Taxpayer Relief Act of 1997 (P.L. 105-34)

 

Sec. 1. Short title; etc.

 

Sec. 211. Modifications of qualified State tuition programs.

 

Sec. 213. Education individual retirement accounts.

 

Sec. 951. Additional empowerment zones.

 

Sec. 952. Designation of new empowerment zones.

Sec. 953. Volume cap not to apply to enterprise zone facility bonds with respect to new empowerment zones.

Sec. 954. Modification to eligibility criteria for designation of future enterprise zones in Alaska or Hawaii.

 

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

Sec. 956. Modifications to enterprise zone business definition for all empowerment zones and enterprise communities.

 

Sec. 1221. Simplified flow-through for electing large partnerships.

Sec. 1222. Simplified audit procedures for electing large partnerships.

Sec. 1223. Due date for furnishing information to partners of electing large partnerships.

Sec. 1224. Returns required on magnetic media.

Sec. 1225. Treatment of partnership items of individual retirement accounts.

Sec. 1226. Effective date.

 

Sec. 1231. Treatment of partnership items in deficiency proceedings.

Sec. 1232. Partnership return to be determinative of audit procedures to be followed.

Sec. 1233. Provisions relating to statute of limitations.

Sec. 1234. Expansion of small partnership exception.

Sec. 1235. Exclusion of partial settlements from 1-year limitation on assessment.

Sec. 1236. Extension of time for filing a request for administrative adjustment.

Sec. 1237. Availability of innocent spouse relief in context of partnership proceedings.

Sec. 1238. Determination of penalties at partnership level.

Sec. 1239. Provisions relating to court jurisdiction, etc.

Sec. 1240. Treatment of premature petitions filed by notice partners or 5-percent groups.

Sec. 1241. Bonds in case of appeals from certain proceeding.

Sec. 1242. Suspension of interest where delay in computational adjustment resulting from certain settlements.

Sec. 1243. Special rules for administrative adjustment requests with respect to bad debts or worthless securities.

 

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

 

Sec. 1401. Increase in de minimis limit for after-market alterations for heavy trucks and luxury cars.

Sec. 1402. Credit for tire tax in lieu of exclusion of value of tires in computing price.

 

Sec. 1411. Credit or refund for imported bottled distilled spirits returned to distilled spirits plant.

Sec. 1412. Authority to cancel or credit export bonds without submission of records.

Sec. 1413. Repeal of required maintenance of records on premises of distilled spirits plant.

Sec. 1414. Fermented material from any brewery may be received at a distilled spirits plant.

Sec. 1415. Repeal of requirement for wholesale dealers in liquors to post sign.

Sec. 1416. Refund of tax to wine returned to bond not limited to unmerchantable wine.

Sec. 1417. Use of additional ameliorating material in certain wines.

Sec. 1418. Domestically produced beer may be withdrawn free of tax for use of foreign embassies, legations, etc.

Sec. 1419. Beer may be withdrawn free of tax for destruction.

Sec. 1420. Authority to allow drawback on exported beer without submission of records.

Sec. 1421. Transfer to brewery of beer imported in bulk without payment of tax.

Sec. 1422. Transfer to bonded wine cellars of wine imported in bulk without payment of tax.

 

Sec. 1431. Authority to grant exemptions from registration requirements.

Sec. 1432. Repeal of expired provisions.

Sec. 1433. Simplification of imposition of excise tax on arrows.

Sec. 1434. Modifications to retail tax on heavy trucks.

Sec. 1435. Skydiving flights exempt from tax on transportation of persons by air.

Sec. 1436. Allowance or credit of refund for tax-paid aviation fuel purchased by registered producer of aviation fuel.

 

'(1) IN GENERAL.--The amount of the credit allowable under subsection (a) shall be reduced (but not below zero) by $50 for each $1,000 (or fraction thereof) by which the taxpayer's modified adjusted gross income exceeds the threshold amount. For purposes of the preceding sentence, the term 'modified adjusted gross income' means adjusted gross income increased by any amount excluded from gross income under section 911, 931, or 933.

'(2) THRESHOLD AMOUNT.--For purposes of paragraph (1), the term 'threshold amount' means--

 

For purposes of this paragraph, marital status shall be determined under section 7703.

 

'(1) IN GENERAL.--The term 'qualifying child' means any individual if--

 

'(2) EXCEPTION FOR CERTAIN NONCITIZENS.--The term 'qualifying child' shall not include any individual who would not be a dependent if the first sentence of section 152(b)(3) were applied without regard to all that follows 'resident of the United States'.

 

'(1) IN GENERAL.--In the case of a taxpayer with 3 or more qualifying children for any taxable year, the amount of the credit allowed under this section shall be equal to the greater of--

 

'(2) ALTERNATIVE CREDIT AMOUNT.--For purposes of this subsection, the alternative credit amount is the amount of the credit which would be allowed under this section if the limitation under paragraph (3) were applied in lieu of the limitation under section 26.

'(3) LIMITATION.--The limitation under this paragraph for any taxable year is the limitation under section 26 (without regard to this subsection)--

'(4) UNUSED CREDIT TO BE REFUNDABLE.--If the amount of the credit under paragraph (1)(B) exceeds the amount of the credit under paragraph (1)(A), such excess shall be treated as a credit to which subpart C applies. The rule of section 32(h) shall apply to such excess.

'(5) SOCIAL SECURITY TAXES.--For purposes of paragraph (3)--

 

'(1) IN GENERAL.--In the case of a taxpayer with respect to whom a credit is allowed under section 24 for the taxable year, there shall be allowed as a credit under this section an amount equal to the supplemental child credit (if any) determined for such taxpayer for such taxable year under paragraph (2). Such credit shall be in addition to the credit allowed under subsection (a).

'(2) SUPPLEMENTAL CHILD CREDIT.--For purposes of this subsection, the supplemental child credit is an amount equal to the excess (if any) of--

 

The amounts referred to in subparagraphs (A) and (B) shall be determined as if section 24(d) applied to all taxpayers.

'(3) COORDINATION WITH SECTION 24.--The amount of the credit under section 24 shall be reduced by the amount of the credit allowed under this subsection.'.

 

(1) Section 1324(b)(2) of title 31, United States Code, is amended by inserting before the period at the end ', or enacted by the Taxpayer Relief Act of 1997'.

(2) Paragraph (2) of section 6213(g) (relating to the definition of mathematical or clerical errors) is amended by striking 'and' at the end of subparagraph (G), by striking the period at the end of subparagraph (H) and inserting ', and', and by inserting after subparagraph (H) the following new subparagraph:

 

(3) The table of sections for subpart A of part IV of subchapter A of chapter 1 is amended by inserting after the item relating to section 23 the following new item:

 

'(1) the Hope Scholarship Credit, plus

'(2) the Lifetime Learning Credit.

 

'(1) PER STUDENT CREDIT.--In the case of any eligible student for whom an election is in effect under this section for any taxable year, the Hope Scholarship Credit is an amount equal to the sum of--

 

'(2) LIMITATIONS APPLICABLE TO HOPE SCHOLARSHIP CREDIT.--

 

'(3) ELIGIBLE STUDENT.--For purposes of this subsection, the term 'eligible student' means, with respect to any academic period, a student who--

 

'(4) APPLICABLE LIMIT.--For purposes of paragraph (1)(B), the applicable limit for any taxable year is an amount equal to 2 times the dollar amount in effect under paragraph (1)(A) for such taxable year.

 

'(1) PER TAXPAYER CREDIT.--The Lifetime Learning Credit for any taxpayer for any taxable year is an amount equal to 20 percent of so much of the qualified tuition and related expenses paid by the taxpayer during the taxable year (for education furnished during any academic period beginning in such taxable year) as does not exceed $10,000 ($5,000 in the case of taxable years beginning before January 1, 2003).

'(2) SPECIAL RULES FOR DETERMINING EXPENSES.--

 

'(1) IN GENERAL.--The amount which would (but for this subsection) be taken into account under subsection (a) for the taxable year shall be reduced (but not below zero) by the amount determined under paragraph (2).

'(2) AMOUNT OF REDUCTION.--The amount determined under this paragraph is the amount which bears the same ratio to the amount which would be so taken into account as--

 

'(3) MODIFIED ADJUSTED GROSS INCOME.--The term 'modified adjusted gross income' means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933.

 

'(1) IN GENERAL.--No credit shall be allowed under subsection (a) for a taxable year with respect to the qualified tuition and related expenses of an individual unless the taxpayer elects to have this section apply with respect to such individual for such year.

'(2) COORDINATION WITH EXCLUSIONS.--An election under this subsection shall not take effect with respect to an individual for any taxable year if any portion of any distribution during such taxable year from an education individual retirement account is excluded from gross income under section 530(d)(2).

 

'(1) QUALIFIED TUITION AND RELATED EXPENSES.--

 

'(2) ELIGIBLE EDUCATIONAL INSTITUTION.--The term 'eligible educational institution' means an institution--

 

'(1) IDENTIFICATION REQUIREMENT.--No credit shall be allowed under subsection (a) to a taxpayer with respect to the qualified tuition and related expenses of an individual unless the taxpayer includes the name and taxpayer identification number of such individual on the return of tax for the taxable year.

'(2) ADJUSTMENT FOR CERTAIN SCHOLARSHIPS, ETC.--The amount of qualified tuition and related expenses otherwise taken into account under subsection (a) with respect to an individual for an academic period shall be reduced (before the application of subsections (b), (c), and (d)) by the sum of any amounts paid for the benefit of such individual which are allocable to such period as--

 

'(3) TREATMENT OF EXPENSES PAID BY DEPENDENT.--If a deduction under section 151 with respect to an individual is allowed to another taxpayer for a taxable year beginning in the calendar year in which such individual's taxable year begins--

 

'(4) TREATMENT OF CERTAIN PREPAYMENTS.--If qualified tuition and related expenses are paid by the taxpayer during a taxable year for an academic period which begins during the first 3 months following such taxable year, such academic period shall be treated for purposes of this section as beginning during such taxable year.

'(5) DENIAL OF DOUBLE BENEFIT.--No credit shall be allowed under this section for any expense for which a deduction is allowed under any other provision of this chapter.

'(6) NO CREDIT FOR MARRIED INDIVIDUALS FILING SEPARATE RETURNS.--If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayer's spouse file a joint return for the taxable year.

'(7) NONRESIDENT ALIENS.--If the taxpayer is a nonresident alien individual for any portion of the taxable year, this section shall apply only if such individual is treated as a resident alien of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013.

 

'(1) DOLLAR LIMITATION ON AMOUNT OF CREDIT.--

 

'(2) INCOME LIMITS.--

 

(1) IN GENERAL.--Subpart B of part III of subchapter A of chapter 61 (relating to information concerning transactions with other persons) is amended by inserting after section 6050R the following new section:

 

'(1) which is an eligible educational institution which receives payments for qualified tuition and related expenses with respect to any individual for any calendar year, or

'(2) which is engaged in a trade or business and which, in the course of such trade or business, makes payments during any calendar year to any individual which constitute reimbursements or refunds (or similar amounts) of qualified tuition and related expenses of such individual,

 

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

'(2) contains--

 

'(1) a governmental unit or any agency or instrumentality thereof shall be treated as a person, and

'(2) any return required under subsection (a) by such governmental entity shall be made by the officer or employee appropriately designated for the purpose of making such return.

 

'(1) the name, address, and phone number of the information contact of the person required to make such return, and

'(2) the aggregate amounts described in subparagraph (C) of subsection (b)(2).

 

(2) ASSESSABLE PENALTIES.--

 

(3) CLERICAL AMENDMENT.--The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by inserting after the item relating to section 6050R the following new item:

 

(1) IN GENERAL.--The amendments made by this section shall apply to expenses paid after December 31, 1997 (in taxable years ending after such date), for education furnished in academic periods beginning after such date.

(2) LIFETIME LEARNING CREDIT.--Section 25A(a)(2) of the Internal Revenue Code of 1986 shall apply to expenses paid after June 30, 1998 (in taxable years ending after such date), for education furnished in academic periods beginning after such dates.

'(2) LIMITATION BASED ON MODIFIED ADJUSTED GROSS INCOME.--

 

'(1) QUALIFIED EDUCATION LOAN.--The term 'qualified education loan' means any indebtedness incurred to pay qualified higher education expenses--

 

Such term includes indebtedness used to refinance indebtedness which qualifies as a qualified education loan. The term 'qualified education loan' shall not include any indebtedness owed to a person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer.

'(2) QUALIFIED HIGHER EDUCATION EXPENSES.--The term 'qualified higher education expenses' means the cost of attendance (as defined in section 472 of the Higher Education Act of 1965, 20 U.S.C. 1087ll, as in effect on the day before the date of the enactment of this Act) at an eligible educational institution, reduced by the sum of--

 

For purposes of the preceding sentence, the term 'eligible educational institution' has the same meaning given such term by section 25A(f)(2), except that such term shall also include an institution conducting an internship or residency program leading to a degree or certificate awarded by an institution of higher education, a hospital, or a health care facility which offers postgraduate training.

'(3) ELIGIBLE STUDENT.--The term 'eligible student' has the meaning given such term by section 25A(b)(3).

'(4) DEPENDENT.--The term 'dependent' has the meaning given such term by section 152.

 

'(1) DENIAL OF DOUBLE BENEFIT.--No deduction shall be allowed under this section for any amount for which a deduction is allowable under any other provision of this chapter.

'(2) MARRIED COUPLES MUST FILE JOINT RETURN.--If the taxpayer is married at the close of the taxable year, the deduction shall be allowed under subsection (a) only if the taxpayer and the taxpayer's spouse file a joint return for the taxable year.

'(3) MARITAL STATUS.--Marital status shall be determined in accordance with section 7703.

 

'(1) IN GENERAL.--In the case of a taxable year beginning after 2002, the $40,000 and $60,000 amounts in subsection (b)(2) shall each be increased by an amount equal to--

 

'(2) ROUNDING.--If any amount as adjusted under paragraph (1) is not a multiple of $5,000, such amount shall be rounded to the next lowest multiple of $5,000.'.

 

(1) IN GENERAL.--Section 6050S(a)(2) (relating to returns relating to higher education tuition and related expenses) is amended to read as follows:

'(2) which is engaged in a trade or business and which, in the course of such trade or business--

 

(2) INFORMATION.--Section 6050S(b)(2) is amended-- (3) DEFINITION.--Section 6050S(e) is amended by inserting ', and except as provided in regulations, the term 'qualified education loan' has the meaning given such term by section 221(e)(1)' after 'section 25A'.

 

(1) any loan interest payment due and paid after December 31, 1997, and

(2) the portion of the 60-month period referred to in section 221(d) of the Internal Revenue Code of 1986 (as added by this section) after December 31, 1997.

 

Distributions shall not be taken into account under the preceding sentence if such distributions are described in subparagraph (A), (C), or (D) or to the extent paragraph (1) does not apply to such distributions by reason of subparagraph (B).'.

 

'(7) QUALIFIED HIGHER EDUCATION EXPENSES.--For purposes of paragraph (2)(E)--

 

'(3) QUALIFIED HIGHER EDUCATION EXPENSES.--

 

(1) MEMBER OF FAMILY.--Paragraph (2) of section 529(e) (relating to other definitions and special rules) is amended to read as follows:

'(2) MEMBER OF FAMILY.--The term 'member of the family' means--

 

(2) ELIGIBLE EDUCATIONAL INSTITUTION.--Section 529(e) is amended by adding at the end the following:

'(5) ELIGIBLE EDUCATIONAL INSTITUTION.--The term 'eligible educational institution' means an institution--

 

(3) ESTATE AND GIFT TAX TREATMENT.-- '(2) GIFT TAX TREATMENT OF CONTRIBUTIONS.--For purposes of chapters 12 and 13-- '(5) OTHER GIFT TAX RULES.--For purposes of chapters 12 and 13--

 

'(4) ESTATE TAX TREATMENT.--

 

(4) PROHIBITION AGAINST INVESTMENT DIRECTION.--Section 529(b)(5) is amended by inserting 'directly or indirectly' after 'may not'.

 

(1)(A) The heading for part VIII of subchapter F of chapter 1 is amended to read as follows:

(2)(A) Section 529(d) is amended to read as follows:

(B) Paragraph (2) of section 6693(a) (relating to failure to provide reports on individual retirement accounts or annuities) is amended by striking 'and' at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ', and', and by adding at the end the following new subparagraph:

'(C) Section 529(d) (relating to qualified State tuition programs).'.

(C) The section heading for section 6693 is amended by striking 'INDIVIDUAL RETIREMENT' and inserting 'CERTAIN TAX-FAVORED'.

(D) The item relating to section 6693 in the table of sections for part I of subchapter B of chapter 68 is amended by striking 'individual retirement' and inserting 'certain tax-favored'.

 

(1) IN GENERAL.--Except as otherwise provided in this subsection, the amendments made by this section shall take effect on January 1, 1998.

(2) EXPENSES TO INCLUDE ROOM AND BOARD.--The amendment made by subsection (a) shall take effect as if included in the amendments made by section 1806 of the Small Business Job Protection Act of 1996.

(3) ELIGIBLE EDUCATIONAL INSTITUTION.--The amendment made by subsection (b)(2) shall apply to distributions after December 31, 1997, with respect to expenses paid after such date (in taxable years ending after such date), for education furnished in academic periods beginning after such date.

(4) COORDINATION WITH EDUCATION SAVINGS BONDS.--The amendment made by subsection (c) shall apply to taxable years beginning after December 31, 1997.

(5) ESTATE AND GIFT TAX CHANGES.--

 

(6) TRANSITION RULE FOR PRE-AUGUST 20, 1996 CONTRACTS.--In the case of any contract issued prior to August 20, 1996, section 529(c)(3)(C) of the Internal Revenue Code of 1986 shall be applied for taxable years ending after August 20, 1996, without regard to the requirement that a distribution be transferred to a member of the family or the requirement that a change in beneficiaries may be made only to a member of the family.

 

'(1) EDUCATION INDIVIDUAL RETIREMENT ACCOUNT.--The term 'education individual retirement account' means a trust created or organized in the United States exclusively for the purpose of paying the qualified higher education expenses of the designated beneficiary of the trust (and designated as an education individual retirement account at the time created or organized), but only if the written governing instrument creating the trust meets the following requirements:

 

'(2) QUALIFIED HIGHER EDUCATION EXPENSES.--

 

'(3) ELIGIBLE EDUCATIONAL INSTITUTION.--The term 'eligible educational institution' has the meaning given such term by section 529(e)(5).

 

'(1) IN GENERAL.--The maximum amount which a contributor could otherwise make to an account under this section shall be reduced by an amount which bears the same ratio to such maximum amount as--

 

'(2) MODIFIED ADJUSTED GROSS INCOME.--For purposes of paragraph (1), the term 'modified adjusted gross income' means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933.

 

'(1) IN GENERAL.--Any distribution shall be includible in the gross income of the distributee in the manner as provided in section 72(b).

'(2) DISTRIBUTIONS FOR QUALIFIED HIGHER EDUCATION EXPENSES.--

 

'(3) SPECIAL RULES FOR APPLYING ESTATE AND GIFT TAXES WITH RESPECT TO ACCOUNT.--Rules similar to the rules of paragraphs (2), (4), and (5) of section 529(c) shall apply for purposes of this section.

'(4) ADDITIONAL TAX FOR DISTRIBUTIONS NOT USED FOR EDUCATIONAL EXPENSES.--

 

'(5) ROLLOVER CONTRIBUTIONS.--Paragraph (1) shall not apply to any amount paid or distributed from an education individual retirement account to the extent that the amount received is paid into another education individual retirement account for the benefit of the same beneficiary or a member of the family (within the meaning of section 529(e)(2)) of such beneficiary not later than the 60th day after the date of such payment or distribution. The preceding sentence shall not apply to any payment or distribution if it applied to any prior payment or distribution during the 12-month period ending on the date of the payment or distribution.

'(6) CHANGE IN BENEFICIARY.--Any change in the beneficiary of an education individual retirement account shall not be treated as a distribution for purposes of paragraph (1) if the new beneficiary is a member of the family (as so defined) of the old beneficiary.

'(7) SPECIAL RULES FOR DEATH AND DIVORCE.--Rules similar to the rules of paragraphs (7) and (8) of section 220(f) shall apply.

 

(1) IN GENERAL.--Paragraph (1) of section 4975(e) (relating to prohibited transactions) is amended by striking 'or' at the end of subparagraph (D), by redesignating subparagraph (E) as subparagraph (F), and by inserting after subparagraph (D) the following new subparagraph:

 

(2) SPECIAL RULE.--Subsection (c) of section 4975 is amended by adding at the end of subsection (c) the following new paragraph:

'(5) SPECIAL RULE FOR EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.--An individual for whose benefit an education individual retirement account is established and any contributor to such account shall be exempt from the tax imposed by this section with respect to any transaction concerning such account (which would otherwise be taxable under this section) if section 530(d) applies with respect to such transaction.'.

 

(1) IN GENERAL.--Subsection (a) of section 4973 is amended by striking 'or' at the end of paragraph (2), by adding 'or' at the end of paragraph (3), and by inserting after paragraph (3) the following new paragraph:

'(4) an education individual retirement account (as defined in section 530),'.

(2) EXCESS CONTRIBUTIONS DEFINED.--Section 4973 is amended by adding at the end the following new subsection:

 

'(1) IN GENERAL.--In the case of education individual retirement accounts maintained for the benefit of any 1 beneficiary, the term 'excess contributions' means--

 

'(2) SPECIAL RULES.--For purposes of paragraph (1), the following contributions shall not be taken into account:

 

(1) Section 26(b)(2) is amended by redesignating subparagraphs (E) through (P) as subparagraphs (F) through (Q), respectively, and by inserting after subparagraph (D) the following new subparagraph:

 

(2) Subparagraph (C) of section 135(c)(2), as added by the preceding section, is amended by inserting ', or to an education individual retirement account (as defined in section 530) on behalf of an account beneficiary,' after '(as defined in such section)'.

(3) The table of sections for part VIII of subchapter F of chapter 1 is amended by adding at the end the following new item:

 

'(6) SPECIAL RULE FOR CONTRIBUTIONS OF COMPUTER TECHNOLOGY AND EQUIPMENT FOR ELEMENTARY OR SECONDARY SCHOOL PURPOSES.--

 

(1) IN GENERAL.--Paragraph (2) of section 108(f) (defining student loan) is amended by striking 'or' at the end of subparagraph (B) and by striking subparagraph (D) and inserting the following:

 

(2) EXCEPTION FOR DISCHARGES ON ACCOUNT OF SERVICES PERFORMED FOR CERTAIN LENDERS.--Subsection (f) of section 108 is amended by adding at the end the following new paragraph:

'(3) EXCEPTION FOR DISCHARGES ON ACCOUNT OF SERVICES PERFORMED FOR CERTAIN LENDERS.--Paragraph (1) shall not apply to the discharge of a loan made by an organization described in paragraph (2)(D) (or by an organization described in paragraph (2)(E) from funds provided by an organization described in paragraph (2)(D)) if the discharge is on account of services performed for either such organization.'.

 

'(1) IN GENERAL.--The amount of the credit determined under this subsection with respect to any qualified zone academy bond is the amount equal to the product of--

 

'(2) DETERMINATION.--During each calendar month, the Secretary shall determine a credit rate which shall apply to bonds issued during the following calendar month. The credit rate for any month is the percentage which the Secretary estimates will permit the issuance of qualified zone academy bonds without discount and without interest cost to the issuer.

 

'(1) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over

'(2) the sum of the credits allowable under part IV of subchapter A (other than subpart C thereof, relating to refundable credits).

 

'(1) IN GENERAL.--The term 'qualified zone academy bond' means any bond issued as part of an issue if--

 

'(2) PRIVATE BUSINESS CONTRIBUTION REQUIREMENT.-- '(3) TERM REQUIREMENT.--During each calendar month, the Secretary shall determine the maximum term permitted under this paragraph for bonds issued during the following calendar month. Such maximum term shall be the term which the Secretary estimates will result in the present value of the obligation to repay the principal on the bond being equal to 50 percent of the face amount of the bond. Such present value shall be determined using as a discount rate the average annual interest rate of tax-exempt obligations having a term of 10 years or more which are issued during the month. If the term as so determined is not a multiple of a whole year, such term shall be rounded to the next highest whole year.

'(4) QUALIFIED ZONE ACADEMY.--

 

'(5) QUALIFIED PURPOSE.--The term 'qualified purpose' means, with respect to any qualified zone academy--

 

'(6) ELIGIBLE TAXPAYER.--The term 'eligible taxpayer' means--

 

'(1) NATIONAL LIMITATION.--There is a national zone academy bond limitation for each calendar year. Such limitation is $400,000,000 for 1998 and 1999, and, except as provided in paragraph (4), zero thereafter.

'(2) ALLOCATION OF LIMITATION.--The national zone academy bond limitation for a calendar year shall be allocated by the Secretary among the States on the basis of their respective populations of individuals below the poverty line (as defined by the Office of Management and Budget). The limitation amount allocated to a State under the preceding sentence shall be allocated by the State education agency to qualified zone academies within such State.

'(3) DESIGNATION SUBJECT TO LIMITATION AMOUNT.--The maximum aggregate face amount of bonds issued during any calendar year which may be designated under subsection (d)(1) with respect to any qualified zone academy shall not exceed the limitation amount allocated to such academy under paragraph (2) for such calendar year.

'(4) CARRYOVER OF UNUSED LIMITATION.--If for any calendar year--

 

the limitation amount for such State for the following calendar year shall be increased by the amount of such excess.

 

'(1) CREDIT ALLOWANCE DATE.--The term 'credit allowance date' means, with respect to any issue, the last day of the 1-year period beginning on the date of issuance of such issue and the last day of each successive 1-year period thereafter.

'(2) BOND.--The term 'bond' includes any obligation.

'(3) STATE.--The term 'State' includes the District of Columbia and any possession of the United States.

 

(1) The table of parts for subchapter U of chapter 1 is amended by striking the last item and inserting the following:

 

(1) IN GENERAL.--Subparagraph (B) of section 219(g)(3) (relating to applicable dollar amount) is amended to read as follows:

(2) INCREASE IN PHASE-OUT RANGE FOR JOINT RETURNS.--Clause (ii) of section 219(g)(2)(A) is amended by inserting '($20,000 in the case of a joint return for a taxable year beginning after December 31, 2006)'.

 

(1) by striking 'or the individual's spouse' in paragraph (1), and

(2) by adding at the end the following new paragraph:

'(7) SPECIAL RULE FOR CERTAIN SPOUSES.--In the case of an individual who is an active participant at no time during any plan year ending with or within the taxable year but whose spouse is an active participant for any part of any such plan year--

 

'(1) NO DEDUCTION ALLOWED.--No deduction shall be allowed under section 219 for a contribution to a Roth IRA.

'(2) CONTRIBUTION LIMIT.--The aggregate amount of contributions for any taxable year to all Roth IRAs maintained for the benefit of an individual shall not exceed the excess (if any) of--

 

'(3) LIMITS BASED ON MODIFIED ADJUSTED GROSS INCOME.--

 

'(4) CONTRIBUTIONS PERMITTED AFTER AGE 70-1/2.--Contributions to a Roth IRA may be made even after the individual for whom the account is maintained has attained age 70-1/2.

'(5) MANDATORY DISTRIBUTION RULES NOT TO APPLY BEFORE DEATH.--Notwithstanding subsections (a)(6) and (b)(3) of section 408 (relating to required distributions), the following provisions shall not apply to any Roth IRA:

 

'(6) ROLLOVER CONTRIBUTIONS.--

 

'(7) TIME WHEN CONTRIBUTIONS MADE.--For purposes of this section, the rule of section 219(f)(3) shall apply.

 

'(1) GENERAL RULES.--

 

'(2) QUALIFIED DISTRIBUTION.--For purposes of this subsection-- '(3) ROLLOVERS FROM AN IRA OTHER THAN A ROTH IRA.--

 

'(4) COORDINATION WITH INDIVIDUAL RETIREMENT ACCOUNTS.--Section 408(d)(2) shall be applied separately with respect to Roth IRAs and other individual retirement plans.

'(5) QUALIFIED SPECIAL PURPOSE DISTRIBUTION.--For purposes of this section, the term 'qualified special purpose distribution' means any distribution to which subparagraph (F) of section 72(t)(2) applies.

 

'(1) the excess (if any) of--

 

'(2) the amount determined under this subsection for the preceding taxable year, reduced by the sum of--

'(ii) the compensation includible in the gross income of such individual's spouse for the taxable year reduced by--

 

(1) by striking 'under regulations', and

(2) by striking 'in such regulations' each place it appears.

 

'(8) QUALIFIED FIRST-TIME HOMEBUYER DISTRIBUTIONS.--For purposes of paragraph (2)(F)--

 

'(3) EXCEPTION FOR CERTAIN COINS AND BULLION.--For purposes of this subsection, the term 'collectible' shall not include--

 

if such bullion is in the physical possession of a trustee described under subsection (a) of this section.'.

 

'(1) IN GENERAL.--If a taxpayer has a net capital gain for any taxable year, the tax imposed by this section for such taxable year shall not exceed the sum of--

 

'(2) REDUCED CAPITAL GAIN RATES FOR QUALIFIED 5-YEAR GAIN.--

 

'(3) NET CAPITAL GAIN TAKEN INTO ACCOUNT AS INVESTMENT INCOME.--For purposes of this subsection, the net capital gain for any taxable year shall be reduced (but not below zero) by the amount which the taxpayer takes into account as investment income under section 163(d)(4)(B)(iii).

'(4) ADJUSTED NET CAPITAL GAIN.--For purposes of this subsection, the term 'adjusted net capital gain' means net capital gain determined without regard to--

 

'(5) COLLECTIBLES GAIN.--For purposes of this subsection--

 

'(6) UNRECAPTURED SECTION 1250 GAIN.--For purposes of this subsection--

 

'(7) SECTION 1202 GAIN.--For purposes of this subsection, the term 'section 1202 gain' means an amount equal to the gain excluded from gross income under section 1202(a).

'(8) MID-TERM GAIN.--For purposes of this subsection, the term 'mid-term gain' means the amount which would be adjusted net capital gain for the taxable year if--

 

'(9) QUALIFIED 5-YEAR GAIN.--For purposes of this subsection, the term 'qualified 5-year gain' means the amount of long-term capital gain which would be computed for the taxable year if only gains from the sale or exchange of property held by the taxpayer for more than 5 years were taken into account. The determination under the preceding sentence shall be made without regard to collectibles gain, unrecaptured section 1250 gain (determined without regard to subparagraph (B) of paragraph (6)), section 1202 gain, or mid-term gain.

'(10) PRE-EFFECTIVE DATE GAIN.--

'(11) TREATMENT OF PASS-THRU ENTITIES.--The Secretary may prescribe such regulations as are appropriate (including regulations requiring reporting) to apply this subsection in the case of sales and exchanges by pass-thru entities (as defined in paragraph (10)(C)) and of interests in such entities.'.

 

(1) IN GENERAL.--Subsection (b) of section 55 is amended by adding at the end the following new paragraph:

'(3) MAXIMUM RATE OF TAX ON NET CAPITAL GAIN OF NONCORPORATE TAXPAYERS.--The amount determined under the first sentence of paragraph (1)(A)(i) shall not exceed the sum of--

 

In the case of taxable years beginning after December 31, 2000, rules similar to the rules of section 1(h)(2) shall apply for purposes of subparagraphs (C) and (D). Terms used in this paragraph which are also used in section 1(h) shall have the respective meanings given such terms by section 1(h).'.

(2) CONFORMING AMENDMENTS.--

 

(1) Paragraph (1) of section 1445(e) is amended by striking '28 percent' and inserting '20 percent'.

(2) The second sentence of section 7518(g)(6)(A), and the second sentence of section 607(h)(6)(A) of the Merchant Marine Act, 1936, are each amended by striking '28 percent' and inserting '20 percent'.

(3) Paragraph (2) of section 904(b) is amended by adding at the end the following new subparagraph:

 

(1) IN GENERAL.--Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years ending after May 6, 1997.

(2) WITHHOLDING.--The amendment made by subsection (c)(1) shall apply only to amounts paid after the date of the enactment of this Act.

 

(1) IN GENERAL.--A taxpayer other than a corporation may elect to treat--

 

(2) TREATMENT OF GAIN OR LOSS.--

 

(3) ELECTION.--An election under paragraph (1) shall be made in such manner as the Secretary of the Treasury or his delegate may prescribe and shall specify the assets for which such election is made. Such an election, once made with respect to any asset, shall be irrevocable.

(4) READILY TRADABLE STOCK.--For purposes of this subsection, the term 'readily tradable stock' means any stock which, as of January 1, 2001, is readily tradable on an established securities market or otherwise.

 

'(1) IN GENERAL.--The amount of gain excluded from gross income under subsection (a) with respect to any sale or exchange shall not exceed $250,000.

'(2) $500,000 LIMITATION FOR CERTAIN JOINT RETURNS.--Paragraph (1) shall be applied by substituting '$500,000' for '$250,000' if--

 

'(3) APPLICATION TO ONLY 1 SALE OR EXCHANGE EVERY 2 YEARS.--

 

'(1) IN GENERAL.--In the case of a sale or exchange to which this subsection applies, the ownership and use requirements of subsection (a) shall not apply and subsection (b)(3) shall not apply; but the amount of gain excluded from gross income under subsection (a) with respect to such sale or exchange shall not exceed--

 

'(2) SALES AND EXCHANGES TO WHICH SUBSECTION APPLIES.--This subsection shall apply to any sale or exchange if--

 

'(1) JOINT RETURNS.--If a husband and wife make a joint return for the taxable year of the sale or exchange of the property, subsections (a) and (c) shall apply if either spouse meets the ownership and use requirements of subsection (a) with respect to such property.

'(2) PROPERTY OF DECEASED SPOUSE.--For purposes of this section, in the case of an unmarried individual whose spouse is deceased on the date of the sale or exchange of property, the period such unmarried individual owned and used such property shall include the period such deceased spouse owned and used such property before death.

'(3) PROPERTY OWNED BY SPOUSE OR FORMER SPOUSE.--For purposes of this section--

 

'(4) TENANT-STOCKHOLDER IN COOPERATIVE HOUSING CORPORATION.--For purposes of this section, if the taxpayer holds stock as a tenant-stockholder (as defined in section 216) in a cooperative housing corporation (as defined in such section), then--

 

'(5) INVOLUNTARY CONVERSIONS.--

 

'(6) RECOGNITION OF GAIN ATTRIBUTABLE TO DEPRECIATION.--Subsection (a) shall not apply to so much of the gain from the sale of any property as does not exceed the portion of the depreciation adjustments (as defined in section 1250(b)(3)) attributable to periods after May 6, 1997, in respect of such property.

'(7) DETERMINATION OF USE DURING PERIODS OF OUT-OF-RESIDENCE CARE.--In the case of a taxpayer who--

 

then the taxpayer shall be treated as using such property as the taxpayer's principal residence during any time during such 5-year period in which the taxpayer owns the property and resides in any facility (including a nursing home) licensed by a State or political subdivision to care for an individual in the taxpayer's condition.

'(8) SALES OF REMAINDER INTERESTS.--For purposes of this section--

 

'(5) EXCEPTION FOR SALES OR EXCHANGES OF CERTAIN PRINCIPAL RESIDENCES.--

 

(1) The following provisions of the Internal Revenue Code of 1986 are each amended by striking 'section 1034' and inserting 'section 121': sections 25(e)(7), 56(e)(1)(A), 56(e)(3)(B)(i), 143(i)(1)(C)(i)(I), 163(h)(4)(A)(i)(I), 280A(d)(4)(A), 464(f)(3)(B)(i), 1033(h)(4), 1274(c)(3)(B), 6334(a)(13), and 7872(f)(11)(A).

(2) Paragraph (4) of section 32(c) is amended by striking '(as defined in section 1034(h)(3))' and by adding at the end the following new sentence: 'For purposes of the preceding sentence, the term 'extended active duty' means any period of active duty pursuant to a call or order to such duty for a period in excess of 90 days or for an indefinite period.'.

(3) Subparagraph (A) of 143(m)(6) is amended by inserting '(as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997)' after '1034(e)'.

(4) Subsection (e) of section 216 is amended by striking 'such exchange qualifies for nonrecognition of gain under section 1034(f)' and inserting 'such dwelling unit is used as his principal residence (within the meaning of section 121)'.

(5) Section 512(a)(3)(D) is amended by inserting '(as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997)' after '1034'.

(6) Paragraph (7) of section 1016(a) is amended by inserting '(as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997)' after '1034' and by inserting '(as so in effect)' after '1034(e)'.

(7) Paragraph (3) of section 1033(k) is amended to read as follows:

'(3) For exclusion from gross income of gain from involuntary conversion of principal residence, see section 121.'.

(8) Subsection (e) of section 1038 is amended to read as follows:

 

'(1) subsection (a) applies to a reacquisition of real property with respect to the sale of which gain was not recognized under section 121 (relating to gain on sale of principal residence); and

'(2) within 1 year after the date of the reacquisition of such property by the seller, such property is resold by him,

 

(9) Paragraph (7) of section 1223 is amended by inserting '(as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997)' after '1034'.

(10)(A) Subsection (d) of section 1250 is amended by striking paragraph (7) and by redesignating paragraphs (9) and (10) as paragraphs (7) and (8), respectively.

 

(11) Subsection (c) of section 6012 is amended by striking '(relating to one-time exclusion of gain from sale of principal residence by individual who has attained age 55)' and inserting '(relating to gain from sale of principal residence)'.

(12) Paragraph (2) of section 6212(c) is amended by striking subparagraph (C) and by redesignating the succeeding subparagraphs accordingly.

(13) Section 6504 is amended by striking paragraph (4) and by redesignating the succeeding paragraphs accordingly.

(14) The item relating to section 121 in the table of sections for part III of subchapter B of chapter 1 is amended to read as follows:

(15) The table of sections for part III of subchapter O of chapter 1 is amended by striking the item relating to section 1034.

 

(1) IN GENERAL.--The amendments made by this section shall apply to sales and exchanges after May 6, 1997.

(2) SALES BEFORE DATE OF ENACTMENT.--At the election of the taxpayer, the amendments made by this section shall not apply to any sale or exchange before the date of the enactment of this Act.

(3) CERTAIN SALES WITHIN 2 YEARS AFTER DATE OF ENACTMENT.--Section 121 of the Internal Revenue Code of 1986 (as amended by this section) shall be applied without regard to subsection (c)(2)(B) thereof in the case of any sale or exchange of property during the 2-year period beginning on the date of the enactment of this Act if the taxpayer held such property on the date of the enactment of this Act and fails to meet the ownership and use requirements of subsection (a) thereof with respect to such property.

(4) BINDING CONTRACTS.--At the election of the taxpayer, the amendments made by this section shall not apply to a sale or exchange after the date of the enactment of this Act, if--

 

This paragraph shall not apply to any sale or exchange by an individual if the treatment provided by section 877(a)(1) of the Internal Revenue Code of 1986 applies to such individual.

 

'(1) the cost of any qualified small business stock purchased by the taxpayer during the 60-day period beginning on the date of such sale, reduced by

'(2) any portion of such cost previously taken into account under this section.

 

'(1) QUALIFIED SMALL BUSINESS STOCK.--The term 'qualified small business stock' has the meaning given such term by section 1202(c).

'(2) PURCHASE.--A taxpayer shall be treated as having purchased any property if, but for paragraph (3), the unadjusted basis of such property in the hands of the taxpayer would be its cost (within the meaning of section 1012).

'(3) BASIS ADJUSTMENTS.--If gain from any sale is not recognized by reason of subsection (a), such gain shall be applied to reduce (in the order acquired) the basis for determining gain or loss of any qualified small business stock which is purchased by the taxpayer during the 60-day period described in subsection (a).

'(4) HOLDING PERIOD.--For purposes of determining whether the nonrecognition of gain under subsection (a) applies to stock which is sold--

 

(1) Section 1016(a)(23) is amended--

 

(2) Section 1223 is amended by redesignating paragraph (15) as paragraph (16) and by inserting after paragraph (14) the following new paragraph:

'(15) In determining the period for which the taxpayer has held property the acquisition of which resulted under section 1045 in the nonrecognition of any part of the gain realized on the sale of other property, there shall be included the period for which such other property has been held as of the date of such sale.'.

(3) The table of sections for part III of subchapter O of chapter 1 is amended by adding at the end the following new item:

 

'(1) IN GENERAL.--The tentative minimum tax of a corporation shall be zero for any taxable year if--

 

'(2) PROSPECTIVE APPLICATION OF MINIMUM TAX IF SMALL CORPORATION CEASES TO BE SMALL.--In the case of a corporation whose tentative minimum tax is zero for any prior taxable year by reason of paragraph (1), the application of this part for taxable years beginning with the first taxable year such corporation ceases to be described in paragraph (1) shall be determined with the following modifications:

 

'(3) EXCEPTION.--The modifications in paragraph (2) shall not apply to--

 

if such item or property was subject to any provision referred to in paragraph (2) while held by the transferor.

'(4) CHANGE DATE.--For purposes of paragraph (2), the change date is the first day of the first taxable year for which the taxpayer ceases to be described in paragraph (1).

'(5) LIMITATION ON USE OF CREDIT FOR PRIOR YEAR MINIMUM TAX LIABILITY.--In the case of a taxpayer whose tentative minimum tax for any taxable year is zero by reason of paragraph (1), section 53(c) shall be applied for such year by reducing the amount otherwise taken into account under section 53(c)(1) by 25 percent of so much of such amount as exceeds $25,000. Rules similar to the rules of section 38(c)(3)(B) shall apply for purposes of the preceding sentence.'.

 

(1) IN GENERAL.--The amendment made by this section shall apply to dispositions in taxable years beginning after December 31, 1987.

(2) SPECIAL RULE FOR 1987.--In the case of taxable years beginning in 1987, the last sentence of section 56(a)(6) of the Internal Revenue Code of 1986 (as in effect for such taxable years) shall be applied by inserting 'or in the case of a taxpayer using the cash receipts and disbursements method of accounting, any disposition described in section 453C(e)(1)(B)(ii)' after 'section 453C(e)(4)'.

 

(1) ESTATE TAX CREDIT.--

 

'the amount at which the average tax rate under this section is 55 percent'.

 

(2) UNIFIED GIFT TAX CREDIT.--Paragraph (1) of section 2505(a) is amended by striking '$192,800' and inserting 'the applicable credit amount in effect under section 2010(c) for such calendar year'.

 

'(3) INFLATION ADJUSTMENT.--In the case of estates of decedents dying in a calendar year after 1998, the $750,000 amount contained in paragraph (2) shall be increased by an amount equal to--

 

If any amount as adjusted under the preceding sentence is not a multiple of $10,000, such amount shall be rounded to the next lowest multiple of $10,000.'.

 

(1) by striking the subsection heading and inserting the following:

 

'(1) IN GENERAL.--',

(2) by moving the text 2 ems to the right, and

(3) by adding at the end the following new paragraph:

'(2) INFLATION ADJUSTMENT.--In the case of gifts made in a calendar year after 1998, the $10,000 amount contained in paragraph (1) shall be increased by an amount equal to--

 

If any amount as adjusted under the preceding sentence is not a multiple of $1,000, such amount shall be rounded to the next lowest multiple of $1,000.'.

 

'(1) $1,000,000, multiplied by

'(2) the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting 'calendar year 1997' for 'calendar year 1992' in subparagraph (B) thereof.

 

'(3) INFLATION ADJUSTMENT.--In the case of estates of decedents dying in a calendar year after 1998, the $1,000,000 amount contained in paragraph (2)(A) shall be increased by an amount equal to--

 

If any amount as adjusted under the preceding sentence is not a multiple of $10,000, such amount shall be rounded to the next lowest multiple of $10,000.'.

 

'(1) the adjusted value of the qualified family-owned business interests of the decedent otherwise includible in the estate, or

'(2) the excess of $1,300,000 over the applicable exclusion amount under section 2010(c) with respect to such estate.

 

'(1) IN GENERAL.--This section shall apply to an estate if-- '(2) INCLUDIBLE QUALIFIED FAMILY-OWNED BUSINESS INTERESTS.--The qualified family-owned business interests described in this paragraph are the interests which--

 

'(3) INCLUDIBLE GIFTS OF INTERESTS.--The amount of the gifts of qualified family-owned business interests determined under this paragraph is the excess of--

 

'(1) reduced by any amount deductible under paragraph (3) or (4) of section 2053(a), and

'(2) increased by the excess of--

 

For purposes of the preceding sentence, the Secretary may provide that de minimis gifts to persons other than members of the decedent's family shall not be taken into account.

 

'(1) any amount deductible under paragraph (3) or (4) of section 2053(a), over

'(2) the sum of--

 

'(1) IN GENERAL.--For purposes of this section, the term 'qualified family-owned business interest' means-- '(2) LIMITATION.--Such term shall not include-- '(3) RULES REGARDING OWNERSHIP.--

 

'(1) IN GENERAL.--There is imposed an additional estate tax if, within 10 years after the date of the decedent's death and before the date of the qualified heir's death--

 

'(2) ADDITIONAL ESTATE TAX.--

 

'(1) IN GENERAL.--Except upon the application of subparagraph (F) or (M) of subsection (i)(3), if a qualified heir is not a citizen of the United States, any interest under this section passing to or acquired by such heir (including any interest held by such heir at a time described in subsection (f)(1)(C)) shall be treated as a qualified family-owned business interest only if the interest passes or is acquired (or is held) in a qualified trust.

'(2) QUALIFIED TRUST.--The term 'qualified trust' means a trust--

 

'(1) QUALIFIED HEIR.--The term 'qualified heir'--

 

'(2) MEMBER OF THE FAMILY.--The term 'member of the family' has the meaning given to such term by section 2032A(e)(2).

'(3) APPLICABLE RULES.--Rules similar to the following rules shall apply:

 

'(1) IN GENERAL.--If the time for payment of an amount of tax imposed by chapter 11 is extended as provided in section 6166, then in lieu of the annual rate provided by subsection (a)--

 

For purposes of this subsection, the amount of any deficiency which is prorated to installments payable under section 6166 shall be treated as an amount of tax payable in installments under such section.

'(2) 2-PERCENT PORTION.--For purposes of this subsection, the term '2-percent portion' means the lesser of--

 

(1) ESTATE TAX.--Paragraph (1) of section 2053(c) is amended by adding at the end the following new subparagraph:

 

(2) INCOME TAX.--

(B) Subparagraph (E) of section 163(h)(2) is amended by striking 'or 6166' and all that follows and inserting a period.

 

(1) Paragraphs (7)(A)(iii) and (8)(A)(iii) of section 6166(b) are amended by striking '4-percent' each place it appears (including the heading) and inserting '2-percent'.

(2) Paragraph (4) of section 6601(j), as redesignated by section 501(e), is amended by striking '4-percent' each place it appears and inserting '2-percent'.

(3) The subsection heading for section 6601(j) is amended by striking '4-PERCENT' and inserting '2-PERCENT'.

 

(1) IN GENERAL.--The amendments made by this section shall apply to estates of decedents dying after December 31, 1997.

(2) ELECTION.--In the case of the estate of any decedent dying before January 1, 1998, with respect to which there is an election under section 6166 of the Internal Revenue Code of 1986, the executor of the estate may elect to have the amendments made by this section apply with respect to installments due after the effective date of the election; except that the 2-percent portion of such installments shall be equal to the amount which would be the 4-percent portion of such installments without regard to such election. Such an election shall be made before January 1, 1999 in the manner prescribed by the Secretary of the Treasury and, once made, is irrevocable.

 

'(1) whether an election may be made under section 6166 (relating to extension of time for payment of estate tax where estate consists largely of interest in closely held business) with respect to an estate, or

'(2) whether the extension of time for payment of tax provided in section 6166(a) has ceased to apply with respect to an estate,

 

'(1) PETITIONER.--A pleading may be filed under this section, with respect to any estate, only--

 

'(2) EXHAUSTION OF ADMINISTRATIVE REMEDIES.--The court shall not issue a declaratory judgment or decree under this section in any proceeding unless it determines that the petitioner has exhausted all available administrative remedies within the Internal Revenue Service. A petitioner shall be deemed to have exhausted its administrative remedies with respect to a failure of the Secretary to make a determination at the expiration of 180 days after the date on which the request for such determination was made if the petitioner has taken, in a timely manner, all reasonable steps to secure such determination.

'(3) TIME FOR BRINGING ACTION.--If the Secretary sends by certified or registered mail notice of his determination as described in subsection (a) to the petitioner, no proceeding may be initiated under this section unless the pleading is filed before the 91st day after the date of such mailing.'.

 

'(1) the time has expired within which a tax may be assessed under chapter 12 (or under corresponding provisions of prior laws) on the transfer of property by gift made during a preceding calendar period (as defined in section 2502(b)), and

'(2) the value of such gift is shown on the return for such preceding calendar period or is disclosed in such return, or in a statement attached to the return, in a manner adequate to apprise the Secretary of the nature of such gift,

 

(1) IN GENERAL.--Part IV of subchapter C of chapter 76 is amended by inserting after section 7476 the following new section:

 

'(1) PETITIONER.--A pleading may be filed under this section only by the donor.

'(2) EXHAUSTION OF ADMINISTRATIVE REMEDIES.--The court shall not issue a declaratory judgment or decree under this section in any proceeding unless it determines that the petitioner has exhausted all available administrative remedies within the Internal Revenue Service.

'(3) TIME FOR BRINGING ACTION.--If the Secretary sends by certified or registered mail notice of his determination as described in subsection (a) to the petitioner, no proceeding may be initiated under this section unless the pleading is filed before the 91st day after the date of such mailing.'.

(2) CLERICAL AMENDMENT.--The table of sections for such part IV is amended by inserting after the item relating to section 7476 the following new item:

 

(1) IN GENERAL.--The amendments made by subsections (a) and (c) shall apply to gifts made after the date of the enactment of this Act.

(2) SUBSECTION (b).--The amendment made by subsection (b) shall apply to gifts made in calendar years ending after the date of the enactment of this Act.

 

(1) IN GENERAL.--Section 665 is amended by inserting after subsection (b) the following new subsection:

 

'(1) IN GENERAL.--In the case of a qualified trust, any distribution in any taxable year beginning after the date of the enactment of this subsection shall be computed without regard to any undistributed net income.

'(2) QUALIFIED TRUST.--For purposes of this subsection, the term 'qualified trust' means any trust other than--

 

(2) CONFORMING AMENDMENTS.--Subsection (b) of section 665 is amended by inserting 'except as provided in subsection (c),' after 'subpart,'.

 

(1) Subpart A of part I of subchapter J of chapter 1 is amended by striking section 644 and by redesignating section 645 as section 644.

(2) Paragraph (5) of section 706(b) is amended by striking 'section 645' and inserting 'section 644'.

(3) The table of sections for such subpart is amended by striking the last 2 items and inserting the following new item:

 

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

(2) TRANSFERRED PROPERTY.--The amendments made by subsection (b) shall apply to sales or exchanges after the date of the enactment of this Act.

 

'(1) IN GENERAL.--If the executor makes the election described in paragraph (6), then, except as otherwise provided in this subsection, there shall be excluded from the gross estate the lesser of--

 

'(2) APPLICABLE PERCENTAGE.--For purposes of paragraph (1), the term 'applicable percentage' means 40 percent reduced (but not below zero) by 2 percentage points for each percentage point (or fraction thereof) by which the value of the qualified conservation easement is less than 30 percent of the value of the land (determined without regard to the value of such easement and reduced by the value of any retained development right (as defined in paragraph (5)).

'(3) EXCLUSION LIMITATION.--For purposes of paragraph (1), the exclusion limitation is the limitation determined in accordance with the following table:

'(4) TREATMENT OF CERTAIN INDEBTEDNESS.-- '(5) TREATMENT OF RETAINED DEVELOPMENT RIGHT.--

 

'(6) ELECTION.--The election under this subsection shall be made on the return of the tax imposed by section 2001. Such an election, once made, shall be irrevocable.

'(7) CALCULATION OF ESTATE TAX DUE.--An executor making the election described in paragraph (6) shall, for purposes of calculating the amount of tax imposed by section 2001, include the value of any development right (as defined in paragraph (5)) retained by the donor in the conveyance of such qualified conservation easement. The computation of tax on any retained development right prescribed in this paragraph shall be done in such manner and on such forms as the Secretary shall prescribe.

'(8) DEFINITIONS.--For purposes of this subsection--

 

'(9) APPLICATION OF THIS SECTION TO INTERESTS IN PARTNERSHIPS, CORPORATIONS, AND TRUSTS.--This section shall apply to an interest in a partnership, corporation, or trust if at least 30 percent of the entity is owned (directly or indirectly) by the decedent, as determined under the rules described in section 2033A(e)(3).'.

 

(1) EXCLUSION.--The amendments made by subsections (a) and (b) shall apply to estates of decedents dying after December 31, 1997.

(2) EASEMENTS.--The amendments made by subsections (c) and (d) shall apply to easements granted after December 31, 1997.

 

'(1) IN GENERAL.--For purposes of determining whether any transfer is a generation-skipping transfer, if--

 

such individual shall be treated as if such individual were a member of the generation which is 1 generation below the lower of the transferor's generation or the generation assignment of the youngest living ancestor of such individual who is also a descendant of the parent of the transferor (or the transferor's spouse or former spouse), and the generation assignment of any descendant of such individual shall be adjusted accordingly.

'(2) LIMITED APPLICATION OF SUBSECTION TO COLLATERAL HEIRS.--This subsection shall not apply with respect to a transfer to any individual who is not a lineal descendant of the transferor (or the transferor's spouse or former spouse) if, at the time of the transfer, such transferor has any living lineal descendant.'.

 

(1) Section 2612(c) (defining direct skip) is amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2).

(2) Section 2612(c)(2) (as so redesignated) is amended by striking 'section 2651(e)(2)' and inserting 'section 2651(f)(2)'.

 

(1) by striking 'May 31, 1997' and inserting 'June 30, 1998', and

(2) by striking in the last sentence 'during the first 11 months of such taxable year.' and inserting 'during the 24-month period beginning with the first month of such year. The 24 months referred to in the preceding sentence shall be reduced by the number of full months after June 1996 (and before the first month of such first taxable year) during which the taxpayer paid or incurred any amount which is taken into account in determining the credit under this section.'.

 

(1) Subparagraph (B) of section 41(c)(4) is amended to read as follows:

 

(2) Paragraph (1) of section 45C(b) is amended by striking 'May 31, 1997' and inserting 'June 30, 1998'.

 

(1) IN GENERAL.--Subparagraph (A) of section 51(d)(2) (defining qualified IV-A recipient) is amended by striking all that follows 'a IV-A program' and inserting 'for any 9 months during the 18-month period ending on the hiring date.'.

(2) CONFORMING AMENDMENT.--Subparagraph (A) of section 51(d)(3) is amended to read as follows:

 

(1) IN GENERAL.--Section 51(d)(1) (relating to members of targeted groups) is amended by striking 'or' at the end of subparagraph (F), by striking the period at the end of subparagraph (G) and inserting ', or', and by adding at the end the following new subparagraph:

 

(2) QUALIFIED SSI RECIPIENTS.--Section 51(d) is amended by redesignating paragraphs (9), (10), and (11) as paragraphs (10), (11), and (12), respectively, and by inserting after paragraph (8) the following new paragraph:

'(9) QUALIFIED SSI RECIPIENT.--The term 'qualified SSI recipient' means any individual who is certified by the designated local agency as receiving supplemental security income benefits under title XVI of the Social Security Act (including supplemental security income benefits of the type described in section 1616 of such Act or section 212 of Public Law 93-66) for any month ending within the 60-day period ending on the hiring date.'.

 

(1) IN GENERAL.--Subsection (a) of section 51 (relating to determination of amount) is amended by striking '35 percent' and inserting '40 percent'.

(2) APPLICATION OF CREDIT FOR INDIVIDUALS PERFORMING FEWER THAN 400 HOURS OF SERVICES.--Paragraph (3) of section 51(i) is amended to read as follows:

'(3) INDIVIDUALS NOT MEETING MINIMUM EMPLOYMENT PERIODS.--

 

'(1) the applicable DC area is hereby designated as the District of Columbia Enterprise Zone, and

'(2) except as otherwise provided in this subchapter, the District of Columbia Enterprise Zone shall be treated as an empowerment zone designated under subchapter U.

 

'(1) the census tracts located in the District of Columbia which are part of an enterprise community designated under subchapter U before the date of the enactment of this subchapter, and

'(2) all other census tracts--

 

'(1) EMPLOYEES WHOSE PRINCIPAL PLACE OF ABODE IS IN DISTRICT OF COLUMBIA.--With respect to the DC Zone, section 1396(d)(1)(B) (relating to empowerment zone employment credit) shall be applied by substituting 'the District of Columbia' for 'such empowerment zone'.

'(2) NO DECREASE OF PERCENTAGE IN 2002.--In the case of the DC Zone, section 1396 (relating to empowerment zone employment credit) shall be applied by substituting '20' for '15' in the table contained in section 1396(b). The preceding sentence shall apply only with respect to qualified zone employees, as defined in section 1396(d), determined by treating no area other than the DC Zone as an empowerment zone or enterprise community.

 

'(1) IN GENERAL.--The designation made by subsection (a) shall apply for the period beginning on January 1, 1998, and ending on December 31, 2002.

'(2) COORDINATION WITH DC ENTERPRISE COMMUNITY DESIGNATED UNDER SUBCHAPTER U.--The designation under subchapter U of the census tracts referred to in subsection (b)(1) as an enterprise community shall terminate on December 31, 2002.

 

'(1) IN GENERAL.--The term 'DC Zone asset' means--

 

'(2) DC ZONE BUSINESS STOCK.--

 

'(3) DC ZONE PARTNERSHIP INTEREST.--The term 'DC Zone partnership interest' means any capital or profits interest in a domestic partnership which is originally issued after December 31, 1997, if--

 

A rule similar to the rule of paragraph (2)(B) shall apply for purposes of this paragraph.

'(4) DC ZONE BUSINESS PROPERTY.--

'(6) TREATMENT OF SUBSEQUENT PURCHASERS, ETC.--The term 'DC Zone asset' includes any property which would be a DC Zone asset but for paragraph (2)(A)(i), (3)(A), or (4)(A)(ii) in the hands of the taxpayer if such property was a DC Zone asset in the hands of a prior holder.

'(7) 5-YEAR SAFE HARBOR.--If any property ceases to be a DC Zone asset by reason of paragraph (2)(A)(iii), (3)(C), or (4)(A)(iii) after the 5-year period beginning on the date the taxpayer acquired such property, such property shall continue to be treated as meeting the requirements of such paragraph; except that the amount of gain to which subsection (a) applies on any sale or exchange of such property shall not exceed the amount which would be qualified capital gain had such property been sold on the date of such cessation.

 

'(1) after the application of section 1400(e),

'(2) by substituting '80 percent' for '50 percent' in subsections (b)(2) and (c)(1) of section 1397B, and

'(3) by treating no area other than the DC Zone as an empowerment zone or enterprise community.

 

'(1) which are located in the District of Columbia, and

'(2) for which the poverty rate is not less than 10 percent.

 

'(1) QUALIFIED CAPITAL GAIN.--Except as otherwise provided in this subsection, the term 'qualified capital gain' means any gain recognized on the sale or exchange of--

 

'(2) GAIN BEFORE 1998 OR AFTER 2007 NOT QUALIFIED.--The term 'qualified capital gain' shall not include any gain attributable to periods before January 1, 1998, or after December 31, 2007.

'(3) CERTAIN GAIN NOT QUALIFIED.--The term 'qualified capital gain' shall not include any gain which would be treated as ordinary income under section 1245 or under section 1250 if section 1250 applied to all depreciation rather than the additional depreciation.

'(4) INTANGIBLES AND LAND NOT INTEGRAL PART OF DC ZONE BUSINESS.--The term 'qualified capital gain' shall not include any gain which is attributable to real property, or an intangible asset, which is not an integral part of a DC Zone business.

'(5) RELATED PARTY TRANSACTIONS.--The term 'qualified capital gain' shall not include any gain attributable, directly or indirectly, in whole or in part, to a transaction with a related person. For purposes of this paragraph, persons are related to each other if such persons are described in section 267(b) or 707(b)(1).

 

'(1) any gain which is attributable to real property, or an intangible asset, which is not an integral part of a DC Zone business, and

'(2) any gain attributable to periods before January 1, 1998, or after December 31, 2007.

 

'(1) IN GENERAL.--The amount allowable as a credit under subsection (a) (determined without regard to this subsection) for the taxable year shall be reduced (but not below zero) by the amount which bears the same ratio to the credit so allowable as--

 

'(2) MODIFIED ADJUSTED GROSS INCOME.--For purposes of paragraph (1), the term 'modified adjusted gross income' means the adjusted gross income of the taxpayer for the taxable year increased by any amount excluded from gross income under section 911, 931, or 933.

 

'(1) IN GENERAL.--The term 'first-time homebuyer' has the same meaning as when used in section 72(t)(8)(D)(i), except that 'principal residence in the District of Columbia during the 1-year period' shall be substituted for 'principal residence during the 2-year period' in subclause (I) thereof.

'(2) ONE-TIME ONLY.--If an individual is treated as a first-time homebuyer with respect to any principal residence, such individual may not be treated as a first-time homebuyer with respect to any other principal residence.

'(3) PRINCIPAL RESIDENCE.--The term 'principal residence' has the same meaning as when used in section 121.

 

'(1) ALLOCATION OF DOLLAR LIMITATION.--

 

'(2) PURCHASE.--

 

'(3) PURCHASE PRICE.--The term 'purchase price' means the adjusted basis of the principal residence on the date of acquisition (within the meaning of section 72(t)(8)(D)(iii)).

 

(1) Subsection (d) of section 39 is amended by adding at the end the following new paragraph:

'(8) NO CARRYBACK OF DC ZONE CREDITS BEFORE EFFECTIVE DATE.--No portion of the unused business credit for any taxable year which is attributable to the credits allowable under subchapter U by reason of section 1400 may be carried back to a taxable year ending before the date of the enactment of section 1400.'.

(2) Subsection (a) of section 1016 is amended by striking 'and' at the end of paragraph (25), by striking the period at the end of paragraph (26) and inserting ', and', and by adding at the end thereof the following new paragraph:

'(27) in the case of a residence with respect to which a credit was allowed under section 1400C, to the extent provided in section 1400C(h).'.

 

'(1) 35 percent of the qualified first-year wages for such year, and

'(2) 50 percent of the qualified second-year wages for such year.

 

'(1) IN GENERAL.--The term 'qualified wages' means the wages paid or incurred by the employer during the taxable year to individuals who are long-term family assistance recipients.

'(2) QUALIFIED FIRST-YEAR WAGES.--The term 'qualified first-year wages' means, with respect to any individual, qualified wages attributable to service rendered during the 1-year period beginning with the day the individual begins work for the employer.

'(3) QUALIFIED SECOND-YEAR WAGES.--The term 'qualified second-year wages' means, with respect to any individual, qualified wages attributable to service rendered during the 1-year period beginning on the day after the last day of the 1-year period with respect to such individual determined under paragraph (2).

'(4) ONLY FIRST $10,000 OF WAGES PER YEAR TAKEN INTO ACCOUNT.--The amount of the qualified first-year wages, and the amount of qualified second-year wages, which may be taken into account with respect to any individual shall not exceed $10,000 per year.

'(5) WAGES.--

 

'(1) IN GENERAL.--The term 'long-term family assistance recipient' means any individual who is certified by the designated local agency (as defined in section 51(d)(10))-- '(2) HIRING DATE.--The term 'hiring date' has the meaning given such term by section 51(d).

 

'(1) IN GENERAL.--Rules similar to the rules of section 52, and subsections (d)(11), (f), (g), (i) (as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997), (j), and (k) of section 51, shall apply for purposes of this section.

'(2) CREDIT TO BE PART OF GENERAL BUSINESS CREDIT, ETC.--References to section 51 in section 38(b), 280C(a), and 1396(c)(3) shall be treated as including references to this section.

 

'(4) CERTAIN TAXES NOT TRANSFERRED TO HIGHWAY TRUST FUND.--For purposes of paragraphs (1) and (2), there shall not be taken into account the taxes imposed by--

 

(1) Section 9503 is amended by striking subsection (f).

(2) The last sentence of subparagraph (A) of section 9503(c)(2) is amended by striking 'by taking into account only the Highway Trust Fund financing rate applicable to any fuel' and inserting 'by taking into account only the portion of the taxes which are deposited into the Highway Trust Fund'.

(3) Paragraphs (4)(D), (5)(B), and (6)(D) of section 9503(c) are each amended by striking 'attributable to the Highway Trust Fund financing rate' and inserting 'deposited into the Highway Trust Fund'.

 

(1) Subparagraph (A) of section 4041(a)(1) is amended--

 

(2) Paragraph (1) of section 4041(a) is amended by striking subparagraph (D).

(3) Paragraph (3) of section 4083(a) is amended by striking ', a diesel-powered train, or a diesel-powered boat' and inserting 'or a diesel-powered train'.

 

'(1) IN GENERAL.--The amount of the tax imposed by subsection (a) shall be 75 cents per dose of any taxable vaccine.

'(2) COMBINATIONS OF VACCINES.--If any taxable vaccine is described in more than 1 subparagraph of section 4132(a)(1), the amount of the tax imposed by subsection (a) on such vaccine shall be the sum of the amounts for the vaccines which are so included.'.

 

'(1) TAXABLE VACCINE.--The term 'taxable vaccine' means any of the following vaccines which are manufactured or produced in the United States or entered into the United States for consumption, use, or warehousing:

 

'(1) IN GENERAL.--There is hereby imposed on the 1st retail sale of any passenger vehicle a tax equal to 10 percent of the price for which so sold to the extent such price exceeds the applicable amount.

'(2) APPLICABLE AMOUNT.--

 

(1) Subsection (e) of section 4001 (relating to inflation adjustment) is amended by striking 'and section 4003(a)'.

(2) Subsection (f) of section 4001 (relating to phasedown) is amended by striking 'subsection (a)' and inserting 'subsection (a)(1)'.

(3) Subparagraph (A) of section 4003(a)(1) is amended by inserting '(other than property described in section 4001(a)(2)(B))' after 'part or accessory'.

(4) Subparagraph (B) of section 4003(a)(2) is amended to read as follows:

 

(1) IN GENERAL.--Paragraph (2) of section 4041(a) (relating to special motor fuels) is amended to read as follows:

'(2) SPECIAL MOTOR FUELS.--

 

(2) CONFORMING AMENDMENT.--Paragraph (1) of section 4041(d) is amended by inserting 'and other than liquefied natural gas' after 'liquefied petroleum gas'.

'(A) the rate of the tax imposed by subsection (a)(2) shall be--

 

(1) tax compliance,

(2) the number of taxpayers required to pay the tax,

(3) the types of financial responsibility requirements that might be required, and

(4) special requirements regarding segregation of non-tax-paid distilled spirits from other products.

 

'(1) IN GENERAL.--Semi-generic designations may be used to designate wines of an origin other than that indicated by such name only if--

 

'(2) DETERMINATION OF WHETHER NAME IS SEMI-GENERIC.--

 

'(1) whether any of the acts described in paragraph (1) of section 7508(a) were performed within the time prescribed therefor, and

'(2) the amount of any credit or refund.

 

(1) by striking 'drought conditions, and that these drought conditions' in paragraph (1) and inserting 'drought, flood, or other weather-related conditions, and that such conditions'; and

(2) by inserting ', FLOOD, OR OTHER WEATHER-RELATED CONDITIONS' after 'DROUGHT' in the subsection heading.

 

(1) by inserting ', flood, or other weather-related conditions' before the period at the end thereof; and

(2) by inserting ', FLOOD, OR OTHER WEATHER-RELATED CONDITIONS' after 'DROUGHT' in the subsection heading.

 

'(A) Subsection (d) (relating to 3-year requirement) shall not apply.

'(B) Subsections (e) and (f) (relating to purchase price requirement and income requirement) shall be applied as if such residence were a targeted area residence.

 

'(1) such amount is received after termination of such individual's agreement to perform such services for such company,

'(2) such individual performs no services for such company after such termination and before the close of such taxable year,

'(3) such individual enters into a covenant not to compete against such company which applies to at least the 1-year period beginning on the date of such termination, and

'(4) the amount of such payment--

 

'(1) such amount is received after termination of such individual's agreement to perform such services for such company,

'(2) such individual performs no services for such company after such termination and before the close of such taxable year,

'(3) such individual enters into a covenant not to compete against such company which applies to at least the 1-year period beginning on the date of such termination, and

'(4) the amount of such payment--

 

'(1) a tax computed under such section on taxable income reduced by elected farm income, plus

'(2) the increase in tax imposed by section 1 which would result if taxable income for each of the 3 prior taxable years were increased by an amount equal to one-third of the elected farm income.

 

'(1) ELECTED FARM INCOME.--

 

'(2) INDIVIDUAL.--The term 'individual' shall not include any estate or trust.

'(3) FARMING BUSINESS.--The term 'farming business' has the meaning given such term by section 263A(e)(4).

 

'(1) the order and manner in which items of income, gain, deduction, or loss, or limitations on tax, shall be taken into account in computing the tax imposed by this chapter on the income of any taxpayer to whom this section applies for any taxable year, and

'(2) the treatment of any short taxable year.'.

 

'(1) IN GENERAL.--The term 'qualified environmental remediation expenditure' means any expenditure--

 

'(2) SPECIAL RULE FOR EXPENDITURES FOR DEPRECIABLE PROPERTY.--Such term shall not include any expenditure for the acquisition of property of a character subject to the allowance for depreciation which is used in connection with the abatement or control of hazardous substances at a qualified contaminated site; except that the portion of the allowance under section 167 for such property which is otherwise allocated to such site shall be treated as a qualified environmental remediation expenditure.

 

'(1) QUALIFIED CONTAMINATED SITE.--

 

'(2) TARGETED AREA.--

 

'(1) IN GENERAL.--The term 'hazardous substance' means--

 

'(2) EXCEPTION.--Such term shall not include any substance with respect to which a removal or remedial action is not permitted under section 104 of such Act by reason of subsection (a)(3) thereof.

 

'(1) the deduction allowed by this section for such expenditure shall be treated as a deduction for depreciation, and

'(2) such property (if not otherwise section 1245 property) shall be treated as section 1245 property solely for purposes of applying section 1245 to such deduction.

 

(1) by striking '9' and inserting '11',

(2) by striking '6' and inserting '8', and

(3) by striking '750,000' and inserting '1,000,000'.

 

(1) by striking so much of the subsection as precedes the table and inserting the following:

 

'(1) IN GENERAL.--Except as provided in paragraph (2), the term 'applicable percentage' means the percentage determined in accordance with the following table:', and

(2) by adding at the end the following new paragraph:

'(2) SPECIAL RULE.--With respect to each empowerment zone designated pursuant to the amendments made by the Taxpayer Relief Act of 1997 to section 1391(b)(2), the following table shall apply in lieu of the table in paragraph (1):

 

'(1) IN GENERAL.--In addition to the areas designated under subsection (a), the appropriate Secretaries may designate in the aggregate an additional 20 nominated areas as empowerment zones under this section, subject to the availability of eligible nominated areas. Of that number, not more than 15 may be designated in urban areas and not more than 5 may be designated in rural areas.

'(2) PERIOD DESIGNATIONS MAY BE MADE AND TAKE EFFECT.--A designation may be made under this subsection after the date of the enactment of this subsection and before January 1, 1999.

'(3) MODIFICATIONS TO ELIGIBILITY CRITERIA, ETC.--

 

(1) Subsections (e) and (f) of section 1391 are each amended by striking 'subsection (a)' and inserting 'this section'.

(2) Section 1391(c) is amended by striking 'this section' and inserting 'subsection (a)'.

 

'(1) IN GENERAL.--In the case of a new empowerment zone facility bond--

 

'(2) LIMITATION ON AMOUNT OF BONDS.-- '(3) NEW EMPOWERMENT ZONE FACILITY BOND.--For purposes of this subsection, the term 'new empowerment zone facility bond' means any bond which would be described in subsection (a) if only empowerment zones designated under section 1391(g) were taken into account under sections 1397B and 1397C.'.

 

'(3) ENTERPRISE ZONE BUSINESS.--

 

'(2) QUALIFIED ZONE PROPERTY.--The term 'qualified zone property' has the meaning given such term by section 1397C; except that--

 

(1) by striking '80 percent' in subsections (b)(2) and (c)(1) and inserting '50 percent',

(2) by striking 'substantially all' each place it appears in subsections (b) and (c) and inserting 'a substantial portion',

(3) by striking ', and exclusively related to,' in subsections (b)(4) and (c)(3),

(4) by adding at the end of subsection (d)(2) the following new flush sentence:

'For purposes of subparagraph (B), the lessor of the property may rely on a lessee's certification that such lessee is an enterprise zone business.',

(5) by striking 'substantially all' in subsection (d)(3) and inserting 'at least 50 percent', and

(6) by adding at the end the following new subsection:

 

'(1) a business entity or proprietorship uses real property located within an empowerment zone,

'(2) the business entity or proprietorship also uses real property located outside the empowerment zone,

'(3) the amount of real property described in paragraph (1) is substantial compared to the amount of real property described in paragraph (2), and

'(4) the real property described in paragraph (2) is contiguous to part or all of the real property described in paragraph (1),

 

(1) IN GENERAL.--The amendments made by this section shall apply to taxable years beginning on or after the date of the enactment of this Act.

(2) SPECIAL RULE FOR ENTERPRISE ZONE FACILITY BONDS.--For purposes of section 1394(b) of the Internal Revenue Code of 1986, the amendments made by this section shall apply to obligations issued after the date of the enactment of this Act.

 

'(1) the taxpayer normally does a physical count of inventories at each location on a regular and consistent basis, and

'(2) the taxpayer makes proper adjustments to such inventories and to its estimating methods to the extent such estimates are greater than or less than the actual shrinkage.'.

 

(1) IN GENERAL.--The amendment made by this section shall apply to taxable years ending after the date of the enactment of this Act.

(2) COORDINATION WITH SECTION 481.--In the case of any taxpayer permitted by this section to change its method of accounting to a permissible method for any taxable year--

 

(1) by inserting ', or as compensation under any workmen's compensation act,' after '(whether by suit or agreement)' in the material preceding paragraph (1),

(2) by inserting 'or the workmen's compensation claim,' after 'agreement,' in paragraph (1), and

(3) by striking 'section 104(a)(2)' in paragraph (2)(D) and inserting 'paragraph (1) or (2) of section 104(a)'.

'(B) Any organization (including a mutual insurance company) if--

 

'(1) IN GENERAL.--Subsection (a) shall not apply to an electing 1987 partnership.

'(2) ELECTING 1987 PARTNERSHIP.--For purposes of this subsection, the term 'electing 1987 partnership' means any publicly traded partnership if--

 

A partnership which, but for this sentence, would be treated as an electing 1987 partnership shall cease to be so treated (and the election under subparagraph (C) shall cease to be in effect) as of the 1st day after December 31, 1997, on which there has been an addition of a substantial new line of business with respect to such partnership.

'(3) ADDITIONAL TAX ON ELECTING PARTNERSHIPS.--

 

'(4) ELECTION.--An election and consent under this subsection shall apply to the taxable year for which made and all subsequent taxable years unless revoked by the partnership. Such revocation may be made without the consent of the Secretary, but, once so revoked, may not be reinstated.'.

 

'(1) IN GENERAL.--The term 'unrelated trade or business' does not include the activity of soliciting and receiving qualified sponsorship payments.

'(2) QUALIFIED SPONSORSHIP PAYMENTS.--For purposes of this subsection--

'(3) ALLOCATION OF PORTIONS OF SINGLE PAYMENT.--For purposes of this subsection, to the extent that a portion of a payment would (if made as a separate payment) be a qualified sponsorship payment, such portion of such payment and the other portion of such payment shall be treated as separate payments.'.

 

(1) IN GENERAL.--Paragraph (1) of section 528(c) (defining homeowners association) is amended--

 

(2) TIMESHARE ASSOCIATION DEFINED.--Subsection (c) of section 528 is amended by redesignating paragraph (4) as paragraph (5) and by inserting after paragraph (3) the following new paragraph:

'(4) TIMESHARE ASSOCIATION.--The term 'timeshare association' means any organization (other than a condominium management association) meeting the requirement of subparagraph (A) of paragraph (1) if any member thereof holds a timeshare right to use, or a timeshare ownership interest in, real property constituting association property.'.

 

'(1) IN GENERAL.--This section shall apply to the sale of stock of a qualified refiner or processor to an eligible farmers' cooperative.

'(2) QUALIFIED REFINER OR PROCESSOR.--For purposes of this subsection, the term 'qualified refiner or processor' means a domestic corporation--

'(3) ELIGIBLE FARMERS' COOPERATIVE.--For purposes of this section, the term 'eligible farmers' cooperative' means an organization to which part I of subchapter T applies and which is engaged in the marketing of agricultural or horticultural products.

'(4) SPECIAL RULES.--In applying this section to a sale to which paragraph (1) applies--

 

'(3) SPECIAL RULE FOR INDIVIDUALS SUBJECT TO FEDERAL HOURS OF SERVICE.--

'(C) SPECIAL RULE FOR CERTAIN CLEAN-FUEL PASSENGER AUTOMOBILES.--

 

(1) carried out between the Internal Revenue Service and the State of Montana for a period ending with the date which is 5 years after the date of the enactment of this Act,

(2) limited to the reporting of employment taxes, and

(3) limited to the disclosure of the taxpayer identity (as defined in section 6103(b)(6) of such Code) and the signature of the taxpayer.

 

(1) IN GENERAL.--If the National Railroad Passenger Corporation (in this section referred to as the 'Corporation')--

 

then the Corporation shall be treated as having made a payment of the tax imposed by chapter 1 of the Internal Revenue Code of 1986 for such first taxable year and the succeeding taxable year in an amount (for each such taxable year) equal to 50 percent of the amount determined under paragraph (3). Each such payment shall be treated as having been made by the Corporation on the last day prescribed by law (without regard to extensions) for filing its return of tax under chapter 1 of such Code for the taxable year to which such payment relates.

(2) CONDITIONS.--

(3) AMOUNT.--For purposes of paragraph (1)--

 

(1) EXISTING QUALIFIED CARRYOVERS.--The term 'existing qualified carryovers' means the aggregate of the amounts which are net operating loss carryovers under section 172(b) of the Internal Revenue Code of 1986 to the Corporation's first taxable year ending after September 30, 1997.

(2) NET TAX LIABILITY FOR CARRYBACK PERIOD.--

(3) RAILROAD PREDECESSOR.--

 

(1) IN GENERAL.--Within 30 days after receipt of any refund of any payment described in subsection (a)(1), the Corporation shall pay to each non-Amtrak State an amount equal to 1 percent of the amount of such refund.

(2) USE OF PAYMENT.--Each non-Amtrak State shall use the payment described in paragraph (1) (and any interest thereon) solely to finance qualified expenses of the State.

(3) REPAYMENT.--A non-Amtrak State shall pay to the United States--

 

Rules similar to the rules of subsection (a)(2)(B) shall apply for purposes of this paragraph.

 

(1) REDUCTION IN CARRYOVERS.--If the Corporation elects the application of this section, the Corporation's existing qualified carryovers shall be reduced by an amount equal to the amount determined under subsection (a)(3) divided by 0.35.

(2) REDUCTION IN TAX PAID BY RAILROAD PREDECESSORS.--

 

(3) TAX TREATMENT OF EXPENDITURES.--With respect to any payment by the Corporation of qualified expenses described in subsection (e)(1)(A) during any taxable year from the amount of any refund of the payment described in subsection (a)(1)--

 

(4) PAYMENTS TO A NON-AMTRAK STATE.--No deduction shall be allowed to the Corporation under chapter 1 of the Internal Revenue Code of 1986 for any payment to a non-Amtrak State required under subsection (a)(2)(A)(ii).

 

(1) QUALIFIED EXPENSES.--The term 'qualified expenses' means expenses incurred for--

 

(2) NON-AMTRAK STATE.--The term 'non-Amtrak State' means, with respect to any payment, any State which does not receive intercity passenger rail service from the Corporation at any time during the period beginning on the date of the enactment of this Act and ending on the date of the payment.

 

(1) IN GENERAL.--The Secretary of the Treasury shall not make payment of any refund of any payment described in subsection (a)(1) earlier than the date of the enactment of Federal legislation, other than legislation included in this section, which is enacted after July 29, 1997, and which authorizes reforms of the National Railroad Passenger Corporation.

(2) NO INTEREST.--Notwithstanding any other provision of law, if the payment of any refund is delayed by reason of paragraph (1), no interest shall accrue with respect to such payment prior to the 45th day following the date of the enactment of Federal legislation described in paragraph (1).

(3) ESTIMATE OF REVENUE.--For purposes of estimating revenues under budget reconciliation, the impact of this section on Federal revenues shall be determined without regard to this subsection.

 

(1) IN GENERAL.--Notwithstanding section 514 of the Tariff Act of 1930 or any other provision of law and subject to paragraph (2), the entry--

 

shall be liquidated or reliquidated as free of duty, and the Secretary of the Treasury shall refund any duty paid with respect to such entry. As used in this subsection, the term 'entry' includes a withdrawal from warehouse for consumption.

(2) REQUESTS.--Liquidation or reliquidation may be made under paragraph (1) with respect to an entry only if a request therefor is filed with the Customs Service, within 180 days after the date of the enactment of this Act, that contains sufficient information to enable the Customs Service--

 

'(1) the taxpayer shall recognize gain as if such position were sold, assigned, or otherwise terminated at its fair market value on the date of such constructive sale (and any gain shall be taken into account for the taxable year which includes such date), and

'(2) for purposes of applying this title for periods after the constructive sale--

 

'(1) IN GENERAL.--Except as provided in paragraph (2), the term 'appreciated financial position' means any position with respect to any stock, debt instrument, or partnership interest if there would be gain were such position sold, assigned, or otherwise terminated at its fair market value.

'(2) EXCEPTIONS.--The term 'appreciated financial position' shall not include--

 

'(3) POSITION.--The term 'position' means an interest, including a futures or forward contract, short sale, or option.

 

'(1) IN GENERAL.--A taxpayer shall be treated as having made a constructive sale of an appreciated financial position if the taxpayer (or a related person)--

 

'(2) EXCEPTION FOR SALES OF NONPUBLICLY TRADED PROPERTY.--The term 'constructive sale' shall not include any contract for sale of any stock, debt instrument, or partnership interest which is not a marketable security (as defined in section 453(f)) if the contract settles within 1 year after the date such contract is entered into.

'(3) EXCEPTION FOR CERTAIN CLOSED TRANSACTIONS.--

'(4) RELATED PERSON.--A person is related to another person with respect to a transaction if--

 

'(1) FORWARD CONTRACT.--The term 'forward contract' means a contract to deliver a substantially fixed amount of property for a substantially fixed price.

'(2) OFFSETTING NOTIONAL PRINCIPAL CONTRACT.--The term 'offsetting notional principal contract' means, with respect to any property, an agreement which includes--

 

'(1) TREATMENT OF SUBSEQUENT SALE OF POSITION WHICH WAS DEEMED SOLD.--If--

 

solely for purposes of determining whether the taxpayer has entered into a constructive sale of any other appreciated financial position held by the taxpayer, the taxpayer shall be treated as entering into such transaction immediately after such disposition. For purposes of the preceding sentence, an assignment or other termination shall be treated as a disposition.

'(2) CERTAIN TRUST INSTRUMENTS TREATED AS STOCK.--For purposes of this section, an interest in a trust which is actively traded (within the meaning of section 1092(d)(1)) shall be treated as stock unless substantially all (by value) of the property held by the trust is debt described in subsection (b)(2)(A).

'(3) MULTIPLE POSITIONS IN PROPERTY.--If a taxpayer holds multiple positions in property, the determination of whether a specific transaction is a constructive sale and, if so, which appreciated financial position is deemed sold shall be made in the same manner as actual sales.

 

'(1) IN GENERAL.--In the case of a dealer in commodities who elects the application of this subsection, this section shall apply to commodities held by such dealer in the same manner as this section applies to securities held by a dealer in securities.

'(2) COMMODITY.--For purposes of this subsection and subsection (f), the term 'commodity' means--

'(3) ELECTION.--An election under this subsection may be made without the consent of the Secretary. Such an election, once made, shall apply to the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.

 

'(1) TRADERS IN SECURITIES.--

 

'(2) TRADERS IN COMMODITIES.--In the case of a person who is engaged in a trade or business as a trader in commodities and who elects to have this paragraph apply to such trade or business, paragraph (1) shall apply to commodities held by such trader in connection with such trade or business in the same manner as paragraph (1) applies to securities held by a trader in securities.

'(3) ELECTION.--The elections under paragraphs (1) and (2) may be made separately for each trade or business and without the consent of the Secretary. Such an election, once made, shall apply to the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.'.

 

(1) IN GENERAL.--Except as otherwise provided in this subsection, the amendments made by this section shall apply to any constructive sale after June 8, 1997.

(2) EXCEPTION FOR SALES OF POSITIONS, ETC. HELD BEFORE JUNE 9, 1997.--If--

 

such transaction and position shall not be taken into account in determining whether any other constructive sale after June 8, 1997, has occurred. The preceding sentence shall cease to apply as of the date such transaction is closed or the taxpayer ceases to hold such position.

(3) SPECIAL RULE.--In the case of a decedent dying after June 8, 1997, if--

 

then, for purposes of such Code, such position (and the transaction resulting in such constructive sale) shall be treated as property constituting rights to receive an item of income in respect of a decedent under section 691 of such Code. Section 1014(c) of such Code shall not apply to so much of such position's or property's value (as included in the decedent's estate for purposes of chapter 11 of such Code) as exceeds its fair market value as of the date such transaction is closed.

(4) ELECTION OF MARK-TO-MARKET BY SECURITIES TRADERS AND TRADERS AND DEALERS IN COMMODITIES.--

 

'For purposes of the preceding sentence, the determination of whether a company is an investment company shall be made-- The Secretary may prescribe regulations that, under appropriate circumstances, treat any asset described in clauses (i) through (v) as not so listed.'.

 

(1) IN GENERAL.--The amendment made by subsection (a) shall apply to transfers after June 8, 1997, in taxable years ending after such date.

(2) BINDING CONTRACTS.--The amendment made by subsection (a) shall not apply to any transfer pursuant to a written binding contract in effect on June 8, 1997, and at all times thereafter before such transfer if such contract provides for the transfer of a fixed amount of property.

 

(1) IN GENERAL.--Paragraph (1) of section 1234A (relating to gains and losses from certain terminations) is amended by striking 'personal property (as defined in section 1092(d)(1))' and inserting 'property'.

(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall apply to terminations more than 30 days after the date of the enactment of this Act.

 

(1) IN GENERAL.--Section 1233 is amended by adding at the end the following new subsection:

 

'(1) IN GENERAL.--If--

 

the taxpayer shall recognize gain in the same manner as if the short sale were closed when the property becomes substantially worthless. To the extent provided in regulations prescribed by the Secretary, the preceding sentence also shall apply with respect to any option with respect to property, any offsetting notional principal contract with respect to property, any futures or forward contract to deliver any property, and any other similar transaction.

'(2) STATUTE OF LIMITATIONS.--If property becomes substantially worthless during a taxable year and any short sale of such property remains open at the time such property becomes substantially worthless, then--

 

(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall apply to property which becomes substantially worthless after the date of the enactment of this Act.

 

(1) IN GENERAL.--Section 1271(b) is amended to read as follows:

 

'(1) IN GENERAL.--This section shall not apply to--

 

'(2) TERMINATION.--Paragraph (1) shall not apply to any obligation purchased (within the meaning of section 1272(d)(1)) after June 8, 1997.'.

(2) EFFECTIVE DATE.--The amendment made by paragraph (1) shall apply to sales, exchanges, and retirements after the date of enactment of this Act.

 

To the extent provided in regulations prescribed by the Secretary, in the case of a small business engaged in the trade or business of selling tangible personal property at retail, clause (iii) shall not apply to debt instruments incurred in the ordinary course of such trade or business while held by such business.'.

 

(1) IN GENERAL.--The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

(2) CHANGE IN METHOD OF ACCOUNTING.--In the case of any taxpayer required by this section to change its method of accounting for its first taxable year beginning after the date of the enactment of this Act--

 

'(1) IN GENERAL.--No deduction shall be allowed under this chapter for any interest paid or accrued on a disqualified debt instrument.

'(2) DISQUALIFIED DEBT INSTRUMENT.--For purposes of this subsection, the term 'disqualified debt instrument' means any indebtedness of a corporation which is payable in equity of the issuer or a related party.

'(3) SPECIAL RULES FOR AMOUNTS PAYABLE IN EQUITY.--For purposes of paragraph (2), indebtedness shall be treated as payable in equity of the issuer or a related party only if--

 

For purposes of this paragraph, principal or interest shall be treated as required to be so paid, converted, or determined if it may be required at the option of the holder or a related party and there is a substantial certainty the option will be exercised.

'(4) RELATED PARTY.--For purposes of this subsection, a person is a related party with respect to another person if such person bears a relationship to such other person described in section 267(b) or 707(b).

'(5) REGULATIONS.--The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations preventing avoidance of this subsection through the use of an issuer other than a corporation.'.

 

(1) IN GENERAL.--The amendment made by this section shall apply to disqualified debt instruments issued after June 8, 1997.

(2) TRANSITION RULE.--The amendment made by this section shall not apply to any instrument issued after June 8, 1997, if such instrument is--

 

'(1) TREATMENT OF PARTIAL LIQUIDATIONS AND CERTAIN REDEMPTIONS.--Except as otherwise provided in regulations--

 

(1) IN GENERAL.--The amendments made by this section shall apply to distributions after May 3, 1995.

(2) TRANSITION RULE.--The amendments made by this section shall not apply to any distribution made pursuant to the terms of--

 

(3) CERTAIN DIVIDENDS NOT PURSUANT TO CERTAIN REDEMPTIONS.--In determining whether the amendment made by subsection (a) applies to any extraordinary dividend other than a dividend treated as an extraordinary dividend under section 1059(e)(1) of the Internal Revenue Code of 1986 (as amended by this Act), paragraphs (1) and (2) shall be applied by substituting 'September 13, 1995' for 'May 3, 1995'.

 

'(1) GENERAL RULE.--If there is a distribution to which this subsection applies, any stock or securities in the controlled corporation shall not be treated as qualified property for purposes of subsection (c)(2) of this section or section 361(c)(2).

'(2) DISTRIBUTIONS TO WHICH SUBSECTION APPLIES.--

 

'(3) SPECIAL RULES RELATING TO ACQUISITIONS.--

 

'(4) DEFINITION AND SPECIAL RULES.--For purposes of this subsection-- '(5) REGULATIONS.--The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations--

 

(1) SECTION 355 NOT TO APPLY.--Section 355, as amended by subsection (a), is amended by adding at the end the following new subsection:

 

(2) ADJUSTMENTS TO BASIS.--Section 358 (relating to basis to distributees) is amended by adding at the end the following new subsection:

 

'(1) is in a corporation which is a member of such group, and

'(2) is held by another member of such group,

 

(1) SECTION 351 TRANSACTIONS.--Section 351(c) (relating to special rule) is amended to read as follows:

 

'(1) the fact that any corporate transferor distributes part or all of the stock in the corporation which it receives in the exchange to its shareholders shall not be taken into account, and

'(2) if the requirements of section 355 are met with respect to such distribution, the shareholders shall be treated as in control of such corporation immediately after the exchange if the shareholders own (immediately after the distribution) stock possessing--

 

(2) D REORGANIZATIONS.--Section 368(a)(2)(H) (relating to special rule for determining whether certain transactions are qualified under paragraph (1)(D)) is amended to read as follows:

 

(1) SECTION 355 RULES.--The amendments made by subsections (a) and (b) shall apply to distributions after April 16, 1997, pursuant to a plan (or series of related transactions) which involves an acquisition described in section 355(e)(2)(A)(ii) of the Internal Revenue Code of 1986 occurring after such date.

(2) DIVISIVE TRANSACTIONS.--The amendments made by subsection (c) shall apply to transfers after the date of the enactment of this Act.

(3) TRANSITION RULE.--The amendments made by this section shall not apply to any distribution pursuant to a plan (or series of related transactions) which involves an acquisition described in section 355(e)(2)(A)(ii) of the Internal Revenue Code of 1986 (or, in the case of the amendments made by subsection (c), any transfer) occurring after April 16, 1997, if such acquisition or transfer is--

 

This paragraph shall not apply to any agreement, ruling request, or public announcement or filing unless it identifies the acquirer of the distributing corporation or any controlled corporation, or the transferee, whichever is applicable.

'(iii) which would not have been treated (in whole or in part) as a dividend if--

 

'(5) ACQUISITIONS BY FOREIGN CORPORATIONS.--

 

(1) IN GENERAL.--The amendments made by this section shall apply to distributions and acquisitions after June 8, 1997.

(2) TRANSITION RULE.--The amendments made by this section shall not apply to any distribution or acquisition after June 8, 1997, if such distribution or acquisition is--

 

'(1) IN GENERAL.--In the case of a person who transfers property to a corporation and receives nonqualified preferred stock--

 

'(2) NONQUALIFIED PREFERRED STOCK.--For purposes of paragraph (1)-- '(3) DEFINITIONS.--For purposes of this subsection--

 

'(4) REGULATIONS.--The Secretary may prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection and sections 354(a)(2)(C), 355(a)(3)(D), and 356(e). The Secretary may also prescribe regulations, consistent with the treatment under this subsection and such sections, for the treatment of nonqualified preferred stock under other provisions of this title.'.

'(C) NONQUALIFIED PREFERRED STOCK.--

 

'(1) IN GENERAL.--Except as provided in paragraph (2), the term 'other property' includes nonqualified preferred stock (as defined in section 351(g)(2)).

'(2) EXCEPTION.--The term 'other property' does not include nonqualified preferred stock (as so defined) to the extent that, under section 354 or 355, such preferred stock would be permitted to be received without the recognition of gain.'.

 

(1) Subparagraph (B) of section 354(a)(2) and subparagraph (C) of section 355(a)(3)(C) are each amended by inserting '(including nonqualified preferred stock, as defined in section 351(g)(2))' after 'stock'.

(2) Subparagraph (A) of section 354(a)(3) and subparagraph (A) of section 355(a)(4) are each amended by inserting 'nonqualified preferred stock and' after 'including'.

(3) Section 1036 is amended by redesignating subsection (b) as subsection (c) and by inserting after subsection (a) the following new subsection:

 

(1) IN GENERAL.--The amendments made by this section shall apply to transactions after June 8, 1997.

(2) TRANSITION RULE.--The amendments made by this section shall not apply to any transaction after June 8, 1997, if such transaction is--

 

(1) Paragraph (2) of section 246(c) is amended to read as follows:

'(2) 90-DAY RULE IN THE CASE OF CERTAIN PREFERENCE DIVIDENDS.--In the case of stock having preference in dividends, if the taxpayer receives dividends with respect to such stock which are attributable to a period or periods aggregating in excess of 366 days, paragraph (1)(A) shall be applied--

 

(2) Paragraph (3) of section 246(c) is amended by adding 'and' at the end of subparagraph (A), by striking subparagraph (B), and by redesignating subparagraph (C) as subparagraph (B).

 

(1) IN GENERAL.--The amendments made by this section shall apply to dividends received or accrued after the 30th day after the date of the enactment of this Act.

(2) TRANSITIONAL RULE.--The amendments made by this section shall not apply to dividends received or accrued during the 2-year period beginning on the date of the enactment of this Act if--

 

Stock shall not be treated as meeting the requirement of subparagraph (B) if the position is sold, closed, or otherwise terminated and reestablished.

 

'(1) IN GENERAL.--Any person engaged in a trade or business and making a payment (in the course of such trade or business) to which this subsection applies shall file a return under subsection (a) and a statement under subsection (b) with respect to such payment.

'(2) APPLICATION OF SUBSECTION.--

 

'(3) PAYMENTS TO CORPORATIONS BY FEDERAL EXECUTIVE AGENCIES.--

 

(1) by redesignating subsection (h) as subsection (i), and

(2) by inserting after subsection (g) the following new subsection:

 

'(1) IN GENERAL.--The effect of a levy on specified payments to or received by a taxpayer shall be continuous from the date such levy is first made until such levy is released. Notwithstanding section 6334, such continuous levy shall attach to up to 15 percent of any specified payment due to the taxpayer.

'(2) SPECIFIED PAYMENT.--For the purposes of paragraph (1), the term 'specified payment' means--

 

'(8) LEVIES ON CERTAIN GOVERNMENT PAYMENTS.--

 

(1) Section 6103(p) is amended--

 

(2) Section 552a(a)(8)(B) of title 5, United States Code, is amended by striking 'or' at the end of clause (v), by adding 'or' at the end of clause (vi), and by adding at the end the following new clause:

 

'(1) IN GENERAL.--A beneficiary of any estate or trust to which subsection (a) applies shall, on such beneficiary's return, treat any reported item in a manner which is consistent with the treatment of such item on the applicable entity's return.

'(2) NOTIFICATION OF INCONSISTENT TREATMENT.--

'(3) EFFECT OF FAILURE TO NOTIFY.--In any case--

 

any adjustment required to make the treatment of the items by such beneficiary consistent with the treatment of the items on the applicable entity's return shall be treated as arising out of mathematical or clerical errors and assessed according to section 6213(b)(1). Paragraph (2) of section 6213(b) shall not apply to any assessment referred to in the preceding sentence.

'(4) DEFINITIONS.--For purposes of this subsection--

 

'(5) ADDITION TO TAX FOR FAILURE TO COMPLY WITH SECTION.--For addition to tax in the case of a beneficiary's negligence in connection with, or disregard of, the requirements of this section, see part II of subchapter A of chapter 68.'.

 

'(1) IN GENERAL.--For purposes of this section, the term 'tax shelter' includes any entity, plan, arrangement, or transaction--

 

'(2) CONDITIONS OF CONFIDENTIALITY.--For purposes of paragraph (1)(B), an offer is under conditions of confidentiality if--

 

For purposes of this subsection, the term 'promoter' means any person or any related person (within the meaning of section 267 or 707) who participates in the organization, management, or sale of the tax shelter.

'(3) PERSONS OTHER THAN PROMOTER REQUIRED TO REGISTER IN CERTAIN CASES.--

'(4) OFFER TO PARTICIPATE TREATED AS OFFER FOR SALE.--For purposes of subsections (a) and (b), an offer to participate in a tax shelter (as defined in paragraph (1)) shall be treated as an offer for sale.'.

 

'(3) CONFIDENTIAL ARRANGEMENTS.--

 

(1) RESTRICTION ON REASONABLE BASIS FOR CORPORATE UNDERSTATEMENT OF INCOME TAX.--Subparagraph (B) of section 6662(d)(2) is amended by adding at the end the following new flush sentence:

 

(2) MODIFICATION TO DEFINITION OF TAX SHELTER.--Clause (iii) of section 6662(d)(2)(C) is amended by striking 'the principal purpose' and inserting 'a significant purpose'.

 

(1) Paragraph (2) of section 6707(a) is amended by striking 'The penalty' and inserting 'Except as provided in paragraph (3), the penalty'.

(2) Subparagraph (A) of section 6707(a)(1) is amended by striking 'paragraph (2)' and inserting 'paragraph (2) or (3), as the case may be'.

 

(1) IN GENERAL.--Except as provided in paragraph (2), the amendments made by this section shall apply to any tax shelter (as defined in section 6111(d) of the Internal Revenue Code of 1986, as amended by this section) interests in which are offered to potential participants after the Secretary of the Treasury prescribes guidance with respect to meeting requirements added by such amendments.

(2) MODIFICATIONS TO SUBSTANTIAL UNDERSTATEMENT PENALTY.--The amendments made by subsection (c) shall apply to items with respect to transactions entered into after the date of the enactment of this Act.

 

(1) AVIATION FUEL.--Clause (ii) of section 4091(b)(3)(A) is amended by striking 'September 30, 1997' and inserting 'September 30, 2007'.

(2) AVIATION GASOLINE.--Subparagraph (B) of section 4081(d)(2) is amended by striking 'September 30, 1997' and inserting 'September 30, 2007'.

(3) NONCOMMERCIAL AVIATION.--Subparagraph (B) of section 4041(c)(3) is amended by striking 'September 30, 1997' and inserting 'September 30, 2007'.

 

(1) PERSONS.--Clause (ii) of section 4261(g)(1)(A) is amended by striking 'September 30, 1997' and inserting 'September 30, 2007'.

(2) PROPERTY.--Clause (ii) of section 4271(d)(1)(A) is amended by striking 'September 30, 1997' and inserting 'September 30, 2007'.

 

(1) IN GENERAL.--Section 4261 (relating to imposition of tax) is amended by striking subsections (a), (b), and (c) and inserting the following new subsections:

'(2) DOMESTIC SEGMENT.--For purposes of this section, the term 'domestic segment' means any segment consisting of 1 takeoff and 1 landing and which is taxable transportation described in section 4262(a)(1).

'(3) CHANGES IN SEGMENTS BY REASON OF REROUTING.--If--

 

the tax imposed by paragraph (1) shall be determined without regard to such change in route.

 

'(1) IN GENERAL.--There is hereby imposed a tax of $12.00 on any amount paid (whether within or without the United States) for any transportation of any person by air, if such transportation begins or ends in the United States.

'(2) EXCEPTION FOR TRANSPORTATION ENTIRELY TAXABLE UNDER SUBSECTION (a).--This subsection shall not apply to any transportation all of which is taxable under subsection (a) (determined without regard to sections 4281 and 4282).

'(3) SPECIAL RULE FOR ALASKA AND HAWAII.--In any case in which the tax imposed by paragraph (1) applies to a domestic segment beginning or ending in Alaska or Hawaii, such tax shall apply only to departures and shall be at the rate of $6.'.

(2) SPECIAL RULES.--Section 4261 is amended by redesignating subsections (e), (f), and (g) as subsections (f), (g), and (h), respectively, and by inserting after subsection (d) the following new subsection:

 

'(1) SEGMENTS TO AND FROM RURAL AIRPORTS.-- '(2) AMOUNTS PAID OUTSIDE THE UNITED STATES.--In the case of amounts paid outside the United States for taxable transportation, the taxes imposed by subsections (a) and (b) shall apply only if such transportation begins and ends in the United States.

'(3) AMOUNTS PAID FOR RIGHT TO AWARD FREE OR REDUCED RATE AIR TRANSPORTATION.--

 

'(4) INFLATION ADJUSTMENT OF DOLLAR RATES OF TAX.--

 

'(5) RATES OF TICKET TAX FOR TRANSPORTATION BEGINNING BEFORE OCTOBER 1, 1999.--Subsection (a) shall be applied by substituting for '7.5 percent'--

 

(3) SECONDARY LIABILITY OF CARRIER FOR UNPAID TAX.--Subsection (c) of section 4263 is amended by striking 'subchapter--' and all that follows and inserting 'subchapter, such tax shall be paid by the carrier providing the initial segment of such transportation which begins or ends in the United States.'.

 

(1) Paragraph (1) of section 9502(b) is amended--

 

'There shall not be taken into account under paragraph (1) so much of the taxes imposed by sections 4081 and 4091 as are determined at the rates specified in section 4081(a)(2)(B) or 4091(b)(2).'.

(2) Section 9502 is amended by striking subsection (f).

 

(1) FUEL TAXES.--The amendments made by subsection (a) shall apply take effect on October 1, 1997.

(2) TICKET TAXES.--

(3) INCREASED DEPOSITS INTO AIRPORT AND AIRWAY TRUST FUND.--The amendments made by subsection (d) shall apply with respect to taxes received in the Treasury on and after October 1, 1997.

 

(1) in the case of deposits of taxes imposed by section 4261 of such Code, the due date for any such deposit which would (but for this subsection) be required to be made after August 14, 1997, and before October 1, 1997, shall be October 10, 1997,

(2) in the case of deposits of taxes imposed by section 4261 of such Code, the due date for any such deposit which would (but for this subsection) be required to be made after August 14, 1998, and before October 1, 1998, shall be October 5, 1998, and

(3) in the case of deposits of taxes imposed by sections 4081(a)(2)(A)(ii), 4091, and 4271 of such Code, the due date for any such deposit which would (but for this subsection) be required to be made after July 31, 1998, and before October 1, 1998, shall be October 5, 1998.

 

(1) IN GENERAL.--Section 4082 (relating to exemptions for diesel fuel) is amended by striking 'diesel fuel' each place it appears in subsections (a), (c), and (d) and inserting 'diesel fuel and kerosene'.

(2) CERTAIN KEROSENE EXEMPT FROM DYEING REQUIREMENT.--Section 4082 is amended by redesignating subsections (d) and (e) as subsections (e) and (f), respectively, and by inserting after subsection (c) the following new subsection:

 

'(1) AVIATION-GRADE KEROSENE.--Subsection (a)(2) shall not apply to a removal, entry, or sale of aviation-grade kerosene (as determined under regulations prescribed by the Secretary) if the person receiving the kerosene is registered under section 4101 with respect to the tax imposed by section 4091.

'(2) USE FOR NON-FUEL FEEDSTOCK PURPOSES.--Subsection (a)(2) shall not apply to kerosene--

but only if the person receiving, removing, or entering the kerosene and such purchaser (if any) are registered under section 4101 with respect to the tax imposed by section 4081.

'(3) WHOLESALE DISTRIBUTORS.--To the extent provided in regulations, subsection (a)(2) shall not apply to a removal, entry, or sale of kerosene to a wholesale distributor of kerosene if such distributor--

 

(3) REFUNDS.--

 

'(1) IN GENERAL.--A terminal for kerosene or diesel fuel may not be an approved facility for storage of non-tax-paid diesel fuel or kerosene under this section unless the operator of such terminal offers dyed diesel fuel and kerosene for removal for nontaxable use in accordance with section 4082(a).

'(2) EXCEPTION.--Paragraph (1) shall not apply to any terminal exclusively providing aviation-grade kerosene by pipeline to an airport.'.

 

(1) Paragraph (2) of section 4041(a), as amended by title IX, is amended by striking 'kerosene,'.

(2) Paragraph (1) of section 4041(c) is amended by striking 'any liquid' and inserting 'kerosene and any other liquid'.

(3)(A) The heading for section 4082 is amended by inserting 'AND KEROSENE' after 'DIESEL FUEL'.

 

(4) Subsection (b) of section 4083 is amended by striking 'gasoline, diesel fuel,' and inserting 'taxable fuels'.

(5) Subsection (a) of section 4093 is amended by striking 'any liquid' and inserting 'kerosene and any other liquid'.

(6) The material following subparagraph (F) of section 6416(b)(2) is amended by inserting 'or kerosene' after 'diesel fuel'.

(7) Paragraphs (1) and (3) of section 6427(f), and the heading for section 6427(f), are each amended by inserting 'kerosene,' after 'diesel fuel,'.

(8) Paragraph (2) of section 6427(f) is amended by striking 'or diesel fuel' each place it appears and inserting ', diesel fuel, or kerosene'.

(9) Subparagraph (A) of section 6427(i)(3) is amended by striking 'or diesel fuel' and inserting ', diesel fuel, or kerosene'.

(10) The heading for paragraph (4) of section 6427(i) is amended to read as follows:

'(4) SPECIAL RULE FOR REFUNDS UNDER SUBSECTION (l).-- '.

(11) Paragraph (1) of section 6715(c) is amended by inserting 'or kerosene' after 'diesel fuel'.

(12)(A) The text of section 7232 is amended by striking 'gasoline, lubricating oil, diesel fuel' and inserting 'any taxable fuel (as defined in section 4083)'.

(13) Sections 9503(b)(1)(E) and 9508(b)(2) are each amended by striking 'and diesel fuel' and inserting ', diesel fuel, and kerosene'.

(14) Subparagraph (B) of section 9503(b)(5) is amended by striking 'or diesel fuel' and inserting ', diesel fuel, or kerosene'.

 

(1) IMPOSITION OF TAX.--In the case of kerosene which is held on July 1, 1998, by any person, there is hereby imposed a floor stocks tax of 24.4 cents per gallon.

(2) LIABILITY FOR TAX AND METHOD OF PAYMENT.--

 

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

 

(4) EXCEPTION FOR EXEMPT USES.--The tax imposed by paragraph (1) shall not apply to kerosene held by any person exclusively for any use to the extent a credit or refund of the tax imposed by section 4081 of the Internal Revenue Code of 1986 is allowable for such use.

(5) EXCEPTION FOR FUEL HELD IN VEHICLE TANK.--No tax shall be imposed by paragraph (1) on kerosene held in the tank of a motor vehicle or motorboat.

(6) EXCEPTION FOR CERTAIN AMOUNTS OF FUEL.--

(7) COORDINATION WITH SECTION 4081.--No tax shall be imposed by paragraph (1) on kerosene to the extent that tax has been (or will be) imposed on such kerosene under section 4081 or 4091 of such Code.

(8) OTHER LAWS APPLICABLE.--All provisions of law, including penalties, applicable with respect to the taxes imposed by section 4081 of such Code shall, insofar as applicable and not inconsistent with the provisions of this subsection, apply with respect to the floor stock taxes imposed by paragraph (1) to the same extent as if such taxes were imposed by such section 4081.

 

'(1) IN GENERAL.--For purposes of this subchapter, in the case of communications services acquired by means of a prepaid telephone card--

 

'(2) DETERMINATION OF FACE AMOUNT IN ABSENCE OF SPECIFIED DOLLAR AMOUNT.--In the case of any prepaid telephone card which entitles the user other than to a specified dollar amount of use, the face amount shall be determined under regulations prescribed by the Secretary.

'(3) PREPAID TELEPHONE CARD.--For purposes of this subsection, the term 'prepaid telephone card' means any card or other similar arrangement which permits its holder to obtain communications services and pay for such services in advance.'.

 

'(13) SPECIAL RULES FOR CERTAIN AMOUNTS RECEIVED FROM CONTROLLED ENTITIES.--

 

(1) IN GENERAL.--Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

(2) BINDING CONTRACTS.--The amendments made by this section shall not apply to any payment made during the first 2 taxable years beginning on or after the date of the enactment of this Act if such payment is made pursuant to a written binding contract in effect on June 8, 1997, and at all times thereafter before such payment.

 

(1) no adjustment shall be made under section 481 (or any other provision) of such Code on account of a change in its method of accounting for its first taxable year beginning after December 31, 1997, and

(2) for purposes of determining gain or loss, the adjusted basis of any asset held on the 1st day of such taxable year shall be treated as equal to its fair market value as of such day.

 

(1) IN GENERAL.--Paragraph (1) of section 954(c) (defining foreign personal holding company income) is amended by adding at the end the following new subparagraphs:

 

(2) CONFORMING AMENDMENT.--Subparagraph (B) of section 954(c)(1) is amended--

 

'(1) REAL PROPERTY.--Real property located in the United States and real property located outside the United States are not property of a like kind.

'(2) PERSONAL PROPERTY.--

 

(1) IN GENERAL.--The amendment made by this section shall apply to transfers after June 8, 1997, in taxable years ending after such date.

(2) BINDING CONTRACTS.--The amendment made by this section shall not apply to any transfer pursuant to a written binding contract in effect on June 8, 1997, and at all times thereafter before the disposition of property. A contract shall not fail to meet the requirements of the preceding sentence solely because--

 

'(1) WITHHOLDING TAXES.--

 

'(2) DEEMED PAID TAXES.--In the case of income, war profits, or excess profits taxes deemed paid under section 853, 902, or 960 through a chain of ownership of stock in 1 or more corporations, no credit shall be allowed under subsection (a) for such taxes if--

 

'(3) 45-DAY RULE IN THE CASE OF CERTAIN PREFERENCE DIVIDENDS.--In the case of stock having preference in dividends and dividends with respect to such stock which are attributable to a period or periods aggregating in excess of 366 days, paragraph (1)(A)(i) shall be applied--

 

'(4) EXCEPTION FOR CERTAIN TAXES PAID BY SECURITIES DEALERS.--

 

'(5) CERTAIN RULES TO APPLY.--For purposes of this subsection, the rules of paragraphs (3) and (4) of section 246(c) shall apply.

'(6) TREATMENT OF BONA FIDE SALES.--If a person's holding period is reduced by reason of the application of the rules of section 246(c)(4) to any contract for the bona fide sale of stock, the determination of whether such person's holding period meets the requirements of paragraph (2) with respect to taxes deemed paid under section 902 or 960 shall be made as of the date such contract is entered into.

'(7) TAXES ALLOWED AS DEDUCTION, ETC.--Sections 275 and 78 shall not apply to any tax which is not allowable as a credit under subsection (a) by reason of this subsection.'.

 

'(1) APPLICATION TO CERTAIN PAYMENTS.--A foreign person shall not be entitled under any income tax treaty of the United States with a foreign country to any reduced rate of any withholding tax imposed by this title on an item of income derived through an entity which is treated as a partnership (or is otherwise treated as fiscally transparent) for purposes of this title if--

 

'(2) REGULATIONS.--The Secretary shall prescribe such regulations as may be necessary or appropriate to determine the extent to which a taxpayer to which paragraph (1) does not apply shall not be entitled to benefits under any income tax treaty of the United States with respect to any payment received by, or income attributable to any activities of, an entity organized in any jurisdiction (including the United States) that is treated as a partnership or is otherwise treated as fiscally transparent for purposes of this title (including a common investment trust under section 584, a grantor trust, or an entity that is disregarded for purposes of this title) and is treated as fiscally nontransparent for purposes of the tax laws of the jurisdiction of residence of the taxpayer.'.

 

(1) IN GENERAL.--Subsection (f) of section 6611 is amended by redesignating paragraphs (2) and (3) as paragraphs (3) and (4), respectively, and by inserting after paragraph (1) the following new paragraph:

'(2) FOREIGN TAX CREDIT CARRYBACKS.--For purposes of subsection (a), if any overpayment of tax imposed by subtitle A results from a carryback of tax paid or accrued to foreign countries or possessions of the United States, such overpayment shall be deemed not to have been made before the filing date for the taxable year in which such taxes were in fact paid or accrued, or, with respect to any portion of such credit carryback from a taxable year attributable to a net operating loss carryback or a capital loss carryback from a subsequent taxable year, such overpayment shall be deemed not to have been made before the filing date for such subsequent taxable year.'.

(2) CONFORMING AMENDMENTS.--

 

'(1) IN GENERAL.--The basis of distributed properties to which subsection (a)(2) or (b) is applicable shall be allocated-- '(2) METHOD OF ALLOCATING INCREASE.--Any increase required under paragraph (1)(B) shall be allocated among the properties--

 

'(3) METHOD OF ALLOCATING DECREASE.--Any decrease required under paragraph (1)(A) or (1)(B) shall be allocated--

 

(1)(A) Paragraph (1) of section 751(b) is amended by striking subparagraphs (A) and (B) and inserting the following new subparagraphs:

 

'(3) SUBSTANTIAL APPRECIATION.--For purposes of paragraph (1)--

 

(2) Subsection (d) of section 751 is amended to read as follows:

 

'(1) property of the partnership of the kind described in section 1221(1),

'(2) any other property of the partnership which, on sale or exchange by the partnership, would be considered property other than a capital asset and other than property described in section 1231,

'(3) any other property of the partnership which, if sold or exchanged by the partnership, would result in a gain taxable under subsection (a) of section 1246 (relating to gain on foreign investment company stock), and

'(4) any other property held by the partnership which, if held by the selling or distributee partner, would be considered property of the type described in paragraph (1), (2), or (3).'.

(3) Sections 724(d)(2), 731(a)(2)(B), 731(c)(6), 732(c)(1)(A) (as amended by the preceding section), 735(a)(2), and 735(c)(1) are each amended by striking 'section 751(d)(2)' and inserting 'section 751(d)'.

 

(1) IN GENERAL.--The amendments made by this section shall apply to sales, exchanges, and distributions after the date of the enactment of this Act.

(2) BINDING CONTRACTS.--The amendments made by this section shall not apply to any sale or exchange pursuant to a written binding contract in effect on June 8, 1997, and at all times thereafter before such sale or exchange.

 

(1) IN GENERAL.--The amendment made by subsection (a) shall apply to property contributed to a partnership after June 8, 1997.

(2) BINDING CONTRACTS.--The amendment made by subsection (a) shall not apply to any property contributed pursuant to a written binding contract in effect on June 8, 1997, and at all times thereafter before such contribution if such contract provides for the contribution of a fixed amount of property.

 

(1) IN GENERAL.--Subparagraph (A) of section 411(a)(11) (relating to restrictions on certain mandatory distributions) is amended by striking '$3,500' and inserting '$5,000'.

(2) CONFORMING AMENDMENTS.--

 

(1) IN GENERAL.--Section 203(e)(1) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(e)(1)) is amended by striking '$3,500' and inserting '$5,000'.

(2) CONFORMING AMENDMENTS.--Sections 204(d)(1) and 205(g)(1) and (2) (29 U.S.C. 1054(d)(1) and 1055(g)(1) and (2)) are each amended by striking '$3,500' and inserting 'the dollar limit under section 203(e)(1)'.

 

(1) Section 691(c)(1) is amended by striking subparagraph (C).

(2) Section 2013 is amended by striking subsection (g).

(3) Section 2053(c)(1)(B) is amended by striking the last sentence.

(4) Section 6018(a) is amended by striking paragraph (4).

 

(1) EXCESS DISTRIBUTION TAX REPEAL.--Except as provided in paragraph (2), the repeal made by subsection (a) shall apply to excess distributions received after December 31, 1996.

(2) EXCESS RETIREMENT ACCUMULATION TAX REPEAL.--The repeal made by subsection (a) with respect to section 4980A(d) of the Internal Revenue Code of 1986 and the amendments made by subsection (b) shall apply to estates of decedents dying after December 31, 1996.

 

(1) by inserting 'If the annuity is payable over the life of a single individual, the number of anticipated payments shall be determined as follows:' after the heading and before the table, and

(2) by striking 'primary' in the table.

 

'(5) TERMINATION.--

 

(1) by striking '3' in clause (i) and inserting '2', and

(2) by striking '15' in clause (ii) and inserting '20'.

'(F) RETENTION OF 3-YEAR CARRYBACK IN CERTAIN CASES.--

 

(1) in paragraph (1), by striking '3' each place it appears and inserting '1' and by striking '15' each place it appears and inserting '20'; and

(2) in paragraph (2), by striking '18' each place it appears and inserting '22' and by striking '17' each place it appears and inserting '21'.

 

(1) IN GENERAL.--Paragraph (1) of section 264(a) is amended to read as follows:

'(1) Premiums on any life insurance policy, or endowment or annuity contract, if the taxpayer is directly or indirectly a beneficiary under the policy or contract.'.

(2) EXCEPTIONS.--Section 264 is amended by redesignating subsections (b), (c), and (d) as subsections (c), (d), and (e), respectively, and by inserting after subsection (a) the following new subsection:

 

'(1) any annuity contract described in section 72(s)(5), and

'(2) any annuity contract to which section 72(u) applies.'.

 

(1) IN GENERAL.--Paragraph (4) of section 264(a) is amended by striking 'individual, who' and all that follows and inserting 'individual.'.

(2) COORDINATION WITH TRANSFERS FOR VALUE.--Paragraph (2) of section 101(a) is amended by adding at the end the following new flush sentence:

'The term 'other amounts' in the first sentence of this paragraph includes interest paid or accrued by the transferee on indebtedness with respect to such contract or any interest therein if such interest paid or accrued is not allowable as a deduction by reason of section 264(a)(4).'.

 

'(1) IN GENERAL.--No deduction shall be allowed for that portion of the taxpayer's interest expense which is allocable to unborrowed policy cash values.

'(2) ALLOCATION.--For purposes of paragraph (1), the portion of the taxpayer's interest expense which is allocable to unborrowed policy cash values is an amount which bears the same ratio to such interest expense as--

'(3) UNBORROWED POLICY CASH VALUE.--For purposes of this subsection, the term 'unborrowed policy cash value' means, with respect to any life insurance policy or annuity or endowment contract, the excess of--

 

'(4) EXCEPTION FOR CERTAIN POLICIES AND CONTRACTS.--

 

'(5) EXCEPTION FOR POLICIES AND CONTRACTS HELD BY NATURAL PERSONS; TREATMENT OF PARTNERSHIPS AND S CORPORATIONS.--

 

'(6) SPECIAL RULES.--

 

'(7) INTEREST EXPENSE.--The term 'interest expense' means the aggregate amount allowable to the taxpayer as a deduction for interest (within the meaning of section 265(b)(4)) for the taxable year (determined without regard to this subsection, section 265(b), and section 291).

'(8) AGGREGATION RULES.--