ozone-depleting chemical which is diverted or recovered in the United States as part of a recycling process (and not as part of the original manufacturing or production process).
'(2) USE IN FURTHER MANUFACTURE.--
'(A) IN GENERAL.--No tax shall be imposed by section 4681--
'(i) on the use of any ozone-depleting chemical in the manufacture or production of any other chemical if the ozone-depleting chemical is entirely consumed in such use,
'(ii) on the sale by the manufacturer, producer, or importer of any ozone-depleting chemical--
'(I) for a use by the purchaser which meets the requirements of clause (i), or
'(II) for resale by the purchaser to a second purchaser for a use by the second purchaser which meets the requirements of clause (i).
'(B) CREDIT OR REFUND.--Under regulations prescribed by the Secretary, if--
'(i) a tax under this subchapter was paid with respect to any ozone-depleting chemical, and
'(ii) such chemical was used (and entirely consumed) by any person in the manufacture or production of any other chemical,
then an amount equal to the tax so paid shall be allowed as a credit or refund (without interest) to such person in the same manner as if it were an overpayment of tax imposed by section 4681.
'(3) EXPORTS.--
'(A) IN GENERAL.--Except as provided in subparagraph (B), rules similar to the rules of section 4662(e) (other than section 4662(e)(2)(A)(ii)(II)) shall apply for purposes of this subchapter.
'(B) LIMIT ON BENEFIT.--
'(i) IN GENERAL.--The aggregate tax benefit allowable under subparagraph (A) with respect to ozone-depleting chemicals manufactured or produced by any person during a calendar year shall not exceed the sum of--
'(I) the amount equal to the 1986 export percentage of the aggregate tax imposed by this subchapter with respect to ozone-depleting chemicals manufactured or produced by such person during such calendar year (other than chemicals with respect to which subclause (II) applies), and
'(II) the aggregate tax imposed by this subchapter with respect to any additional production allowance granted to such person with respect to ozone-depleting chemicals manufactured or produced by such person during such calendar year by the Environmental Protection Agency under 40 CFR Part 82 (as in effect on September 14, 1989).
'(ii) 1986 EXPORT PERCENTAGE.--A person's 1986 export percentage is the percentage equal to the ozone-depletion factor adjusted pounds of ozone-depleting chemicals manufactured or produced by such person during 1986 which were exported during 1986, divided by the ozone-depletion factor adjusted pounds of all ozone-depleting chemicals manufactured or produced by such person during 1986. The percentage determined under the preceding sentence shall be based on data published by the Environmental Protection Agency.
'(1) IMPORTER.--The term 'importer' means the person entering the article for consumption, use, or warehousing.
'(2) UNITED STATES.--The term 'United States' has the meaning given such term by section 4612(a)(4).
'(f) SPECIAL RULES.--
'(1) FRACTIONAL PARTS OF A POUND.--In the case of a fraction of a pound, the tax imposed by this subchapter shall be the same fraction of the amount of such tax imposed on a whole pound.
'(2) DISPOSITION OF REVENUES FROM PUERTO RICO AND THE VIRGIN ISLANDS.--The provisions of subsections (a)(3) and (b)(3) of section 7652 shall not apply to any tax imposed by this subchapter.
'(g) PHASE-IN OF TAX ON CERTAIN SUBSTANCES.--
'(1) TREATMENT FOR 1990.--
'(A) HALONS.--The term 'ozone-depleting chemical' shall not include halon-1211, halon-1301, or halon-2402 with respect to any sale or use during 1990.
'(B) CHEMICALS USED IN RIGID FOAM INSULATION.--No tax shall be imposed by section 4681--
'(i) on the use during 1990 of any substance in the manufacture of rigid foam insulation,
'(ii) on the sale during 1990 by the manufacturer, producer, or importer of any substance--
'(I) for use by the purchaser in the manufacture of rigid foam insulation, or
'(II) for resale by the purchaser to a second purchaser for such use by the second purchaser, or
'(iii) on the sale or use during 1990 by the importer of any rigid foam insulation.
Clause (ii) 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) TREATMENT FOR 1991, 1992, AND 1993.--
'(A) HALONS.--The tax imposed by section 4681 during 1991, 1992, or 1993 by reason of the treatment of halon-1211, halon-1301, and halon-2402 as ozone-depleting chemicals shall be the applicable percentage (determined under the following table) of the amount of such tax which would (but for this subparagraph) be imposed.
The applicable percentage is:
--------------------------------------------------------
<<>BD+> For sales or use For sales or use For sales or use
'In the case of: during 1991 during 1992 during 1993
----------------------------------------------------------------------------
Halon-1211 6.0 5.0 3.3
Halon-1301 1.8 1.5 1.0
Halon-2402 3.0 2.5 1.6.
----------------------------------------------------------------------------
use during: percentage is:
1991 18
1992 15
1993 10.
'(A) the tax paid under this subchapter on such substance, over
'(B) the tax (if any) which would be imposed by section 4681 if such substance were used for such use by the manufacturer, producer, or importer thereof on the date of its use by such person.
'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 therefor has been timely filed under this paragraph.
'(h) IMPOSITON OF FLOOR STOCKS TAXES.--
'(1) JANUARY 1, 1990, TAX.--On any ozone-depleting chemical which on January 1, 1990, is held by any person (other than the manufacturer, producer, or importer thereof) for sale or for use in further manufacture, there is hereby imposed a floor stocks tax in an amount equal to the tax which would be imposed by section 4681 on such chemical if the sale of such chemical by the manufacturer, producer, or importer thereof had occurred during 1990.
'(2) OTHER TAX-INCREASE DATES.--
'(A) IN GENERAL.--If, on any tax-increase date, any ozone-depleting chemical is held by any person (other than the manufacturer, producer, or importer thereof) for sale or for use in further manufacture, there is hereby imposed a floor stocks tax.
'(B) AMOUNT OF TAX.--The amount of the tax imposed by subparagraph (A) shall be the excess (if any) of--
'(i) the tax which would be imposed under section 4681 on such substance if the sale of such chemical by the manufacturer, producer, or importer thereof had occurred on the tax-increase date, over
'(ii) the prior tax (if any) imposed by this subchapter on such substance.
'(C) TAX-INCREASE DATE.--For purposes of this paragraph, the term 'tax-increase date' means January 1 of 1991, 1992, 1993, and 1994.
'(3) DUE DATE.--The taxes imposed by this subsection on January 1 of any calendar year shall be paid on or before April 1 of such year.
'(4) APPLICATION OF OTHER LAWS.--All other provisions of law, including penalties, applicable with respect to the taxes imposed by section 4681 shall apply to the floor stocks taxes imposed by this subsection.'
(b) CLERICAL AMENDMENT.--The table of subchapters for chapter 38 is amended by adding at the end thereof the following new item:
'SUBCHAPTER D. Ozone-depleting chemicals, etc.'
(c) EFFECTIVE DATE.--
(1) IN GENERAL.--The amendments made by this section shall take effect on January 1, 1990.
(2) NO DEPOSITS REQUIRED BEFORE APRIL 1, 1990.--No deposit of any tax imposed by subchapter D of chapter 38 of the Internal Revenue Code of 1986, as added by this section, shall be required to be made before April 1, 1990.
(3) NOTIFICATION OF CHANGES IN INTERNATIONAL AGREEMENTS.--The Secretary of the Treasury or his delegate shall notify the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate of changes in the Montreal Protocol and of other international agreements to which the United States is a signatory relating to ozone-depleting chemicals.
(a) IN GENERAL.--Section 6302 (relating to mode or time of collection), as amended by section 7502, is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection:
'(f) TIME FOR DEPOSIT OF TAXES ON GASOLINE.--
'(1) GENERAL RULE.--Notwithstanding section 518 of the Highway Revenue Act of 1982, any person whose liability for tax under section 4081 is payable with respect to semimonthly periods shall, not later than September 27, make deposits of such tax for the period beginning on September 16 and ending on September 22.
'(2) SPECIAL RULE WHERE DUE DATE FALLS ON SATURDAY, SUNDAY, OR HOLIDAY.--If, but for this paragraph, the due date under paragraph (1) would fall on a Saturday, Sunday, or holiday in the District of Columbia, such due date shall be deemed to be the immediately preceding day which is not a Saturday, Sunday, or such a holiday.'
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply to payments of taxes for tax periods beginning after December 31, 1989.
SEC. 7508. TAXATION OF BULK CIGAR IMPORTS.
(a) IN GENERAL.--Subsection (c) of section 5704 (relating to tobacco products and cigarette papers and tubes released in bond from customs custody) is amended by inserting 'or to a manufacturer of tobacco products or cigarette papers and tubes if such articles are not put up in packages,' after 'export warehouse,'.
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply to articles imported or brought into the United States after the date of the enactment of this Act.
SEC. 7601. LIKE KIND EXCHANGES BETWEEN RELATED PERSONS.
(a) SPECIAL RULES FOR EXCHANGES BETWEEN RELATED PERSONS, ETC.--Section 1031 (relating to exchange of property held for productive use or investment) is amended by adding at the end thereof the following new subsections:
'(f) SPECIAL RULES FOR EXCHANGES BETWEEN RELATED PERSONS.--
'(1) IN GENERAL.--If--
'(A) a taxpayer exchanges property with a related person,
'(B) there is nonrecognition of gain or loss to the taxpayer under this section with respect to the exchange of such property (determined without regard to this subsection), and
'(C) before the date 2 years after the date of the last transfer which was part of such exchange--
'(i) the related person disposes of such property, or
'(ii) the taxpayer disposes of the property received in the exchange from the related person which was of like kind to the property transferred by the taxpayer,
'(2) CERTAIN DISPOSITIONS NOT TAKEN INTO ACCOUNT.--For purposes of paragraph (1)(C), there shall not be taken into account any disposition--
'(A) after the earlier of the death of the taxpayer or the death of the related person,
'(B) in a compulsory or involuntary conversion (within the meaning of section 1033) if the exchange occurred before the threat or imminence of such conversion, or
'(C) with respect to which it is established to the satisfaction of the Secretary that neither the exchange nor such disposition had as one of its principal purposes the avoidance of Federal income tax.
'(3) RELATED PERSON.--For purposes of this subsection, the term 'related person' means any person bearing a relationship to the taxpayer described in section 267(b).
'(4) TREATMENT OF CERTAIN TRANSACTIONS.--This section shall not apply to any exchange which is part of a transaction (or series of transactions) structured to avoid the purposes of this subsection.
'(g) SPECIAL RULE WHERE SUBSTANTIAL DIMINUTION OF RISK.--
'(1) IN GENERAL.--If paragraph (2) applies to any property for any period, the running of the period set forth in subsection (f)(1)(C) with respect to such property shall be suspended during such period.
'(2) PROPERTY TO WHICH SUBSECTION APPLIES.--This paragraph shall apply to any property for any period during which the holder's risk of loss with respect to the property is substantially diminished by--
'(A) the holding of a put with respect to such property,
'(B) the holding by another person of a right to acquire such property, or
'(C) a short sale or any other transaction.
(b) EFFECTIVE DATE.--
(1) IN GENERAL.--Except as provided in paragraph (2), the amendments made by this section shall apply to transfers after July 10, 1989, in taxable years ending after such date.
(2) BINDING CONTRACT.--The amendments made by this section shall not apply to any transfer pursuant to a written binding contract in effect on July 10, 1989, and at all times thereafter before the transfer.
SEC. 7611. SIMPLIFICATION OF ADJUSTED CURRENT EARNINGS PREFERENCE.
(a) ELIMINATION OF BOOK LIMITATIONS APPLICABLE TO DEPRECIATION.--
(1) IN GENERAL.--
(A) Clause (i) of section 56(g)(4)(A) (relating to depreciation) is amended to read as follows:
'(i) PROPERTY PLACED IN SERVICE AFTER 1989.--The depreciation deduction with respect to any property placed in service in a taxable year beginning after 1989 shall be determined under the alternative system of section 168(g).'
(B) Subparagraph (A) of section 56(g)(4) is amended by striking clauses (v) and (vi) and by redesignating clause (vii) as clause (v).
(2) TECHNICAL AMENDMENT.--Clause (iii) of section 56(g)(4)(A) is amended by inserting 'and which is placed in service in a taxable year beginning before 1990' after 'thereof) applies'.
(b) TREATMENT OF CERTAIN EARNINGS AND PROFITS ADJUSTMENTS.--Subparagraph (D) of section 56(g)(4) is amended to read as follows:
'(i) INTANGIBLE DRILLING COSTS.--The adjustments provided in section 312(n)(2)(A) shall apply in the case of amounts paid or incurred in taxable years beginning after December 31, 1989.
'(ii) CERTAIN AMORTIZATION PROVISIONS NOT TO APPLY.--Sections 173 and 248 shall not apply to expenditures paid or incurred in taxable year beginning after December 31, 1989.
'(iii) LIFO INVENTORY ADJUSTMENTS.--The adjustments provided in section 312(n)(4) shall apply.
'(iv) INSTALLMENT SALES.--In the case of any installment sale in a taxable year beginning after December 31, 1989, adjusted current earnings shall be computed as if the corporation did not use the installment method. The preceding sentence shall not apply to the applicable percentage (as determined under section 453A) of the gain from any installment sale with respect to which section 453A(a)(1) applies.'
'(I) IN GENERAL.--Clause (i) shall not apply to any deduction allowable under section 243 or 245 for any dividend which is a 100-percent dividend or which is received from a 20-percent owned corporation (as defined in section 243(c)(2)), but only to the extent such dividend is attributable to income of the paying corporation which is subject to tax under this chapter (determined after the application of sections 936 and 921).
'(II) 100-PERCENT DIVIDEND.--For purposes of the subclause (I), the term '100 percent dividend' means any dividend if the percentage used for purposes of determining the amount allowable as a deduction under section 243 or 245 with respect to such dividend is 100 percent.'
(1) Clause (i) of section 56(g)(4)(H) is amended by striking 'after the date of the enactment of the Tax Reform Act of 1986' and inserting 'in a taxable year beginning after 1989'.
(2) Clause (i) of section 56(g)(4)(B) is amended by adding at the end thereof the following new sentence:
(4) Paragraph (5) of section 56(g) is amended by striking subparagraphs (A) and (C) and by redesignating subparagraphs (B) and (D) as subparagraphs (A) and (B), respectively.
(5)(A) Clause (ii) of section 312(n)(2)(A) is amended by striking 'in which the production from the well begins' and inserting 'in which such amount was paid or incurred'.
(B) Paragraph (1) of section 59(e) is amended by inserting before the period at the end thereof: '(or, in the case of a qualified expenditure described in paragraph (2)(C), over the 60-month period beginning with the month in which such expenditure was paid or incurred)'.
(6) Subsection (i) of section 59 is amended--
(A) by striking 'interest shall' and inserting 'any amount shall', and
(B) by striking 'INTEREST' in the subsection heading and inserting 'AMOUNTS'.
(1) IN GENERAL.--Except as otherwise provided in this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 1989.
(2) INTANGIBLE DRILLING COSTS.--The amendments made by subsection (f)(5) shall apply to costs paid or incurred in taxable years beginning after December 31, 1989.
(3) REGULATIONS ON EARNINGS AND PROFITS RULES.--Not later than March 15, 1991, the Secretary of the Treasury or his delegate shall prescribe initial regulations providing guidance as to which items of income are included in adjusted current earnings under section 56(g)(4)(B)(i) of the Internal Revenue Code of 1986 and which items of deduction are disallowed under section 56(g)(4)(C) of such Code.
(a) MODIFICATION TO CORPORATE MINIMUM TAX CREDIT.--
(1) IN GENERAL.--Subparagraph (B) of section 53(d)(1) (relating to credit not allowed for exclusion preferences) is amended by adding at the end thereof the following new clause:
'(I) the preceding provisions of this subparagraph shall not apply, and
'(II) the adjusted net minimum tax for any taxable year is the amount of the net minimum tax for such year increased by the amount of any credit not allowed under section 29 solely by reason of the application of section 29(b)(5)(B).'
(A) by striking 'subsections (b)(1) and (c)(3)' and inserting 'subsection (b)(1)', and
(B) by striking the last sentence.
(3) EFFECTIVE DATE.--The amendments made by this subsection shall apply for purposes of determining the adjusted net minimum tax for taxable years beginning after December 31, 1989.
(b) ADJUSTMENT FOR DISALLOWED PORTION OF ORPHAN DRUG CREDIT.--
(1) IN GENERAL.--Clauses (iii) and (iv) of section 53(d)(1)(B) (as amended by subsection (a)) are each amended by inserting after 'section 29(d)(5)(B)' the following: 'or not allowed under section 28 solely by reason of the application of section 28(d)(2)(B)'.
(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall apply for purposes of determining the amount of the minimum tax credit for taxable years beginning after December 31, 1989; except that, for such purposes, section 53(b)(1) of the Internal Revenue Code of 1986 shall be applied as if such amendment had been in effect for all prior taxable years.
(c) EXEMPTION FOR CERTAIN HOME CONSTRUCTION CONTRACTS.--
(1) IN GENERAL.--Paragraph (3) of section 56(a) (relating to treatment of certain long-term contracts) is amended by striking 'with respect to which the requirements of clauses (i) and (ii) of section 460(e)(1)(B) are met'.
(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall apply to contracts entered into in taxable years beginning after September 30, 1990.
(d) TREATMENT OF CERTAIN RESEARCH AND EXPERIMENTAL EXPENDITURES.--
(1) IN GENERAL.--Paragraph (2) of section 56(b) (relating to circulation and research and experimental expenditures) is amended by adding at the end thereof the following new subparagraph:
'(D) EXCEPTION FOR CERTAIN RESEARCH AND EXPERIMENTAL EXPENDITURES.--If the taxpayer materially participates (within the meaning of section 469(h)) in an activity, this paragraph shall not apply to any amount allowable as a deduction under section 174(a) for expenditures paid or incurred in connection with such activity.'
(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall apply to taxable years beginning after December 31, 1990.
(e) 90-PERCENT LIMITATION ON FOREIGN TAX CREDIT NOT TO APPLY TO CERTAIN CORPORATIONS.--
(1) IN GENERAL.--Paragraph (2) of section 59(a) (relating to limitation of foreign tax credit to 90-percent of tax) is amended by adding at the end thereof the following new subparagraph:
'(C) EXCEPTION.--Subparagraph (A) shall not apply to any domestic corporation if--
'(i) more than 50 percent of the stock of such domestic corporation (by vote and value) is owned by United States persons who are not members of an affiliated group (as defined in section 1504 of such Code) which includes such corporation,
'(ii) all of the activities of such corporation are conducted in 1 foreign country with which the United States has an income tax treaty in effect and such treaty provides for the exchange of information between such foreign country and the United States,
'(iii) all of the current earnings and profits of such corporation are distributed at least annually (other than current earnings and profits retained for normal maintenance or capital replacements or improvements of an existing business), and
'(iv) all of such distributions by such corporation to United States persons are used by such persons in a trade or business conducted in the United States.'
(A) IN GENERAL.--The amendment made by paragraph (1) shall apply to taxable years beginning after March 31, 1990.
(B) SPECIAL RULE FOR YEAR WHICH INCLUDES MARCH 31, 1990.--In the case of any taxable year (of a corporation described in subparagraph (C) of section 59(a)(2) of the Internal Revenue Code of 1986 (as added by paragraph (1))) which begins after December 31, 1989, and includes March 31, 1990, the amount determined under clause (ii) of section 59(a)(2)(A) of such Code shall be an amount which bears the same ratio to the amount which would have been determined under such clause without regard to this subparagraph as the number of days in such taxable year on or before March 31, 1990, bears to the total number of days in such taxable year.
(1) IN GENERAL.--The Secretary of the Treasury or his delegate shall conduct a study on the proper class life for cars and light trucks.
(2) REPORT.--Not later than the day 1 year after the date of the enactment of this Act, the Secretary shall submit a report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate on the report conducted under paragraph (1), together with such recommendations as he may deem advisable.
SEC. 7621. REPEAL OF COMPLETED CONTRACT METHOD OF ACCOUNTING FOR LONG-TERM CONTRACTS.
(a) IN GENERAL.--Subsection (a) of section 460 (relating to special rules for long-term contracts) is amended to read as follows:
'(a) REQUIREMENT THAT PERCENTAGE OF COMPLETION METHOD BE USED.--In the case of any long-term contract, the taxable income from such contract shall be determined under the percentage of completion method (as modified by subsection (b)).'
(b) ELECTION TO USE MODIFIED PERCENTAGE OF COMPLETION METHOD.--Subsection (b) of section 460 (as amended by subsection (c)(1)) is amended by adding at the end thereof the following new paragraph:
'(5) ELECTION TO USE 10-PERCENT METHOD.--
'(A) GENERAL RULE.--In the case of any long-term contract with respect to which an election under this paragraph is in effect, the 10-percent method shall apply in determining the taxable income from such contract.
'(B) 10-PERCENT METHOD.--For purposes of this paragraph--
'(i) IN GENERAL.--The 10-percent method is the percentage of completion method, modified so that any item which would otherwise be taken into account in computing taxable income with respect to a contract for any taxable year before the 10-percent year is taken into account in the 10-percent year.
'(ii) 10-PERCENT YEAR.--The term '10-percent year' means the 1st taxable year as of the close of which at least 10 percent of the estimated total contract costs have been incurred.
'(C) ELECTION.--An election under this paragraph shall apply to all long-term contracts of the taxpayer which are entered into during the taxable year in which the election is made or any subsequent taxable year.
'(D) COORDINATION WITH OTHER PROVISIONS.--
'(i) SIMPLIFIED METHOD OF COST ALLOCATION.--This paragraph shall not apply to any taxpayer which uses a simplified procedure for allocation of costs under paragraph (3)(A).
'(ii) LOOK-BACK METHOD.--The 10-percent method shall be taken into account for purposes of applying the look-back method of paragraph (2) to any taxpayer making an election under this paragraph.'
(1) Subsection (b) of section 460 is amended by striking paragraph (1) and by redesignating paragraphs (2) through (5) as paragraphs (1) through (4), respectively.
(2) Paragraph (1) of section 460(b), as redesignated by paragraph (1), is amended--
(A) by striking 'paragraph (4)' and inserting 'paragraph (3)', and
(B) by striking 'paragraph (3)' and inserting 'paragraph (2)'.
(3) Paragraph (3) of section 460(b), as redesignated by paragraph (1), is amended by striking 'Paragraph (2)(B) and subsection (a)(2)' and inserting 'Paragraph (1)(B)'.
(4) Subparagraph (A) of section 460(b)(4), as redesignated by paragraph (1), is amended--
(A) by striking 'paragraph (3)' each place it appears and inserting 'paragraph (2)',
(B) by striking 'paragraph (3)(B)' and inserting 'paragraph (2)(B)', and
(C) by striking 'paragraph (3)(A)' and inserting 'paragraph (2)(A)'.
(5) Paragraph (5) of section 460(e) is amended by striking so much of such paragraph as precedes subparagraph (A) and inserting the following:
'(5) SPECIAL RULE FOR RESIDENTIAL CONSTRUCTION CONTRACTS WHICH ARE NOT HOME CONSTRUCTION CONTRACTS.--In the case of any residential construction contract which is not a home construction contract, subsection (a) (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1989) shall apply except that such subsection shall be applied--'.
(d) EFFECTIVE DATE.--
(1) IN GENERAL.--Except as provided in paragraph (2), the amendments made by this section shall apply to contracts entered into on or after July 11, 1989.
(2) BINDING BIDS.--The amendments made by this section shall not apply to any contract resulting from the acceptance of a bid made before July 11, 1989. The preceding sentence shall apply only if the bid could not have been revoked or altered at any time on or after July 11, 1989.
(3) SPECIAL RULE FOR CERTAIN SHIP CONTRACTS.--The amendments made by this section shall not apply in the case of a qualified ship contract (as defined in section 10203(b)(2)(B) of the Revenue Act of 1987).
(a) CONTINGENT PAYMENTS.--Paragraph (1) of section 1253(d) (relating to treatment of payments by transferee) is amended to read as follows:
'(1) CONTINGENT SERIAL PAYMENTS.--
'(A) IN GENERAL.--Any amount described in subparagraph (B) which is paid or incurred during the taxable year on account of a transfer, sale, or other disposition of a franchise, trademark, or trade name shall be allowed as a deduction under section 162(a) (relating to trade or business expenses).
'(B) AMOUNTS TO WHICH PARAGRAPH APPLIES.--An amount is described in this subparagraph if it--
'(i) is contingent on the productivity, use, or disposition of the franchise, trademark, or trade name, and
'(ii) is paid as part of a series of payments--
'(I) which are payable not less frequently than annually throughout the entire term of the transfer agreement, and
'(II) which are substantially equal in amount (or payable under a fixed formula).'
(1) IN GENERAL.--Paragraph (2) of section 1253(d) is amended by adding at the end thereof the following new subparagraph:
'(B) $100,000 LIMITATION ON DEDUCTIBILITY OF PRINCIPAL SUM.--Subparagraph (A) shall not apply if the principal sum referred to in such subparagraph exceeds $100,000. For purposes of the preceding sentence, all payments which are part of the same transaction (or a series of related transactions) shall be taken into account as payments with respect to each such transaction.'
(2) CONFORMING AMENDMENTS.--Paragraph (2) of section 1253(d) is amended--
(A) by striking all that precedes 'If' and inserting:
'(2) CERTAIN PAYMENTS IN DISCHARGE OF PRINCIPAL SUMS.--
'(A) IN GENERAL.--', and
(B) by redesignating subparagraphs (A), (B), and (C) as clauses (i), (ii), and (iii), respectively, and by redesignating clauses (i) and (ii) of subparagraph (B) as subclauses (I) and (II), respectively.
'(3) OTHER PAYMENTS.--
'(A) IN GENERAL.--Any amount paid or incurred on account of a transfer, sale, or other disposition of a franchise, trademark, or trade name to which paragraph (1) or (2) does not apply shall be treated as an amount chargeable to capital account.
'(B) ELECTION TO RECOVER AMOUNTS OVER 25 YEARS.--
'(i) IN GENERAL.--If the taxpayer elects the application of this subparagraph, an amount chargeable to capital account--
'(I) to which paragraph (1) would apply but for subparagraph (B)(ii) thereof, or
'(II) to which paragraph (2) would apply but for subparagraph (B) thereof,
shall be allowed as a deduction ratably over the 25-year period beginning with the taxable year in which the transfer occurs.
'(ii) CONSISTENT TREATMENT.--An election under clause (i) shall apply to all amounts which are part of the same transaction (or a series of related transactions).
'(5) CERTAIN RULES MADE APPLICABLE.--Rules similar to the rules of section 168(i)(7) shall apply for purposes of this subsection.'.
(b) TECHNICAL AMENDMENTS.--
(1) DEPRECIATION ALLOWABLE.--Subsection (r) of section 167 is hereby repealed.
(2) DEDUCTION SUBJECT TO RECAPTURE.--
(A) Subparagraph (C) of section 1245(a)(2) is amended by striking 'or 193' and inserting '193, or 1253(d)(2) or (3)'.
(B) The material preceding subparagraph (A) of section 1245(a)(3) is amended by striking 'section 185' and inserting 'section 185 or 1253(d)(2) or (3)'.
(1) IN GENERAL.--The amendments made by this section shall apply to transfers after October 2, 1989.
(2) BINDING CONTRACT.--The amendments made by this section shall not apply to any transfer pursuant to a written binding contract in effect on October 2, 1989, and at all times thereafter before the transfer.
SEC. 7631. TREATMENT OF AGRICULTURAL WORKERS UNDER WAGE WITHHOLDING.
(a) IN GENERAL.--Paragraph (2) of section 3401(a) (defining wages) is amended to read as follows:
'(2) for agricultural labor (as defined in section 3121(g)) unless the remuneration paid for such labor is wages (as defined in section 3121(a)); or'.
(b) CREW LEADER RULES TO APPLY.--Section 3401 is amended by adding at the end thereof the following new subsection:
'(h) CREW LEADER RULES TO APPLY.--Rules similar to the rules of section 3121(o) shall apply for purposes of this chapter.'
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to remuneration paid after December 31, 1989.
SEC. 7632. ACCELERATION OF DEPOSIT REQUIREMENTS.
(a) IN GENERAL.--Section 6302 (relating to mode or time for collection), as amended by this title, is amended by redesignating subsection (g) as subsection (h) and by inserting after subsection (f) the following new subsection:
'(g) DEPOSITS OF SOCIAL SECURITY TAXES AND WITHHELD INCOME TAXES.--
'(1) IN GENERAL.--If, under regulations prescribed by the Secretary, a person is required to make deposits of taxes imposed by chapters 21 and 24 on the basis of eighth-month periods, such person shall, for the years specified in paragraph (2), make deposits of such taxes on the applicable banking day after any day on which such person has $100,000 or more of such taxes for deposit.
'(2) SPECIFIED YEARS.--For purposes of paragraph (1)--
'In the case of: banking day is:
1990 1st
1991 2d
1992 3rd
1993 1st
1994 1st.'
(1) GENERAL RULE.--Except as provided in paragraph (2), the amendment made by subsection (a) shall apply to amounts required to be deposited after July 31, 1990.
(2) RULE FOR 1995 AND THEREAFTER.--For calendar year 1995 and thereafter, the Secretary of the Treasury shall prescribe regulations with respect to the date on which deposits of such taxes shall be made in order to minimize the unevenness in the revenue effects of the amendment made by subsection (a).
SEC. 7641. LIMITATION ON SECTION 104 EXCLUSION.
(a) GENERAL RULE.--Section 104(a) (relating to compensation for injuries or sickness) is amended by adding at the end thereof the following new sentence: 'Paragraph (2) shall not apply to any punitive damages in connection with a case not involving physical injury or physical sickness.'
(b) EFFECTIVE DATE.--
(1) IN GENERAL.--Except as provided in paragraph (2), the amendment made by subsection (a) shall apply to amounts received after July 10, 1989, in taxable years ending after such date.
(2) EXCEPTION.--The amendment made by subsection (a) shall not apply to any amount received--
(A) under any written binding agreement, court decree, or mediation award in effect on (or issued on or before) July 10, 1989, or
(B) pursuant to any suit filed on or before July 10, 1989.
(a) GENERAL RULE.--Subsection (c) of section 704 (relating to contributed property) is amended to read as follows:
'(c) CONTRIBUTED PROPERTY.--
'(1) IN GENERAL.--Under regulations prescribed by the Secretary--
'(A) income, gain, loss, and deduction with respect to property contributed to the partnership by a partner shall be shared among the partners so as to take account of the variation between the basis of the property to the partnership and its fair market value at the time of contribution, and
'(B) if any property so contributed is distributed by the partnership (other than to the contributing partner) within 5 years of being contributed--
'(i) the contributing partner shall be treated as recognizing gain or loss (as the case may be) from the sale of such property in an amount equal to the gain or loss which would have been allocated to such partner under subparagraph (A) by reason of the variation described in subparagraph (A) if the property had been sold at its fair market value at the time of the distribution,
'(ii) the character of such gain or loss shall be determined by reference to the character of the gain or loss which would have resulted if such property had been sold by the partnership to the distributee, and
'(iii) appropriate adjustments shall be made to the adjusted basis of the contributing partner's interest in the partnership and to the adjusted basis of the property distributed to reflect any gain or loss recognized under this subparagraph.
'(A) property contributed by a partner (hereinafter referred to as the 'contributing partner') is distributed by the partnership to another partner, and
'(B) other property of a like kind (within the meaning of section 1031) is distributed by the partnership to the contributing partner not later than the earlier of--
'(i) the 180th day after the date of the distribution described in subparagraph (A), or
'(ii) the due date (determined with regard to extensions) for the contributing partner's return of the tax imposed by this chapter for the taxable year in which the distribution described in subparagraph (A) occurs,
'(3) OTHER RULES.--Under regulations prescribed by the Secretary, rules similar to the rules of paragraph (1) shall apply to contributions by a partner (using the cash receipts and disbursements method of accounting) of accounts payable and other accrued but unpaid items. Any reference in paragraph (1) or (2) to the contributing partner shall be treated as including a reference to any successor of such partner.'
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply in the case of property contributed to the partnership after October 3, 1989, in taxable years ending after such date.
SEC. 7643. DEPRECIATION TREATMENT OF CELLULAR TELEPHONES.
(a) GENERAL RULE.--Subparagraph (A) of section 280F(d)(4) (defining listed property) is amended by striking 'and' at the end of clause (iv), by redesignating clause (v) as clause (vi), and by inserting after clause (iv) the following new clause:
SEC. 7644. ELIMINATION OF RETROACTIVE CERTIFICATION OF EMPLOYEES FOR WORK INCENTIVE JOBS CREDIT.
(a) IN GENERAL.--So much of subparagraph (A) of section 50B(h)(1) of the Internal Revenue Code of 1954 (as in effect for taxable years beginning before January 1, 1982) as precedes clause (i) thereof is amended to read as follows:
SEC. 7645. DISALLOWANCE OF DEPRECIATION FOR CERTAIN TERM INTERESTS.
(a) GENERAL RULE.--Section 167 (as amended by section 7622) is amended by inserting after subsection (q) the following new subsection:
'(r) CERTAIN TERM INTERESTS NOT DEPRECIABLE.--
'(1) IN GENERAL.--No depreciation deduction shall be allowed under this section (and no depreciation or amortization deduction shall be allowed under any other provision of this subtitle) to the taxpayer for any term interest in property for any period during which the remainder interest in such property is held (directly or indirectly) by a related person.
'(2) COORDINATION WITH SECTION 273.--This subsection shall not apply to any term interest to which section 273 applies.
'(3) BASIS ADJUSTMENTS.--If but for this subsection, a depreciation or amortization deduction would be allowable to the taxpayer with respect to any term interest in property--
'(A) the taxpayer's basis in such property shall be reduced by any depreciation or amortization deductions disallowed under this subsection, and
'(B) the basis of the remainder interest in such property shall be increased by the amount of such disallowed deductions (properly adjusted for any depreciation deductions allowable under subsection (h) to the taxpayer).
'(4) SPECIAL RULES.--
'(A) DENIAL OF INCREASE IN BASIS OF REMAINDERMAN.--No increase in the basis of the remainder interest shall be made under paragraph (3)(B) for any disallowed deductions attributable to periods during which the term interest was held--
'(i) by an organization exempt from tax under this subtitle, or
'(ii) by a nonresident alien individual or foreign corporation but only if income from the term interest is not effectively connected with the conduct of a trade or business in the United States.
'(B) COORDINATION WITH SUBSECTION (h).--If, but for this subsection, a depreciation or amortization deduction would be allowable to any person with respect to any term interest in property, the principles of subsection (h) shall apply to such person with respect to such term interest.
'(5) DEFINITIONS.--For purposes of this subsection--
'(A) TERM INTEREST IN PROPERTY.--The term 'term interest in property' has the meaning given such term by section 1001(e)(2).
'(B) RELATED PERSON.--The term 'related person' means any person bearing a relationship to the taxpayer described in subsection (b) or (e) of section 267.
'(6) REGULATIONS.--The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations preventing avoidance of this subsection through cross-ownership arrangements or otherwise.'
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply to interests created or acquired after July 27, 1989, in taxable years ending after such date.
SEC. 7646. REPORTING OF POINTS ON MORTGAGE LOANS.
(a) GENERAL RULE.--Paragraph (2) of section 6050H(b) (relating to form and manner of returns) is amended by striking 'and' at the end of subparagraph (B), by redesignating subparagraph (C) as subparagraph (D) and by inserting after subparagraph (B) the following new subparagraph:
(1) Subparagraph (B) of section 6050H(b)(1) is amended by inserting '(other than points)' after 'such interest'.
(2) Paragraph (2) of section 6050H(d) is amended--
(A) by inserting '(other than points)' after 'subsection (a)(2)', and
(B) by inserting before the period at the end thereof the following: '(and the information required under subsection (b)(2)(C))'.
SEC. 7647. TREATMENT OF CERTAIN INVESTMENT-ORIENTED LIFE INSURANCE CONTRACTS.
(a) GENERAL RULE.--Subsection (c) of section 7702A (relating to computational rules) is amended by adding at the end thereof the following new paragraph:
'(6) TREATMENT OF CERTAIN CONTRACTS WITH MORE THAN ONE INSURED.--If--
'(A) a contract provides a death benefit which is payable only upon the death of 1 insured following (or occurring simultaneously with) the death of another insured, and
'(B) there is a reduction in such death benefit below the lowest level of such death benefit provided under the contract during the 1st 7 contract years,
this section shall be applied as if the contract had originally been issued at the reduced benefit level.'
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply to contracts entered into on or after September 14, 1989.
SEC. 7651. TREATMENT OF HEDGE BONDS.
(a) IN GENERAL.--Section 149 (relating to bonds must be registered to be tax-exempt; other requirements) is amended by adding at the end thereof the following new subsection:
'(g) TREATMENT OF HEDGE BONDS.--
'(1) IN GENERAL.--Section 103(a) shall not apply to any hedge bond unless, with respect to the issue of which such bond is a part--
'(A) the requirement of paragraph (2) is met, and
'(B) the requirement of subsection (f)(3) is met.
'(2) REASONABLE EXPECTATIONS AS TO WHEN PROCEEDS WILL BE SPENT.--An issue meets the requirement of this paragraph if the issuer reasonably expects that--
'(A) 10 percent of the spendable proceeds of the issue will be spent for the governmental purposes of the issue within the 1-year period beginning on the date the bonds are issued,
'(B) 30 percent of the spendable proceeds of the issue will be spent for such purposes within the 2-year period beginning on such date,
'(C) 60 percent of the spendable proceeds of the issue will be spent for such purposes within the 3-year period beginning on such date, and
'(D) 85 percent of the spendable proceeds of the issue will be spent for such purposes within the 5-year period beginning on such date.
'(3) HEDGE BOND.--
'(A) IN GENERAL.--For purposes of this subsection, the term 'hedge bond' means any bond issued as part of an issue unless--
'(i) the issuer reasonably expects that 85 percent of the spendable proceeds of the issue will be used to carry out the governmental purposes of the issue within the 3-year period beginning on the date the bonds are issued, and
'(ii) not more than 50 percent of the proceeds of the issue are invested in nonpurpose investments (as defined in section 148(f)(6)(A)) having a substantially guaranteed yield for 4 years or more.
'(B) EXCEPTION FOR INVESTMENT IN TAX-EXEMPT BONDS NOT SUBJECT TO MINIMUM TAX.--
'(i) IN GENERAL.--Such term shall not include any bond issued as part of an issue 95 percent of the net proceeds of which are invested in bonds--
'(I) the interest on which is not includible in gross income under section 103, and
'(II) which are not specified private activity bonds (as defined in section 57(a)(5)(C)).
'(ii) AMOUNTS IN BONA FIDE DEBT SERVICE FUND.--Amounts in a bona fide debt service fund shall be treated as invested in bonds described in clause (i).
'(iii) INVESTMENT EARNINGS HELD PENDING REINVESTMENT.--Investment earnings held for not more than 30 days pending reinvestment shall be treated as invested in bonds described in clause (i).
'(C) EXCEPTION FOR REFUNDING BONDS.--
'(i) IN GENERAL.--A refunding bond shall be treated as meeting the requirements of this subsection only if the original bond met such requirements.
'(ii) GENERAL RULE FOR REFUNDING OF PRE-EFFECTIVE DATE BONDS.--A refunding bond shall be treated as meeting the requirements of this subsection if--
'(I) this subsection does not apply to the original bond,
'(II) the average maturity date of the issue of which the refunding bond is a part is not later than the average maturity date of the bonds to be refunded by such issue, and
'(III) the amount of the refunding bond does not exceed the outstanding amount of the refunded bond.
'(iii) REFUNDING OF PRE-EFFECTIVE DATE BONDS ENTITLED TO 5-YEAR TEMPORARY PERIOD.--A refunding bond shall be treated as meeting the requirements of this subsection if--
'(I) this subsection does not apply to the original bond,
'(II) the issuer reasonably expected that 85 percent of the spendable proceeds of the issue of which the original bond is a part would be used to carry out the governmental purposes of the issue within the 5-year period beginning on the date the original bonds were issued but did not reasonably expect that 85 percent of such proceeds would be so spent within the 3-year period beginning on such date, and
'(III) at least 85 percent of the spendable proceeds of the original issue (and all other prior original issues issued to finance the governmental purposes of such issue) were spent before the date the refunding bonds are issued.
'(A) CONSTRUCTION PERIOD IN EXCESS OF 5 YEARS.--The Secretary may, at the request of any issuer, provide that the requirement of paragraph (2) shall be treated as met with respect to the portion of the spendable proceeds of an issue which is to be used for any construction project having a construction period in excess of 5 years if it is reasonably expected that such proceeds will be spent over a reasonable construction schedule specified in such request.
'(B) RULES FOR DETERMINING EXPECTATIONS.--The rules of subsection (f)(2)(B) shall apply.
'(5) REGULATIONS.--The Secretary may prescribe regulations to prevent the avoidance of the rules of this subsection, including through the aggregation of projects within a single issue.'
(b) EFFECTIVE DATE.--
(1) IN GENERAL.--Except as otherwise provided in this subsection, the amendment made by subsection (a) shall apply to bonds issued after September 14, 1989.
(2) BONDS SOLD BEFORE SEPTEMBER 15, 1989.--The amendment made by subsection (a) shall not apply to any bond sold before September 15, 1989, and issued before October 15, 1989.
(3) BONDS WITH RESPECT TO WHICH PRELIMINARY OFFERING MATERIALS MAILED.--The amendment made by subsection (a) shall not apply to any issue issued after the date of the enactment of this Act if the preliminary offering materials with respect to such issue were mailed (or otherwise delivered) to members of the underwriting syndicate before September 15, 1989.
(4) CERTAIN OTHER BONDS.--In the case of a bond issued before January 1, 1991, with respect to which official action was taken (or a series of official actions were taken), or other comparable preliminary approval was given, before November 18, 1989, demonstrating an intent to issue such bonds in a maximum specified amount for such issue or with a maximum specified amount of net proceeds of such issue, the issuer may elect to apply section 149(g)(2) of the Internal Revenue Code of 1986 (as added by this section) by substituting '15 percent' for '10 percent' in subparagraph (A) and '50 percent' for '60 percent' in subparagraph (C).
(5) BONDS ISSUED TO FINANCE SELF-INSURANCE FUNDS.--The amendment made by subsection (a) shall not apply to any bonds issued before July 1, 1990, to finance a self-insurance fund if official action was taken (or a series of official actions were taken), or other comparable preliminary approval was given, before September 15, 1989, demonstrating an intent to issue such bonds in a maximum specified amount for such issue or with a maximum specified amount of net proceeds of such issue.
(a) IN GENERAL.--Clause (i) of section 148(f)(4)(B) (relating to temporary investments) is amended to read as follows:
'(I) the gross proceeds of such issue are expended for the governmental purposes for which the issue was issued no later than the day which is 6 months after the date of issuance of the issue, and
'(II) the requirements of paragraph (2) are met after such 6 months with respect to earnings on amounts in any reasonably required reserve or replacement fund.
Gross proceeds which are held in a bona fide debt service fund or a reasonably required reserve or replacement fund shall not be considered gross proceeds for purposes of this subparagraph only.'
'(I) IN GENERAL.--In the case of an issue described in subclause (IV), clause (i) shall be applied by substituting '2 years' for '6 months' each place it appears.
'(II) PROCEEDS MUST BE SPENT WITHIN CERTAIN PERIODS.--Subclause (I) shall not apply to any issue if less than 10 percent of the net proceeds of the issue are spent for the governmental purposes of the issue within the 6-month period beginning on the date the bonds are issued, less than 45 percent of such proceeds are spent for such purposes within the 1-year period beginning on such date, less than 75 percent of such proceeds are spent for such purposes within the 18-month period beginning on such date, or less than 100 percent of such proceeds are spent for such purposes within the 2-year period beginning on such date. For purposes of the preceding sentence, the term 'net proceeds' includes investment proceeds earned before the close of the period involved on the investment of the sale proceeds of the issue.
'(III) EXCEPTION FOR REASONABLE RETAINAGE.--For purposes of subclause (II), 100 percent of the net proceeds of an issue shall be treated as spent for the governmental purposes of the issue within the 2-year period beginning on the date the bonds are issued if such requirement is met within the 3-year period beginning on such date and such requirement would have been met within such 2-year period but for a reasonable retainage (not exceeding 5 percent of the net proceeds of the issue).
'(IV) ISSUES TO WHICH SUBCLAUSE (I) APPLIES.--An issue is described in this subclause if at least 75 percent of the net proceeds of the issue are to be used for construction expenditures with respect to property which is owned by a governmental unit or a 501(c)(3) organization. For purposes of the preceding sentence, the term 'construction' includes reconstruction and rehabilitation, and section 142(b)(1) shall apply. An issue is not described in this subclause if any bond which is part of such issue is a bond other than a qualified 501(c)(3) bond, a bond which is not a private activity bond, or a private activity bond to finance property to be owned by a governmental unit or a 501(c)(3) organization.
'(V) ELECTION TO PAY PENALTY IN LIEU OF REBATE.--In the case of an issue described in subclause (IV) which fails to meet the requirements of subclause (II), if the issuer elected the application of this subclause, the requirements of paragraph (2) shall be treated as met if the issuer pays the penalty under paragraph (7) or pays a penalty with respect to the close of each 6 month period after the date the bonds are issued equal to 1-1/2 percent of the amount of the net proceeds of the issue which, as of the close of such period, are not spent as required by subclause (II). The penalty under this subclause shall cease to apply only after the bonds (including any refunding bonds with respect thereto) are no longer outstanding.
'(VI) ELECTION TO REBATE ON EARNINGS ON RESERVE.--If the issuer so elects, the term 'net proceeds' for purposes of subclause (II) shall not include earnings on any reasonably required reserve or replacement fund and the requirements of paragraph (2) shall apply to such earnings.
'(VII) POOLED FINANCING BONDS.--At the election of the issuer of an issue the proceeds of which are to be used to make or finance loans (other than nonpurpose investments) to 2 or more persons, the periods described in clause (i) and this clause shall begin on the date the loan is made in the case of loans made within the 1-year period after the date the bonds were issued. In the case of loans made after such 1-year period, the periods described in clause (i) and this clause shall begin at the close of such 1-year period.
'(VIII) PORTIONS OF ISSUE MAY BE TREATED SEPARATELY.--If only a portion of an issue is to be used for construction expenditures referred to in subclause (IV), such portion and the other portion of such issue may, at the election of the issuer, be treated as separate issues for purposes of this clause and clause (i).
'(IX) ELECTIONS.--Any election under this clause shall be made on or before the date the bonds are issued; and, once made, shall be irrevocable.'
'(i) rules similar to the rules of subsection (f)(4)(B)(iv)(VIII) shall apply, and
'(ii) subparagraph (A) shall be applied with respect to such portion by substituting '2 years' for '6 months'.'
(e) EFFECTIVE DATE.--The amendments made by this section shall apply to bonds issued after the date of the enactment of this Act.
SEC. 7701. SHORT TITLE.
This subtitle may be cited as the 'Improved Penalty Administration and Compliance Tax Act'.
SEC. 7711. UNIFORM PENALTIES FOR FAILURES TO COMPLY WITH CERTAIN INFORMATION REPORTING REQUIREMENTS.
(a) GENERAL RULE.--Part II of subchapter B of chapter 68 (relating to failure to file certain information returns or statements) is amended to read as follows:
'PART II--FAILURE TO COMPLY WITH CERTAIN INFORMATION REPORTING REQUIREMENTS
'Sec. 6721. Failure to file correct information returns.
'Sec. 6722. Failure to furnish correct payee statements.
'Sec. 6723. Failure to comply with other information reporting requirements.
'Sec. 6724. Waiver; definitions and special rules.
'SEC. 6721. FAILURE TO FILE CORRECT INFORMATION RETURNS.
'(a) IMPOSITION OF PENALTY.--
'(1) IN GENERAL.--In the case of a failure described in paragraph (2) by any person with respect to an information return, such person shall pay a penalty of $50 for each return with respect to which such a failure occurs, but the total amount imposed on such person for all such failures during any calendar year shall not exceed $250,000.
'(2) FAILURES SUBJECT TO PENALTY.--For purposes of paragraph (1), the failures described in this paragraph are--
'(A) any failure to file an information return with the Secretary on or before the required filing date, and
'(B) any failure to include all of the information required to be shown on the return or the inclusion of incorrect information.
'(1) CORRECTION WITHIN 30 DAYS.--If any failure described in subsection (a)(2) is corrected on or before the day 30 days after the required filing date--
'(A) the penalty imposed by subsection (a) shall be $15 in lieu of $50, and
'(B) the total amount imposed on the person for all such failures during any calendar year which are so corrected shall not exceed $75,000.
'(2) FAILURES CORRECTED ON OR BEFORE AUGUST 1.--If any failure described in subsection (a)(2) is corrected after the 30th day referred to in paragraph (1) but on or before August 1 of the calendar year in which the required filing date occurs--
'(A) the penalty imposed by subsection (a) shall be $30 in lieu of $50, and
'(B) the total amount imposed on the person for all such failures during the calendar year which are so corrected shall not exceed $150,000.
'(1) IN GENERAL.--If--
'(A) an information return is filed with the Secretary,
'(B) there is a failure described in subsection (a)(2)(B) (determined after the application of section 6724(a)) with respect to such return, and
'(C) such failure is corrected on or before August 1 of the calendar year in which the required filing date occurs,
for purposes of this section, such return shall be treated as having been filed with all of the correct required information.
'(2) LIMITATION.--The number of information returns to which paragraph (1) applies for any calendar year shall not exceed the greater of--
'(A) 10, or
'(B) one-half of 1 percent of the total number of information returns required to be filed by the person during the calendar year.
'(1) IN GENERAL.--If any person meets the gross receipts test of paragraph (2) with respect to any calendar year, with respect to failures during such taxable year--
'(A) subsection (a)(1) shall be applied by substituting '$100,000' for '$250,000',
'(B) subsection (b)(1)(B) shall be applied by substituting '$25,000' for '$75,000', and
'(C) subsection (b)(2)(B) shall be applied by substituting '$50,000' for '$150,000'.
'(2) GROSS RECEIPTS TEST.--
'(A) IN GENERAL.--A person meets the gross receipts test of this paragraph for any calendar year if the average annual gross receipts of such person for the most recent 3 taxable years ending before such calendar year do not exceed $5,000,000.
'(B) CERTAIN RULES MADE APPLICABLE.--For purposes of subparagraph (A), the rules of paragraphs (2) and (3) of section 448(c) shall apply.
'(1) subsections (b), (c), and (d) shall not apply,
'(2) the penalty imposed under subsection (a) shall be $100, or, if greater--
'(A) in the case of a return other than a return required under section 6045(a), 6041A(b), 6050H, 6050J, 6050K, or 6050L, 10 percent of the aggregate amount of the items required to be reported correctly, or
'(B) in the case of a return required to be filed by section 6045(a), 6050K, or 6050L, 5 percent of the aggregate amount of the items required to be reported correctly, and
'(3) in the case of any penalty determined under paragraph (2)--
'(A) the $250,000 limitation under subsection (a) shall not apply, and
'(B) such penalty shall not be taken into account in applying such limitation (or any similar limitation under subsection (b)) to penalties not determined under paragraph (2).
'(a) GENERAL RULE.--In the case of each failure described in subsection (b) by any person with respect to a payee statement, such person shall pay a penalty of $50 for each statement with respect to which such a failure occurs, but the total amount imposed on such person for all such failures during any calendar year shall not exceed $100,000.
'(b) FAILURES SUBJECT TO PENALTY.--For purposes of subsection (a), the failures described in this subsection are--
'(1) any failure to furnish a payee statement on or before the date prescribed therefor to the person to whom such statement is required to be furnished, and
'(2) any failure to include all of the information required to be shown on a payee statement or the inclusion of incorrect information.
'(c) PENALTY IN CASE OF INTENTIONAL DISREGARD.--If 1 or more failures to which subsection (a) applies are due to intentional disregard of the requirement to furnish a payee statement (or the correct information reporting requirement), then, with respect to each failure--
'(1) the penalty imposed under subsection (a) shall be $100, or, if greater--
'(A) in the case of a payee statement other than a statement required under section 6045(b), 6041A(e) (in respect of a return required under section 6041A(b)), 6050H(d), 6050J(e), 6050K(b), or 6050L(c), 10 percent of the aggregate amount of the items required to be reported correctly, or
'(B) in the case of a payee statement required under section 6045(b), 6050K(b), or 6050L(c), 5 percent of the aggregate amount of the items required to be reported correctly, and
'(2) in the case of any penalty determined under paragraph (1)--
'(A) the $100,000 limitation under subsection (a) shall not apply, and
'(B) such penalty shall not be taken into account in applying such limitation to penalties not determined under paragraph (1).
'In the case of a failure by any person to comply with a specified information reporting requirement on or before the time prescribed therefor, such person shall pay a penalty of $50 for each such failure, but the total amount imposed on such person for all such failures during any calendar year shall not exceed $100,000.
'SEC. 6724. WAIVER; DEFINITIONS AND SPECIAL RULES.
'(a) REASONABLE CAUSE WAIVER.--No penalty shall be imposed under this part with respect to any failure if it is shown that such failure is due to reasonable cause and not to willful neglect.
'(b) PAYMENT OF PENALTY.--Any penalty imposed by this part shall be paid on notice and demand by the Secretary and in the same manner as tax.
'(c) SPECIAL RULE FOR FAILURE TO MEET MAGNETIC MEDIA REQUIREMENTS.--No penalty shall be imposed under section 6721 solely by reason of any failure to comply with the requirements of the regulations prescribed under section 6011(e)(2), except to the extent that such a failure occurs with respect to more than 250 information returns.
'(d) DEFINITIONS.--For purposes of this part--
'(1) INFORMATION RETURN.--The term 'information return' means--
'(A) any statement of the amount of payments to another person required by--
'(i) section 6041(a) or (b) (relating to certain information at source),
'(ii) section 6042(a)(1) (relating to payments of dividends),
'(iii) section 6044(a)(1) (relating to payments of patronage dividends),
'(iv) section 6049(a) (relating to payments of interest),
'(v) section 6050A(a) (relating to reporting requirements of certain fishing boat operators),
'(vi) section 6050N(a) (relating to payments of royalties), or
'(vii) section 6051(d) (relating to information returns with respect to income tax withheld), and
'(B) any return required by--
'(i) section 6041A(a) or (b) (relating to returns of direct sellers),
'(ii) section 6045(a) or (d) (relating to returns of brokers),
'(iii) section 6050H(a) (relating to mortgage interest received in trade or business from individuals),
'(iv) section 6050I(a) (relating to cash received in trade or business),
'(v) section 6050J(a) (relating to foreclosures and abandonments of security),
'(vi) section 6050K(a) (relating to exchanges of certain partnership interests),
'(vii) section 6050L(a) (relating to returns relating to certain dispositions of donated property),
'(viii) section 6052(a) (relating to reporting payment of wages in the form of group-life insurance),
'(ix) section 6053(c)(1) (relating to reporting with respect to certain tips),
'(x) section 1060(b) (relating to reporting requirements of transferors and transferees in certain asset acquisitions), or
'(xi) subparagraph (A) or (C) of subsection (c)(4), or subsection (e), of section 4093 (relating to information reporting with respect to tax on diesel and aviation fuels).
'(2) PAYEE STATEMENT.--The term 'payee statement' means any statement required to be furnished under--
'(A) section 6031(b) or (c), 6034A, or 6037(b) (relating to statements furnished by certain pass-thru entities),
'(B) section 6039(a) (relating to information required in connection with certain options),
'(C) section 6041(d) (relating to information at source),
'(D) section 6041A(e) (relating to returns regarding payments of remuneration for services and direct sales),
'(E) section 6042(c) (relating to returns regarding payments of dividends and corporate earnings and profits),
'(F) section 6044(e) (relating to returns regarding payments of patronage dividends),
'(G) section 6045(b) or (d) (relating to returns of brokers),
'(H) section 6049(c) (relating to returns regarding payments of interest),
'(I) section 6050A(b) (relating to reporting requirements of certain fishing boat operators),
'(J) section 6050H(d) relating to returns relating to mortgage interest received in trade or business from individuals),
'(K) section 6050I(e) (relating to returns relating to cash received in trade or business),
'(L) section 6050J(e) (relating to returns relating to foreclosures and abandonments of security),
'(M) section 6050K(b) (relating to returns relating to exchanges of certain partnership interests),
'(N) section 6050L(c) (relating to returns relating to certain dispositions of donated property),
'(O) section 6050N(b) (relating to returns regarding payments of royalties),
'(P) section 6051 (relating to receipts for employees),
'(Q) section 6052(b) (relating to returns regarding payment of wages in the form of group-term life insurance),
'(R) section 6053(b) or (c) (relating to reports of tips), or
'(S) section 4093(c)(4)(B) (relating to certain purchasers of diesel and aviation fuels).
Such term also includes any form, statement, or schedule required to be furnished to the recipient of any amount from which tax was required to be deducted and withheld under chapter 3 (or from which tax would be required to be so deducted and withheld but for an exemption under this title or any treaty obligation of the United States).
'(3) SPECIFIED INFORMATION REPORTING REQUIREMENT.--The term 'specified information reporting requirement' means--
'(A) the notice required by section 6050K(c)(1) (relating to requirement that transferor notify partnership of exchange),
'(B) any requirement contained in the regulations prescribed under section 6109 that a person--
'(i) include his TIN on any return, statement, or other document (other than an information return or payee statement),
'(ii) furnish his TIN to another person, or
'(iii) include on any return, statement, or other document (other than an information return or payee statement) made with respect to another person the TIN of such person,
'(C) any requirement contained in the regulations prescribed under section 215 that a person--
'(i) furnish his TIN to another person, or
'(ii) include on his return the TIN of another person, and
'(D) the requirement of section 6109(e) that a person include the TIN of any dependent on his return.
'(4) REQUIRED FILING DATE.--The term 'required filing date' means the date prescribed for filing an information return with the Secretary (determined with regard to any extension of time for filing).'
(b) TECHNICAL AMENDMENTS.--
(1) Sections 6017A, 6676, and 6687 are hereby repealed.
(2) Subsection (b) of section 7205 is amended to read as follows:
'(b) BACKUP WITHHOLDING ON INTEREST AND DIVIDENDS.--If any individual willfully makes a false certification under paragraph (1) or (2)(C) of section 3406(d), then such individual shall, in addition to any other penalty provided by law, upon conviction thereof, be fined not more than $1,000, or imprisoned not more than 1 year, or both.'
(3) The table of sections for subpart B of part II of subchapter A of chapter 61 is amended by striking the item relating to section 6017A.
(4) The table of sections for part I of subchapter B of chapter 68 is amended by striking the items relating to sections 6676 and 6687.
(5) The table of parts for subchapter B of chapter 68 is amended by striking the item relating to part II and inserting the following:
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to returns and statements the due date for which (determined without regard to extensions) is after December 31, 1989.
SEC. 7712. INFORMATION REQUIRED WITH RESPECT TO CERTAIN FOREIGN CORPORATIONS.
(a) CLARIFICATION OF REPORTING REQUIREMENTS UNDER SECTION 6038.--
(1) Subsection (a) of section 6038 (relating to information with respect to certain foreign corporations) is amended by adding at the end thereof the following new paragraph:
'(4) INFORMATION REQUIRED FROM CERTAIN SHAREHOLDERS IN CERTAIN CASES.--If any foreign corporation is treated as a controlled foreign corporation for any purpose under subpart F of part III of subchapter N of chapter 1, the Secretary may require any United States person treated as a United States shareholder of such corporation for any purpose under subpart F to furnish the information required under paragraph (1).'
(2) Paragraph (1) of section 6038(a) is amended by inserting before the period at the end of the second sentence the following:
'or which the Secretary determines to be appropriate to carry out the provisions of this title.'
(b) EFFECTIVE DATE.--The amendments made by subsection (a) shall apply to returns and statements the due date for which (determined without regard to extensions) is after December 31, 1989.
SEC. 7713. UNIFORM REQUIREMENTS FOR RETURNS ON MAGNETIC MEDIA.
(a) GENERAL RULE.--Subsection (e) of section 6011 (relating to regulations requiring returns on magnetic tape, etc.) is amended to read as follows:
'(e) REGULATIONS REQUIRING RETURNS ON MAGNETIC MEDIA, ETC.--
'(1) IN GENERAL.--The Secretary shall prescribe regulations providing standards for determining which returns must be filed on magnetic media or in other machine-readable form. The Secretary may not require returns of any tax imposed by subtitle A on individuals, estates, and trusts to be other than on paper forms supplied by the Secretary.
'(2) REQUIREMENTS OF REGULATIONS.--In prescribing regulations under paragraph (1), the Secretary--
'(A) shall not require any person to file returns on magnetic media unless such person is required to file at least 250 returns during the calendar year, and
'(B) shall take into account (among other relevant factors) the ability of the taxpayer to comply at reasonable cost with the requirements of such regulations.'
SEC. 7714. STUDY OF PROCEDURES TO PREVENT MISMATCHING.
(a) GENERAL RULE.--The Comptroller General (in consultation with the Secretary of the Treasury or his delegate) shall conduct a study on procedures to resolve, with the least disclosure of return information possible, discrepancies between taxpayer-identity information shown on information returns and such information in the records of the Internal Revenue Service.
(b) REPORT.--Not later than June 1, 1990, the Comptroller General shall submit to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate a report on the study conducted under subsection (a), together with such recommendations as he may deem advisable.
SEC. 7715. STUDY OF SERVICE BUREAUS.
(a) GENERAL RULE.--The Comptroller General (in consultation with the Secretary of the Treasury or his delegate) shall conduct a study of whether persons engaged in the business of transmitting information returns or other documents to the Internal Revenue Service on behalf of other persons should be subject to registration or other regulation.
(b) REPORT.--Not later than July 1, 1990, the Comptroller General shall submit to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate a report on the study conducted under subsection (a), together with such recommendations as he may deem advisable.
SEC. 7721. REVISION OF ACCURACY-RELATED PENALTIES.
(a) GENERAL RULE.--Subchapter A of chapter 68 (relating to additions to the tax and additional amounts) is amended by striking section 6662 and inserting the following:
'PART II--ACCURACY-RELATED AND FRAUD PENALTIES
'Sec. 6662. Imposition of accuracy-related penalty.
'Sec. 6663. Imposition of fraud penalty.
'Sec. 6664. Definitions and special rules.
'SEC. 6662. IMPOSITION OF ACCURACY-RELATED PENALTY.
'(a) IMPOSITION OF PENALTY.--If this section applies to any portion of an underpayment of tax required to be shown on a return, there shall be added to the tax an amount equal to 20 percent of the portion of the underpayment to which this section applies.
'(b) PORTION OF UNDERPAYMENT TO WHICH SECTION APPLIES.--This section shall apply to the portion of any underpayment which is attributable to 1 or more of the following:
'(1) Negligence or disregard of rules or regulations.
'(2) Any substantial understatement of income tax.
'(3) Any substantial valuation overstatement under chapter 1.
'(4) Any substantial overstatement of pension liabilities.
'(5) Any substantial estate or gift tax valuation understatement.
'(c) NEGLIGENCE.--For purposes of this section, the term 'negligence' includes any failure to make a reasonable attempt to comply with the provisions of this title, and the term 'disregard' includes any careless, reckless, or intentional disregard.
'(d) SUBSTANTIAL UNDERSTATEMENT OF INCOME TAX.--
'(1) SUBSTANTIAL UNDERSTATEMENT.--
'(A) IN GENERAL.--For purposes of this section, there is a substantial understatement of income tax for any taxable year if the amount of the understatement for the taxable year exceeds the greater of--
'(i) 10 percent of the tax required to be shown on the return for the taxable year, or
'(ii) $5,000.
'(B) SPECIAL RULE FOR CORPORATIONS.--In the case of a corporation other than an S corporation or a personal holding company (as defined in section 542), paragraph (1) shall be applied by substituting '$10,000' for '$5,000'.
'(2) UNDERSTATEMENT.--
'(A) IN GENERAL.--For purposes of paragraph (1), the term 'understatement' means the excess of--
'(i) the amount of the tax required to be shown on the return for the taxable year, over
'(ii) the amount of the tax imposed which is shown on the return, reduced by any rebate (within the meaning of section 6211(b)(2)).
'(B) REDUCTION FOR UNDERSTATEMENT DUE TO POSITION OF TAXPAYER OR DISCLOSED ITEM.--The amount of the understatement under subparagraph (A) shall be reduced by that portion of the understatement which is attributable to--
'(i) the tax treatment of any item by the taxpayer if there is or was substantial authority for such treatment, or
'(ii) any item with respect to which the relevant facts affecting the item's tax treatment are adequately disclosed in the return or in a statement attached to the return.
'(C) SPECIAL RULES IN CASES INVOLVING TAX SHELTERS.--
'(i) IN GENERAL.--In the case of any item attributable to a tax shelter--
'(I) subparagraph (B)(ii) shall not apply, and
'(II) subparagraph (B)(i) shall not apply unless (in addition to meeting the requirements of such subparagraph) the taxpayer reasonably believed that the tax treatment of such item by the taxpayer was more likely than not the proper treatment.
'(ii) TAX SHELTER.--For purposes of clause (i), the term 'tax shelter' means--
'(I) a partnership or other entity,
'(II) any investment plan or arrangement, or
'(III) any other plan or arrangement,
if the principal purpose of such partnership, entity, plan, or arrangement is the avoidance or evasion of Federal income tax.
'(D) SECRETARIAL LIST.--The Secretary shall prescribe (and revise not less frequently than annually) a list of positions--
'(i) for which the Secretary believes there is not substantial authority, and
'(ii) which affect a significant number of taxpayers.
Such list (and any revision thereof) shall be published in the Federal Register.
'(1) IN GENERAL.--For purposes of this section, there is a substantial valuation overstatement under chapter 1 if the value of any property (or the adjusted basis of any property) claimed on any return of tax imposed by chapter 1 is 200 percent or more of the amount determined to be the correct amount of such valuation or adjusted basis (as the case may be).
'(2) LIMITATION.--No penalty shall be imposed by reason of subsection (b)(3) unless the portion of the underpayment for the taxable year attributable to substantial valuation overstatements under chapter 1 exceeds $5,000 ($10,000 in the case of a corporation other than an S corporation or a personal holding company (as defined in section 542)).
'(f) SUBSTANTIAL OVERSTATEMENT OF PENSION LIABILITIES.--
'(1) IN GENERAL.--For purposes of this section, there is a substantial overstatement of pension liabilities if the actuarial determination of the liabilities taken into account for purposes of computing the deduction under paragraph (1) or (2) of section 404(a) is 200 percent or more of the amount determined to be the correct amount of such liabilities.
'(2) LIMITATION.--No penalty shall be imposed by reason of subsection (b)(4) unless the portion of the underpayment for the taxable year attributable to substantial overstatements of pension liabilities exceeds $1,000.
'(g) SUBSTANTIAL ESTATE OR GIFT TAX VALUATION UNDERSTATEMENT.--
'(1) IN GENERAL.--For purposes of this section, there is a substantial estate or gift tax valuation understatement if the value of any property claimed on any return of tax imposed by subtitle B is 50 percent or less of the amount determined to be the correct amount of such valuation.
'(2) LIMITATION.--No penalty shall be imposed by reason of subsection (b)(5) unless the portion of the underpayment attributable to substantial estate or gift tax valuation understatements for the taxable period (or, in the case of the tax imposed by chapter 11, with respect to the estate of the decedent) exceeds $5,000.
'(h) INCREASE IN PENALTY IN CASE OF GROSS VALUATION MISSTATEMENTS.--
'(1) IN GENERAL.--To the extent that a portion of the underpayment to which this section applies is attributable to one or more gross valuation misstatements, subsection (a) shall be applied with respect to such portion by substituting '40 percent' for '20 percent'.
'(2) GROSS VALUATION MISSTATEMENTS.--The term 'gross valuation misstatements' means--
'(A) any substantial valuation overstatement under chapter 1 as determined under subsection (e) by substituting '400 percent' for '200 percent',
'(B) any substantial overstatement of pension liabilities as determined under subsection (f) by substituting '400 percent' for '200 percent', and
'(C) any substantial estate or gift tax valuation understatement as determined under subsection (g) by substituting '25 percent' for '50 percent'.
'(a) IMPOSITION OF PENALTY.--If any part of any underpayment of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 75 percent of the portion of the underpayment which is attributable to fraud.
'(b) DETERMINATION OF PORTION ATTRIBUTABLE TO FRAUD.--If the Secretary establishes that any portion of an underpayment is attributable to fraud, the entire underpayment shall be treated as attributable to fraud, except with respect to any portion of the underpayment which the taxpayer establishes (by a preponderance of the evidence) is not attributable to fraud.
'(c) SPECIAL RULE FOR JOINT RETURNS.--In the case of a joint return, this section shall not apply with respect to a spouse unless some part of the underpayment is due to the fraud of such spouse.
'SEC. 6664. DEFINITIONS AND SPECIAL RULES.
'(a) UNDERPAYMENT.--For purposes of this part, the term 'underpayment' means the amount by which any tax imposed by this title exceeds the excess of--
'(1) the sum of--
'(A) the amount shown as the tax by the taxpayer on his return, plus
'(B) amounts not so shown previously assessed (or collected without assessment), over
'(2) the amount of rebates made.
For purposes of paragraph (2), the term 'rebate' means so much of an abatement, credit, refund, or other repayment, as was made on the ground that the tax imposed was less than the excess of the amount specified in paragraph (1) over the rebates previously made.
'(b) PENALTIES APPLICABLE ONLY WHERE RETURN FILED.--The penalties provided in this part shall apply only in cases where a return of tax is filed (other than a return prepared by the Secretary under the authority of section 6020(b)).
'(c) REASONABLE CAUSE EXCEPTION.--
'(1) IN GENERAL.--No penalty shall be imposed under this part with respect to any portion of an underpayment if it is shown that there was a reasonable cause for such portion and that the taxpayer acted in good faith with respect to such portion.
'(2) SPECIAL RULE FOR CERTAIN VALUATION OVERSTATEMENTS.--In the case of any underpayment attributable to a substantial or gross valuation overstatement under chapter 1 with respect to charitable deduction property, paragraph (1) shall not apply unless--
'(A) the claimed value of the property was based on a qualified appraisal made by a qualified appraiser, and
'(B) in addition to obtaining such appraisal, the taxpayer made a good faith investigation of the value of the contributed property.
'(3) DEFINITIONS.--For purposes of this subsection--
'(A) CHARITABLE DEDUCTION PROPERTY.--The term 'charitable deduction property' means any property contributed by the taxpayer in a contribution for which a deduction was claimed under section 170. For purposes of paragraph (2), such term shall not include any securities for which (as of the date of the contribution) market quotations are readily available on an established securities market.
'(B) QUALIFIED APPRAISER.--The term 'qualified appraiser' means any appraiser meeting the requirements of the regulations prescribed under section 170(a)(1).
'(C) QUALIFIED APPRAISAL.--The term 'qualified appraisal' means any appraisal meeting the requirements of the regulations prescribed under section 170(a)(1).
'Sec. 6665. Applicable rules.
'SEC. 6665. APPLICABLE RULES.
'(a) ADDITIONS TREATED AS TAX.--Except as otherwise provided in this title--
'(1) the additions to the tax, additional amounts, and penalties provided by this chapter shall be paid upon notice and demand and shall be assessed, collected, and paid in the same manner as taxes; and
'(2) any reference in this title to 'tax' imposed by this title shall be deemed also to refer to the additions to the tax, additional amounts, and penalties provided by this chapter.
'(b) PROCEDURE FOR ASSESSING CERTAIN ADDITIONS TO TAX.--For purposes of subchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes), subsection (a) shall not apply to any addition to tax under section 6651, 6654, or 6655; except that it shall apply--
'(1) in the case of an addition described in section 6651, to that portion of such addition which is attributable to a deficiency in tax described in section 6211; or
'(2) to an addition described in section 6654 or 6655, if no return is filed for the taxable year.'
(b) REPEAL OF INCREASE IN INTEREST ON CERTAIN SUBSTANTIAL UNDERPAYMENTS.--Subsection (c) of section 6621 (relating to interest on substantial underpayments attributable to tax motivated transactions) is hereby repealed.
(c) TECHNICAL AND CONFORMING AMENDMENTS.--
(1) Section 6653 is amended to read as follows:
'Any person (as defined in section 6671(b)) who--
'(1) willfully fails to pay any tax imposed by this title which is payable by stamp, coupons, tickets, books, or other devices or methods prescribed by this title or by regulations under the authority of this title, or
'(2) willfully attempts in any manner to evade or defeat any such tax or the payment thereof,
shall, in addition to other penalties provided by law, be liable for a penalty of 50 percent of the total amount of the underpayment of the tax.'
(2) Sections 6659, 6659A, 6660, and 6661 are hereby repealed.
(3) Subsection (b) of section 5684 is amended--
(A) by striking '6662(a)' and inserting '6665(a)', and
(B) by striking '6662' in the subsection heading and inserting '6665'.
(4) Subsection (a) of section 5761 is amended by striking 'or 6653' and inserting 'or 6653 or part II of subchapter A of chapter 68'.
(5) Subsection (c) of section 5761 is amended--
(A) by striking '6662(a)' and inserting '6665(a)', and
(B) by striking '6662' in the subsection heading and inserting '6665'.
(6) Subparagraph (A) of section 6013(b)(5) is amended--
(A) by striking 'section 6653' and inserting 'part II of subchapter A of chapter 68', and
(B) by striking 'SECTION 6653' in the subparagraph heading and inserting 'PART II OF SUBCHAPTER A OF CHAPTER 68'.
(7) Subsection (d) of section 6222 is amended by striking 'section 6653(a)' and inserting 'part II of subchapter A of chapter 68'.
(8) Paragraph (2) of section 6601(e) is amended by striking 'section 6651(a)(1), 6653, 6659, 6660, or 6661' each place it appears and inserting 'section 6651(a)(1) or 6653 or under part II of subchapter A of chapter 68'.
(9) Subsection (a) of section 6672 is amended by striking 'under section 6653' and inserting 'under section 6653 or part II of subchapter A of chapter 68'.
(10) Subparagraph (C) of section 461(i)(3) is amended by striking 'section 6662(b)(2)(C)(ii)' and inserting 'section 6662(d)(2)(C)(ii)'.
(11) Clause (i) of section 1274(b)(3)(B) is amended by striking 'section 6661(b)(2)(C)(ii)' and inserting 'section 6662(d)(2)(C)(ii)'.
(12) Subparagraph (B) of section 7519(f)(4) is amended by striking 'section 6653' and inserting 'part II of subchapter A of chapter 68'.
(13) Subchapter A of chapter 68 is amended by inserting after the subchapter heading the following:
'Part I. General provisions.
'Part II. Accuracy-related and fraud penalties.
'Part III. Applicable rules.
'PART I--GENERAL PROVISIONS'.
(A) by striking out the items relating to sections 6659, 6659A, 6660, and 6661, and
(B) by striking the item relating to section 6653 and inserting:
(d) EFFECTIVE DATE.--The amendments made by this section shall apply to returns the due date for which (determined without regard to extensions) is after December 31, 1989.
SEC. 7731. PENALTY FOR INSTITUTING PROCEEDINGS BEFORE TAX COURT PRIMARILY FOR DELAY, ETC.
(a) GENERAL RULE.--Section 6673 (relating to damages assessable for instituting proceedings before the Tax Court primarily for delay, etc.) is amended to read as follows:
'SEC. 6673. SANCTIONS AND COSTS AWARDED BY COURTS.
'(a) TAX COURT PROCEEDINGS.--
'(1) PROCEDURES INSTITUTED PRIMARILY FOR DELAY, ETC.--Whenever it appears to the Tax Court that--
'(A) proceedings before it have been instituted or maintained by the taxpayer primarily for delay,
'(B) the taxpayer's position in such proceeding is frivolous or groundless, or
'(C) the taxpayer unreasonably failed to pursue available administrative remedies,
the Tax Court, in its decision, may require the taxpayer to pay to the United States a penalty not in excess of $25,000.
'(2) COUNSEL'S LIABILITY FOR EXCESSIVE COSTS.--Whenever it appears to the Tax Court that any attorney or other person admitted to practice before the Tax Court has multiplied the proceedings in any case unreasonably and vexatiously, the Tax Court may require--
'(A) that such attorney or other person pay personally the excess costs, expenses, and attorneys' fees reasonably incurred because of such conduct, or
'(B) if such attorney is appearing on behalf of the Commissioner of Internal Revenue, that the United States pay such excess costs, expenses, and attorneys' fees in the same manner as such an award by a district court.
'(1) CLAIMS UNDER SECTION 7433.--Whenever it appears to the court that the taxpayer's position in the proceedings before the court instituted or maintained by such taxpayer under section 7433 is frivolous or groundless, the court may require the taxpayer to pay to the United States a penalty not in excess of $10,000.
'(2) COLLECTION OF SANCTIONS AND COSTS.--In any civil proceeding before any court (other than the Tax Court) which is brought by or against the United States in connection with the determination, collection, or refund of any tax, interest, or penalty under this title, any monetary sanctions, penalties, or costs awarded by the court to the United States may be assessed by the Secretary and, upon notice and demand, may be collected in the same manner as a tax.
'(3) SANCTIONS AND COSTS AWARDED BY A COURT OF APPEALS.--In connection with any appeal from a proceeding in the Tax Court or a civil proceeding described in paragraph (2), an order of a United States Court of Appeals or the Supreme Court awarding monetary sanctions, penalties or court costs to the United States may be registered in a district court upon filing a certified copy of such order and shall be enforceable as other district court judgments. Any such sanctions, penalties, or costs may be assessed by the Secretary and, upon notice and demand, may be collected in the same manner as a tax.'
(b) CLARIFICATION OF AUTHORITY TO IMPOSE PENALTIES BY APPELLATE COURTS.--Paragraph (4) of section 7482(c) (relating to power to impose damages) is amended to read as follows:
'(4) TO IMPOSE PENALTIES.--The United States Court of Appeals and the Supreme Court shall have the power to require the taxpayer to pay to the United States a penalty in any case where the decision of the Tax Court is affirmed and it appears that the appeal was instituted or maintained primarily for delay or that the taxpayer's position in the appeal is frivolous or groundless.'
(c) CLERICAL AMENDMENT.--The table of sections for part I of subchapter B of chapter 68 is amended by striking the item relating to section 6673 and inserting the following:
'Sec. 6673. Sanctions and costs awarded by courts.'
(d) EFFECTIVE DATE.--The amendments made by this section shall apply to positions taken after December 31, 1989, in proceedings which are pending on, or commenced after such date.
SEC. 7732. MODIFICATIONS TO PENALTIES ON RETURN PREPARERS FOR CERTAIN UNDERSTATEMENTS.
(a) GENERAL RULE.--Subsections (a) and (b) of section 6694 (relating to understatement of taxpayer's liability by income tax return preparer) are amended to read as follows:
'(a) UNDERSTATEMENTS DUE TO UNREALISTIC POSITIONS.--If--
'(1) any part of any understatement of liability with respect to any return or claim for refund is due to a position for which there was not a realistic possibility of being sustained on its merits,
'(2) any person who is an income tax return preparer with respect to such return or claim knew (or reasonably should have known) of such position, and
'(3) such position was not disclosed as provided in section 6662(d)(2)(B)(ii) or was frivolous,
such person shall pay a penalty of $250 with respect to such return or claim unless it is shown that there is reasonable cause for the understatement and such person acted in good faith.
'(b) WILLFUL OR RECKLESS CONDUCT.--If any part of any understatement of liability with respect to any return or claim for refund is due--
'(1) to a willful attempt in any manner to understate the liability for tax by a person who is an income tax return preparer with respect to such return or claim, or
'(2) to any reckless or intentional disregard of rules or regulations by any such person,
such person shall pay a penalty of $1,000 with respect to such return or claim. With respect to any return or claim, the amount of the penalty payable by any person by reason of this subsection shall be reduced by the amount of the penalty paid by such person by reason of subsection (a).'
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply with respect to documents prepared after December 31, 1989.
SEC. 7733. MODIFICATIONS TO OTHER ASSESSABLE PENALTIES WITH RESPECT TO RETURN PREPARERS.
(a) FAILURE TO FURNISH COPY TO TAXPAYER.--Subsection (a) of section 6695 is amended--
(1) by striking '$25' and inserting '$50', and
(2) by adding at the end thereof the following new sentence:
'The maximum penalty imposed under this subsection on any person with respect to documents filed during any calendar year shall not exceed $25,000.'
(b) FAILURE TO SIGN RETURN.--Subsection (b) of section 6695 is amended--
(1) by striking '$25' and inserting '$50', and
(2) by adding at the end thereof the following new sentence:
'The maximum penalty imposed under this subsection on any person with respect to documents filed during any calendar year shall not exceed $25,000.'
(c) FAILURE TO FURNISH IDENTIFYING NUMBER.--Subsection (c) of section 6695 is amended--
(1) by striking '$25' and inserting '$50', and
(2) by adding at the end thereof the following new sentence:
'The maximum penalty imposed under this subsection on any person with respect to documents filed during any calendar year shall not exceed $25,000.'
(d) FAILURE TO FILE CORRECT INFORMATION RETURNS.--Subsection (e) of section 6695 is amended to read as follows:
'(e) FAILURE TO FILE CORRECT INFORMATION RETURNS.--Any person required to make a return under section 6060 who fails to comply with the requirements of such section shall pay a penalty of $50 for--
'(1) each failure to file a return as required under such section, and
'(2) each failure to set forth an item in the return as required under section,
unless it is shown that such failure is due to reasonable cause and not due to willful neglect. The maximum penalty imposed under this subsection on any person with respect to any return period shall not exceed $25,000.'
(e) EFFECTIVE DATE.--The amendments made by this section shall apply to documents prepared after December 31, 1989.
SEC. 7734. MODIFICATIONS TO PENALTY FOR PROMOTING ABUSIVE TAX SHELTERS, ETC.
(a) GENERAL RULE.--Subsection (a) of section 6700 is amended--
(1) by inserting '(directly or indirectly)' after 'participates' in paragraph (1)(B),
(2) by inserting 'or causes another person to make or furnish' after 'makes or furnishes' in paragraph (2), and
(3) by striking the material following paragraph (2) and inserting the following:
'shall pay, with respect to each activity described in paragraph (1), a penalty equal to the $1,000 or, if the person establishes that it is lesser, 100 percent of the gross income derived (or to be derived) by such person from such activity. For purposes of the preceding sentence, activities described in paragraph (1)(A) with respect to each entity or arrangement shall be treated as a separate activity and participation in each sale described in paragraph (1)(B) shall be so treated.'
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply to activities after December 31, 1989.
SEC. 7735. MODIFICATIONS TO PENALTIES FOR AIDING AND ABETTING UNDERSTATEMENT OF TAX LIABILITY.
(a) GENERAL RULE.--Subsection (a) of section 6701 (relating to penalties for aiding and abetting understatement of tax liability) is amended--
(1) by striking 'in connection with any matter arising under the internal revenue laws' in paragraph (1),
(2) by striking 'who knows' in paragraph (2) and inserting 'who knows (or has reason to believe)', and
(3) by striking 'will result' in paragraph (3) and inserting 'would result'.
(b) COORDINATION WITH PENALTY UNDER SECTION 6700.--
(1) IN GENERAL.--Subsection (f) of section 6701 is amended by adding at the end thereof the following new paragraph:
'(3) COORDINATION WITH SECTION 6700.--No penalty shall be assessed under section 6700 on any person with respect to any document for which a penalty is assessed on such person under subsection (a).'
(2) TECHNICAL AMENDMENT.--Paragraph (1) of section 6701(f) is amended by striking 'paragraph (2)' and inserting 'paragraphs (2) and (3)'.
(c) EFFECTIVE DATE.--The amendments made by this section shall take effect on December 31, 1989.
SEC. 7736. MODIFICATION TO PENALTY FOR FRIVOLOUS INCOME TAX RETURN.
(a) REQUIREMENT OF FULL PAYMENT OF PENALTY.--Subsection (c) of section 6703 is amended by striking 'section 6700, 6701, or 6702' each place it appears and inserting 'section 6700 or 6701'.
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply to returns filed after December 31, 1989.
SEC. 7737. AUTHORITY TO COUNTERCLAIM FOR BALANCE OF PENALTY IN PARTIAL REFUND SUITS.
(a) GENERAL RULE.--Sections 6672(b)(1), 6694(c)(1), and 6703(c)(1) are each amended by adding at the end thereof the following new sentence:
'Nothing in this paragraph shall be construed to prohibit any counterclaim for the remainder of such penalty in a proceeding begun as provided in paragraph (2).'
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall take effect on the date of the enactment of this Act.
SEC. 7738. REPEAL OF BONDING REQUIREMENT UNDER SECTION 7407.
(a) GENERAL RULE.--Subsection (c) of section 7407 (relating to bond to stay injunction) is hereby repealed.
(b) CONFORMING AMENDMENT.--Subsection (a) of section 7407 is amended by striking 'Except as provided in subsection (c), a civil' and inserting 'A civil'.
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to actions commenced after December 31, 1989.
SEC. 7739. CERTAIN DISCLOSURES OF INFORMATION BY PREPARERS PERMITTED.
(a) GENERAL RULE.--Paragraph (3) of section 7216(b) (relating to exceptions) is amended by adding at the end thereof the following new sentence: 'Such regulations shall permit (subject to such conditions as such regulations shall provide) the disclosure or use of information for quality or peer reviews.'
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall take effect on the date of the enactment of this Act.
SEC. 7741. INCREASE IN PENALTY FOR FRAUDULENT FAILURE TO FILE.
(a) GENERAL RULE.--Section 6651 (relating to failure to file tax return or pay tax) is amended by adding at the end thereof the following new subsection:
'(f) INCREASE IN PENALTY FOR FRAUDULENT FAILURE TO FILE.--If any failure to file any return is fraudulent, paragraph (1) of subsection (a) shall be applied--
'(1) by substituting '15 percent' for '5 percent' each place it appears, and
'(2) by substituting '75 percent' for '25 percent'.'
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply in the case of failures to file returns the due date for which (determined without regard to extensions) is after December 31, 1989.
SEC. 7742. FAILURE TO MAKE DEPOSIT OF TAXES.
(a) GENERAL RULE.--Section 6656 (relating to failure to make deposit of taxes or overstatement of deposits) is amended to read as follows:
'SEC. 6656. FAILURE TO MAKE DEPOSIT OF TAXES.
'(a) UNDERPAYMENT OF DEPOSITS.--In the case of any failure by any person to deposit (as required by this title or by regulations of the Secretary under this title) on the date prescribed therefor any amount of tax imposed by this title in such government depository as is authorized under section 6302(c) to receive such deposit, unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be imposed upon such person a penalty equal to the applicable percentage of the amount of the underpayment.
'(b) DEFINITIONS.--For purposes of subsection (a)--
'(1) APPLICABLE PERCENTAGE.--
'(A) IN GENERAL.--Except as provided in subparagraph (B), the term 'applicable percentage' means--
'(i) 2 percent if the failure is for not more than 5 days,
'(ii) 5 percent if the failure is for more than 5 days but not more than 15 days, and
'(iii) 10 percent if the failure is for more than 15 days.
'(B) SPECIAL RULE.--In any case where the tax is not deposited on or before the earlier of--
'(i) the day 10 days after the date of the first delinquency notice to the taxpayer under section 6303, or
'(ii) the day on which notice and demand for immediate payment is given under section 686l or 6862 or the last sentence of section 6331(a),
the applicable percentage shall be 15 percent.
'(2) UNDERPAYMENT.--The term 'underpayment' means the excess of the amount of the tax required to be deposited over the amount, if any, thereof deposited on or before the date prescribed therefor.'
(b) CLERICAL AMENDMENT.--The table of sections for part I of subchapter A of chapter 68 (as amended by title II) is amended by striking the item relating to section 6656 and inserting the following:
'Sec. 6656. Failure to make deposit of taxes.'
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to deposits required to be made after December 31, 1989.
SEC. 7743. EFFECT OF PAYMENT OF TAX BY RECIPIENT ON CERTAIN PENALTIES.
(a) GENERAL RULE.--Section 1463 (relating to tax paid by recipient of income) is amended to read as follows:
'SEC. 1463. TAX PAID BY RECIPIENT OF INCOME.
'If--
'(1) any person, in violation of the provisions of this chapter, fails to deduct and withhold any tax under this chapter, and
'(2) thereafter the tax against which such tax may be credited is paid,
the tax so required to be deducted and withheld shall not be collected from such person; but this subsection shall in no case relieve such person from liability for interest or any penalties or additions to the tax otherwise applicable in respect of such failure to deduct and withhold.'
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply to failures after December 31, 1989.
SEC. 7801. DEFINITIONS; COORDINATION WITH OTHER SUBTITLES.
(a) DEFINITIONS.--For purposes of this subtitle--
(1) 1988 ACT.--The term '1988 Act' means the Technical and Miscellaneous Revenue Act of 1988.
(2) 1987 ACT.--The term '1987 Act' means the Revenue Act of 1987.
(b) COORDINATION WITH OTHER SUBTITLES.--For purposes of applying the amendments made by any subtitle of this title other than this subtitle, the provisions of this subtitle shall be treated as having been enacted immediately before the provisions of such other subtitles.
SEC. 7811. AMENDMENTS RELATED TO TITLE I OF THE 1988 ACT.
(a) AMENDMENTS RELATED TO SECTION 1002 OF THE 1988 ACT.--
(1) The heading for subparagraph (C) of section 42(d)(5) is amended by inserting 'SECTION' before '167(k)'.
(2) Clause (ii) of section 42(h)(5)(D) is amended by striking 'clause (ii)' and inserting 'clause (i)'.
(b) AMENDMENTS RELATED TO SECTION 1003 OF THE 1988 ACT.--
(1) Subparagraph (C) of section 643(a)(6) is amended by striking '(i)' and by striking ', and (ii)' and all that follows and inserting a period.
(2) Paragraph (6) of section 643(a) is amended by striking subparagraph (D).
(c) AMENDMENTS RELATED TO SECTION 1006 OF THE 1988 ACT.--
(1) Subparagraphs (C) and (D) of section 26(b)(2) are amended to read as follows:
'(C) subsection (m)(5)(B), (q), (t), or (v) of section 72 (relating to additional taxes on certain distributions),
'(D) section 143(m) (relating to recapture of proration of Federal subsidy from use of mortgage bonds and mortgage credit certificates),'.
(2) Paragraph (2) of section 26(b) is amended by striking subparagraph (K) and all that follows and inserting the following new subparagraphs:
'(K) sections 871(a) and 881 (relating to certain income of nonresident aliens and foreign corporations),
'(L) section 860E(e) (relating to taxes with respect to certain residual interests), and
'(M) section 884 (relating to branch profits tax).'
(3) Subparagraph (B) of section 6724(d)(1) is amended by striking clause (viii) and all that follows and inserting the following:
'(ix) section 6053(c)(1) (relating to reporting with respect to certain tips),
'(x) section 1060(b) (relating to reporting requirements of transferors and transferees in certain asset acquisitions), or
'(xi) subparagraph (A) or (C) of subsection (c)(4), or subsection (e), of section 4093 (relating to information reporting with respect to tax on diesel and aviation fuel).'
(5)(A) Paragraph (6) of section 382(h) is amended--
(ii) by striking 'treated as recognized built-in gains or losses under this paragraph' in subparagraph (C) and inserting 'which would be treated as recognized built-in gains or losses under this paragraph if such amounts were properly taken into account (or allowable as a deduction) during the recognition period'.
(B) Paragraph (5) of section 1374(d) is amended--
(i) by striking 'during the recognition period' in subparagraph (B) and inserting 'during the recognition period (determined without regard to any carryover)', and
(ii) by striking 'treated as recognized built-in gains or losses under this paragraph' in subparagraph (C) and inserting 'which would be treated as recognized built-in gains or losses under this paragraph if such amounts were properly taken into account (or allowable as a deduction) during the recognition period'.
'(B) a financial institution to which section 585 applies (or would apply but for subsection (c) thereof) or to which section 593 applies,'.
(7) Paragraph (2) of section 1366(f) is amended to read as follows:
'(2) TREATMENT OF TAX IMPOSED ON BUILT-IN GAINS.--If any tax is imposed under section 1374 for any taxable year on an S corporation, for purposes of subsection (a), the amount so imposed shall be treated as a loss sustained by the S corporation during such taxable year. The character of such loss shall be determined by allocating the loss proportionately among the recognized built-in gains giving rise to such tax.'
(8) Subparagraph (B) of section 1374(b)(3) is amended by adding at the end the following new sentence:
'A similar rule shall apply in the case of the minimum tax credit under section 53 to the extent attributable to taxable years for which the corporation was a C corporation.'
(9) The last sentence of section 860G(a)(3) is amended by striking 'this subparagraph' and inserting 'subparagraph (A)'.
(d) AMENDMENTS RELATED TO SECTION 1007 OF THE 1988 ACT.--
(1)(A) Subsection (g) of section 59 is amended by striking 'for any taxable year' and inserting 'for the taxable year for which the item is taken into account or for any other taxable year'.
(B) The repeal of section 58(h) of the Internal Revenue Code of 1954 by the Tax Reform Act of 1986 shall be effective only with respect to items of tax preference arising in taxable years beginning after December 31, 1986.
(2) Subclause (II) of section 53(d)(1)(B)(i) is amended by inserting before the period at the end the following: 'and if section 59(a)(2) did not apply'.
(3) Paragraph (3) of section 56(b) is amended--
(A) by inserting after the first sentence the following new sentence:
'Section 422A(c)(2) shall apply in any case where the disposition and the inclusion for purposes of this part are within the same taxable year and such section shall not apply in any other case.', and
(B) by striking 'the preceding sentence' and inserting 'this paragraph'.
(1) Paragraph (2) of section 460(a) is amended by inserting '(or, with respect to any amount properly taken into account after completion of the contract, when such amount is so properly taken into account)' after 'any long-term contract'.
(2) Subparagraph (B) of section 460(b)(2) is amended--
(A) by striking 'any amount received or accrued' and inserting 'any amount properly taken into account', and
(B) by striking 'is so received or accrued' and inserting 'is so properly taken into account'.
(3) Paragraph (3) of section 460(b) is amended--
(A) by striking 'any amount received or accrued' in the second sentence and inserting 'any amount properly taken into account', and
(B) by striking 'such amount was received or accrued' in the second sentence and inserting 'such amount was properly taken into account'.
(4) Paragraph (2) of section 460(b) is amended by adding at the end the following new sentence:
'In the case of any long-term contract with respect to which the percentage of completion method is used, except for purposes of applying the look-back method of paragraph (3), any income under the contract (to the extent not previously includible in gross income) shall be included in gross income for the taxable year following the taxable year in which the contract was completed.'
(5) Paragraph (2) of section 460(e) is amended by striking 'and' at the end of subparagraph (A), by inserting 'and' at the end of subparagraph (B), and by inserting after subparagraph (B) the following new subparagraph:
'(C) any predecessor of the taxpayer or a person described in subparagraph (A) or (B),'.
(6) Paragraph (2) of section 460(b) is amended by adding at the end the following new sentence:
'For purposes of subtitle F (other than sections 6654 and 6655), any interest required to be paid by the taxpayer under subparagraph (B) shall be treated as an increase in the tax imposed by this chapter for the taxable year in which the contract is completed (or, in the case of interest payable with respect to any amount properly taken into account after completion of the contract, for the taxable year in which the amount is so properly taken into account).'
(f) AMENDMENTS RELATED TO SECTION 1009 OF THE 1988 ACT.--
(1) Subparagraph (A) of section 643(a)(6) is amended by striking 'section 265(1)' and inserting 'section 265(a)(1)'.
(2) Subparagraph (B) of section 1009(b)(3) of the 1988 Act is amended by striking 'section 265(b)(3)(B)(iii)' and inserting 'section 265(b)(3)(B)(i)(III)'.
(g) AMENDMENT RELATED TO SECTION 1011 OF THE 1988 ACT.--
(1) Subsection (a) of section 401 is amended by moving paragraph (30) from the end and inserting it after paragraph (29).
(2) The last sentence of section 402(g)(3) is amended by inserting 'involving a one-time irrevocable election' after 'similar arrangement'.
(3) The heading of sections 406(c) and 407(c) are each amended by striking 'PURPOSES LIMITATION' and inserting 'PURPOSES OF LIMITATION'.
(4) Clause (iii) of section 457(d)(1)(A) is amended by striking the period at the end and inserting ', and'.
(5) Subclause (I) of section 457(d)(2)(B)(i) is amended by adding 'and' at the end.
(h) AMENDMENTS RELATED TO SECTION 1011B OF THE 1988 ACT.--
(1) Paragraph (5) of section 409(l) is amended by striking 'the last sentence' and inserting 'the second sentence'.
(2) Subsection (a) of section 129 is amended by striking the sentence following paragraph (2)(C) and preceding subsection (b).
(3) Paragraph (1) of section 1011B(j) of the 1988 Act is amended by striking '401(a)(28)(B)' and inserting '401(a)(28)(B)(ii)'.
(i) AMENDMENTS RELATED TO SECTION 1012 OF THE 1988 ACT.--
(1) Subparagraph (H) of section 904(d)(1) is amended by striking 'qualified interest and carrying charges (as defined in section 245(c))' and inserting 'interest or carrying charges (as defined in section 927(d)(1)) derived from a transaction which results in foreign trade income (as defined in section 923(b))'.
(2) Sections 861(a)(6), 862(a)(6), 863(b)(2), and 863(b)(3) are each amended by striking '865(h)(1)' and inserting '865(i)(1)'.
(3) Subparagraph (A) of section 954(c)(3) is amended--
(A) by striking 'is created' in clause (i) and inserting 'is a corporation created',
(B) by striking 'from a related person' in clause (ii) and inserting 'from a corporation which is a related person', and
(C) by adding at the end the following:
'To the extent provided in regulations, payments made by a partnership with 1 or more corporate partners shall be treated as made by such corporate partners in proportion to their respective interests in the partnership.'
(4) Paragraph (5) of section 1297(b) is amended--
(A) by inserting 'STOCK' after 'WHERE' in the paragraph heading,
(B) by striking 'any disposition of' in subparagraph (A)(ii) and inserting 'any distribution of', and
(C) by striking 'treated as a disposition to' in subparagraph (A) and inserting 'treated as a disposition by, or distribution to'.
(5) Subparagraph (B) of section 1012(q)(1) of the 1988 Act is amended--
(A) by striking '1021(e)(2)(C)' and inserting '1021(c)(2)(C)', and
(B) by striking '823(b)(4)(C)' and inserting '832(b)(4)(C)'.
(6)(A) Subparagraph (B) of section 1446(b)(2) is amended by striking 'section 11(b)' and inserting 'section 11(b)(1)'.
(B) Paragraph (2) of section 1446(d) is amended to read as follows:
'(2) CREDIT TREATED AS DISTRIBUTED TO PARTNER.--Except as provided in regulations, a foreign partner's share of any withholding tax paid by the partnership under this section shall be treated as distributed to such partner by such partnership on the earlier of--
'(A) the day on which such tax was paid by the partnership, or
'(B) the last day of the partnership's taxable year for which such tax was paid.'
(C) Subsection (f) of section 1446 is amended to read as follows:
'(1) regulations providing for the application of this section in the case of publicly traded partnerships, and
'(2) regulations providing--
'(A) that, for purposes of section 6655, the withholding tax imposed under this section shall be treated as a tax imposed by section 11 and any partnership required to pay such tax shall be treated as a corporation, and
'(B) appropriate adjustments in applying section 6655 with respect to such withholding tax.'
(7) Subsection (a) of section 988 is amended by inserting after the subsection heading the following:
'Notwithstanding any other provision of this chapter--'.
(8)(A) Subsection (b) of section 887 is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph:
'(3) EXCEPTION FOR CERTAIN INCOME TAXABLE IN POSSESSIONS.--The term 'United States source gross transportation income' does not include any income taxable in a possession of the United States under the provisions of this title as made applicable in such possession.'
(B) Paragraph (1) of section 887(b) is amended by striking 'paragraph (2)' and inserting 'paragraphs (2) and (3)'.
(C) Subsection (b) of section 872 is amended by adding at the end the following new paragraph:
'(7) TREATMENT OF POSSESSIONS.--To the extent provided in regulations, a possession of the United States shall be treated as a foreign country for purposes of this subsection.'
(D) Paragraph (4) of section 883(a) is amended by striking '(5) and (6)' and inserting '(5), (6), and (7)'.
(9) Paragraph (4) of section 887(b) (as redesignated by paragraph (8) is amended by striking 'transportation income' the first two places it appears and inserting 'United States source gross transportation income'.
(10) Subsection (a) of section 883 is amended by adding at the end the following new paragraph:
'(5) SPECIAL RULE FOR COUNTRIES WHICH TAX ON RESIDENCE BASIS.--For purposes of this subsection, there shall not be taken into account any failure of a foreign country to grant an exemption to a corporation organized in the United States if such corporation is subject to tax by such foreign country on a residence basis pursuant to provisions of foreign law which meets such standards (if any) as the Secretary may prescribe.'
(11) Paragraph (2) of section 4371 is amended by striking ', unless the insurer is subject to tax under section 842(b)'.
(12) Subsection (g) of section 995 is amended by striking 'section 511' and inserting 'section 511 (or any other person otherwise subject to tax under section 511)'.
(13) Effective with respect to taxable years ending after the date of the enactment of this Act (or, at the election of the taxpayer, beginning after December 31, 1986), subsection (e) of section 402 is amended by adding at the end the following new paragraph:
'(7) COORDINATION WITH FOREIGN TAX CREDIT LIMITATIONS.--Subsections (a), (b), and (c) of section 904 shall be applied separately with respect to any lump sum distribution on which tax is imposed under paragraph (1), and the amount of such distribution shall be treated as the taxable income for purposes of such separate application.'
(14) Paragraph (2)(A) of section 1012(l) of the 1988 Act is amended by striking 'section 245' and inserting 'section 245(a)'.
(j) AMENDMENTS RELATED TO SECTION 1014 OF THE 1988 ACT.--
(1) The subparagraph (C) of section 1(i)(3) added by section 1014(e)(7) of the 1988 Act is redesignated as subparagraph (D).
(2) Paragraph (1) of section 2654(a) is amended by adding at the end the following new sentence:
'The preceding shall be applied after any basis adjustment under section 1015 with respect to the transfer.'
(3) Subsection (g) of section 642 is amended by inserting after the first sentence the following new sentence:
'Rules similar to the rules of the preceding sentence shall apply to amounts which may be taken into account under 2621(a)(2) or 2622(b).'
(4) Paragraphs (1) and (3) of section 2642(b) are each amended by striking 'a timely filed gift tax return required by section 6019' and inserting 'a gift tax return filed on or before the date prescribed by section 6075(b)'.
(5) Paragraph (1) of section 6654(l) is amended by striking 'this subsection shall' and inserting 'this section shall'.
(6) Clause (ii) of section 6654(l)(2)(B) is amended by inserting before the period at the end the following:
(k) AMENDMENTS RELATED TO SECTION 1015 OF THE 1988 ACT.--
(1) Paragraph (3) of section 1015(r) of the 1988 Act is amended by striking 'section 6211' and inserting 'section 6213'.
(2) The last sentence of section 6502(a) is amended by striking 'enforceable' and inserting 'unenforceable'.
(l) AMENDMENT RELATED TO SECTION 1016 OF THE 1988 ACT.--The subparagraph (E) of section 514(c)(9) added by section 1016 of the 1988 Act is redesignated as subparagraph (F).
(m) AMENDMENTS RELATED TO SECTION 1018 OF THE 1988 ACT.--
(1) The subsection (f) of section 2503 added by section 1018 of the 1988 Act is redesignated as subsection (g).
(2) Paragraph (4) of section 1018(d) of the 1988 Act is amended by inserting 'the first place it appears' before 'and inserting'.
(3) Paragraph (20) of section 1018(u) of the 1988 Act is amended by striking 'section 9507(b)' and inserting 'section 9509(b)'.
(4) Subparagraph (B) of section 72(q)(2) is amended by striking 'subsection (s)(6)(B))' and inserting 'subsection (s)(6)(B)))'.
(5) Paragraph (10) of section 414(p) is amended by inserting 'section' before '403(b)'.
(6) Paragraph (2) of section 1018(l) of the 1988 Act is amended by striking 'paragraph (2) and (3)' and inserting 'paragraphs (2) and (3)'.
(7) Subsections (a)(6) and (b)(3) of section 408 are each amended by striking '(without regard to subparagraph (C)(ii) thereof)'.
(a) AMENDMENT RELATED TO SECTION 2001 OF THE 1988 ACT.--Subparagraph (C) of section 2001(d)(7) of the 1988 Act is amended by striking 'section 6427(g)(1)' and inserting 'section 6427(f)(1)'.
(b) AMENDMENT RELATED TO SECTION 2002 OF THE 1988 ACT.--Subsection (d) of section 2002 of the 1988 Act is amended by striking 'this section' and inserting 'subsections (b) and (c)' and by inserting before the period ', and the amendment made by subsection (a)(2) shall take effect as if included in the amendment made by section 521(a)(3) of the Superfund Revenue Act of 1986'.
(c) AMENDMENTS RELATED TO SECTION 2004 OF THE 1988 ACT.--
(1) Paragraph (1) of section 384(e) is amended by striking 'build-in gain' and inserting 'built-in gain'.
(2) Paragraph (3) of section 453A(b) is amended by striking '(5).' and inserting '(5)).'
(d) AMENDMENT RELATED TO SECTION 2005 OF THE 1988 ACT.--Section 2005(e) of the 1988 Act is amended by inserting before the period ', except that the amendment made by subsection (a)(1) shall take effect as if included in the amendment made by section 1131(c) of the Tax Reform Act of 1986'.
SEC. 7813. AMENDMENTS RELATED TO TITLE III OF THE 1988 ACT.
(a) AMENDMENT RELATED TO SECTION 3001 OF THE 1988 ACT.--Paragraph (2) of section 6724(d) is amended by redesignating subparagraph (U) as subparagraph (S), by striking 'or' at the end of subparagraph (Q), and by striking the period at the end of subparagraph (R) and inserting ', or'.
(b) AMENDMENTS RELATED TO SECTION 3011 OF THE 1988 ACT.--Paragraphs (4) and (5) of section 3011(b) of the 1988 Act are each amended--
(1) by striking '111B(a)' and inserting '1011B(a)', and
(2) by striking '162(k)(2)' and inserting '162(k)'.
(a) AMENDMENT RELATED TO SECTION 4001 OF THE 1988 ACT.--Subsection (c) of section 127 is amended by striking paragraph (8).
(b) AMENDMENT RELATED TO SECTION 4002 OF THE 1988 ACT.--Subparagraph (A) of section 125(e)(2) is amended by striking 'includable' and inserting 'includible'.
(c) AMENDMENTS RELATED TO SECTION 4005 OF THE 1988 ACT.--
(1) The paragraph (3) of section 6045(e) added by section 4005 of the 1988 Act is redesignated as paragraph (4).
(2) Clause (ii) of section 148(d)(3)(E) is amended by striking 'a qualified mortgage bond or'.
(d) AMENDMENT RELATED TO SECTION 4006 OF THE 1988 ACT.--Section 4006 of the 1988 Act is amended--
(1) by striking 'December 31, 1988' and inserting 'Dec. 31, 1988', and
(2) by striking 'December 31, 1989' and inserting 'Dec. 31, 1989'.
(e) AMENDMENTS RELATED TO SECTION 4008 OF THE 1988 ACT.--
(1) Subsection (d) of section 196 is amended by striking 'substituting' and all that follows through 'in the case of--' and inserting 'substituting 'an amount equal to 50 percent of' for 'an amount equal to' in the case of--'.
(2)(A) Subsection (c) of section 280C is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph:
'(3) ELECTION OF REDUCED CREDIT.--
'(A) IN GENERAL.--In the case of any taxable year for which an election is made under this paragraph--
'(i) paragraphs (1) and (2) shall not apply, and
'(ii) the amount of the credit under section 41(a) shall be the amount determined under subparagraph (B).
'(B) AMOUNT OF REDUCED CREDIT.--The amount of credit determined under this subparagraph for any taxable year shall be the amount equal to the excess of--
'(i) the amount of credit determined under section 41(a) without regard to this paragraph, over
'(ii) the product of--
'(I) 50 percent of the amount described in clause (i), and
'(II) the maximum rate of tax under section 11(b)(1).
(B) In the case of a taxable year for which the last date for making the election under section 280C(c)(3) of the Internal Revenue Code of 1986 (as added by subparagraph (A)) is on or before the date which is 75 days after the date of the enactment of this Act, such an election for such year may be made--
(i) at any time before the date which is 75 days after such date of enactment, and
(ii) in such form and manner as the Secretary of the Treasury or his delegate may prescribe.
(C) Section 41 is amended by striking subsection (h) and by redesignating subsection (i) as subsection (h).
(D) Paragraph (4) of section 196(c) is amended by inserting '(other than such credit determined under section 280C(c)(3))' after 'section 41(a)'.
(E) Subsection (n) of section 6501 is amended by striking ', 41(h),'.
SEC. 7815. AMENDMENTS RELATED TO TITLE V OF THE 1988 ACT.
(a) AMENDMENTS RELATED TO SECTION 5012 OF THE 1988 ACT.--
(1) Subparagraph (B) of section 7702A(c)(3) is amended to read as follows:
'(B) TREATMENT OF CERTAIN BENEFIT INCREASES.--For purposes of subparagraph (A), the term 'material change' includes any increase in the death benefit under the contract or any increase in, or addition of, a qualified additional benefit under the contract. Such term shall not include--
'(i) any increase which is attributable to the payment of premiums necessary to fund the lowest level of the death benefit and qualified additional benefits payable in the 1st 7 contract years (determined after taking into account death benefit increases described in subparagraph (A) or (B) of section 7702(e)(2)) or to crediting of interest or other earnings (including policyholder dividends) in respect of such premiums, and
'(ii) to the extent provided in regulations, any cost-of-living increase based on an established broad-based index if such increase is funded ratably over the remaining period during which premiums are required to be paid under the contract.'
(3) Subparagraph (A) of section 72(e)(11) is amended by adding at the end the following new sentence:
'The preceding sentence shall not apply to any contract described in paragraph (5)(D).'
(4) Paragraph (4) of section 7702A(c) is amended--
(A) by striking 'UNDER $10,000' in the paragraph heading and inserting 'OF $10,000 OR LESS', and
(B) by striking 'the same insurer' and inserting 'the same policyholder'.
(5) Section 72(e)(11)(A) is amended by striking '12-month period' and inserting 'calendar year'.
(b) AMENDMENT RELATED TO SECTION 5021 OF THE 1988 ACT.--Subsection (e) of section 5021 of the 1988 Act is amended by striking 'no provision in any law (whether enacted before, on, or after the date of the enactment of this Act)' and inserting 'no provision in any law enacted after the date of the enactment of this Act'.
(c) AMENDMENT RELATED TO SECTION 5032 OF THE 1988 ACT.--Subsection (b) of section 2101 is amended by adding at the end the following new sentence:
'For purposes of the preceding sentence, there shall be appropriate adjustments in the application of section 2001(c)(3) to reflect the difference between the amount of the credit provided under section 2102(c) and the amount of the credit provided under section 2010.'
(d) AMENDMENTS RELATED TO SECTION 5033 OF THE 1988 ACT.--
(1)(A) Paragraph (2) of section 2523(i) is amended by striking 'made by the donor to such spouse' and inserting 'which are made by the donor to such spouse and with respect to which a deduction would be allowable under this section but for paragraph (1)'.
(B) The amendment made by subparagraph (A) shall apply with respect to gifts made after June 29, 1989.
(2) Subsection (a) of section 2523 is amended by striking 'who is a citizen or resident'.
(3) Paragraph (3) of section 2106(a) is amended by striking 'ALLOWED WHERE SPOUSE IS CITIZEN'.
(4)(A) Subparagraph (B) of section 2056(d)(2) is amended to read as follows:
'(B) SPECIAL RULE.--If any property passes from the decedent to the surviving spouse of the decedent, for purposes of subparagraph (A), such property shall be treated as passing to such spouse in a qualified domestic trust if--
'(i) such property is transferred to such a trust before the date on which the return of the tax imposed by this chapter is made, or
'(ii) such property is irrevocably assigned to such a trust under an irrevocable assignment made on or before such date which is enforceable under local law.'
(B) In the case of the estate of a decedent dying before the date of the enactment of this Act, the period during which the transfer (or irrevocable assignment) referred to in section 2056(d)(2)(B) of the Internal Revenue Code of 1986 (as amended by subparagraph (A)) may be made shall not expire before the date 1 year after such date of enactment.
(5) Subsection (d) of section 2056 is amended by adding at the end the following new paragraph:
'(4) SPECIAL RULE WHERE RESIDENT SPOUSE BECOMES CITIZEN.--Paragraph (1) shall not apply if--
'(A) the surviving spouse of the decedent becomes a citizen of the United States before the day on which the return of the tax imposed by this chapter is made, and
'(B) such spouse was a resident of the United States at all times after the date of the death of the decedent and before becoming a citizen of the United States.'
(6) Paragraph (3) of section 2056(d) is amended--
(A) by striking 'section 2001' and inserting 'this chapter', and
(B) by inserting before the period at the end the following: 'and without regard to subsection (d)(3) of such section'.
(7)(A) Subsection (a) of section 2056A is amended--
(B) Subsection (b) of section 2056A is amended by redesignating paragraphs (3) through (8) as paragraphs (4) through (9), respectively, and by inserting after paragraph (2) the following new paragraph:
'(3) CERTAIN LIFETIME DISTRIBUTIONS EXEMPT FROM TAX.--
'(A) INCOME DISTRIBUTIONS.--No tax shall be imposed by paragraph (1)(A) on any distribution of income to the surviving spouse.
'(B) HARDSHIP EXEMPTION.--No tax shall be imposed by paragraph (1)(A) on any distribution to the surviving spouse on account of hardship.'
(C) Subparagraph (A) of section 2056A(b)(1) is amended by striking 'other than a distribution of income required under subsection (a)(2)'.
(D) Paragraph (4) of section 2056A(b) (as redesignated by subparagraph (B)) is amended to read as follows:
'(4) TAX WHERE TRUST CEASES TO QUALIFY.--If any qualified domestic trust ceases to meet the requirements of paragraphs (1) and (2) of subsection (a), the tax imposed by paragraph (1) shall apply as if the surviving spouse died on the date of such cessation.'
(8) Subsection (d) of section 2056 is amended by adding at the end the following new paragraph:
'(4) REFORMATIONS PERMITTED.--
'(A) IN GENERAL.--In the case of any property with respect to which a deduction would be allowable under subsection (a) but for this subsection, the determination of whether a trust is a qualified domestic trust shall be made--
'(i) as of the date on which the return of the tax imposed by this chapter is made, or
'(ii) if a judicial proceeding is commenced on or before the due date (determined with regard to extensions) for filing such return to change such trust into a trust which is a qualified domestic trust, as of the time when the changes pursuant to such proceeding are made.
'(B) STATUTE OF LIMITATIONS.--If a judicial proceeding described in subparagraph (A)(ii) is commenced with respect to any trust, the period for assessing any deficiency of tax attributable to any failure of such trust to be a qualified domestic trust shall not expire before the date 1 year after the date on which the Secretary is notified that the trust has been changed pursuant to such judicial proceeding or that such proceeding has been terminated.'
(9) Subsection (b) of section 2056A is amended by adding at the end the following new paragraphs:
'(10) CERTAIN BENEFITS ALLOWED.--
'(A) IN GENERAL.--If any property remaining in the qualified domestic trust on the date of the death of the surviving spouse is includible in the gross estate of such spouse for purposes of this chapter (or would be includible if such spouse were a citizen or resident of the United States), any benefit which is allowable (or would be allowable if such spouse were a citizen or resident of the United States) with respect to such property to the estate of such spouse under section 2032, 2032A, 2055, 2056, or 6166 shall be allowed for purposes of the tax imposed by paragraph (1)(B).
'(B) SECTION 303.--If the estate of the surviving spouse meets the requirements of section 303 with respect to any property described in subparagraph (A), for purposes of section 303, the tax imposed by paragraph (1)(B) with respect to such property shall be treated as a Federal estate tax payable with respect to the estate of the surviving spouse.
'(C) SECTION 6161(a)(2).--The provisions of section 6161(a)(2) shall apply with respect to the tax imposed by paragraph (1)(B), and the reference in such section to the executor shall be treated as a reference to the trustees of the trust.
'(11) SPECIAL RULE WHERE DISTRIBUTION TAX PAID OUT OF TRUST.--For purposes of this subsection, if any portion of the tax imposed by paragraph (1)(A) with respect to any distribution is paid out of the trust, an amount equal to the portion so paid shall be treated as a distribution described in paragraph (1)(A).
'(12) SPECIAL RULE WHERE SPOUSE BECOMES CITIZEN.--If the surviving spouse of the decedent becomes a citizen of the United States and if--
'(A) such spouse was a resident of the United States at all times after the date of the death of the decedent and before such spouse becomes a citizen of the United States,
'(B) no tax was imposed by paragraph (1)(A) with respect to any distribution before such spouse becomes such a citizen, or
'(C) such spouse elects--
'(i) to treat any distribution on which tax was imposed by paragraph (1)(A) as a taxable gift made by such spouse for purposes of--
'(I) section 2001, and
'(II) determining the amount of the tax imposed by section 2501 on actual taxable gifts made by such spouse during the year in which the spouse becomes a citizen or any subsequent year, and
'(ii) to treat any reduction in the tax imposed by paragraph (1)(A) by reason of the credit allowable under section 2010 with respect to the decedent as a credit allowable to such surviving spouse under section 2505 for purposes of determining the amount of the credit allowable under section 2505 with respect to taxable gifts made by the surviving spouse during the year in which the spouse becomes a citizen or any subsequent year,
'(13) COORDINATION WITH SECTION 1015.--For purposes of section 1015, any distribution on which tax is imposed by paragraph (1)(A) shall be treated as a transfer by gift, and any tax paid under paragraph (1)(A) shall be treated as a gift tax.'
(10) Paragraph (2) of section 2056A(c) is amended by striking 'The term' and inserting 'Except as provided in regulations, the term'.
(11) Clause (ii) of section 2056A(b)(2)(B) is amended by striking 'as a credit or refund' and inserting 'as a credit or refund (with interest)'.
(12) Paragraph (2) of section 2056A(b) is amended by adding at the end the following new subparagraph:
'(C) SPECIAL RULE WHERE DECEDENT HAS MORE THAN 1 QUALIFIED DOMESTIC TRUST.--If there is more than 1 qualified domestic trust with respect to any decedent, the amount of the tax imposed by paragraph (1) with respect to such trusts shall be determined by using the highest rate of tax in effect under section 2001 as of the date of the decedent's death (and the provisions of paragraph (3)(B) shall not apply) unless, pursuant to a designation made by the decedent's executor, there is 1 person--
'(i) who is an individual citizen of the United States or a domestic corporation and is responsible for filing all returns of tax imposed under paragraph (1) with respect to such trusts and for paying all tax so imposed, and
'(ii) who meets such requirements as the Secretary may by regulations prescribe.'
'(e) REGULATIONS.--The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations under which there may be treated as a qualified domestic trust any annuity or other payment which is includible in the decedent's gross estate and is by its terms payable for life or a term of years.'
(14) In the case of the estate of, or gift by, an individual who was not a citizen or resident of the United States but was a resident of a foreign country with which the United States has a tax treaty with respect to estate, inheritance, or gift taxes, the amendments made by section 5033 of the 1988 Act shall not apply to the extent such amendments would be inconsistent with the provisions of such treaty relating to estate, inheritance, or gift tax marital deductions. In the case of the estate of an individual dying before the date 3 years after the date of the enactment of this Act, or a gift by an individual before the date 3 years after the date of the enactment of this Act, the requirement of the preceding sentence that the individual not be a citizen or resident of the United States shall not apply.
(15) Paragraph (5) of section 2056A(b) (as redesignated by paragraph (7)(B) of this subsection) is amended to read as follows:
'(5) DUE DATE.--
'(A) TAX ON DISTRIBUTIONS.--The estate tax imposed by paragraph (1)(A) shall be due and payable on the 15th day of the 4th month following the calendar year in which the taxable event occurs; except that the estate tax imposed by paragraph (1)(A) on distributions during the calendar year in which the surviving spouse dies shall be due and payable not later than the date on which the estate tax imposed by paragraph (1)(B) is due and payable.
'(B) TAX AT DEATH OF SPOUSE.--The estate tax imposed by paragraph (1)(B) shall be due and payable on the date 9 months after the date of such death.'
(16) For purposes of applying section 2040(a) of the Internal Revenue Code of 1986 with respect to any joint interest to which section 2040(b) of such Code does not apply solely by reason of section 2056(d)(1)(B) of such Code, any consideration furnished before July 14, 1988, by the decedent for such interest to the extent treated as a gift to the spouse of the decedent for purposes of chapter 12 of such Code shall be treated as consideration originally belonging to such spouse and never acquired by such spouse from the decedent.
(e) AMENDMENTS RELATED TO SECTION 5041 OF THE 1988 ACT.--
(1) Subparagraph (A) of section 460(e)(6) is amended--
(A) by striking 'the building, construction, reconstruction, or rehabilitation of' and inserting 'activities referred to in paragraph (4) with respect to', and
(B) by striking clause (i) and inserting the following:
'(i) dwelling units (as defined in section 167(k)) contained in buildings containing 4 or fewer dwelling units (as so defined), and'.
(B) Paragraph (3) of section 56(a) is amended by striking 'The preceding sentence shall not' and inserting 'The first sentence of this paragraph shall not'.
(3) Subparagraph (C) of section 5041(e)(1) of the 1988 Act is amended by striking 'subsections (a), (b), and (c)' and inserting 'subsections (a) and (b)'.
(4) Clause (i) of section 56(g)(4)(D) is amended by adding 'and' at the end of subclause (III) and by striking subclauses (IV) and (V) and inserting the following new subclause:
'(3) CERTAIN PROPERTY TREATED AS NEW PROPERTY.--Solely for purposes of determining under paragraph (2)(A) whether the 1st use of property is pursuant to tax-exempt financing--
'(A) IN GENERAL.--If--
'(i) the 1st use of property is pursuant to taxable financing,
'(ii) there was a reasonable expectation (at the time such taxable financing was provided) that such financing would be replaced by tax-exempt financing, and
'(iii) the taxable financing is in fact so replaced within a reasonable period after the taxable financing was provided,
then the 1st use of such property shall be treated as being pursuant to the tax-exempt financing.
'(B) SPECIAL RULE WHERE NO OPERATING STATE OR LOCAL PROGRAM FOR TAX-EXEMPT FINANCING.--If, at the time of the 1st use of property, there was no operating State or local program for tax-exempt financing of the property, the 1st use of the property shall be treated as pursuant to the 1st tax-exempt financing of the property.
'(C) DEFINITIONS.--For purposes of this paragraph--
'(i) TAX-EXEMPT FINANCING.--The term 'tax-exempt financing' means financing provided by tax-exempt bonds.
'(ii) TAXABLE FINANCING.--The term 'taxable financing' means financing which is not tax-exempt financing.'
'(3) EXCEPTION FOR PERSONAL USE AND FARM PROPERTY.--An installment obligation shall not be treated as described in paragraph (1) if it arises from the disposition--
'(A) by an individual of personal use property (within the meaning of section 1275(b)(3)), or
'(B) of any property used or produced in the trade or business of farming (within the meaning of section 2032A(e)(4) or (5)).'
SEC. 7816. AMENDMENTS RELATED TO TITLE VI OF THE 1988 ACT.
(a) AMENDMENT RELATED TO SECTION 6003 OF THE 1988 ACT.--Paragraph (2) of section 274(n) is amended--
(1) by striking so much of such paragraph as follows subparagraph (D) and precedes subparagraph (F) and inserting the following:
'(E) in the case of an employer who pays or reimburses moving expenses of an employee, such expenses are includible in the income of the employee under section 82, or', and
(2) by adding at the end the following new sentence: 'In the case of the employee, the exception of subparagraph (A) shall not apply to expenses described in subparagraph (E).'
(b) AMENDMENT RELATED TO SECTION 6006 OF THE 1988 ACT.--Subparagraph (A) of section 1(i)(7) is amended by inserting '(other than for purposes of this paragraph)' after 'shall be treated'.
(c) AMENDMENTS RELATED TO SECTION 6009 OF THE 1988 ACT.--
(1) Paragraph (2) of section 6009(c) of the 1988 Act is amended by striking 'Clause (i)' and inserting 'Clause (ii)'.
(2) Paragraph (1) of section 135(d) is amended by striking 'subsection (a) respect to' and inserting 'subsection (a) with respect to'.
(d) AMENDMENTS RELATED TO SECTION 6026 OF THE 1988 ACT.--
(1) Subparagraph (D) of section 263A(h)(3) is amended to read as follows:
'(D) TREATMENT OF CERTAIN CORPORATIONS.--
'(i) IN GENERAL.--If--
'(I) substantially all of the stock of a corporation is owned by a qualified employee-owner and members of his family (as defined in section 267(c)(4)), and
'(II) the principal activity of such corporation is performance of personal services directly related to the activities of the qualified employee-owner and such services are substantially performed by the qualified employee-owner,
this subsection shall apply to any expense of such corporation which directly relates to the activities of such employee-owner in the same manner as if such expense were incurred by such employee-owner.
'(ii) QUALIFIED EMPLOYEE-OWNER.--For purposes of this subparagraph, the term 'qualified employee-owner' means any individual who is an employee-owner of the corporation (as defined in section 269A(b)(2)) and who is a writer, photographer, or artist.'
(e) AMENDMENTS RELATED TO SECTION 6028 OF THE 1988 ACT.--
(1) Paragraph (5) of section 168(b) is amended by striking 'paragraph (2)(B)' and inserting 'paragraph (2)(C)'.
(2) Paragraph (2) of section 168(c) is amended by striking 'subsection (b)(2)(B)' and inserting 'subsection (b)(2)(C)'.
(f) AMENDMENT RELATED TO SECTION 6029 OF THE 1988 ACT.--The subparagraph (D) of section 168(b)(3) added by section 6029 of the 1988 Act is redesignated as subparagraph (E).
(g) AMENDMENT RELATED TO SECTION 6033 OF THE 1988 ACT.--Subsection (b) of section 6033 of the 1988 Act is amended by striking 'paragraph (1)' and inserting 'subsection (a)'.
(h) AMENDMENT RELATED TO SECTION 6054 OF THE 1988 ACT.--Paragraph (1) of section 6054(b) of the 1988 Act is amended by striking 'subsection apply' and inserting 'section shall apply'.
(i) AMENDMENT RELATED TO SECTION 6061 OF THE 1988 ACT.--Section 6061 of the 1988 Act is amended--
(1) by striking 'section 111B(h)(5)(A)' and inserting 'section 1011B(h)(5)(A)', and
(2) by striking 'section 111B(h)' and inserting 'section 1011B(h)'.
(j) AMENDMENT RELATED TO SECTION 6064 OF THE 1988 ACT.--Paragraph (13) of section 457(e) is amended to read as follows:
'(13) SPECIAL RULE FOR CHURCHES.--The term 'eligible employer' shall not include a church (as defined in section 3121(w)(3)(A)) or qualified church-controlled organization (as defined in section 3121(w)(3)(B)).'
(k) AMENDMENT RELATED TO SECTION 6067 OF THE 1988 ACT.--Subsection (c) of section 6067 of the 1988 Act is amended by striking 'section 205(c)' and inserting 'section 2005(c)'.
(l) AMENDMENT RELATED TO SECTION 6071 OF THE 1988 ACT.--Paragraph (2) of section 6071(b) of the 1988 Act is amended by striking 'electric plan' and inserting 'electric cooperative plan'.
(m) PROVISION RELATED TO SECTION 6076 OF THE 1988 ACT.--If, for the 1st taxable year beginning on or after January 1, 1987, a qualified group self-insurers' fund changes its treatment of policyholder dividends to take into account such dividends no earlier than the date that the State regulatory authority determines the amount of the policyholder dividend that may be paid, then such change shall be treated as a change in a method of accounting and no adjustment under section 481(a) of the Internal Revenue Code of 1986 shall be made with respect to such change in method of accounting.
(n) AMENDMENTS RELATED TO SECTION 6077 OF THE 1988 ACT.--
(1) Paragraph (1) of section 847 is amended--
(A) by striking 'separate estimated tax' and inserting 'special estimated tax', and
(B) by striking 'after December 31, 1986' and inserting 'in taxable years beginning after December 31, 1986'.
(2) The first sentence of section 847(2) is amended to read as follows:
'The deduction under paragraph (1) shall be allowed only to the extent that such deduction would result in a tax benefit for the taxable year for which such deduction is allowed or any carryback year and only to the extent that special estimated tax payments are made in an amount equal to the tax benefit attributable to such deduction on or before the due date (determined without regard to extensions) for filing the return for the taxable year for which the deduction is allowed.'
(3) Paragraph (5) of section 847 is amended by adding at the end the following new sentence:
'To the extent that any amount added to the special loss discount account is not subtracted from such account before the 15th year after the year for which the amount was so added, such amount shall be subtracted from such account for such 15th year and included in gross income for such 15th year.'
(4) Paragraph (9) of section 847 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) providing for the application of this section in cases where the deduction allowed under paragraph (1) for any taxable year is less than the excess referred to in paragraph (1) for such year.'
(5) Section 847 (as amended by paragraph (4)) is amended by redesignating paragraph (9) as paragraph (10) and by inserting after paragraph (8) the following new paragraph:
'(9) EFFECT ON EARNINGS AND PROFITS.--In determining the earnings and profits--
'(A) any special estimated tax payment made for any taxable year shall be treated as a payment of income tax imposed by this title for such taxable year, and
'(B) any deduction or inclusion under this section shall not be taken into account.
Nothing in the preceding sentence shall be construed to affect the application of section 56(g) (relating to adjustments based on adjusted current earnings).'
(6) Paragraph (8) of section 847 is amended by adding at the end the following new sentence:
'The limitations on consolidation contained in section 1503(c) shall not apply to the deduction allowed under paragraph (1).'
(o) AMENDMENTS RELATED TO SECTION 6105 OF THE 1988 ACT.--
(1) The subsection (c) of section 5276 added by section 6105 of the 1988 Act is amended--
(A) by striking '(c) EXEMPTION' and inserting '(d) EXCEPTION',
(B) by striking 'section 5271(a)(2)' in paragraph (1) and inserting 'section 5271', and
(C) by striking 'specially denatured distilled spirits' in paragraph (2) and inserting 'distilled spirits free of tax'.
(2) Subsection (a) of section 5276 is amended by striking 'Except as provided in subsection (c),' and inserting 'Except as otherwise provided in this section,'.
(p) AMENDMENT RELATED TO SECTION 6135 OF THE 1988 ACT.--Paragraph (3) of section 953(d) is amended by striking '(as defined in section 1503(d))' and inserting 'for purposes of section 1503(d) without regard to paragraph (2)(B) thereof'.
(q) AMENDMENT RELATED TO SECTION 6152 OF THE 1988 ACT.--Subparagraph (C) of section 2056(b)(7) is amended by striking 'an annuity' and inserting 'an annuity included in the gross estate of the decedent under section 2039'.
(r) AMENDMENT RELATED TO SECTION 6177 OF THE 1988 ACT.--Subclause (III) of section 148(f)(4)(B)(iii) is amended by striking 'such date of issuance. or the date' and inserting 'such date of issuance or the date'.
(s) AMENDMENTS RELATED TO SECTION 6180 OF THE 1988 ACT.--
(1) Paragraph (1) of section 142(i) is amended by inserting 'IN GENERAL.--' after '(1)'.
(2) The paragraph (3) of section 146(g) added by section 6180 of the 1988 Act is redesignated as paragraph (4).
(3) Paragraph (3) of section 147(c) is amended by inserting a comma after 'mass commuting facility' each place it appears.
(t) AMENDMENTS RELATED TO SECTION 6183 OF THE 1988 ACT.--Subclause (II) of section 148(f)(4)(C)(ii) is amended by striking 'on behalf of' and inserting 'to make loans to'.
(u) AMENDMENTS RELATED TO SECTION 6228 OF THE 1988 ACT.--
(1) The section 7520 added by section 6228 of the 1988 Act is redesignated as section 7521.
(2) The table of sections for chapter 77 is amended by striking the item added by section 6228 of the 1988 Act and inserting the following:
(v) AMENDMENTS RELATED TO SECTION 6242 OF THE 1988 ACT.--
(1) The section 6712 added by section 6242 of the 1988 Act is redesignated as section 6713.
(2) The table of sections for part I of subchapter B of chapter 68 is amended by striking the item added by section 6242 of the 1988 Act and inserting the following:
(w) AMENDMENT RELATED TO SECTION 6253 OF THE 1988 ACT.--Section 6253 of the 1988 Act is amended by inserting ', as amended by title I of this Act,' after '1986 Code'.
SEC. 7817. EFFECTIVE DATE.
Except as otherwise provided in this part, any amendment made by this part shall take effect as if included in the provision of the 1988 Act to which such amendment relates.
SEC. 7821. AMENDMENTS RELATED TO SUBTITLE B.
(a) AMENDMENTS RELATED TO SECTION 10202 OF THE 1987 ACT.--
(1) Subparagraph (B) of section 453A(b)(2) is amended by striking 'all obligations of the taxpayer described in paragraph (1)' and inserting 'all such obligations held by the taxpayer'.
(2) Subparagraph (B) of section 453A(d)(2) is amended by striking 'before such secured indebtedness was incurred' and inserting 'before the later of the times referred to in subparagraph (A) or (B) of paragraph (1)'.
(3) Subparagraph (B) of section 453A(d)(1) is amended by inserting 'the time' before the 'the proceeds'.
(4)(A) Paragraph (2) of section 26(b) (as amended by section 11811) is amended by striking 'and' at the end of subparagraph (L), by striking the period at the end of subparagraph (M) and inserting ', and', and by adding at the end the following new subparagraph:
'(N) sections 453(l)(3) and 453A(c) (relating to interest on certain deferred tax liabilities).'
(B) Subsection (c) of section 453A is amended by redesignating paragraph (5) as paragraph (6) and by inserting after paragraph (4) the following new paragraph:
'(5) TREATMENT AS INTEREST.--Any amount payable under this subsection shall be taken into account in computing the amount of any deduction allowable to the taxpayer for interest paid or accrued during the taxable year.'
(5) In the case of taxable years beginning in 1987, the reference to section 453 contained in section 56(a)(6) of the Internal Revenue Code of 1986 shall be treated as including a reference to section 453A.
(b) AMENDMENTS RELATED TO SECTION 10206 OF THE 1987 ACT.--Effective with respect to taxable years beginning after 1988, the last sentence of section 7519(d)(4) is amended--
(1) by striking 'for taxable years beginning after 1987,',
(2) by striking 'if more than 50 percent' and inserting 'unless more than 50 percent', and
(3) by striking 'who would not have been entitled' and inserting 'who would have been entitled'.
(c) AMENDMENT RELATED TO SECTION 10222 OF THE 1987 ACT.--Clause (ii) of section 1503(e)(2)(A) is amended by striking 'another member' and inserting 'another corporation which is or was a member'.
(d) AMENDMENTS RELATED TO SECTION 10242 OF THE 1987 ACT.--
(1) The item relating to section 842 in the table of sections for part III of subchapter L of chapter 1 is amended by striking 'corporations' and inserting 'companies'.
(2) The heading for paragraph (4) of section 842(c) is amended by striking 'YEILDS' and inserting 'YIELDS'.
(a) AMENDMENT RELATED TO SECTION 10301 OF THE 1987 ACT.--Paragraph (1) of section 6655(e) is amended by striking 'section (d)(1)' and inserting 'subsection (d)(1)'.
(b) AMENDMENTS RELATED TO SECTION 10502 OF THE 1987 ACT.--
(1) Paragraph (1) of section 6427(i) is amended by striking 'subsection (a)' and all that follows through 'by any person' and inserting 'subsection (a), (b), (c), (d), (e), (g), (h), (l), or (q) by any person'.
(2) Clause (i) of section 6427(i)(2)(A) is amended to read as follows:
'(B) SPECIAL RULE.--If the requirements of subparagraph (A)(ii) are met by any person for any quarter but the requirements of subparagraph (A)(i) are not met by such person for such quarter, such person may file a claim under subparagraph (A) for such quarter only with respect to amounts referred to in subparagraph (A)(ii).'
(4) The subsection of section 6427 relating to payments for taxes imposed by section 4041(d) is redesignated as subsection (p).
(5) Paragraph (3) of section 9502(b) is amended by striking ', and' and inserting '; and'.
(6) Subparagraph (A) of section 9503(b)(4) is amended by striking 'sections 4041(d)' and inserting 'section 4041(d)'.
(7) Subsections (b)(3) and (c)(2)(A) of section 9508 are each amended by striking 'Storage Trust Fund' and inserting 'Storage Tank Trust Fund'.
(c) AMENDMENT RELATED TO SECTION 10611 OF THE 1987 ACT.--The table of sections for part II of subchapter B of chapter 1 is amended by inserting 'Illegal' before 'Federal' in the item relating to section 90.
(d) AMENDMENTS RELATED TO SECTION 10713 OF THE 1987 ACT.--
(1) Subparagraph (G) of section 10713(b)(2) of the 1987 Act is amended to read as follows:
'(G) Paragraph (3) of section 7611(i) is amended by striking all that follows 'income tax)' and inserting ', section 6852 (relating to termination assessments in case of flagrant political expenditures of section 501(c)(3) organizations), or section 6861 (relating to jeopardy assessments of income taxes, etc.),'.'
(2) Clause (iii) of section 10713(b)(2)(E) of the 1987 Act is amended to read as follows:
Except as otherwise provided in this part, any amendment made by this part shall take effect as if included in the provision of the 1987 Act to which such amendment relates.
SEC. 7831. AMENDMENTS RELATED TO TAX REFORM ACT OF 1986.
(a) AMENDMENT RELATED TO SECTION 101 OF THE 1986 ACT.--Subparagraph (B) of section 1(f)(6) (relating to rounding of inflation adjustments for married individuals filing separately) is amended by striking '(other than with respect to section 63(c)(4))' and inserting the following: '(other than with respect to subsection (c)(4) of section 63 (as it applies to subsections (c)(5)(A) and (f) of such section) and section 151(d)(3))'.
(b) AMENDMENT RELATED TO SECTION 201 OF THE 1986 ACT.--Paragraph (5) of section 1250(b) is amended--
(1) by striking 'in the case of recovery property' in subparagraph (A) and inserting 'in the case of property to which section 168 applies', and
(2) by striking 'in the case of any property which is not recovery property' in subparagraph (B) and inserting 'in the case any property to which section 168 does not apply'.
(c) AMENDMENTS RELATED TO SECTION 252 OF THE 1986 ACT.--
(1) Subparagraph (B) of section 42(i)(3) (defining low-income unit) is amended by inserting '(as determined under regulations prescribed by the Secretary taking into account local health, safety, and building codes)' after 'suitable for occupancy'.
(2) Paragraph (3) of section 42(i) is amended by adding at the end the following new subparagraph:
'(D) STUDENTS IN GOVERNMENT-SUPPORTED JOB TRAINING PROGRAMS NOT TO DISQUALIFY UNIT.--A unit shall not fail to be treated as a low-income unit merely because it is occupied by an individual who is enrolled in a job training program receiving assistance under the Job Training Partnership Act or under other similar Federal, State, or local laws.'
(3) Subsection (i) of section 42 (relating to special rules) is amended by adding at the end the following new paragraph:
'(6) APPLICATION TO ESTATES AND TRUSTS.--In the case of an estate or trust, the amount of the credit determined under subsection (a) and any increase in tax under subsection (j) shall be apportioned between the estate or trust and the beneficiaries on the basis of the income of the estate or trust allocable to each.'
(4) Subsection (f) of section 42 is amended by adding at the end the following new paragraph:
'(4) DISPOSITIONS OF PROPERTY.--If a building (or an interest therein) is disposed of during any year for which credit is allowable under subsection (a), such credit shall be allocated between the parties on the basis of the number of days during such year the building (or interest) was held by each. In any such case, proper adjustments shall be made in the application of subsection (j).'
(5) Subsection (m) of section 42 (relating to regulations) 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 adding at the end the following new paragraph:
'(4) providing the opportunity for housing credit agencies to correct administrative errors and omissions with respect to allocations and record keeping within a reasonable period after their discovery, taking into account the availability of regulations and other administrative guidance from the Secretary.'
(6) Subparagraph (A) of section 42(d)(7) is amended by inserting '(or interest therein)' after 'a building described in subparagraph (B)'.
(d) AMENDMENTS RELATED TO SECTION 803 OF THE 1986 ACT.--
(1) Subparagraph (A) of section 803(d)(4) of the Tax Reform Act of 1986 is amended by striking so much of such subparagraph as precedes clause (i) thereof and inserting the following:
'(A) TRANSITION PROPERTY EXEMPTED FROM INTEREST CAPITALIZATION.--Section 263A of the Internal Revenue Code of 1986 (as added by this section) and the amendment made by subsection (b)(1) shall not apply to interest costs which are allocable to any property--'.
(2) If any interest costs incurred after December 31, 1986, are attributable to costs incurred before January 1, 1987, the amendments made by section 803 of the Tax Reform Act of 1986 shall apply to such interest costs only to the extent such interest costs are attributable to costs which were required to be capitalized under section 263 of the Internal Revenue Code of 1954 and which would have been taken into account in applying section 189 of the Internal Revenue Code of 1954 (as in effect before its repeal by section 803 of the Tax Reform Act of 1986) or, if applicable, section 266 of such Code.
(e) APPLICATION OF FUTURE LEGISLATION TO TRANSITIONED BONDS.--Section 1318 of the Tax Reform Act of 1986 is amended by adding at the end the following new paragraph:
'(8) APPLICATION OF FUTURE LEGISLATION TO TRANSITIONED BONDS.--In the case of any bond to which the amendments made by section 1301 do not apply by reason of a provision of this Act, any amendment of the 1986 Code (and any other provision applicable to such Code) included in any law enacted after October 22, 1986, shall be treated as included in section 103 and section 103A (as appropriate) of the 1954 Code with respect to such bond unless--
'(A) such law expressly provides that such amendment (or other provision) shall not apply to such bond, or
'(B) such amendment (or other provision) applies to a provision of the 1986 Code--
'(i) for which there is no corresponding provision in section 103 and section 103A (as appropriate) of the 1954 Code, and
'(ii) which is not otherwise treated as included in such sections 103 and 103A with respect to such bond.'
(g) EFFECTIVE DATE.--Any amendment made by this section shall take effect as if included in the provision of the Tax Reform Act of 1986 to which such amendment relates.
SEC. 7841. MISCELLANEOUS CHANGES.
(a) AMENDMENT RELATED TO TRANSFERS INCIDENT TO DIVORCE OR SEPARATION.--
(1) Paragraph (6) of section 408(d) is amended by striking 'his former spouse under a divorce decree or under a written instrument incident to such divorce' and inserting 'his spouse or former spouse under a divorce or separation instrument described in subparagraph (A) of section 71(b)(2)'.
(2) Subsection (p) of section 414 is amended by redesignating paragraph (11) as paragraph (12) and by inserting after paragraph (10) the following new paragraph:
'(11) APPLICATION OF RULES TO GOVERNMENTAL AND CHURCH PLANS.--For purposes of this title, a distribution or payment from a governmental plan (as defined in subsection (d)) or a church plan (as described in subsection (e)) shall be treated as made pursuant to a qualified domestic relations order if it is made pursuant to a domestic relations order which meets the requirement of clause (i) of paragraph (1)(A).'
(3) The amendments made by this subsection shall apply to transfers after the date of the enactment of this Act in taxable years ending after such date.
(b) AMENDMENT RELATED TO SINGLE-EMPLOYER PENSION PLAN AMENDMENTS ACT OF 1986.--
(1) Section 404(g)(1) is amended by inserting '4041(b),' before '4062'.
(2) The amendment made by paragraph (1) shall apply to payments made after January 1, 1986, in taxable years ending after such date.
(c) DEFINITION OF COMPENSATION.--
(1) Paragraph (1) of section 219(f) (defining compensation) is amended by adding at the end thereof the following new sentence:
'For purposes of this paragraph, section 401(c)(2) shall be applied as if the term trade or business for purposes of section 1402 included service described in subsection (c)(6).
(2) The amendment made by paragraph (1) shall apply to contributions after the date of the enactment of this Act in taxable years ending after such date.
(d) MISCELLANEOUS CLERICAL CHANGES.--
(1) Paragraph (1) of section 6103(d) is amended by striking '45,'.
(2) Section 6871 is amended by striking '44, or 45' each place it appears and inserting 'or 44'.
(3) Paragraph (5) of section 691(c) is amended by striking 'paragraph (1)(D)' and inserting 'paragraph (1)(C)'.
(4) The table of chapters for subtitle D is amended by striking the comma in the item relating to chapter 42 and inserting a semicolon.
(5) Section 6652 is amended--
(A) by redesignating the subsection relating to information with respect to includible employee benefits as subsection (k), and
(B) by redesignating the subsection relating to alcohol and tobacco taxes as subsection (l).
(6) Paragraph (2) of section 410(a) is amended by striking the comma before the period.
(7) The heading of paragraph (1) of section 132(h) is amended by striking 'OFFICERS, ETC.,' and inserting 'HIGHLY COMPENSATED EMPLOYEES'.
(8) Paragraph (1) of section 66(d) is amended by striking 'section 911(b)' and inserting 'section 911(d)(2)'.
(9) Subsection (e) of section 861 is amended by striking 'section 826(a)' and inserting 'section 862(a)'.
(10) Paragraph (27) of section 381(a) (relating to credit under section 53) is redesignated as paragraph (26).
(11) Subclause (III) of section 382(l)(3)(B)(i) is amended by striking 'divorce,' and inserting 'divorce),'.
(12) The last sentence of section 6157(a) is amended by striking 'subsections (c) and (d)' and inserting 'subsection (c)'.
(13) Clause (i) of section 42(d)(6)(A) is amended by striking 'Farmers' Home Administration' and inserting 'Farmers Home Administration'.
(14) Clause (ii) of section 42(d)(7)(A) is amended by striking 'sebsection (a)' and inserting 'subsection (a)'.
(15) Subparagraph (A) of section 42(e)(2) is amended by striking 'captial account' and inserting 'capital account'.
(16) Paragraph (2) of section 844(a) is amended by striking 'for the taxable year' and inserting 'for a prior taxable year'.
(17) Subsection (c) of section 4221 is amended by striking 'or 4083'.
(18) Clause (i) of section 274(n)(2)(F) is amended by inserting 'any' before 'Federal'.
(19) Subparagraph (B) of section 132(f)(2) is amended by striking 'section 151(e)(3)' and inserting 'section 151(c)(3)'.
(20) Sections 6420(e)(2), 6421(g)(2), and 6427(j)(2) are each amended by striking 'section 7602' and inserting 'section 7602(a)'.
(e) AMENDMENT RELATED TO TREATMENT OF TRANSACTIONS IN WHICH FEDERAL FINANCIAL ASSISTANCE PROVIDED.--
(1) Section 597(b)(2) is amended by striking 'to reflect such treatment' and inserting 'in connection with such assistance'.
(2) The amendment made by this subsection shall apply as if included in the amendments made by section 1401 of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.
(f) AMENDMENT RELATED TO ALCOHOL, TOBACCO, AND FIREARMS RETURNS.--Paragraph (6) of section 6091(b) is amended by inserting 'section 4181 or' before 'subtitle E'.
(g) AUTHORITY TO PAY ADMINISTRATIVE EXPENSES FROM VACCINE INJURY COMPENSATION TRUST FUND.--
(1) IN GENERAL.--Paragraph (1) of section 9510(c) (relating to expenditures from Vaccine Injury Compensation Trust Fund) is amended by inserting before the period at the end thereof the following: ', or for the payment of all expenses of administration (but not in excess of $6,000,000 for any fiscal year) incurred by the Federal Government in administering such subtitle'.
(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall apply to fiscal years beginning after September 30, 1989.
SEC. 7851. DEFINITIONS.
For purposes of this part--
(2) ERISA.--The term 'ERISA' means the Employee Retirement Income Security Act of 1974.
SEC. 7861. AMENDMENTS RELATED TO TITLE XI OF THE REFORM ACT.
(a) AMENDMENTS RELATED TO SECTION 1113 OF THE REFORM ACT.--
(1) Section 203(a)(2) of ERISA is amended--
(A) by striking 'following' the first place it appears, and
(B) by striking '414(f)(1)(B)' in subparagraph (C)(ii)(I) and inserting '3(37)(A)(ii)'.
(2) Section 1113(e)(3) of the Reform Act is amended by striking 'Section 202(B)(i)' and inserting 'Section 202(a)(1)(B)(i)'.
(3) The second subsection (e) of section 1113 of the Reform Act is redesignated as subsection (f).
(4) Section 1113(f) of the Reform Act, as redesignated by paragraph (3), is amended by adding at the end thereof the following new paragraph:
'(4) REPEAL OF CLASS YEAR VESTING.--If a plan amendment repealing class year vesting is adopted after October 22, 1986, such amendment shall not apply to any employee for the 1st plan year to which the amendments made by subsections (b) and (e)(2) apply (and any subsequent plan year) if--
'(A) such plan amendment would reduce the nonforfeitable right of such employee for such year, and
'(B) such employee has at least 1 hour of service before the adoption of such plan amendment and after the beginning of such 1st plan year.
This paragraph shall not apply to an employee who has 5 consecutive 1-year breaks in service (as defined in section 411(a)(6)(A) of the Internal Revenue Code of 1986) which include the 1st day of the 1st plan year to which the amendments made by subsection (b) and (e)(2) apply. A plan shall not be treated as failing to meet the requirements of section 401(a)(26) of such Code by reason of complying with the provisions of this paragraph.'
(5)(A) Section 411(a)(3) is amended by adding at the end thereof the following new subparagraph:
'(G) TREATMENT OF MATCHING CONTRIBUTIONS FORFEITED BY REASON OF EXCESS DEFERRAL OR CONTRIBUTION.--A matching contribution (within the meaning of section 401(m)) shall not be treated as forfeitable merely because such contribution is forfeitable if the contribution to which the matching contribution relates is treated as an excess contribution under section 401(k)(8)(B), an excess deferral under section 402(g)(2)(A), or an excess aggregate contribution under section 401(m)(6)(B).'.
(B) Paragraph (3) of section 203(a) of ERISA is amended by adding at the end thereof the following new subparagraph:
'(F) A matching contribution (within the meaning of section 401(m) of the Internal Revenue Code of 1986) shall not be treated as forfeitable merely because such contribution is forfeitable if the contribution to which the matching contribution relates is treated as an excess contribution under section 401(k)(8)(B) of such Code, an excess deferral under section 402(g)(2)(A) of such Code, or an excess aggregate contribution under section 401(m)(6)(B) of such Code.'.
(6)(A) Section 411(a)(4)(A) is amended to read as follows:
'(A) years of service before age 18,'.
(B) Subparagraph (A) of section 203(b)(1) of ERISA is amended to read as follows:
'(A) years of service before age 18,'.
(1) Notwithstanding any other provision of law, in the case of any qualified pension plan and welfare benefit plan described in paragraph (2), the assets of such pension plan in excess of its liabilities may be transferred to such welfare benefit plan upon the termination of such pension plan if such assets are to be used to provide retiree health benefits.
(2) For purposes of paragraph (1), a qualified pension plan and welfare benefit plan are described in this paragraph if--
(A) both such plans are jointly administered pursuant to a collective bargaining agreement between the employer maintaining such plans and one or more employee representatives,
(B) the welfare benefit plan provides retiree health benefits, and
(C) the qualified pension plan has assets in excess of liabilities (determined on a termination basis) and the welfare benefit plan has assets which are less than the present value of the benefits to be provided under the plan (determined as of the time of termination of the pension plan).
(3) For purposes of the Internal Revenue Code of 1986, any transfer of assets to which paragraph (1) applies shall be treated as a reversion of such assets to the employer maintaining the plan which is includible in the gross income of such employer and subject to the tax imposed by section 4980 of such Code.
(c) AMENDMENTS RELATED TO SECTION 1140 OF THE REFORM ACT.--
(1) Subsection (a) of section 1140 of the Reform Act is amended by striking 'or subtitle C' and inserting ', subtitle C, or title XVIII of this Act'.
(2) Section 1140(c) of the Reform Act is amended by striking all after 'the first plan year beginning' and inserting 'after the later of--
'(1) December 31, 1988, or
'(2) the earlier of--
'(A) December 31, 1990, or
'(B) the date on which the last of such collective bargaining agreements terminate (without regard to any extension after February 28, 1986).'
(3) Section 1140(c) is amended by adding at the end thereof the following new flush sentence:
'For purposes of paragraph (1)(B) and any other provision of this title, an agreement shall not be treated as terminated merely because the plan is amended pursuant to such agreement to meet the requirements of any amendment made by this title or title XVIII of this Act.'.
(d) AMENDMENTS RELATED TO SECTION 1145 OF THE REFORM ACT.--
(1) Subsection (f) of section 303 of the Retirement Equity Act of 1984 is amended by striking 'July 24, 1984' and inserting 'July 17, 1984'.
(2) Paragraph (3) of section 205(b) of ERISA, as added by section 1145(b) of the Reform Act, is redesignated as paragraph (4).
(a) AMENDMENT RELATED TO SECTION 1852 OF THE REFORM ACT.--Paragraph (1) of section 4402(h) of ERISA is amended by striking 'January 12, 1982' the second place it appears and inserting 'January 16, 1982'.
(b) AMENDMENT RELATED TO SECTION 1879 OF THE REFORM ACT.--
(1) Subsection (u) of section 1879 of the Reform Act is amended--
(A) by striking '206(h)' each place it appears in paragraphs (1) and (4)(B) and inserting '204(h)',
(B) by redesignating paragraph (4) as paragraph (5), and
(C) by inserting after paragraph (3) the following:
'(4) CORRECTION OF CROSS REFERENCE.--Section 4218(1)(A) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1398(1)(A)) is amended by striking 'section 4062(d)' and inserting 'section 4069(b)'.'
(2) So much of section 204(h)(2) of ERISA as precedes subparagraph (A) thereof is amended by adjusting the left-hand margination thereof to full measure.
(c) AMENDMENTS RELATED TO SECTION 1895 OF THE REFORM ACT.--
(1)(A) Section 106(b)(2) (relating to exception to certain plans) is amended by striking the last sentence thereof.
(B) Section 601(b) of ERISA is amended by striking the last sentence thereof.
(C) The amendments made by this paragraph shall apply to years beginning after December 31, 1986.
(2)(A) Section 607(2) of ERISA is amended by striking 'the individual's employment or previous employment with an employer' and inserting 'the performance of services by the individual for 1 or more persons maintaining the plan (including as an employee defined in section 401(c)(1) of the Internal Revenue Code of 1986)'.
(B) Section 4980B(f)(7), as added by the Technical and Miscellaneous Revenue Act of 1988, is amended by striking 'the individual's employment or previous employment with an employer' and inserting 'the performance of services by the individual for 1 or more persons maintaining the plan (including as an employee defined in section 401(c)(1))'.
(C) The amendments made by this paragraph shall apply to plan years beginning after December 31, 1989.
(3)(A) Clause (iv) of section 162(k)(2)(B) is amended--
(ii) by inserting 'which does not contain any exclusion or limitation with respect to any preexisting condition of such beneficiary' after 'or otherwise)' in subclause (I).
(B) Section 602(2)(D) of ERISA is amended--
(i) by striking 'ELIGIBILITY' in the heading and inserting 'ENTITLEMENT', and
(ii) by inserting 'which does not contain any exclusion or limitation with respect to any preexisting condition of such beneficiary' after 'or otherwise)' in clause (i).
(C) Clause (iv) of section 4980B(f)(2)(B), as added by the Technical and Miscellaneous Revenue Act of 1988, is amended--
(i) by striking 'ELIGIBILITY' in the heading and inserting 'ENTITLEMENT', and
(ii) by inserting 'which does not contain any exclusion or limitation with respect to any preexisting condition of such beneficiary' after 'or otherwise)' in subclause (I).
(D) The amendments made by this paragraph shall apply to--
(i) qualifying events occurring after December 31, 1989, and
(ii) in the case of qualified beneficiaries who elected continuation coverage after December 31, 1988, the period for which the required premium was paid (or was attempted to be paid but was rejected as such).
'In no event may the plan require the payment of any premium before the day which is 45 days after the day on which the qualified beneficiary made the initial election for continuation coverage.'
(B) The last sentence of section 4980B(f)(2)(C) of the 1986 Code (as added by the Technical and Miscellaneous Revenue Act of 1988) is amended to read as follows:
'In no event may the plan require the payment of any premium before the day which is 45 days after the day on which the qualified beneficiary made the initial election for continuation coverage.'
(C) The amendments made by this paragraph shall apply to plan years beginning after December 31, 1989.
(5)(A) Clause (i) of section 4980B(f)(2)(B) is amended by adding at the end thereof the following new subclause:
'(v) QUALIFYING EVENT INVOLVING MEDICARE ENTITLEMENT.--In the case of an event described in section 603(4) (without regard to whether such event is a qualifying event), the period of coverage for qualified beneficiaries other than the covered employee for such event or any subsequent qualifying event shall not terminate before the close of the 36-month period beginning on the date the covered employee becomes entitled to benefits under title XVIII of the Social Security Act.'
(C) The amendments made by this paragraph shall apply to plan years beginning after December 31, 1989.
(6)(A) Section 3011(b)(6) of the Technical and Miscellaneous Revenue Act of 1988 (Public Law 100-647) is repealed.
(B) Subparagraph (A) shall be effective as if included in the enactment of section 3011(b) of the Technical and Miscellaneous Revenue Act of 1988.
(1)(A) Clause (ii) of section 417(a)(3)(B) (defining applicable period) is amended by striking subclause (V) and inserting at the end thereof the following new flush sentence:
'In the case of a participant who separates from service before attaining age 35, the applicable period shall be a reasonable period after separation.'.
(B) Clause (ii) of section 205(c)(3)(B) of ERISA is amended by striking subclause (V) and inserting at the end thereof the following new flush sentence:
'In the case of a participant who separates from service before attaining age 35, the applicable period shall be a reasonable period after separation.'.
(2) Section 1898(b)(8) of the Reform Act is amended by adding at the end thereof the following new subparagraph:
'(C) EFFECTIVE DATE.--The amendments made by this paragraph shall apply to distributions after the date of the enactment of this Act.'.
(3) Section 205(h) of ERISA is amended--
(A) in paragraph (1), by striking 'the term' and inserting 'The term', and by striking 'benefit,' and inserting 'benefit.'; and
(B) in paragraph (3), by striking 'the term' and inserting 'The term'.
(4) Subparagraph (B) of section 1898(d)(1) of the Reform Act is amended by striking 'Paragraph (1)' and inserting 'Subsection (e)(1)'.
(5) Section 203(e)(1) of ERISA (as amended by section 1898(d)(1) of the Tax Reform Act of 1986) is further amended to read as follows:
'(e)(1) If the present value of any nonforfeitable benefit with respect to a participant in a plan exceeds $3,500, the plan shall provide that such benefit may not be immediately distributed without the consent of the participant.'.
(6) Subclause (IV) of section 205(c)(3)(B)(ii) of ERISA is amended by striking '401(a)(11)' and inserting '205'.
(7) Subparagraph (B) of section 1898(b)(7) of the Reform Act is amended by striking 'Subparagraph (C) of section 205(b)(1)' and inserting 'Clause (i) of section 205(b)(1)(C)'.
(8) Section 205(e)(2) of ERISA is amended by striking 'nonforfeitable accrued benefit' and inserting 'nonforfeitable right (within the meaning of section 203)'.
(9)(A) Subparagraph (B) of section 1898(b)(14) of the Reform Act is amended by inserting '(as amended by section 1145(b))' after '1974'.
(B) Paragraph (3) of section 205(b) of ERISA (as added by section 1898(b)(14)(B) of the Reform Act) is redesignated as paragraph (4).
(10) Section 203(e)(1) of ERISA is amended by striking 'vested accrued benefit' and inserting 'nonforfeitable benefit'.
Except as otherwise provided in this subpart, any amendment made by this subpart shall take effect as if included in the provision of the Reform Act to which such amendment relates.
SEC. 7871. AMENDMENTS RELATED TO OMNIBUS BUDGET RECONCILIATION ACT OF 1986.
(a) AMENDMENTS RELATED TO SECTION 9202 OF THE ACT.--
(1) Section 411(b)(2) of the Internal Revenue Code of 1986 and section 204(b)(2) of ERISA are each amended by striking subparagraph (B) and by redesignating subparagraphs (C) and (D) as subparagraphs (B) and (C), respectively.
(2) Section 411(b)(2)(C), as redesignated by paragraph (1), is amended by striking 'subparagraph' and inserting 'paragraph'.
(3) Section 204(b)(2)(C) of ERISA, as redesignated by paragraph (1), is amended by striking '(C) and (D)' and inserting '(B) and (C)'.
(4) The amendments made by this subsection shall take effect as if included in the amendments made by section 9202 of the Omnibus Budget Reconciliation Act of 1986.
(b) AMENDMENTS RELATED TO SECTION 9203 OF THE ACT.--
(1) Section 411(a)(8)(B) is amended to read as follows:
'(B) the later of--
'(i) the time a plan participant attains age 65, or
'(ii) the 5th anniversary of the time a plan participant commenced participation in the plan.'
'(B) the later of--
'(i) the time a plan participant attains age 65, or
'(ii) the 5th anniversary of the time a plan participant commenced participation in the plan.'
(c) AMENDMENT RELATING TO SECTION 9501.--Section 602(2)(A)(iii) of ERISA is amended by inserting 'section' before '603(6)'.
SEC. 7881. AMENDMENTS RELATED TO PENSION PROTECTION ACT.
(a) AMENDMENTS RELATED TO SECTION 9303.--
(1)(A) Subclause (II) of section 412(l)(3)(C)(ii) is amended by inserting '(but not below zero)' after 'reducing'.
(B) Subclause (II) of section 302(d)(3)(C)(ii) of ERISA is amended by inserting '(but not below zero)' after 'reducing'.
(2)(A) Clause (i) of section 412(l)(4)(B) is amended by inserting 'and the unamortized portion of the unfunded existing benefit increase liability' after 'liability'.
(B) Clause (i) of section 302(d)(4)(B) of ERISA is amended by inserting 'and the unamortized portion of the unfunded existing benefit increase liability' after 'liability'.
(3)(A) Section 412(l)(5)(C) is amended by striking 'October 17, 1987' and inserting 'the first plan year beginning after December 31, 1988'.
(B) Section 302(d)(5)(C) of ERISA is amended by striking 'October 17, 1987' and inserting 'the first plan year beginning after December 31, 1988'.
(4)(A) Section 412(l)(7)(D) is amended--
'(III) has years of service greater than the minimum years of service necessary for eligibility to participate in the plan.', and
(ii) by adding at the end thereof the following new clause:
'(iv) ELECTION.--An employer may elect not to have this subparagraph apply. Such an election, once made, may be revoked only with the consent of the Secretary.'.
(B) Section 302(d)(7)(D) of ERISA is amended--
(i) by striking 'and' at the end of clause (iii)(I), by striking the period at the end of clause (iii)(II) and inserting ', and', and by adding at the end of clause (iii) the following new subclause:
'(III) has years of service greater than the minimum years of service necessary for eligibility to participate in the plan.', and
(ii) by adding at the end thereof the following new clause:
'(iv) ELECTION.--An employer may elect not to have this subparagraph apply. Such an election, once made, may be revoked only with the consent of the Secretary of the Treasury.'.
(ii) by adding at the end thereof the following new subparagraph:
'(E) DEDUCTION FOR CREDIT BALANCES.--For purposes of this subsection, the amount determined under subparagraph (A)(ii) shall be reduced by any credit balance in the funding standard account. The Secretary may provide for such reduction for purposes of any other provision which references this subsection.'.
(B) Section 302(d)(8) of ERISA is amended--
(i) by striking 'reduced by any credit balance in the funding standard account' in subparagraph (A)(ii), and
(ii) by adding at the end thereof the following new subparagraph:
'(E) DEDUCTION FOR CREDIT BALANCES.--For purposes of this subsection, the amount determined under subparagraph (A)(ii) shall be reduced by any credit balance in the funding standard account. The Secretary of the Treasury may provide for such reduction for purposes of any other provision which references this subsection.'.
(6)(A) Section 412(c)(9) is amended--
(ii) by striking '3-YEAR' in the heading and inserting 'ANNUAL'.
(B) Section 302(c)(9) of ERISA is amended by striking '3 years' and inserting 'year'.
(7) Subclause (II) of section 9303(e)(3)(C)(ii) of the Pension Protection Act is amended by inserting '(and any income allocable to such amount)' after 'clause (i)'.
(b) AMENDMENTS RELATED TO SECTION 9304.--
(1)(A) Subparagraph (A) of section 412(c)(10) is amended--
(ii) by striking 'PLANS' in the heading and inserting 'Defined benefit plans'.
(B) Subparagraph (A) of section 302(c)(10) of ERISA is amended by inserting 'defined benefit' before 'plan other'.
(2)(A) Subparagraph (B) of section 412(c)(10) is amended--
(ii) by striking 'MULTIEMPLOYER' in the heading and inserting 'Other'.
(B) Subparagraph (B) of section 302(c)(10) of ERISA is amended by striking 'multiemployer plan' and inserting 'plan not described in subparagraph (A)'.
(3)(A) Section 412(m)(1) is amended by inserting 'defined benefit' before 'plan (other'.
(B) Section 302(e)(1) of ERISA is amended by inserting 'defined benefit' before 'plan (other'.
(4)(A) Subparagraph (D) of section 412(m)(4) is amended to read as follows:
'(D) SPECIAL RULES FOR UNPREDICTABLE CONTINGENT EVENT BENEFITS.--In the case of a plan to which subsection (1) applies for any calendar year and which has any unpredictable contingent event benefit liabilities--
'(i) LIABILITIES NOT TAKEN INTO ACCOUNT.--Such liabilities shall not be taken into account in computing the required annual payment under subparagraph (B).
'(ii) INCREASE IN INSTALLMENTS.--Each required installment shall be increased by the greater of--
'(I) the unfunded percentage of the amount of benefits described in subsection (l)(5)(A)(i) paid during the 3-month period preceding the month in which the due date for such installment occurs, or
'(II) 25 percent of the amount determined under subsection (l)(5)(A)(ii) for the plan year.
'(iii) UNFUNDED PERCENTAGE.--For purposes of clause (ii)(I), the term 'unfunded percentage' means the percentage determined under subsection (l)(5)(A)(i)(I) for the plan year.
'(iv) LIMITATION ON INCREASE.--In no event shall the increases under clause (ii) exceed the amount necessary to increase the funded current liability percentage (within the meaning of subsection (l)(8)(B)) for the plan year to 100 percent.'.
(B) Subparagraph (D) of section 302(e)(4) of ERISA is amended to read as follows:
'(D) SPECIAL RULES FOR UNPREDICTABLE CONTINGENT EVENT BENEFITS.--In the case of a plan to which subsection (d) applies for any calendar year and which has any unpredictable contingent event benefit liabilities--
'(i) LIABILITIES NOT TAKEN INTO ACCOUNT.--Such liabilities shall not be taken into account in computing the required annual payment under subparagraph (B).
'(ii) INCREASE IN INSTALLMENTS.--Each required installment shall be increased by the greater of--
'(I) the unfunded percentage of the amount of benefits described in subsection (d)(5)(A)(i) paid during the 3-month period preceding the month in which the due date for such installment occurs, or
'(II) 25 percent of the amount determined under subsection (d)(5)(A)(ii) for the plan year.
'(iii) UNFUNDED PERCENTAGE.--For purposes of clause (ii)(I), the term 'unfunded percentage' means the percentage determined under subsection (d)(5)(A)(i)(I) for the plan year.
'(iv) LIMITATION ON INCREASE.--In no event shall the increases under clause (ii) exceed the amount necessary to increase the funded current liability percentage (within the meaning of subsection (d)(8)(B)) for the plan year to 100 percent.'.
(B) Section 502(c) of ERISA is amended by adding at the end thereof the following new paragraph:
'(3) Any employer maintaining a plan who fails to meet the notice requirement of section 101(d) with respect to any participant or beneficiary may in the court's discretion be liable to such participant or beneficiary in the amount of up to $100 a day from the date of such failure, and the court may in its discretion order such other relief as it deems proper.'.
(C) Section 9304(d) of the Pension Protection Act is amended by striking 'Section' and inserting 'Effective with respect to plan years beginning after December 31, 1987, section'.
(6)(A)(i) Subparagraph (B) of section 412(m)(1) is amended to read as follows:
'(B) the rate of interest used under the plan in determining costs (including adjustments under subsection (b)(5)(B)).'.
(ii) Clause (ii) of section 412(d)(1)(A) is amended by inserting '(including adjustments under subsection (b)(5)(B))' after 'costs'.
(B)(i) Subparagraph (B) of section 302(e)(1) of ERISA is amended to read as follows:
'(B) the rate of interest used under the plan in determining costs (including adjustments under subsection (b)(5)(B)).'.
(ii) Section 303(a)(1)(B) of ERISA (as redesignated by subsection (e)(2)) is amended by inserting '(including adjustments under section 302(b)(5)(B))' after 'costs'.
(A) by redesignating subparagraphs (A) and (B) as paragraphs (1) and (2), respectively, and by adjusting the left-hand margination thereof 4 ems to the left;
(B) in paragraph (1) (as redesignated), by redesignating clauses (i) and (ii) as subparagraphs (A) and (B), respectively; and
(C) in paragraph (2) (as redesignated), by inserting 'of such Code' after 'section 6621(b)'.
(8) Subsection (f) of section 303 of ERISA (as so redesignated by section 9306(a)(2) of the Pension Protection Act) is transferred to immediately after subsection (e) of such section.
(c) AMENDMENTS RELATED TO SECTION 9306.--
(1) The last sentence of section 412(f)(4)(A) is amended by striking 'the benefit liabilities' and inserting 'for benefit liabilities'.
(2) The last sentence of section 303(e)(1) of ERISA is amended by striking 'the benefit liabilities' and inserting 'for benefit liabilities'.
(3) Section 9306(f)(3) of the Pension Protection Act is amended to read as follows:
'(3) SUBSECTION (b).--The amendments made by subsection (b) shall apply to waivers for plan years beginning after December 31, 1987. For purposes of applying such amendments, the number of waivers which may be granted for plan years after December 31, 1987, shall be determined without regard to any waivers granted for plan years beginning before January 1, 1988.'.
(d) AMENDMENTS RELATED TO SECTION 9307.--
(1)(A) Clause (iii) of section 412(b)(5)(B) is amended by striking 'for purposes of this section and for purposes of determining current liability,'.
(B) Clause (iii) of section 302(b)(5)(B) of ERISA is amended by striking 'for purposes of this section and for purposes of determining current liability,'.
(2)(A) Section 302(b)(5)(B) of ERISA is amended by inserting the following matter after the heading and before clause (i):
'For purposes of determining a plan's current liability and for purposes of determining a plan's required contribution under section 302(d) for any plan year--'.
(B) Section 302(b)(5) of ERISA is amended by striking the matter following the heading thereof and preceding subparagraph (A).
(C) Subclause (I) of section 302(b)(5)(B)(ii) of ERISA is amended by striking 'average rate' and inserting 'the weighted average of the rates'.
(3) Section 9307(f) of the Pension Protection Act is amended to read as follows:
'(f) EFFECTIVE DATE.--
'(1) IN GENERAL.--Except as provided in paragraph (2), the amendments made by this section shall apply to years beginning after December 31, 1987.
'(2) AMORTIZATION OF GAINS AND LOSSES.--Sections 412(b)(2)(B)(iv) and 412(b)(3)(B)(ii) of the Internal Revenue Code of 1986 and sections 302(b)(2)(B)(iv) and 302(b)(3)(B)(ii) of the Employee Retirement Income Security Act of 1974 (as amended by paragraphs (1)(A) and (2)(A) of subsection (a)) shall apply to gains and losses established in years beginning after December 31, 1987. For purposes of the preceding sentence, any gain or loss determined by a valuation occurring as of January 1, 1988, shall be treated as established in years beginning before 1988, or at the election of the employer, shall be amortized in accordance with Internal Revenue Service Notice 89-52.'.
(4) Subparagraphs (A) and (B) of section 302(c)(3) of ERISA are each amended by adjusting the left-hand margination thereof, and of each subdivision thereof, 2 ems to the left.
(e) AMENDMENTS RELATED TO SECTION 9311.--
(1) Section 9311(a)(2) of the Pension Protection Act is amended by striking 'plan assets to the employer for purposes of section 4044(d)(1)(C) of the Employee Retirement Income Security Act of 1974' and inserting 'residual plan assets upon termination'.
(2) Section 9311(d) of the Pension Protection Act is amended--
(A) by striking 'section 4041(c)' and inserting 'section 4041' in paragraph (1), and
(B) by adding at the end thereof the following new flush sentence:
(3) Section 9311(b)(2) of the Pension Protection Act is amended by striking 'subsection (c)(1)' and inserting 'subsection (a)(1)'.
(4) Section 9311(a)(2) of the Pension Protection Act is amended--
(A) by striking '1 year after the effective date of such amendments made by paragraph (1)' and inserting 'December 17, 1988'; and
(B) by striking the last sentence.
(1) Section 9312(b)(3)(B)(i) of the Pension Protection Act is amended--
(A) by striking 'section 4022(c)(1)' in subclause (I) and inserting 'section 4022(c)(3)', and
(B) by striking 'subparagraph (B) of section 4022(c)(1)' and inserting 'subparagraph (C) of section 4022(c)(3)'.
(2) Section 4062(a) of ERISA is amended--
(A) by inserting 'and' at the end of paragraph (1);
(B) by striking paragraph (2);
(C) by redesignating paragraph (3) as paragraph (2); and
(D) in paragraph (2) (as so redesignated), by striking 'subsection (d)' and inserting 'subsection (c)'.
(3)(A) Section 4064(b) of ERISA is amended by striking 'and clauses (i)(II) and (ii) of section 4062(b)(1)(A)' and inserting 'and section 4068(a)'.
(B) Section 4068(a) of ERISA is amended by striking the last sentence.
(4) Section 4022(c)(1) of ERISA is amended by striking '(in the case of a deceased participant)'.
(5) Section 4022(c)(3)(B)(ii) of ERISA is amended by inserting ', and during the 5-Federal fiscal year period ending with the fiscal year preceding the fiscal year in which occurs the date of the notice of intent to terminate with respect to the plan termination for which the recovery ratio is being determined' after '1987'.
(6) Section 9312(b)(3)(B) of the Pension Protection Act is amended by striking clause (ii).
(7) Section 4041(c) of ERISA is amended--
(A) by striking '(or its designee under section 4049(b))' in paragraph (2)(A)(iii)(II),
(B) by striking 'section 4049' in paragraph (2)(A)(iii)(II) and inserting 'section 4022(c)', and
(C) by striking the last sentence of paragraph (3)(C)(i).
(8) Section 4070(a) of ERISA is amended by striking '4049,'.
(9) Section 9312(d)(1) of the Pension Protection Act is amended by striking 'section 4041(c)' and inserting 'section 4041'.
(10)(A) Section 4062(b)(2)(B) of ERISA is amended by striking 'the liability under paragraph (1)(A)(ii)' and inserting 'so much of the liability under paragraph (1)(A) as exceeds 30 percent of the collective net worth of all persons described in subsection (a) (including interest)'.
(B) Section 9312(b)(2)(B)(ii) of the Pension Protection Act is amended to read as follows:
'(ii) Section 4062(d) of ERISA (as redesignated by paragraph (1)(B)) is amended by striking out paragraph (3).'.
(C) Section 4068 of ERISA is amended by adding at the end the following new subsection:
'(1) The collective net worth of persons subject to liability in connection with a plan termination shall be determined as provided in section 4062(d)(1).
'(2) The term 'pre-tax profits' has the meaning provided in section 4062(d)(2).'.
(11) Section 4022(c)(1) of ERISA is amended by striking 'section 4044(a), to such participant' and inserting 'section 4044(a). Such payment shall be made to such participant'.
(12) Subsection (a) of section 4068 of ERISA is amended--
(A) by striking 'to the extent such amount does not exceed 30 percent of the collective net worth of all persons described in section 4062(a)' the first place it appears; and
(B) by striking 'to the extent such amount does not exceed 30 percent of the collective net worth of all persons described in section 4062(a)' the second place it appears and all that follows and inserting the following:
(13) The table of contents in section 1 of ERISA is amended by striking the item relating to section 4049.
(g) AMENDMENTS RELATED TO SECTION 9313.--
(1) Section 4041(d)(1) of ERISA is amended by striking 'sufficient for benefit commitments' and inserting 'sufficient for benefit liabilities'.
(2) Section 4041(c)(2)(B) of ERISA is amended by inserting 'proposed' before 'termination' in the parenthetical in the second sentence.
(3) Clause (ii) of section 4041(c)(2)(A) of ERISA is amended--
(A) by inserting 'unless the corporation determines the information is not necessary for purposes of paragraph (3)(A) or section 4062,' before 'certification',
(B) by inserting 'and, if applicable, the proposed distribution date' after 'termination date' in subclause (I), and
(C) by striking 'date' and inserting 'dates' in subclauses (II) through (V).
(4) Subparagraph (B) of section 4041(b)(3) of ERISA is amended by adding a period at the end.
(5) Section 9313(b)(3) of the Pension Protection Act is amended by inserting 'each place it appears' before the period.
(6) Section 4041(b)(2)(A) of ERISA is amended by adjusting the left-hand margination of the last sentence two ems to the right.
(7) The first subsection (b) of section 9314 of the Pension Protection Act is amended by striking 'Section 4042' and inserting 'Section 4042(a)', and by striking 'third sentence' and inserting 'last sentence'.
(8) Section 9314(c)(1) of the Pension Protection Act is amended by inserting 'title IV of' after 'Subtitle D of'.
(h) AMENDMENT RELATED TO SECTION 9331.--
(1) Subparagraph (E) of section 4006(a)(3) of ERISA is amended by adding at the end thereof the following new clause:
(i) AMENDMENTS RELATED TO SECTION 9341.--
(1)(A) Section 401(a)(29)(C)(i)(II) is amended by inserting 'and any other plan amendments adopted after December 22, 1987, and before such plan amendment' after 'amendment'.
(B) Section 307(c)(1)(B) of ERISA is amended by inserting 'and any other plan amendments adopted after December 22, 1987, and before such plan amendment'.
(2) Section 307(d) of ERISA is amended by inserting 'of the Treasury' after 'Secretary'.
(3)(A) Section 307 of ERISA is amended by redesignating subsection (e) as subsection (f) and by inserting after subsection (d) the following new subsection:
'(e) NOTICE.--A contributing sponsor which is required to provide security under subsection (a) shall notify the Pension Benefit Guaranty Corporation within 30 days after the amendment requiring such security takes effect. Such notice shall contain such information as the Corporation may require.'.
(i) by striking 'or subtitle A, B, or C' and inserting ', subtitle A, B, or C, as section 302(f)(4) or 307(e)', and
(ii) by inserting 'or such section' after 'such subtitle'.
(B) Section 307(a)(1) of ERISA is amended by inserting 'to which the requirements of section 302 apply' after 'multiemployer plan)'.
(5) Section 9341(c) of the Pension Protection Act is amended by inserting '(without regard to any extension, amendment, or modification of such agreements on or after such date of enactment)' after 'ratified before the date of enactment'.
(j) AMENDMENTS RELATED TO SECTION 9342.--
(1) Paragraph (11) of section 103(d) of ERISA is amended--
(A) by striking '60 percent' and inserting '70 percent', and
(B) by striking 'such percentage' and inserting 'the percentage which such value is of such liability.'.
(2) Section 502(a)(6) of ERISA is amended by striking 'subsection (i)' and inserting 'subsection (c)(2) or (i)'.
(3) Section 502(c)(2) of ERISA is amended--
(A) by inserting 'against any plan administrator' after 'civil penalty', and
(B) by striking 'a plan administrator's' and inserting 'such plan administrator's'.
(4) Paragraph (2) of section 413 of ERISA is amended by striking the comma.
(k) AMENDMENT RELATED TO SECTION 9343.--Section 403(c) of ERISA is amended by striking paragraph (3) and by redesignating paragraph (4) as paragraph (3).
(l) AMENDMENTS RELATED TO SECTION 9345.--
(1) Section 407(d)(3)(C) of ERISA is amended by adjusting the left-hand margination thereof 2 ems to the left.
(2) Section 407(d)(9) of ERISA is amended--
(A) by striking 'such arrangement' and inserting 'such individual account plan'; and
(B) by adjusting the left-hand margination thereof 2 ems to the right.
(3) Section 407(f) of ERISA is amended--
(A) in paragraph (1), by striking 'this subsection' and inserting 'this paragraph'; and
(B) by striking paragraph (3).
(4) Section 407(f)(1) of ERISA is amended by inserting ', immediately following the acquisition of such stock' after 'if'.
(5) Section 408(b) of ERISA is amended by adding at the end the following new paragraph:
'(12) The sale by a plan to a party in interest on or after December 18, 1987, of any stock, if--
'(A) the requirements of paragraphs (1) and (2) of subsection (e) are met with respect to such stock,
'(B) on the later of the date on which the stock was acquired by the plan, or January 1, 1975, such stock constituted a qualifying employer security (as defined in section 407(d)(5) as then in effect), and
'(C) such stock does not constitute a qualifying employer security (as defined in section 407(d)(5) as in effect at the time of the sale).'.
(1)(A) Clause (iii) of section 411(c)(2)(C) is amended to read as follows:
'(I) at the rate of 120 percent of the Federal mid-term rate (as in effect under section 1274 for the 1st month of a plan year) for the period beginning with the 1st plan year to which subsection (a)(2) applies (by reason of the applicable effective date) and ending with the date on which the determination is being made, and
'(II) at the interest rate which would be used under the plan under section 417(e)(3) (as of the determination date) for the period beginning with the determination date and ending on the date on which the employee attains normal retirement age.'.
'(B) DEFINED BENEFIT PLANS.--In the case of a defined benefit plan, the accrued benefit derived from contributions made by an employee as of any applicable date is the amount equal to the employee's accumulated contributions expressed as an annual benefit commencing at normal retirement age, using an interest rate which would be used under the plan under section 417(e)(3) (as of the determination date).'.
(C) Section 411(c)(2) is amended by striking subparagraph (E).
(D) Section 411(a)(7) is amended by adding at the end thereof the following new subparagraph:
'(D) ACCRUED BENEFIT ATTRIBUTABLE TO EMPLOYEE CONTRIBUTIONS.--The accrued benefit of an employee shall not be less than the amount determined under subsection (c)(2)(B) with respect to the employee's accumulated contributions.'.
(2)(A) Clause (iii) of section 204(c)(2)(C) of ERISA is amended to read as follows:
'(I) at the rate of 120 percent of the Federal mid-term rate (as in effect under section 1274 of the Internal Revenue Code of 1986 for the 1st month of a plan year for the period beginning with the 1st plan year to which subsection (a)(2) applies by reason of the applicable effective date) and ending with the date on which the determination is being made, and
'(II) at the interest rate which would be used under the plan under section 205(g)(3) (as of the determination date) for the period beginning with the determination date and ending on the date on which the employee attains normal retirement age.'.
'(B) DEFINED BENEFIT PLANS.--In the case of a defined benefit plan, the accrued benefit derived from contributions made by an employee as of any applicable date is the amount equal to the employee's accumulated contributions expressed as an annual benefit commencing at normal retirement age, using an interest rate which would be used under the plan under section 205(g)(3) (as of the determination date).'.
(C) Section 204(c)(2) of ERISA is amended by striking subparagraph (E).
(D) Paragraph (23) of section 3 of ERISA is amended by adding at the end thereof the following new flush sentence:
'The accrued benefit of an employee shall not be less than the amount determined under section 204(c)(2)(B) with respect to the employee's accumulated contribution.'.
(3) If--
(A) during the period beginning December 22, 1987, and ending June 21, 1988, a plan was amended to reflect the amendments made by section 9346 of the Pension Protection Act, and
(B) such plan is amended to reflect the amendments made by this subsection,
any plan amendment described in subparagraph (B) shall not be treated as reducing accrued benefits for purposes of section 411(d)(6) of the Internal Revenue Code of 1986 or section 204(g) of ERISA.
Except as otherwise provided in this subpart, any amendment made by this subpart shall take effect as if included in the provision of the Pension Protection Act to which such amendment relates.
SEC. 7891. AMENDMENTS RELATING TO THE TAX REFORM ACT OF 1986.
(a) AMENDMENTS RELATED TO SECTION 2.--
(1) Titles I, III, and IV of ERISA (other than sections 3(37)(E), 301(a)(7), and 308, the last sentence of section 408(d), and sections 414(c), 4001(a)(3)(ii), and 4303) are each amended by striking 'Internal Revenue Code of 1954' each place it appears and inserting 'Internal Revenue Code of 1986'.
(2) The last sentence of section 408(d) of ERISA (as amended by section 7894(e)(4)(A)(i)) is further amended--
(A) by striking 'section 408 of the Internal Revenue Code of 1954' and inserting 'section 408 of the Internal Revenue Code of 1986'; and
(B) by striking 'section 408(c) of such Code' and inserting 'section 408(c) of the Internal Revenue Code of 1986'.
(1) Paragraphs (2)(A) and (2)(B) of section 203(e) of ERISA are each amended by adjusting the margination thereof, and of each subdivision thereof, 2 ems to the left.
(2) Subparagraph (B) of section 203(e)(2) of ERISA is amended by striking 'APPLICABLE INTEREST RATE.--'.
(3) Paragraph (3)(A) of section 205(g) of ERISA is amended by adjusting the left-hand margination thereof, and of each subdivision thereof, 2 ems to the left.
(c) AMENDMENT RELATED TO SECTION 1145.--Paragraph (3) of section 205(b) of ERISA (as added by section 1145(b) of the Reform Act) is amended by adjusting the left-hand margination thereof 2 ems to the left.
(d) AMENDMENTS RELATED TO SECTION 1895.--
(1)(A)(i) Section 606 of ERISA is amended--
(I) by inserting '(a) IN GENERAL.--' before 'In accordance';
(II) by striking 'For purposes of paragraph (4),' and inserting the following:
(ii) Section 4980B(f)(6) of the 1986 Code (as added by the Technical and Miscellaneous Revenue Act of 1988) is amended by inserting, after and below subparagraph (D), the following new flush sentence:
(C) The amendments made by this paragraph shall apply with respect to plan years beginning on or after January 1, 1990.
(2)(A) Section 4980B(f) of the 1986 Code (as added by the Technical and Miscellaneous Revenue Act of 1988) is amended by adding at the end the following new paragraph:
'(8) OPTIONAL EXTENSION OF REQUIRED PERIODS.--A group health plan shall not be treated as failing to meet the requirements of this subsection solely because the plan provides both--
'(A) that the period of extended coverage referred to in paragraph (2)(B) commences with the date of the loss of coverage, and
'(B) that the applicable notice period provided under paragraph (6)(B) commences with the date of the loss of coverage.'.
(B)(i) Section 607 of ERISA is amended--
(II) by adding at the end the following new paragraph:
'(A) that the period of extended coverage referred to in section 602(2) commences with the date of the loss of coverage, and
'(B) that the applicable notice period provided under section 606(a)(2) commences with the date of the loss of coverage.'.
(ii) The item relating to section 607 in the table of contents in section 1 of ERISA is amended by inserting 'and special rules' after 'Definitions'.
(C) The amendments made by this paragraph shall apply with respect to plan years beginning on or after January 1, 1990.
(1) in paragraph (1), by striking 'the term' and inserting 'The term', and by striking 'benefit,' and inserting 'benefit.'; and
(2) in paragraph (3), by striking 'the term' and inserting 'The term'.
(f) EFFECTIVE DATE--Except as otherwise provided in this section, any amendment made by this section shall take effect as if included in the provision of the Reform Act to which such amendment relates.
SEC. 7892. AMENDMENTS RELATING TO THE PENSION PROTECTION ACT.
(a) AMENDMENT RELATED TO SECTION 9203.--Section 202(a)(2) of ERISA is amended by striking the comma.
(b) AMENDMENT RELATED TO SECTION 9301.--Paragraph (7) of section 302(c) of ERISA is amended by adjusting the left-hand margination thereof, and of each subdivision thereof, 2 ems to the left.
(c) EFFECTIVE DATE.--Any amendment made by this section shall take effect as if included in the provision of the Omnibus Budget Reconciliation Act of 1987 or Pension Protection Act to which such amendment relates.
SEC. 7893. AMENDMENTS RELATING TO THE SINGLE-EMPLOYER PENSION PLAN AMENDMENTS ACT OF 1986.
(a) AMENDMENT RELATED TO SECTION 11004.--Section 3(37)(B) of ERISA is amended by striking 'section 4001(c)(1)' and inserting 'section 4001(b)(1)'.
(b) AMENDMENT RELATED TO SECTION 11005.--Subparagraph (B) of section 4022A(f)(2) of ERISA is amended by striking 'the the enactment' and inserting 'the enactment'.
(c) AMENDMENT RELATED TO SECTION 11008.--Subparagraph (B) of section 4041(b)(2) of ERISA is amended by adjusting the margination of the sentence following clause (ii)(V) 2 ems to the left.
(d) AMENDMENTS RELATED TO SECTION 11009.--
(1) Subparagraph (D) of section 4041(c)(3) of ERISA is amended by adjusting the margination thereof, and of each subdivision thereof, 2 ems to the right.
(2) Subclause (I) of section 4041(c)(3)(D)(ii) of ERISA is amended by striking 'of' and inserting 'under'.
(e) AMENDMENT RELATED TO SECTION 11010.--Section 4042(a) of ERISA is amended, in the matter following paragraph (4), by inserting a period after 'terms of the plan'.
(f) AMENDMENT RELATED TO SECTION 11013.--Subparagraph (A) of section 4218(1) of ERISA is amended by striking 'section 4062(d)' and inserting 'section 4069(b)'.
(g) AMENDMENTS RELATED TO SECTION 11016.--
(1) Section 4047 of ERISA is amended, in the first sentence, by striking 'under this subtitle'.
(2) Section 4066 of ERISA is amended by inserting 'any' before 'contributing sponsor' the first place it appears.
(3) Section 11016(a)(6)(A)(ii) of the Single-Employer Pension Plan Amendments Act of 1986 is amended to read as follows:
SEC. 7894. OTHER AMENDMENTS TO ERISA.
(a) AMENDMENTS RELATED TO SECTION 3.--
(1)(A) Section 3(33)(D)(iii) of ERISA is amended by inserting 'of the Treasury' after 'Secretary' each place it appears.
(B) The amendments made by subparagraph (A) shall take effect as if included in section 407 of the Multiemployer Pension Plan Amendments Act of 1980.
(2)(A) Section 3(37)(F) of ERISA (as added by section 136 of Public Law 100-202 (101 Stat. 1329-441)) is amended--
(ii) in clause (ii)(I), by inserting 'of such Code' after 'section 501(c)'; and
(iii) in clause (ii)(II), by inserting 'of such Code' after 'section 170(b)(1)(A)(ii)'.
(B) The amendment made by this paragraph shall take effect as if included in section 136 of Public Law 100-202.
(3) Section 3(39) of ERISA is amended by inserting a comma after 'mean' and by inserting 'the' before 'calendar'.
(4) Section 3 of ERISA is amended by adding at the end the following new paragraph:
'(41) SINGLE-EMPLOYER PLAN.--The term 'single-employer plan' means an employee benefit plan other than a multiemployer plan.'.
(b) AMENDMENTS RELATED TO PART 1 OF SUBTITLE B OF TITLE I.--
(1) The heading for part 1 of subtitle B of title I of ERISA is amended by striking 'Part I' and inserting 'Part 1'.
(2) Section 101(a)(2) of ERISA is amended by striking 'section' and inserting 'sections'.
(3) Section 104(a)(5)(B) of ERISA is amended by striking the period and inserting a comma.
(4) Section 104(b)(1) of ERISA is amended by striking the comma after 'summary'.
(5) Section 105(b) of ERISA is amended by striking '12 month' and inserting '12-month'.
(6) Section 106(b) of ERISA is amended by striking 'section' and inserting 'sections'.
(7) Section 108 of ERISA is amended by striking 'act of omission' and inserting 'act or omission'.
(c) AMENDMENTS RELATED TO PART 2 OF SUBTITLE B OF TITLE I.--
(1)(A) Section 201 of ERISA is amended--
(ii) in paragraph (7), by striking 'plan.' and inserting 'plan; or'; and
(iii) in paragraph (8), by striking 'Any' and inserting 'any'.
(B) The amendments made by subparagraph (A) shall take effect as if included in section 411 of the Multiemployer Pension Plan Amendments Act of 1980.
(2)(A) Section 202(a)(1)(B)(ii) of ERISA is amended by striking 'institution' and inserting 'organization'.
(B) Section 202(b)(2) of ERISA is amended by striking 'the plan' and inserting 'a plan'.
(3) Section 203(a)(3)(D)(v) of ERISA is amended by striking 'nonforfeitably' and inserting 'nonforfeitability'.
(4) Section 204(b)(1)(A) of ERISA is amended in the last sentence by striking 'suparagraph' and inserting 'subparagraph'.
(5) Section 204(b)(1)(E) of ERISA is amended by striking 'years' in the last sentence and inserting 'year'.
(6) Section 204(d) of ERISA is amended, in the matter following paragraph (2), so as to remove the indentation of the term 'Paragraph' the first place it appears.
(7)(A) Section 205(c)(6) of ERISA is amended by striking 'act' and inserting 'Act'.
(B) The amendment made by subparagraph (A) shall take effect as if included in section 103 of the Retirement Equity Act of 1984 in reference to the new section 205(c)(5) of ERISA as added by such section 3113.
(8) Section 206(a)(1) of ERISA is amended by inserting 'occurs' after '(1)'.
(9)(A) Section 206(d)(3)(I) of ERISA is amended by striking 'act' and inserting 'Act'.
(B) The amendment made by subparagraph (A) shall take effect as if included in section 104 of the Retirement Equity Act of 1984.
(10) Section 210(c) of ERISA is amended by striking 'such code' and inserting 'such Code'.
(11)(A) Section 201(6) of ERISA is amended by striking 'section 409 of such Code' and inserting 'section 409 of the Internal Revenue Code of 1954 (as effective for obligations issued before January 1, 1984)'.
(B) The amendment made by subparagraph (A) shall take effect as if originally included in section 491(b) of Public Law 98-369.
(1)(A) Section 301(a) of ERISA is amended--
(ii) in paragraph (9), by striking 'plan.' and inserting 'plan; or'; and
(iii) in paragraph (10), by striking 'Any' and inserting 'any'.
(B) The amendments made by subparagraph (A) shall take effect as if included in section 411 of the Multiemployer Pension Plan Amendments Act of 1980.
(2) Clause (iii) of section 302(b)(3)(B) of ERISA is amended by striking the period and inserting a comma.
(3) Subparagraph (A) of section 304(b)(2) of ERISA is amended by striking the period and inserting a comma.
(4)(A) Section 301(a)(7) of ERISA is amended by striking 'section 409 of such Code' and inserting 'section 409 of the Internal Revenue Code of 1954 (as effective for obligations issued before January 1, 1984)'.
(B) The amendment made by subparagraph (A) shall take effect as if originally included in section 491(b) of Public Law 98-369.
(5) Paragraph (6) of section 302(c) of ERISA is amended by striking 'subsection (g)' and inserting 'section 305'.
(e) AMENDMENTS RELATED TO PART 4 OF SUBTITLE B OF TITLE I.--
(1)(A) Subsection (c) of section 403 of ERISA is amended--
(ii) by inserting 'if such contribution or payment is' after '(i)' and '(ii)', respectively.
(B) The amendments made by subparagraph (A) shall take effect as if included in section 410 of the Multiemployer Pension Plan Amendments Act of 1980.
(2) Section 407(d)(6)(A) of ERISA is amended--
(A) by inserting 'plan' after 'money purchase'; and
(B) by striking 'employee securities' and inserting 'employer securities'.
(3) Paragraph (3) of section 403(b) of ERISA is amended--
(A) by redesignating clauses (i) and (ii) as subparagraphs (A) and (B), respectively;
(B) by striking ', to the extent' and all that follows through 'applicable' in subparagraph (B) (as so redesignated); and
(C) by adding at the end, after and below subparagraph (B) (as redesignated), the following:
'to the extent that such plan's assets are held in one or more custodial accounts which qualify under section 401(f) or 408(h) of such Code, whichever is applicable.'.
(4)(A) Section 408(d) of ERISA is amended, in the last sentence--
(ii) by striking 'section 408(c) of such code' and inserting 'section 408(c) of such Code'.
(B) The amendments made by subparagraph (A) shall take effect as if originally included in section 491(b) of the Deficit Reduction Act of 1984.
(5) Section 413 of ERISA is amended by striking '(a)'.
(6) Section 414(c)(2) of ERISA is amended by striking '1954)' and inserting '1986', and by striking 'prior law' and inserting 'prior law)'.
(f) AMENDMENTS RELATED TO PART 5 OF SUBTITLE B OF TITLE I.--
(1) Section 502(b)(1) of ERISA is amended by striking 'respct' and inserting 'respect'.
(2)(A) Section 514(b)(5)(C) of ERISA (as amended by section 301 of Public Law 97-473 (96 Stat. 2611)) is amended by striking 'such parts' the second place it appears and inserting 'such parts 1 and 4 and the preceding sections of this part'.
(B) The amendment made by this paragraph shall take effect as if included in section 301 of Public Law 97-473.
(3)(A) Section 514(b)(6)(B) of ERISA (as amended by section 302 of Public Law 97-473 (96 Stat. 2612)) is amended by striking 'section 3(l)' and inserting 'section 3(1)'.
(B) The amendments made by this paragraph shall take effect as if included in section 302 of Public Law 97-473.
(1) Section 4022(b)(2) of ERISA is amended by striking '60 month' and inserting '60-month'.
(2) Paragraph (1) of section 4044(a) of ERISA is amended by striking 'accured' and inserting 'accrued'.
(3)(A) Section 4021(a) of ERISA is amended by striking 'this section' and inserting 'this title'.
(B) Section 4022(a) of ERISA is amended by striking 'section 4021' and inserting 'this title'.
(C)(i) Section 4022A(a)(1) of ERISA is amended by striking 'section 4021' and inserting 'this title'.
(ii) The amendment made by clause (i) shall take effect as if originally included in section 102 of the Multiemployer Pension Plan Amendments Act of 1980.
(B) The amendment made by subparagraph (A) shall take effect as if originally included in section 3 of Public Law 97-258.
(1) Section 111 of ERISA is amended by adding at the end the following new subsection:
'(d) Subsections (b) and (c) shall not apply with respect to amendments made to this part in provisions enacted after the date of the enactment of this Act.'.
(2) Section 211 of ERISA is amended by adding at the end the following new subsection:
'(f) The preceding provisions of this section shall not apply with respect to amendments made to this part in provisions enacted after the date of the enactment of this Act.'.
(3) Section 308 of ERISA is amended by adding at the end the following new subsection:
'(f) The preceding provisions of this section shall not apply with respect to amendments made to this part in provisions enacted after the date of the enactment of this Act.'.
(4) Section 414 of ERISA is amended by adding at the end the following new subsection:
'(e) The preceding provisions of this section shall not apply with respect to amendments made to this part in provisions enacted after the date of the enactment of this Act.'.
(5)(A) Section 4402 of ERISA is amended by adding at the end the following new subsection:
'(i) The preceding provisions of this section shall not apply with respect to amendments made to this title in provisions enacted after the date of the enactment of the Tax Reform Act of 1986.'.
SEC. 10000. SHORT TITLE; TABLE OF CONTENTS.
This title may be cited as the 'Miscellaneous and Technical Social Security Act Amendments of 1989'.
Table of Contents
* * * * * *
Subtitle B--Technical Provisions
Sec. 10204. Clarification of rules governing taxation under FICA and SECA of individuals of certain religious faiths.
Sec. 10205. Treatment of group-term life insurance under railroad retirement taxes.
Sec. 10207. Treatment of Rowan decision under railroad retirement taxes.
SEC. 10201. PROHIBITION OF TERMINATION OF COVERAGE OF U.S. CITIZENS AND RESIDENTS EMPLOYED ABROAD BY A FOREIGN AFFILIATE OF AN AMERICAN EMPLOYER.
(a) IN GENERAL.--Subsection (l) of section 3121 of the Internal Revenue Code of 1986 (relating to agreements entered into by American employers with respect to foreign affiliates) is amended--
(1) in paragraph (2), by adding at the end the following:
'Notwithstanding any other provision of this subsection, the period for which any such agreement is effective with respect to any foreign entity shall terminate at the end of any calendar quarter in which the foreign entity, at any time in such quarter, ceases to be a foreign affiliate as defined in paragraph (6).';
(2) by striking paragraphs (3), (4), and (5);
(3) by inserting after paragraph (2) the following new paragraph:
'(3) NO TERMINATION OF AGREEMENT.--No agreement under this subsection may be terminated, either in its entirety or with respect to any foreign affiliate, on or after June 15, 1989.'; and
(4) by redesignating paragraphs (6) through (10) as paragraphs (4) through (8), respectively.
(b) CONFORMING AMENDMENTS.--
(1) Subsection (a) of section 210 of the Social Security Act (42 U.S.C. 410(a)) and subsection (a) of section 406 of the Internal Revenue Code of 1986 (relating to treatment of employees of American employer) are each amended by striking 'section 3121(l)(8)' and inserting 'section 3121(l)(6)'.
(2) Paragraph (3) of section 406(c) of the Internal Revenue Code of 1986 (relating to termination of status as deemed employee not be treated as separation from service for purposes of limitation of tax) is amended by striking 'section 3121(l)(8)(B)' and inserting 'section 3121(l)(6)(B)'.
(3) Paragraph (1) of section 3121(l) of such Code (relating to agreements entered into by American employers with respect to foreign affiliates) is amended, in the matter preceding subparagraph (A), by striking 'paragraph (8)' and inserting 'paragraph (6)'.
(c) EFFECTIVE DATE.--The amendments made by this section shall apply with respect to any agreement in effect under section 3121(l) of the Internal Revenue Code of 1986 on or after June 15, 1989, with respect to which no notice of termination is in effect on such date.
SEC. 10202. EXCLUSION FROM WAGES AND COMPENSATION OF REFUNDS REQUIRED FROM EMPLOYERS TO COMPENSATE FOR DUPLICATION OF MEDICARE BENEFITS BY HEALTH CARE BENEFITS PROVIDED BY THE EMPLOYERS.
(a) OLD-AGE, SURVIVORS, AND DISABILITY, AND HOSPITAL INSURANCE PROGRAMS.--For purposes of title II of the Social Security Act and chapter 21 of the Internal Revenue Code of 1986, the term 'wages' shall not include the amount of any refund required under section 421 of the Medicare Catastrophic Coverage Act of 1988.
(b) RAILROAD RETIREMENT PROGRAM.--For purposes of chapter 22 of the Internal Revenue Code of 1986, the term 'compensation' shall not include the amount of any refund required under section 421 of the Medicare Catastrophic Coverage Act of 1988.
(c) FEDERAL UNEMPLOYMENT PROGRAMS.--
(1) FEDERAL UNEMPLOYMENT TAX.--For purposes of chapter 23 of the Internal Revenue Code of 1986, the term 'wages' shall not include the amount of any refund required under section 421 of the Medicare Catastrophic Coverage Act of 1988.
(2) RAILROAD UNEMPLOYMENT CONTRIBUTIONS.--For purposes of the Railroad Unemployment Insurance Act, the term 'compensation' shall not include the amount of any refund required under section 421 of the Medicare Catastrophic Coverage Act of 1988.
(3) RAILROAD UNEMPLOYMENT REPAYMENT TAX.--For purposes of chapter 23A of the Internal Revenue Code of 1986, the term 'rail wages' shall not include the amount of any refund required under section 421 of the Medicare Catastrophic Coverage Act of 1988.
(d) REPORTING REQUIREMENTS.--Any refund required under section 421 of the Medicare Catastrophic Coverage Act of 1988 shall be reported to the Secretary of the Treasury or his delegate and to the person to whom such refund is made in such manner as the Secretary of the Treasury or his delegate shall prescribe.
(e) EFFECTIVE DATE.--This section shall apply with respect to refunds provided on or after January 1, 1989.
SEC. 10203. ELIMINATION OF ANY CARRYOVER REDUCTION IN RETIREMENT OR DISABILITY BENEFITS DUE TO RECEIPT OF WIDOW'S OR WIDOWER'S BENEFITS BEFORE ATTAINING AGE 62.
(a) IN GENERAL.--Section 202(q)(3) of the Social Security Act (42 U.S.C. 402(q)(3)) is amended--
(1) by striking subparagraphs (E), (F), and (G); and
(2) by redesignating subparagraph (H) as subparagraph (E).
(b) EFFECTIVE DATE.--The amendments made by this section shall apply--
(1) in the case of any individual's old-age insurance benefit referred to in section 202(q)(3)(E) of the Social Security Act (as in effect before the amendments made by this section), only if such individual attains age 62 on or after January 1, 1990, and
(2) in the case of any individual's disability insurance benefit referred to in section 202(q)(3)(F) or (G) of such Act (as so in effect), only if such individual both attains age 62 and becomes disabled on or after such date.
(a) EXEMPTION FROM SECA TAXATION FOR CERTAIN EMPLOYEES EXEMPT FROM FICA TAXATION.--
(1) IN GENERAL.--Paragraph (3) of section 1402(g) of the Internal Revenue Code of 1986 (relating to inapplicability of exemption to certain church employees) is amended--
(A) in the heading, by striking 'NOT TO APPLY' and inserting 'TO APPLY'; and
(B) by striking 'shall not' and inserting 'shall'.
(2) EFFECTIVE DATE.--The amendments made by paragraph (1) shall apply with respect to taxable years beginning after December 31, 1989.
(b) TECHNICAL AMENDMENT CLARIFYING INCLUSION OF PARTNERSHIPS AMONG EMPLOYERS ELIGIBLE FOR RELIGIOUS EXEMPTION FROM FICA.--
(1) IN GENERAL.--Section 3127 of the Internal Revenue Code of 1986 (relating to exemption for employers and their employees where both are members of religious faiths opposed to participation in Social Security Act programs) is amended--
(A) in subsection (a)(1), by inserting '(or, if the employer is a partnership, each partner therein)' after 'an employer';
(B) in subsection (a), in the matter following paragraph (2), by striking 'his employees' and inserting 'the employees thereof';
(C) in subsection (b), by inserting '(or a partner)' after 'an employer';
(D) in subsection (c), by striking 'his employees' and inserting 'the employees thereof';
(E) in subsection (c)(1), by inserting '(or, if the employer is a partnership, each partner therein)' after 'such employer'; and
(F) in subsection (c)(2), by striking 'such employer or the employee involved ceases to meet' and inserting 'such employer (or, if the employer is a partnership, any partner therein) or the employee involved does not meet', and by inserting '(or, if the employer is a partnership, any partner therein)' after 'such employer' the second place it appears.
(2) EFFECTIVE DATE.--The amendments made by this subsection shall be effective as if they were included in the amendments made by section 8007(a)(1) of the Technical and Miscellaneous Revenue Act of 1988 (102 Stat. 3781).
(a) IN GENERAL.--The second sentence of section 3231(e)(1) of the Internal Revenue Code of 1986 (defining compensation) is amended by striking ', (ii) tips' and inserting 'or death, except that this clause does not apply to a payment for group-term life insurance to the extent that such payment is includible in the gross income of the employee, (ii) tips'.
(b) EFFECTIVE DATE.--
(1) IN GENERAL.--Except as provided in paragraph (2), the amendment made by subsection (a) shall apply to--
(A) group-term life insurance coverage in effect after December 31, 1989, and
(B) remuneration paid before January 1, 1990, which the employer treated as compensation when paid.
(2) EXCEPTION.--The amendment made by subsection (a) shall not apply with respect to payments by the employer (or a successor of such employer) for group-term life insurance for such employer's former employees who separated from employment with the employer on or before December 31, 1989, to the extent that such payments are not for coverage for any such employee for any period for which such employee is employed by such employer (or a successor of such employer) after the date of such separation.
(3) BENEFIT DETERMINATIONS TO TAKE INTO ACCOUNT REMUNERATION ON WHICH TAX PAID.--The term 'compensation' as defined in section 1(h) of the Railroad Retirement Act of 1974 includes any remuneration which is included in the term 'compensation' as defined in section 3231(e)(1) of the Internal Revenue Code of 1986 by reason of the amendment made by subsection (a).
(a) IN GENERAL.--The second sentence of section 3231(e)(1) of the Internal Revenue Code of 1986 (defining compensation) is amended by striking 'or (iii)' and inserting '(iii)' and by inserting before the period ', or (iv) any remuneration which would not (if chapter 21 applied to such remuneration) be treated as wages (as defined in section 3121(a)) by reason of section 3121(a)(5)'.
(b) TREATMENT OF CERTAIN DEFERRED COMPENSATION AND SALARY REDUCTION ARRANGEMENTS.--Subsection (e) of section 3231 of such Code is amended by adding at the end thereof the following new paragraph:
'(9) TREATMENT OF CERTAIN DEFERRED COMPENSATION AND SALARY REDUCTION ARRANGEMENTS.--
'(A) CERTAIN EMPLOYER CONTRIBUTIONS TREATED AS COMPENSATION.--Nothing in any paragraph of this subsection (other than paragraph (2)) shall exclude from the term 'compensation' any amount described in subparagraph (A) or (B) of section 3121(v)(1).
'(B) TREATMENT OF CERTAIN NONQUALIFIED DEFERRED COMPENSATION.--The rules of section 3121(v)(2) which apply for purposes of chapter 21 shall also apply for purposes of this chapter.'.
(1) SUBSECTION (a).--The amendment made by subsection (a) shall apply to remuneration paid after December 31, 1989.
(2) SUBSECTION (b).--Except as otherwise provided in this subsection--
(A) IN GENERAL.--The amendment made by subsection (b) shall apply to--
(i) remuneration paid after December 31, 1989, and
(ii) remuneration paid before January 1, 1990, which the employer treated as compensation when paid.
(B) BENEFIT DETERMINATIONS TO TAKE INTO ACCOUNT REMUNERATION ON WHICH TAX PAID.--The term 'compensation' as defined in section 1(h) of the Railroad Retirement Act of 1974 includes any remuneration which is included in the term 'compensation' as defined in section 3231(e)(1) of the Internal Revenue Code of 1986 by reason of the amendment made by subsection (b).
(3) SPECIAL RULE FOR CERTAIN PAYMENTS.--For purposes of applying the amendment made by subsection (b) to remuneration paid after December 31, 1989, which would have been taken into account before January 1, 1990, if such amendments had applied to periods before January 1, 1990, such remuneration shall be taken into account when paid (or, at the election of the payor, at the time which would be appropriate if such amendments had applied).
(4) EXCEPTION FOR CERTAIN 401(k) CONTRIBUTIONS.--The amendment made by subsection (b) shall not apply to employer contributions made during 1990 and attributable to services performed during 1989 under a qualified cash or deferred arrangement (as defined in section 401(k) of the Internal Revenue Code of 1986) if, under the terms of the arrangement as in effect on June 15, 1989--
(A) the employee makes an election with respect to such contributions before January 1, 1990, and
(B) the employer identifies the amount of such contribution before January 1, 1990.
(5) SPECIAL RULE WITH RESPECT TO NONQUALIFIED DEFERRED COMPENSATION PLANS.--In the case of an agreement in existence on June 15, 1989, between a nonqualified deferred compensation plan (as defined in section 3121(v)(2)(C) of such Code) and an individual, the amendment made by subsection (b) shall apply with respect to services performed by the individual after December 31, 1989. The preceding sentence shall not apply in the case of a plan to which section 457(a) of such Code applies.
(a) EXCLUSION OF MEALS AND LODGING.--Subsection (e) of section 3231 of the Internal Revenue Code of 1986 is further amended by adding at the end the following new paragraph:
'(10) MEALS AND LODGING.--The term 'compensation' shall not include the value of meals or lodging furnished by or on behalf of the employer if at the time of such furnishing it is reasonable to believe that the employee will be able to exclude such items from income under section 119.'.
(b) INCOME TAX WITHHOLDING REGULATIONS NOT TO APPLY.--Paragraph (1) of section 3231(e) of such Code is amended by adding at the end the following new sentence:
'Nothing in the regulations prescribed for purposes of chapter 24 (relating to wage withholding) which provides an exclusion from 'wages' as used in such chapter shall be construed to require a similar exclusion from 'compensation' in regulations prescribed for purposes of this chapter.'.
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to remuneration paid after December 31, 1989.
Speaker of the House of Representatives.
Vice President of the United States and President of the Senate.
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