HR 3874 IH
106th CONGRESS
2d Session
H. R. 3874
To amend the Internal Revenue Code of 1986 to provide tax relief for
small businesses, and for other purposes.
IN THE HOUSE OF REPRESENTATIVES
March 9, 2000
Mr. RANGEL (for himself, Mr. GEPHARDT, Mr. BONIOR, Mr. MATSUI, Mr. COYNE, Mr.
NEAL of Massachusetts, Mr. OBEY, Mr. LAFALCE, Mrs. MINK of Hawaii, Mr. SKELTON,
Mr. STENHOLM, Mr. ACKERMAN, Mr. SPRATT, Mr. EVANS, Mr. WISE, Mr. SAWYER, Mr.
SERRANO, Mr. ABERCROMBIE, Mr. ENGEL, Ms. DELAURO, Mr. NADLER, Mr. HINCHEY, Mr.
BROWN of Ohio, Ms. EDDIE BERNICE JOHNSON of Texas, Mr. STUPAK, Mr. WYNN, Mr.
FORBES, Mr. KIND, Mr. STRICKLAND, Mr. MCGOVERN, Mr. TURNER, Mr. BOSWELL, Mr.
HINOJOSA, Ms. SANCHEZ, Mr. SANDLIN, Mr. WU, Mr. HOLT, Mrs. CAPPS, Mr. MEEKS of
New York, Mr. LARSON, Ms. BERKLEY, Mrs. NAPOLITANO, Mr. PHELPS, Mr. GONZALEZ,
Mr. INSLEE, and Mr. UDALL of Colorado) introduced the following bill; which was
referred to the Committee on Ways and Means
A BILL
To amend the Internal Revenue Code of 1986 to provide tax relief for
small businesses, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United
States of America in Congress assembled,
TITLE II--AMENDMENTS OF INTERNAL REVENUE CODE OF 1986
SEC. 200. SHORT TITLE.
(a) SHORT TITLE- This title may be cited as the `Small Business Tax Relief
Act of 2000'.
TITLE II--AMENDMENTS OF INTERNAL REVENUE CODE OF 1986
Subtitle A--Permanent Extension of Work Opportunity Credit and
Welfare-to-Work Credit
Sec. 201. Work opportunity credit and welfare-to-work credit; repeal of
age limitation on eligibility of food stamp recipients.
Subtitle B--Deduction for 100 Percent of Health Insurance Costs of
Self-Employed Individuals
Sec. 211. Deduction for 100 percent of health insurance costs of
self-employed individuals.
Subtitle C--Pension Provisions
Sec. 221. Treatment of multiemployer plans under section 415.
Sec. 222. Early retirement limits for certain plans.
Sec. 223. Certain post-secondary educational benefits provided by an
employer to children of employees excludable from gross income as a
scholarship.
Subtitle D--Business Tax Relief
Sec. 231. Increase in expense treatment for small businesses.
Sec. 232. Small businesses allowed increased deduction for meal and
entertainment expenses.
Sec. 233. Restoration of deduction for travel expenses of spouse, etc.
accompanying taxpayer on business travel.
Sec. 234. Increased credit and amortization deduction for reforestation
expenditures.
Sec. 235. Repeal of modification of installment method.
Subtitle E--Expansion of Incentives for Public Schools
Sec. 241. Expansion of incentives for public schools.
Subtitle F--Increased Estate Tax Relief for Family-Owned Business
Interests
Sec. 251. Increase in estate tax benefit for family-owned business
interests.
Subtitle G--Revenue Offsets
Part I--Revision of Tax Rules on Expatriation
Sec. 261. Revision of tax rules on expatriation.
Part II--Disallowance of Noneconomic Tax Attributes
SUBPART A--DISALLOWANCE OF NONECONOMIC TAX ATTRIBUTES; INCREASE IN PENALTY
WITH RESPECT TO DISALLOWED NONECONOMIC TAX ATTRIBUTES
Sec. 266. Disallowance of noneconomic tax attributes.
Sec. 267. Increase in substantial underpayment penalty with respect to
disallowed noneconomic tax attributes.
Sec. 268. Penalty on marketed tax avoidance strategies which have no
economic substance, etc.
Sec. 269. Effective dates.
SUBPART B--LIMITATIONS ON IMPORTATION OR TRANSFER OF BUILT-IN LOSSES
Sec. 271. Limitation on importation of built-in losses.
Sec. 272. Disallowance of partnership loss transfers.
Part III--Estate and Gift Tax Offsets
Sec. 276. Valuation rules for transfers involving nonbusiness
assets.
Sec. 277. Correction of technical error affecting largest estates.
Part IV--Other Offsets
Sec. 281. Consistent amortization periods for intangibles.
Sec. 282. Modification of foreign tax credit carryover rules.
Sec. 283. Recognition of gain on transfers to swap funds.
Subtitle A--Permanent Extension of Work Opportunity Credit and
Welfare-to-Work Credit
SEC. 201. WORK OPPORTUNITY CREDIT AND WELFARE-TO-WORK CREDIT; REPEAL OF AGE
LIMITATION ON ELIGIBILITY OF FOOD STAMP RECIPIENTS.
(A) Section 51(c) of the Internal Revenue Code of 1986 is amended by
striking paragraph (4).
(B) Section 51A of such Code is amended by striking subsection
(f).
(2) EFFECTIVE DATE- The amendments made by this subsection shall apply
to individuals who begin work for the employer after December 31,
2001.
(b) REPEAL OF AGE LIMITATION ON ELIGIBILITY OF FOOD STAMP RECIPIENTS-
(1) IN GENERAL- Subparagraph (A) of section 51(d)(8) of such Code is
amended to read as follows:
`(A) IN GENERAL- The term `qualified food stamp recipient' means any
individual who is certified by the designated local agency as being a
member of a family--
`(i) receiving assistance under a food stamp program under the Food
Stamp Act of 1977 for the 6-month period ending on the hiring date,
or
`(ii) receiving such assistance for at least 3 months of the 5-month
period ending on the hiring date, in the case of a member of a family
who ceases to be
eligible for such assistance under section 6(o) of the Food Stamp Act of
1977.'
(2) EFFECTIVE DATE- The amendment made by this subsection shall apply to
individuals who begin work for the employer after the date of the enactment
of this Act.
Subtitle B--Deduction for 100 Percent of Health Insurance Costs of
Self-Employed Individuals
SEC. 211. DEDUCTION FOR 100 PERCENT OF HEALTH INSURANCE COSTS OF
SELF-EMPLOYED INDIVIDUALS.
(a) IN GENERAL- Paragraph (1) of section 162(l) of the Internal Revenue
Code of 1986 is amended to read as follows:
`(1) ALLOWANCE OF DEDUCTION- In the case of an individual who is an
employee within the meaning of section 401(c)(1), there shall be allowed as
a deduction under this section an amount equal to 100 percent of the amount
paid during the taxable year for insurance which constitutes medical care
for the taxpayer and the taxpayer's spouse and dependents.'.
(b) EFFECTIVE DATE- The amendment made by this section shall apply to
taxable years beginning after December 31, 2000.
Subtitle C--Pension Provisions
SEC. 221. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.
(a) COMPENSATION LIMIT- Paragraph (11) of section 415(b) of the Internal
Revenue Code of 1986 (relating to limitation for defined benefit plans) is
amended to read as follows:
`(11) SPECIAL LIMITATION RULE FOR GOVERNMENTAL AND MULTIEMPLOYER PLANS-
In the case of a governmental plan (as defined in section 414(d)) or a
multiemployer plan (as defined in section 414(f)), subparagraph (B) of
paragraph (1) shall not apply.'.
(b) COMBINING AND AGGREGATION OF PLANS-
(1) COMBINING OF PLANS- Subsection (f) of section 415 of such Code
(relating to combining of plans) is amended by adding at the end the
following:
`(3) EXCEPTION FOR MULTIEMPLOYER PLANS- Notwithstanding paragraph (1)
and subsection (g), a multiemployer plan (as defined in section 414(f))
shall not be combined or aggregated with any other plan maintained by an
employer for purposes of applying the limitations established in this
section, except that such plan shall be combined or aggregated with another
plan which is not such a multiemployer plan solely for purposes of
determining whether such other plan meets the requirements of subsection
(b)(1)(A).'.
(2) CONFORMING AMENDMENT FOR AGGREGATION OF PLANS- Subsection (g) of
section 415 of such Code (relating to aggregation of plans) is amended by
striking `The Secretary' and inserting `Except as provided in subsection
(f)(3), the Secretary'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to
years beginning after December 31, 1999.
SEC. 222. EARLY RETIREMENT LIMITS FOR CERTAIN PLANS.
(a) IN GENERAL- Subparagraph (F) of section 415(b)(2) of the Internal
Revenue Code of 1986 is amended to read as follows:
`(F) MULTIEMPLOYER PLANS AND PLANS MAINTAINED BY GOVERNMENTS AND TAX
EXEMPT ORGANIZATIONS- In the case of a governmental plan (within the
meaning of section 414(d)), a plan maintained by an organization (other
than a governmental unit) exempt from tax under this subtitle, a
multiemployer plan (as defined in section 414(f)), or a qualified merchant
marine plan--
`(i) subparagraph (C) shall be applied--
`(I) by substituting `age 62' for `social security retirement age'
each place it appears, and
`(II) as if the last sentence thereof read as follows: `The
reduction under this subparagraph shall not reduce the limitation of
paragraph (1)(A) below (i) 80 percent of such limitation as in effect
for the year, or (ii) if the benefit begins before age 55, the
equivalent of such 80 percent amount for age 55.', and
`(ii) subparagraph (D) shall be applied by substituting `age 65' for
`social security retirement age' each place it appears.
For purposes of this subparagraph, the term `qualified merchant marine
plan' means a plan
in existence on January 1, 1986, the participants in which are merchant
marine officers holding licenses issued by the Secretary of Transportation under
title 46, United States Code.'.
(b) EFFECTIVE DATE- The amendment made by this section shall apply to
years beginning after December 31, 1999.
SEC. 223. CERTAIN POST-SECONDARY EDUCATIONAL BENEFITS PROVIDED BY AN
EMPLOYER TO CHILDREN OF EMPLOYEES EXCLUDABLE FROM GROSS INCOME AS A
SCHOLARSHIP.
(a) IN GENERAL- Section 117 of the Internal Revenue Code of 1986 (relating
to qualified scholarships) is amended by adding at the end the following:
`(e) EMPLOYER-PROVIDED POST-SECONDARY EDUCATIONAL BENEFITS PROVIDED TO
CHILDREN OF EMPLOYEES-
`(1) IN GENERAL- In determining whether any amount is a qualified
scholarship for purposes of subsection (a), the fact that such amount is
provided in connection with an employment relationship shall be disregarded
if--
`(A) such amount is provided by the employer to a child (as defined in
section 151(c)(3)) of an employee or former employee of such
employer,
`(B) such amount is provided pursuant to a plan which meets the
nondiscrimination requirements of subsection (d)(3), and
`(C) amounts provided under such plan are in addition to any other
compensation payable to employees and such plan does not provide employees
with a choice between such amounts and any other benefit.
For purposes of subparagraph (C), the business practices of the employer
(as well as such plan) shall be taken into account.
`(A) PER CHILD- The amount excluded from the gross income of the
employee by reason of paragraph (1) for a taxable year with respect to
amounts provided to each child of such employee shall not exceed
$2,000.
`(B) AGGREGATE LIMIT- The amount excluded from the gross income of the
employee by reason of paragraph (1) for a taxable year (after the
application of subparagraph (A)) shall not exceed the excess of the dollar
amount contained in section 127(a)(2) over the amount excluded from the
employee's gross income under section 127 for such year.
`(3) PRINCIPAL SHAREHOLDERS AND OWNERS- Paragraph (1) shall not apply to
any amount provided to any child of any individual if such individual (or
such individual's spouse) owns (on any day of the year) more than 5 percent
of the stock or of the capital or profits interest in the employer.
`(4) SPECIAL RULES OF APPLICATION- In the case of an amount which is
treated as a qualified scholarship by reason of this subsection--
`(A) subsection (a) shall be applied without regard to the requirement
that the recipient be a candidate for a degree, and
`(B) subsection (b)(2)(A) shall be applied by substituting `section
529(e)(5)' for `section 170(b)(1)(A)(ii)'.
`(5) CERTAIN OTHER RULES TO APPLY- Rules similar to the rules of
paragraphs (4), (5), and (7) of section 127(c) shall apply for purposes of
this subsection.'
(b) EFFECTIVE DATE- The amendment made by this section shall apply to
taxable years beginning after December 31, 2000.
Subtitle D--Business Tax Relief
SEC. 231. INCREASE IN EXPENSE TREATMENT FOR SMALL BUSINESSES.
(a) IN GENERAL- Paragraph (1) of section 179(b) of the Internal Revenue
Code of 1986 (relating to dollar limitation) is amended to read as follows:
`(1) DOLLAR LIMITATION- The aggregate cost which may be taken into
account under subsection (a) for any taxable year shall not exceed
$30,000.'.
(b) EFFECTIVE DATE- The amendment made by this section shall apply to
taxable years beginning after December 31, 2000.
SEC. 232. SMALL BUSINESSES ALLOWED INCREASED DEDUCTION FOR MEAL AND
ENTERTAINMENT EXPENSES.
(a) IN GENERAL- Subsection (n) of section 274 (relating to only 50 percent
of meal and entertainment expenses allowed as deduction) is amended by adding
at the end the following new paragraph:
`(4) SPECIAL RULE FOR SMALL BUSINESSES-
`(A) IN GENERAL- In the case of any taxpayer which is a small
business, paragraph (1) shall be applied by substituting for `50
percent'--
`(i) `55 percent' in the case of taxable years beginning in 2001 and
2002, and
`(ii) `60 percent' in the case of taxable years beginning in 2003,
2004, 2005, and 2006, and
`(iii) `65 percent' in the case of taxable years beginning after
2006.
`(B) SMALL BUSINESS- For purposes of this paragraph, the term `small
business' means, with respect to expenses paid or incurred during any
taxable year--
`(i) any C corporation which meets the requirements of section
55(e)(1) for such year, and
`(ii) any S corporation, partnership, or sole proprietorship which
would meet such requirements if it were a C corporation.'
(b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to
taxable years beginning after December 31, 2000.
SEC. 233. RESTORATION OF DEDUCTION FOR TRAVEL EXPENSES OF SPOUSE, ETC.
ACCOMPANYING TAXPAYER ON BUSINESS TRAVEL.
(a) IN GENERAL- Subsection (m) of section 274 of the Internal Revenue Code
of 1986 (relating to additional limitations on travel expenses) is amended by
striking paragraph (3).
(b) EFFECTIVE DATE- The amendment made by this section shall apply to
taxable years beginning after December 31, 2000.
SEC. 234. INCREASED CREDIT AND AMORTIZATION DEDUCTION FOR REFORESTATION
EXPENDITURES.
(a) INCREASE IN CREDIT- Paragraph (1) of section 48(b) of the Internal
Revenue Code of 1986 (relating to reforestation credit) is amended by striking
`10 percent' and inserting `20 percent'.
(b) REDUCTION IN AMORTIZATION PERIOD- Subsection (a) of section 194 of
such Code (relating to amortization of reforestation expenditures) is
amended--
(1) by striking `84 months' and inserting `36 months', and
(2) by striking `84-month period' and inserting `36-month period'.
(c) INCREASE IN MAXIMUM AMOUNT WHICH MAY BE AMORTIZED- Paragraph (1) of
section 194(b) of such Code is amended by striking `$10,000 ($5,000' and
inserting `$20,000 ($10,000'.
(d) EFFECTIVE DATE- The amendments made by this section shall apply to
taxable years beginning after December 31, 2000.
SEC. 235. REPEAL OF MODIFICATION OF INSTALLMENT METHOD.
(a) IN GENERAL- Subsection (a) of section 536 of the Ticket to Work and
Work Incentives Improvement Act of 1999 (relating to modification of
installment method and repeal of installment method for accrual method
taxpayers) is repealed effective with respect to sales and other dispositions
occurring on or after the date of the enactment of such Act.
(b) APPLICABILITY- The Internal Revenue Code of 1986 shall be applied and
administered as if that subsection (and the amendments made by that
subsection) had not been enacted.
Subtitle E--Expansion of Incentives for Public Schools
SEC. 241. EXPANSION OF INCENTIVES FOR PUBLIC SCHOOLS.
(a) IN GENERAL- Chapter 1 of the Internal Revenue Code of 1986 is amended
by adding at the end the following new subchapter:
`Subchapter X--Public School Modernization Provisions
`Part I. Credit to holders of qualified public school modernization bonds.
`Part II. Qualified school construction bonds.
`Part III. Incentives for education zones.
`PART I--CREDIT TO HOLDERS OF QUALIFIED PUBLIC SCHOOL MODERNIZATION
BONDS
`Sec. 1400F. Credit to holders of qualified public school modernization
bonds.
`SEC. 1400F. CREDIT TO HOLDERS OF QUALIFIED PUBLIC SCHOOL MODERNIZATION
BONDS.
`(a) ALLOWANCE OF CREDIT- In the case of a taxpayer who holds a qualified
public school modernization bond on a credit allowance date of such bond which
occurs during the taxable year, there shall be allowed as a credit against the
tax imposed by this chapter for such taxable year an amount equal to the sum
of the credits determined under subsection (b) with respect to credit
allowance dates during such year on which the taxpayer holds such bond.
`(1) IN GENERAL- The amount of the credit determined under this
subsection with respect to any credit allowance date for a qualified public
school modernization bond is 25 percent of the annual credit determined with
respect to such bond.
`(2) ANNUAL CREDIT- The annual credit determined with respect to any
qualified public school modernization bond is the product of--
`(A) the applicable credit rate, multiplied by
`(B) the outstanding face amount of the bond.
`(3) APPLICABLE CREDIT RATE- For purposes of paragraph (1), the
applicable credit rate with respect to an issue is the rate equal to an
average market yield (as of the day before the date of issuance of the
issue) on outstanding long-term corporate debt obligations (determined under
regulations prescribed by the Secretary).
`(4) SPECIAL RULE FOR ISSUANCE AND REDEMPTION- In the case of a bond
which is issued during the 3-month period ending on a credit allowance date,
the amount of the credit determined under this subsection with respect to
such credit allowance date shall be a ratable portion of the credit
otherwise determined based on the portion of the 3-month period during which
the bond is outstanding. A similar rule shall apply when the bond is
redeemed.
`(c) LIMITATION BASED ON AMOUNT OF TAX-
`(1) IN GENERAL- The credit allowed under subsection (a) for any taxable
year shall not exceed the excess of--
`(A) the sum of the regular tax liability (as defined in section
26(b)) plus the tax imposed by section 55, over
`(B) the sum of the credits allowable under part IV of subchapter A
(other than subpart C thereof, relating to refundable credits).
`(2) CARRYOVER OF UNUSED CREDIT- If the credit allowable under
subsection (a) exceeds the limitation imposed by paragraph (1) for such
taxable year, such excess shall be carried to the succeeding taxable year
and added to the credit allowable under subsection (a) for such taxable
year.
`(d) QUALIFIED PUBLIC SCHOOL MODERNIZATION BOND; CREDIT ALLOWANCE DATE-
For purposes of this section--
`(1) QUALIFIED PUBLIC SCHOOL MODERNIZATION BOND- The term `qualified
public school modernization bond' means--
`(A) a qualified zone academy bond, and
`(B) a qualified school construction bond.
`(2) CREDIT ALLOWANCE DATE- The term `credit allowance date'
means--
Such term includes the last day on which the bond is outstanding.
`(e) OTHER DEFINITIONS- For purposes of this subchapter--
`(1) LOCAL EDUCATIONAL AGENCY- The term `local educational agency' has
the meaning given to such term by section 14101 of the Elementary and
Secondary Education Act of 1965. Such term includes the local educational
agency that serves the District of Columbia but does not include any other
State agency.
`(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.
`(4) PUBLIC SCHOOL FACILITY- The term `public school facility' shall not
include--
`(A) any stadium or other facility primarily used for athletic
contests or exhibitions or other events for which admission is charged to
the general public, or
`(B) any facility which is not owned by a State or local government or
any agency or instrumentality of a State or local government.
`(f) CREDIT INCLUDED IN GROSS INCOME- Gross income includes the amount of
the credit allowed to the taxpayer under this section (determined without
regard to subsection (c)) and the amount so included shall be treated as
interest income.
`(g) BONDS HELD BY REGULATED INVESTMENT COMPANIES- If any qualified public
school modernization bond is held by a regulated investment company, the
credit determined under subsection (a) shall be allowed to shareholders of
such company under procedures prescribed by the Secretary.
`(h) CREDITS MAY BE STRIPPED- Under regulations prescribed by the
Secretary--
`(1) IN GENERAL- There may be a separation (including at issuance) of
the ownership of a qualified public school modernization bond and the
entitlement to the credit under this section with respect to such bond. In
case of any such separation, the credit under this section shall be allowed
to the person who on the credit allowance date holds the
instrument evidencing the entitlement to the credit and not to the holder of
the bond.
`(2) CERTAIN RULES TO APPLY- In the case of a separation described in
paragraph (1), the rules of section 1286 shall apply to the qualified public
school modernization bond as if it were a stripped bond and to the credit
under this section as if it were a stripped coupon.
`(i) TREATMENT FOR ESTIMATED TAX PURPOSES- Solely for purposes of sections
6654 and 6655, the credit allowed by this section to a taxpayer by reason of
holding a qualified public school modernization bond on a credit allowance
date shall be treated as if it were a payment of estimated tax made by the
taxpayer on such date.
`(j) CREDIT MAY BE TRANSFERRED- Nothing in any law or rule of law shall be
construed to limit the transferability of the credit allowed by this section
through sale and repurchase agreements.
`(k) REPORTING- Issuers of qualified public school modernization bonds
shall submit reports similar to the reports required under section 149(e).
`(l) PENALTY ON CONTRACTORS FAILING TO PAY PREVAILING WAGE-
`(1) IN GENERAL- If any contractor on any project funded by any
qualified public school modernization bond has failed, during any portion of
such contractor's taxable year, to pay prevailing wages that would be
required under section 439 of the General Education Provisions Act if such
funding were an applicable program under such section, the tax imposed by
chapter 1 on such contractor for such taxable year shall be increased by 200
percent of the amount involved in such failure.
`(2) AMOUNT INVOLVED- For purposes of paragraph (1), the amount involved
with respect to any failure is the excess of the amount of wages such
contractor would be so required to pay under such section over the amount of
wages paid.
`(3) ABATEMENT OF TAX IF FAILURE CORRECTED- If a failure to pay
prevailing wages is corrected within a reasonable period, then any tax
imposed by paragraph (1) with respect to such failure (including interest,
additions to the tax, and additional amounts) shall not be assessed, and if
assessed the assessment shall be abated, and if collected shall be credited
or refunded as an overpayment.
`(4) NO CREDITS AGAINST TAX- The tax imposed by paragraph (1) shall not
be treated as a tax imposed by this chapter for purposes of
determining--
`(A) the amount of any credit allowable under this chapter,
or
`(B) the amount of the minimum tax imposed by section 55.
`(m) TERMINATION- This section shall not apply to any bond issued after
December 31, 2004.
`PART II--QUALIFIED SCHOOL CONSTRUCTION BONDS
`Sec. 1400G. Qualified school construction bonds.
`SEC. 1400G. QUALIFIED SCHOOL CONSTRUCTION BONDS.
`(a) QUALIFIED SCHOOL CONSTRUCTION BOND- For purposes of this subchapter,
the term `qualified school construction bond' means any bond issued as part of
an issue if--
`(1) 95 percent or more of the proceeds of such issue are to be used for
the construction, rehabilitation, or repair of a public school facility or
for the acquisition of land on which such a facility is to be constructed
with part of the proceeds of such issue,
`(2) the bond is issued by a State or local government within the
jurisdiction of which such school is located,
`(3) the issuer designates such bond for purposes of this section,
and
`(4) the term of each bond which is part of such issue does not exceed
15 years.
`(b) LIMITATION ON AMOUNT OF BONDS DESIGNATED- The maximum aggregate face
amount of bonds issued during any calendar year which may be designated under
subsection (a) by any issuer shall not exceed the sum of--
`(1) the limitation amount allocated under subsection (d) for such
calendar year to such issuer, and
`(2) if such issuer is a large local educational agency (as defined in
subsection (e)(4)) or is issuing on behalf of such an agency, the limitation
amount allocated under subsection (e) for such calendar year to such
agency.
`(c) NATIONAL LIMITATION ON AMOUNT OF BONDS DESIGNATED- There is a
national qualified school construction bond limitation for each calendar year.
Such limitation is--
`(1) $11,000,000,000 for 2001,
`(2) except as provided in subsection (f), zero after 2001.
`(d) HALF OF LIMITATION ALLOCATED AMONG STATES-
`(1) IN GENERAL- One-half of the limitation applicable under subsection
(c) for any calendar year shall be allocated among the States under
paragraph (2) by the Secretary. The limitation amount allocated to a State
under the preceding sentence shall be allocated by the State to issuers
within such State and such allocations may be made only if there is an
approved State application.
`(2) ALLOCATION FORMULA- The amount to be allocated under paragraph (1)
for any calendar year shall be allocated among the States in proportion to
the respective amounts each such State received for Basic Grants under
subpart 2 of part A of title I of the Elementary and Secondary Education Act
of 1965 (20 U.S.C. 6331 et seq.) for the most recent fiscal year ending
before such calendar year. For purposes of the preceding sentence, Basic
Grants attributable to large local educational agencies (as defined in
subsection (e)) shall be disregarded.
`(3) MINIMUM ALLOCATIONS TO STATES-
`(A) IN GENERAL- The Secretary shall adjust the allocations under this
subsection for any calendar year for each State to the extent necessary to
ensure that the sum of--
`(i) the amount allocated to such State under this subsection for
such year, and
`(ii) the aggregate amounts allocated under subsection (e) to large
local educational agencies in such State for such year,
is not less than an amount equal to such State's minimum percentage of
the amount to be allocated under paragraph (1) for the calendar
year.
`(B) MINIMUM PERCENTAGE- A State's minimum percentage for any calendar
year is the minimum percentage described in section 1124(d) of the
Elementary and Secondary Education Act of 1965 (20 U.S.C. 6334(d)) for
such State for the most recent fiscal year ending before such calendar
year.
`(4) ALLOCATIONS TO CERTAIN POSSESSIONS- The amount to be allocated
under paragraph (1) to any possession of the United States other than Puerto
Rico shall be the amount which would have been allocated if all allocations
under paragraph (1) were made on the basis of respective populations of
individuals below the poverty line (as defined by the Office of Management
and Budget). In making other allocations, the amount to be allocated under
paragraph (1) shall be reduced by the aggregate amount allocated under this
paragraph to possessions of the United States.
`(5) ALLOCATIONS FOR INDIAN SCHOOLS- In addition to the amounts
otherwise allocated under this subsection, $200,000,000 for calendar year
2001 shall be allocated by the Secretary of the Interior for purposes of the
construction, rehabilitation, and repair of schools funded by the Bureau of
Indian Affairs. In the case of amounts allocated under the preceding
sentence, Indian tribal governments (as defined in section 7871) shall be
treated as qualified issuers for purposes of this subchapter.
`(6) APPROVED STATE APPLICATION- For purposes of paragraph (1), the term
`approved State application' means an application which is approved by the
Secretary of Education and which includes--
`(A) the results of a recent publicly-available survey (undertaken by
the State with the involvement of local education officials, members of
the public, and experts in school construction and management) of such
State's needs for public school facilities, including descriptions
of--
`(i) health and safety problems at such facilities,
`(ii) the capacity of public schools in the State to house projected
enrollments, and
`(iii) the extent to which the public schools in the State offer the
physical infrastructure needed to provide a high-quality education to
all students, and
`(B) a description of how the State will allocate to local educational
agencies, or otherwise use, its allocation under this subsection to
address the needs identified under subparagraph (A), including a
description of how it will--
`(i) give highest priority to localities with the greatest needs, as
demonstrated by inadequate school facilities coupled with a low level of
resources to meet those needs,
`(ii) use its allocation under this subsection to assist localities
that lack the
fiscal capacity to issue bonds on their own, and
`(iii) ensure that its allocation under this subsection is used only
to supplement, and not supplant, the amount of school construction,
rehabilitation, and repair in the State that would have occurred in the
absence of such allocation.
Any allocation under paragraph (1) by a State shall be binding if such
State reasonably determined that the allocation was in accordance with the
plan approved under this paragraph.
`(e) HALF OF LIMITATION ALLOCATED AMONG LARGEST SCHOOL DISTRICTS-
`(1) IN GENERAL- One-half of the limitation applicable under subsection
(c) for any calendar year shall be allocated under paragraph (2) by the
Secretary among local educational agencies which are large local educational
agencies for such year. No qualified school construction bond may be issued
by reason of an allocation to a large local educational agency under the
preceding sentence unless such agency has an approved local
application.
`(2) ALLOCATION FORMULA- The amount to be allocated under paragraph (1)
for any calendar year shall be allocated among large local educational
agencies in proportion to the respective amounts each such agency received
for Basic Grants under subpart 2 of part A of title I of the Elementary and
Secondary Education Act of 1965 (20 U.S.C. 6331 et seq.) for the most recent
fiscal year ending before such calendar year.
`(3) ALLOCATION OF UNUSED LIMITATION TO STATE- The amount allocated
under this subsection to a large local educational agency for any calendar
year may be reallocated by such agency to the State in which such agency is
located for such calendar year. Any amount reallocated to a State under the
preceding sentence may be allocated as provided in subsection (d)(1).
`(4) LARGE LOCAL EDUCATIONAL AGENCY- For purposes of this section, the
term `large local educational agency' means, with respect to a calendar
year, any local educational agency if such agency is--
`(A) among the 100 local educational agencies with the largest numbers
of children aged 5 through 17 from families living below the poverty
level, as determined by the Secretary using the most recent data available
from the Department of Commerce that are satisfactory to the Secretary,
or
`(B) 1 of not more than 25 local educational agencies (other than
those described in subparagraph (A)) that the Secretary of Education
determines (based on the most recent data available satisfactory to the
Secretary) are in particular need of assistance, based on a low level of
resources for school construction, a high level of enrollment growth, or
such other factors as the Secretary deems appropriate.
`(5) APPROVED LOCAL APPLICATION- For purposes of paragraph (1), the term
`approved local application' means an application which is approved by the
Secretary of Education and which includes--
`(A) the results of a recent publicly-available survey (undertaken by
the local educational agency or the State with the involvement of school
officials, members of the public, and experts in school construction and
management) of such agency's needs for public school facilities, including
descriptions of--
`(i) the overall condition of the local educational agency's school
facilities, including health and safety problems,
`(ii) the capacity of the agency's schools to house projected
enrollments, and
`(iii) the extent to which the agency's schools offer the physical
infrastructure needed to provide a high-quality education to all
students,
`(B) a description of how the local educational agency will use its
allocation under this subsection to address the needs identified under
subparagraph (A), and
`(C) a description of how the local educational agency will ensure
that its allocation under this subsection is used only to supplement, and
not supplant, the amount of school construction, rehabilitation, or repair
in the locality that would have occurred in the absence of such
allocation.
A rule similar to the rule of the last sentence of subsection (d)(6)
shall apply for purposes of this paragraph.
`(f) CARRYOVER OF UNUSED LIMITATION- If for any calendar year--
`(1) the amount allocated under subsection (d) to any State,
exceeds
`(2) the amount of bonds issued during such year which are designated
under subsection (a) pursuant to such allocation,
the limitation amount under such subsection for such State for the
following calendar year shall be increased by the amount of such excess. A
similar rule shall apply to the amounts allocated under subsection (d)(5) or
(e).
`(g) SPECIAL RULES RELATING TO ARBITRAGE-
`(1) IN GENERAL- A bond shall not be treated as failing to meet the
requirement of subsection (a)(1) solely by reason of the fact that the
proceeds of the issue of which such bond is a part are invested for a
temporary period (but not more than 36 months) until such proceeds are
needed for the purpose for which such issue was issued.
`(2) BINDING COMMITMENT REQUIREMENT- Paragraph (1) shall apply to an
issue only if, as of the date of issuance, there is a reasonable expectation
that--
`(A) at least 10 percent of the proceeds of the issue will be spent
within the 6-month period beginning on such date for the purpose for which
such issue was issued, and
`(B) the remaining proceeds of the issue will be spent with due
diligence for such purpose.
`(3) EARNINGS ON PROCEEDS- Any earnings on proceeds during the temporary
period shall be treated as proceeds of the issue for purposes of applying
subsection (a)(1) and paragraph (1) of this subsection.
`PART III--INCENTIVES FOR EDUCATION ZONES
`Sec. 1400H. Qualified zone academy bonds.
`SEC. 1400H. QUALIFIED ZONE ACADEMY BONDS.
`(a) QUALIFIED ZONE ACADEMY BOND- For purposes of this subchapter--
`(1) IN GENERAL- The term `qualified zone academy bond' means any bond
issued as part of an issue if--
`(A) 95 percent or more of the proceeds of such issue are to be used
for a qualified purpose with respect to a qualified zone academy
established by a local educational agency,
`(B) the bond is issued by a State or local government within the
jurisdiction of which such academy is located,
`(i) designates such bond for purposes of this section,
`(ii) certifies that it has written assurances that the private
business contribution requirement of paragraph (2) will be met with
respect to such academy, and
`(iii) certifies that it has the written approval of the local
educational agency for such bond issuance, and
`(D) the term of each bond which is part of such issue does not exceed
15 years.
Rules similar to the rules of section 1400G(g) shall apply for purposes
of paragraph (1).
`(2) PRIVATE BUSINESS CONTRIBUTION REQUIREMENT-
`(A) IN GENERAL- For purposes of paragraph (1), the private business
contribution requirement of this paragraph is met with respect to any
issue if the local educational agency that established the qualified zone
academy has written commitments from private entities to make qualified
contributions having a present value (as of the date of issuance of the
issue) of not less than 10 percent of the proceeds of the issue.
`(B) QUALIFIED CONTRIBUTIONS- For purposes of subparagraph (A), the
term `qualified contribution' means any contribution (of a type and
quality acceptable to the local educational agency) of--
`(i) equipment for use in the qualified zone academy (including
state-of-the-art technology and vocational equipment),
`(ii) technical assistance in developing curriculum or in training
teachers in order to promote appropriate market driven technology in the
classroom,
`(iii) services of employees as volunteer mentors,
`(iv) internships, field trips, or other educational opportunities
outside the academy for students, or
`(v) any other property or service specified by the local
educational agency.
`(3) QUALIFIED ZONE ACADEMY- The term `qualified zone academy' means any
public school (or academic program within a public school) which is
established by and operated under the supervision of a local educational
agency to provide education or training below the postsecondary level
if--
`(A) such public school or program (as the case may be) is designed in
cooperation with business to enhance the academic curriculum, increase
graduation and employment rates, and better prepare students for the
rigors of college and the increasingly complex workforce,
`(B) students in such public school or program (as the case may be)
will be subject to the same academic standards and assessments as other
students educated by the local educational agency,
`(C) the comprehensive education plan of such public school or program
is approved by the local educational agency, and
`(D)(i) such public school is located in an empowerment zone or
enterprise community (including any such zone or community designated
after the date of the enactment of this section), or
`(ii) there is a reasonable expectation (as of the date of issuance of
the bonds) that at least 35 percent of the students attending such school
or participating in such program (as the case may be) will be eligible for
free or reduced-cost lunches under the school lunch program established
under the National School Lunch Act.
`(4) QUALIFIED PURPOSE- The term `qualified purpose' means, with respect
to any qualified zone academy--
`(A) constructing, rehabilitating, or repairing the public school
facility in which the academy is established,
`(B) acquiring the land on which such facility is to be constructed
with part of the proceeds of such issue,
`(C) providing equipment for use at such academy,
`(D) developing course materials for education to be provided at such
academy, and
`(E) training teachers and other school personnel in such
academy.
`(b) LIMITATIONS ON AMOUNT OF BONDS DESIGNATED-
`(1) IN GENERAL- There is a national zone academy bond limitation for
each calendar year. Such limitation is--
`(A) $400,000,000 for 1998,
`(B) $400,000,000 for 1999,
`(C) $400,000,000 for 2000,
`(D) $1,400,000,000 for 2001,
`(E) except as provided in paragraph (3), zero after 2001.
`(2) ALLOCATION OF LIMITATION-
`(A) ALLOCATION AMONG STATES-
`(i) 1998, 1999, and 2000 LIMITATIONS- The national zone academy
bond limitations for calendar years 1998, 1999, and 2000 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).
`(ii) LIMITATION AFTER 2000- The national zone academy bond
limitation for any calendar year after 2000 shall be allocated by the
Secretary among the States in the manner prescribed by section 1400G(d);
except that in making the allocation under this clause, the Secretary
shall take into account--
`(I) Basic Grants attributable to large local educational agencies
(as defined in section 1400G(e)).
`(II) the national zone academy bond limitation.
`(B) ALLOCATION TO LOCAL EDUCATIONAL AGENCIES- The limitation amount
allocated to a State under subparagraph (A) shall be allocated by the
State education agency to qualified zone academies within such
State.
`(C) DESIGNATION SUBJECT TO LIMITATION AMOUNT- The maximum aggregate
face amount of bonds issued during any calendar year which may be
designated under subsection (a) with respect to any qualified zone academy
shall not exceed the limitation amount allocated to such academy under
subparagraph (B) for such calendar year.
`(3) CARRYOVER OF UNUSED LIMITATION- If for any calendar year--
`(A) the limitation amount under this subsection for any State,
exceeds
`(B) the amount of bonds issued during such year which are designated
under subsection (a) (or the corresponding provisions of prior law) with
respect to qualified zone academies within such State,
the limitation amount under this subsection for such State for the
following calendar year shall be increased by the amount of such
excess.'.
(b) REPORTING- Subsection (d) of section 6049 of such Code (relating to
returns regarding payments of interest) is amended by adding at the end the
following new paragraph:
`(8) REPORTING OF CREDIT ON QUALIFIED PUBLIC SCHOOL MODERNIZATION
BONDS-
`(A) IN GENERAL- For purposes of subsection (a), the term `interest'
includes amounts includible in gross income under section 1400F(f) and
such amounts shall be treated as paid on the credit allowance date (as
defined in section 1400F(d)(2)).
`(B) REPORTING TO CORPORATIONS, ETC- Except as otherwise provided in
regulations, in the case of any interest described in subparagraph (A) of
this paragraph, subsection (b)(4) of this section shall be applied without
regard to subparagraphs (A), (H), (I), (J), (K), and (L)(i).
`(C) REGULATORY AUTHORITY- The Secretary may prescribe such
regulations as are necessary or appropriate to carry out the purposes of
this paragraph, including regulations which require more frequent or more
detailed reporting.'
(c) OTHER CONFORMING AMENDMENTS-
(1) Subchapter U of chapter 1 of such Code is amended by striking part
IV, by redesignating part V as part IV, and by redesignating section 1397F
as section 1397E.
(2) The table of subchapters for chapter 1 of such Code is amended by
adding at the end the following new item:
`Subchapter X. Public school modernization provisions.'
(3) The table of parts of subchapter U of chapter 1 of such Code is
amended by striking the last 2 items and inserting the following item:
`Part IV. Regulations.'
(1) IN GENERAL- Except as otherwise provided in this subsection, the
amendments made by this section shall apply to obligations issued after
December 31, 2000.
(2) REPEAL OF RESTRICTION ON ZONE ACADEMY BOND HOLDERS- In the case of
bonds to which section 1397E of the Internal Revenue Code of 1986 (as in
effect before the date of the enactment of this Act) applies, the limitation
of such section to eligible taxpayers (as defined in subsection (d)(6) of
such section) shall not apply after the date of the enactment of this
Act.
Subtitle F--Increased Estate Tax Relief for Family-Owned Business
Interests
SEC. 251. INCREASE IN ESTATE TAX BENEFIT FOR FAMILY-OWNED BUSINESS
INTERESTS.
(a) TRANSFER TO CREDIT PROVISIONS- Section 2057 of the Internal Revenue
Code of 1986 (relating to family-owned business interests) is hereby moved to
part II of subchapter A of chapter 11 of such Code, inserted after section
2010, and redesignated as section 2010A.
(b) INCREASE IN CREDIT; SURVIVING SPOUSE ALLOWED UNUSED CREDIT OF
DECEDENT- Subsection (a) of section 2010A of such Code, as redesignated by
subsection (a) of this section, is amended to read as follows:
`(a) INCREASE IN UNITED CREDIT- For purposes of determining the unified
credit under section 2010 in the case of an estate of a decedent to which this
section applies--
`(1) IN GENERAL- The applicable exclusion amount under section 2010(c)
shall be increased (but not in excess of $2,000,000) by the adjusted value
of the qualified family-owned business interests of the decedent which are
described in subsection (b)(2) and for which no deduction is allowed under
section 2056.
`(2) TREATMENT OF UNUSED LIMITATION OF PREDECEASED SPOUSE- In the case
of a decedent--
`(A) having no surviving spouse, but
`(B) who was the surviving spouse of a decedent--
`(i) who died after December 31, 2000, and
`(ii) whose estate met the requirements of subsection (b)(1) other
than subparagraph (B) thereof,
there shall be substituted for `$2,000,000' in paragraph (1) an amount
equal to the excess of $4,000,000 over the exclusion equivalent of the
credit allowed under section 2010 (as increased by this section) to the
estate of the decedent referred to in subparagraph (B). For purposes of the
preceding sentence, the exclusion equivalent of the credit is the amount on
which a tentative tax under section 2001(c) equal to such credit would be
imposed.'
(c) CONFORMING AMENDMENTS-
(1) The table of sections for part IV of subchapter A of chapter 11 of
such Code is amended by striking the item relating to section 2057.
(2) Paragraph (10) of section 2031(c) of such Code is amended by
striking `section 2057(e)(3)' and inserting `section 2010A(e)(3)'.
(3) The table of sections for part II of subchapter A of chapter 11 of
such Code is amended by inserting after the item relating to section 2010
the following new item:
`Sec. 2010A. Family-owned business interests.'
(d) EFFECTIVE DATE- The amendments made by this section shall apply to
estates of decedents dying after December 31, 2000.
Subtitle G--Revenue Offsets
PART I--REVISION OF TAX RULES ON EXPATRIATION
SEC. 261. REVISION OF TAX RULES ON EXPATRIATION.
(a) IN GENERAL- Subpart A of part II of subchapter N of chapter 1 of the
Internal Revenue Code of 1986 is amended by inserting after section 877 the
following new section:
`SEC. 877A. TAX RESPONSIBILITIES OF EXPATRIATION.
`(a) GENERAL RULES- For purposes of this subtitle--
`(1) MARK TO MARKET- Except as provided in subsection (f), all property
of a covered expatriate to whom this section applies shall be treated as
sold on the day before the expatriation date for its fair market
value.
`(2) RECOGNITION OF GAIN OR LOSS- In the case of any sale under
paragraph (1)--
`(A) notwithstanding any other provision of this title, any gain
arising from such sale shall be taken into account for the taxable year of
the sale, and
`(B) any loss arising from such sale shall be taken into account for
the taxable year of the sale to the extent otherwise provided by this
title, except that section 1091 shall not apply to any such loss.
Proper adjustment shall be made in the amount of any gain or loss
subsequently realized for gain or loss taken into account under the
preceding sentence.
`(3) EXCLUSION FOR CERTAIN GAIN- The amount which would (but for this
paragraph) be includible in the gross income of any individual by reason of
this section shall be reduced (but not below zero) by $600,000. For purposes
of this paragraph, allocable expatriation gain taken into account under
subsection (f)(2) shall be treated in the same manner as an amount required
to be includible in gross income.
`(b) ELECTION TO DEFER TAX-
`(1) IN GENERAL- If the taxpayer elects the application of this
subsection with respect to any property treated as sold by reason of
subsection (a), the payment of the additional tax attributable to such
property shall be postponed until the due date of the return for the taxable
year in which such property is disposed of (or, in the case of property
disposed of in a transaction in which gain is not recognized in whole or in
part, until such other date as the Secretary may prescribe).
`(2) DETERMINATION OF TAX WITH RESPECT TO PROPERTY- For purposes of
paragraph (1), the additional tax attributable to any property is an amount
which bears the same ratio to the additional tax imposed by this chapter for
the taxable year solely by reason of subsection (a) as the gain taken into
account under subsection (a) with respect to such property bears to the
total gain taken into account under subsection (a) with respect to all
property to which subsection (a) applies.
`(3) TERMINATION OF POSTPONEMENT- No tax may be postponed under this
subsection later than the due date for the return of tax imposed by this
chapter for the taxable year which includes the date of death of the
expatriate (or, if earlier, the time that the security provided with respect
to the property fails to meet the requirements of paragraph (4), unless the
taxpayer corrects such failure within the time specified by the
Secretary).
`(A) IN GENERAL- No election may be made under paragraph (1) with
respect to any property unless adequate security is provided with respect
to such property.
`(B) ADEQUATE SECURITY- For purposes of subparagraph (A), security
with respect to any property shall be treated as adequate security
if--
`(i) it is a bond in an amount equal to the deferred tax amount
under paragraph (2)(A) for the property, or
`(ii) the taxpayer otherwise establishes to the satisfaction of the
Secretary that the security is adequate.
`(5) WAIVER OF CERTAIN RIGHTS- No election may be made under paragraph
(1) unless the taxpayer consents to the waiver of any right under any treaty
of the United States which would preclude assessment or collection of any
tax imposed by reason of this section.
`(6) ELECTIONS- An election under paragraph (1) shall only apply to
property described in the election and, once made, is irrevocable. An
election may be under paragraph (1) with respect to an interest in a trust
with respect to which gain is required to be recognized under subsection
(f)(1).
`(7) INTEREST- For purposes of section 6601, the last date for the
payment of tax shall be determined without regard to the election under this
subsection.
`(c) COVERED EXPATRIATE- For purposes of this section--
`(1) IN GENERAL- The term `covered expatriate' means an expatriate who
meets the requirements of subparagraph (A) or (B) of section
877(a)(2).
`(2) EXCEPTIONS- An individual shall not be treated as a covered
expatriate if--
`(i) became at birth a citizen of the United States and a citizen of
another country and, as of the expatriation date, continues to be a
citizen of, and is taxed as a resident of, such other country,
and
`(ii) has been a resident of the United States (as defined in
section 7701(b)(1)(A)(ii)) for not more than 8 taxable years during the
15-taxable year period ending with the taxable year during which the
expatriation date occurs, or
`(B)(i) the individual's relinquishment of United States citizenship
occurs before such individual attains age 18 1/2 , and
`(ii) the individual has been a resident of the United States (as so
defined) for not more than 5 taxable years before the date of
relinquishment.
`(d) SECTION NOT TO APPLY TO CERTAIN PROPERTY- This section shall not
apply to the following property:
`(1) UNITED STATES REAL PROPERTY INTERESTS- Any United States real
property interest (as defined in section 897(c)(1)), other than stock of a
United States real property holding corporation which does not, on the day
before the expatriation date, meet the requirements of section
897(c)(2).
`(2) INTEREST IN CERTAIN RETIREMENT PLANS-
`(A) IN GENERAL- Any interest in a qualified retirement plan (as
defined in section 4974(c)), other than any interest attributable to
contributions which are in excess of any limitation or which violate any
condition for tax-favored treatment.
`(B) FOREIGN PENSION PLANS-
`(i) IN GENERAL- Under regulations prescribed by the Secretary,
interests in foreign pension plans or similar retirement arrangements or
programs.
`(ii) LIMITATION- The value of property which is treated as not sold
by reason of this subparagraph shall not exceed $500,000.
`(e) DEFINITIONS- For purposes of this section--
`(1) EXPATRIATE- The term `expatriate' means--
`(A) any United States citizen who relinquishes his citizenship,
and
`(B) any long-term resident of the United States who--
`(i) ceases to be a lawful permanent resident of the United States
(within the meaning of section 7701(b)(6)), or
`(ii) commences to be treated as a resident of a foreign country
under the provisions of a tax treaty between the United States and the
foreign country and who does not waive the benefits of such treaty
applicable to residents of the foreign country.
`(2) EXPATRIATION DATE- The term `expatriation date' means--
`(A) the date an individual relinquishes United States citizenship,
or
`(B) in the case of a long-term resident of the United States, the
date of the event described in clause (i) or (ii) of paragraph
(1)(B).
`(3) RELINQUISHMENT OF CITIZENSHIP- A citizen shall be treated as
relinquishing his United States citizenship on the earliest of--
`(A) the date the individual renounces his United States nationality
before a diplomatic or consular officer of the United States
pursuant
to paragraph (5) of section 349(a) of the Immigration and Nationality Act (8
U.S.C. 1481(a)(5)),
`(B) the date the individual furnishes to the United States Department
of State a signed statement of voluntary relinquishment of United States
nationality confirming the performance of an act of expatriation specified
in paragraph (1), (2), (3), or (4) of section 349(a) of the Immigration
and Nationality Act (8 U.S.C. 1481(a)(1)-(4)),
`(C) the date the United States Department of State issues to the
individual a certificate of loss of nationality, or
`(D) the date a court of the United States cancels a naturalized
citizen's certificate of naturalization.
Subparagraph (A) or (B) shall not apply to any individual unless the
renunciation or voluntary relinquishment is subsequently approved by the
issuance to the individual of a certificate of loss of nationality by the
United States Department of State.
`(4) LONG-TERM RESIDENT- The term `long-term resident' has the meaning
given to such term by section 877(e)(2).
`(f) SPECIAL RULES APPLICABLE TO BENEFICIARIES' INTERESTS IN TRUST-
`(1) IN GENERAL- Except as provided in paragraph (2), if an individual
is determined under paragraph (3) to hold an interest in a trust on the day
before the expatriation date--
`(A) the individual shall not be treated as having sold such
interest,
`(B) such interest shall be treated as a separate share in the trust,
and
`(C)(i) such separate share shall be treated as a separate trust
consisting of the assets allocable to such share,
`(ii) the separate trust shall be treated as having sold its assets on
the day before the expatriation date for their fair market value and as
having distributed all of its assets to the individual as of such time,
and
`(iii) the individual shall be treated as having recontributed the
assets to the separate trust.
Subsection (a)(2) shall apply to any income, gain, or loss of the
individual arising from a distribution described in subparagraph
(C)(ii).
`(2) SPECIAL RULES FOR INTERESTS IN QUALIFIED TRUSTS-
`(A) IN GENERAL- If the trust interest described in paragraph (1) is
an interest in a qualified trust--
`(i) paragraph (1) and subsection (a) shall not apply,
and
`(ii) in addition to any other tax imposed by this title, there is
hereby imposed on each distribution with respect to such interest a tax
in the amount determined under subparagraph (B).
`(B) AMOUNT OF TAX- The amount of tax under subparagraph (A)(ii) shall
be equal to the lesser of--
`(i) the highest rate of tax imposed by section 1(e) for the taxable
year which includes the day before the expatriation date, multiplied by
the amount of the distribution, or
`(ii) the balance in the deferred tax account immediately before the
distribution determined without regard to any increases under
subparagraph (C)(ii) after the 30th day preceding the
distribution.
`(C) DEFERRED TAX ACCOUNT- For purposes of subparagraph
(B)(ii)--
`(i) OPENING BALANCE- The opening balance in a deferred tax account
with respect to any trust interest is an amount equal to the tax which
would have been imposed on the allocable expatriation gain with respect
to the trust interest if such gain had been included in gross income
under subsection (a).
`(ii) INCREASE FOR INTEREST- The balance in the deferred tax account
shall be increased by the amount of interest determined (on the balance
in the account at the time the interest accrues), for periods after the
90th day after the expatriation date, by using the rates and method
applicable under section 6621 for underpayments of tax for such
periods.
`(iii) DECREASE FOR TAXES PREVIOUSLY PAID- The balance in the tax
deferred account shall be reduced--
`(I) by the amount of taxes imposed by subparagraph (A) on
any
distribution to the person holding the trust interest, and
`(II) in the case of a person holding a nonvested interest, to the
extent provided in regulations, by the amount of taxes imposed by
subparagraph (A) on distributions from the trust with respect to
nonvested interests not held by such person.
`(D) ALLOCABLE EXPATRIATION GAIN- For purposes of this paragraph, the
allocable expatriation gain with respect to any beneficiary's interest in
a trust is the amount of gain which would be allocable to such
beneficiary's vested and nonvested interests in the trust if the
beneficiary held directly all assets allocable to such interests.
`(E) TAX DEDUCTED AND WITHHELD-
`(i) IN GENERAL- The tax imposed by subparagraph (A)(ii) shall be
deducted and withheld by the trustees from the distribution to which it
relates.
`(ii) EXCEPTION WHERE FAILURE TO WAIVE TREATY RIGHTS- If an amount
may not be deducted and withheld under clause (i) by reason of the
distributee failing to waive any treaty right with respect to such
distribution--
`(I) the tax imposed by subparagraph (A)(ii) shall be imposed on
the trust and each trustee shall be personally liable for the amount
of such tax, and
`(II) any other beneficiary of the trust shall be entitled to
recover from the distributee the amount of such tax imposed on the
other beneficiary.
`(F) DISPOSITION- If a trust ceases to be a qualified trust at any
time, a covered expatriate disposes of an interest in a qualified trust,
or a covered expatriate holding an interest in a qualified trust dies,
then, in lieu of the tax imposed by subparagraph (A)(ii), there is hereby
imposed a tax equal to the lesser of--
`(i) the tax determined under paragraph (1) as if the day before the
expatriation date were the date of such cessation, disposition, or
death, whichever is applicable, or
`(ii) the balance in the tax deferred account immediately before
such date.
Such tax shall be imposed on the trust and each trustee shall be
personally liable for the amount of such tax and any other beneficiary of
the trust shall be entitled to recover from the covered expatriate or the
estate the amount of such tax imposed on the other beneficiary.
`(G) DEFINITIONS AND SPECIAL RULE- For purposes of this
paragraph--
`(i) QUALIFIED TRUST- The term `qualified trust' means a
trust--
`(I) which is organized under, and governed by, the laws of the
United States or a State, and
`(II) with respect to which the trust instrument requires that at
least 1 trustee of the trust be an individual citizen of the United
States or a domestic corporation.
`(ii) VESTED INTEREST- The term `vested interest' means any interest
which, as of the day before the expatriation date, is vested in the
beneficiary.
`(iii) NONVESTED INTEREST- The term `nonvested interest' means, with
respect to any beneficiary, any interest in a trust which is not a
vested interest. Such interest shall be determined by assuming the
maximum exercise of discretion in favor of the beneficiary and the
occurrence of all contingencies in favor of the beneficiary.
`(iv) ADJUSTMENTS- The Secretary may provide for such adjustments to
the bases of assets in a trust or a deferred tax account, and the timing
of such adjustments, in order to ensure that gain is taxed only
once.
`(3) DETERMINATION OF BENEFICIARIES' INTEREST IN TRUST-
`(A) DETERMINATIONS UNDER PARAGRAPH (1)- For purposes of paragraph
(1), a beneficiary's interest in a trust shall be based upon all relevant
facts and circumstances, including the terms of the trust instrument and
any letter of wishes or similar document, historical patterns of trust
distributions, and the
existence of and functions performed by a trust protector or any similar
advisor.
`(B) OTHER DETERMINATIONS- For purposes of this section--
`(i) CONSTRUCTIVE OWNERSHIP- If a beneficiary of a trust is a
corporation, partnership, trust, or estate, the shareholders, partners,
or beneficiaries shall be deemed to be the trust beneficiaries for
purposes of this section.
`(ii) TAXPAYER RETURN POSITION- A taxpayer shall clearly indicate on
its income tax return--
`(I) the methodology used to determine that taxpayer's trust
interest under this section, and
`(II) if the taxpayer knows (or has reason to know) that any other
beneficiary of such trust is using a different methodology to
determine such beneficiary's trust interest under this
section.
`(g) TERMINATION OF DEFERRALS, ETC- In the case of any covered expatriate,
notwithstanding any other provision of this title--
`(1) any period during which recognition of income or gain is deferred
shall terminate on the day before the expatriation date, and
`(2) any extension of time for payment of tax shall cease to apply on
the day before the expatriation date and the unpaid portion of such tax
shall be due and payable at the time and in the manner prescribed by the
Secretary.
`(h) REGULATIONS- The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this section.'
(b) TAX ON GIFTS AND BEQUESTS RECEIVED BY UNITED STATES CITIZENS AND
RESIDENTS FROM EXPATRIATES-
(1) IN GENERAL- Subtitle B of the Internal Revenue Code of 1986
(relating to estate and gift taxes) is amended by inserting after chapter 13
the following new chapter:
`CHAPTER 13A--GIFTS AND BEQUESTS FROM EXPATRIATES
`Sec. 2681. Imposition of tax.
`SEC. 2681. IMPOSITION OF TAX.
`(a) IN GENERAL- If, during any calendar year, any United States citizen
or resident receives any covered gift or bequest, there is hereby imposed a
tax equal to the product of--
`(1) the highest rate of tax specified in the table contained in section
2001(c) as in effect on the date of such receipt, and
`(2) the value of such covered gift or bequest.
`(b) TAX TO BE PAID BY RECIPIENT- The tax imposed by subsection (a) on any
covered gift or bequest shall be paid by the person receiving such gift or
bequest.
`(c) EXCEPTION FOR CERTAIN GIFTS- Subsection (a) shall apply only to the
extent that the covered gifts and bequests received during the calendar year
exceed $10,000.
`(d) TAX REDUCED BY FOREIGN GIFT OR ESTATE TAX- The tax imposed by
subsection (a) on any covered gift or bequest shall be reduced by the amount
of any gift or estate tax paid to a foreign country with respect to such
covered gift or bequest.
`(e) COVERED GIFT OR BEQUEST-
`(1) IN GENERAL- For purposes of this chapter, the term `covered gift or
bequest' means--
`(A) any property acquired by gift directly or indirectly from an
individual who, at the time of such acquisition, was an expatriate,
and
`(B) any property acquired by bequest, devise, or inheritance directly
or indirectly from an individual who, at the time of death, was an
expatriate.
`(2) EXCEPTIONS FOR TRANSFERS OTHERWISE SUBJECT TO ESTATE OR GIFT TAX-
Such term shall not include--
`(A) any property shown on a timely filed return of tax imposed by
chapter 12 which is a taxable gift by the expatriate, and
`(B) any property shown on a timely filed return of tax imposed by
chapter 11 of the estate of the expatriate.
`(3) TRANSFERS IN TRUST- Any covered gift or bequest which is made in
trust shall be treated as made to the beneficiaries of such trust in
proportion to their respective interests in such trust (as determined under
section 877A(f)(3)).
`(f) EXPATRIATE- For purposes of this section, the term `expatriate' has
the meaning given to such term by section 877A(e)(1).'.
(2) CLERICAL AMENDMENT- The table of chapters for subtitle B of such
Code is amended by inserting after the item relating to chapter 13 the
following new item:
`Chapter 13A. Gifts and bequests from expatriates.'
(c) DEFINITION OF TERMINATION OF UNITED STATES CITIZENSHIP- Section
7701(a) of such Code is amended by adding at the end the following new
paragraph:
`(47) TERMINATION OF UNITED STATES CITIZENSHIP-
`(A) IN GENERAL- An individual shall not cease to be treated as a
United States citizen before the date on which the individual's
citizenship is treated as relinquished under section 877A(e)(3).
`(B) DUAL CITIZENS- Under regulations prescribed by the Secretary,
subparagraph (A) shall not apply to an individual who became at birth a
citizen of the United States and a citizen of another country.'
(d) CONFORMING AMENDMENT- Paragraph (1) of section 6039G(d) of such Code
is amended by inserting `or 877A' after `section 877'.
(e) CLERICAL AMENDMENT- The table of sections for subpart A of part II of
subchapter N of chapter 1 of such Code is amended by inserting after the item
relating to section 877 the following new item:
`Sec. 877A. Tax responsibilities of expatriation.'.
(1) IN GENERAL- Except as provided in this subsection, the amendments
made by this section shall apply to expatriates (within the meaning of
section 877A(e) of the Internal Revenue Code of 1986, as added by this
section) whose expatriation date (as so defined) occurs on or after March 9,
2000.
(2) GIFTS AND BEQUESTS- Chapter 13A of the Internal Revenue Code of 1986
(as added by subsection (b)) shall apply to covered gifts and bequests (as
defined in section 2681 of such Code, as so added) received on or after
March 9, 2000.
PART II--DISALLOWANCE OF NONECONOMIC TAX ATTRIBUTES
Subpart A--Disallowance of Noneconomic Tax Attributes; Increase in
Penalty With Respect to Disallowed Noneconomic Tax Attributes
SEC. 266. DISALLOWANCE OF NONECONOMIC TAX ATTRIBUTES.
Section 7701 of the Internal Revenue Code of 1986 is amended by
redesignating subsection (m) as subsection (n) and by inserting after
subsection (l) the following new subsection:
`(m) DISALLOWANCE OF NONECONOMIC TAX ATTRIBUTES-
`(1) IN GENERAL- In determining liability for any tax under subtitle A,
noneconomic tax attributes shall not be allowed.
`(2) NONECONOMIC TAX ATTRIBUTE- For purposes of this subsection, a
noneconomic tax attribute is any deduction, loss, or credit claimed to
result from any transaction unless--
`(A) the transaction changes in a meaningful way (apart from Federal
income tax consequences) the taxpayer's economic position, and
`(B)(i) the present value of the reasonably expected potential income
from the transaction (and the taxpayer's risk of loss from the
transaction) are substantial in relationship to the present value of the
tax benefits claimed, or
`(ii) in the case of a transaction which is in substance the borrowing
of money or the acquisition of financial capital, the deductions claimed
with respect to the transaction for any period are not significantly in
excess of the economic return for such period realized by the person
lending the money or providing the financial capital.
`(3) PRESUMPTION OF NONECONOMIC TAX ATTRIBUTES- For purposes of
paragraph (2), the following factors shall give rise to a presumption that a
transaction fails to meet the requirements of paragraph (2):
`(A) The fact that the payments, liabilities, or assets that purport
to create a loss (or other benefit) for tax purposes are not reflected to
any meaningful extent on the taxpayer's books and records for financial
reporting purposes.
`(B) The fact that the transaction results in an allocation of income
or gain to a tax-indifferent party which is substantially in excess of
such party's economic income or gain from the transaction.
`(4) TREATMENT OF BUILT-IN LOSS- The determination of whether a
transaction results in the realization of a built-in loss shall be made
under subtitle A as if this subsection had not been enacted. For purposes of
the preceding sentence, the term `built-in loss' means any loss or deduction
to the extent that such loss or deduction had economically been incurred
before such transaction is entered into
and to the extent that the loss or deduction was economically borne by the
taxpayer.
`(5) DEFINITION AND SPECIAL RULES- For purposes of this
subsection--
`(A) TAX-INDIFFERENT PARTY- The term `tax-indifferent party' means any
person or entity exempt from tax under subtitle A. A person shall be
treated as a tax-indifferent party with respect to a transaction if, by
reason of such person's method of accounting, the items taken into account
with respect to the transaction have no substantial impact on such
person's liability under subtitle A.
`(B) SERIES OF RELATED TRANSACTION- A transaction which is part of a
series of related transactions shall be treated as meeting the
requirements of paragraph (2) only if--
`(i) such transaction meets such requirements without regard to the
other transactions, and
`(ii) such transactions, if treated as 1 transaction, would meet
such requirements.
A similar rule shall apply to a multiple step transaction with each
step being treated as a separate related transaction.
`(C) NORMAL BUSINESS TRANSACTIONS- In the case of a transaction which
is an integral part of a taxpayer's trade or business and which is entered
into in the normal course of such trade or business, the determination of
the potential income from such transaction shall be made by taking into
account its relationship to the overall trade or business of the
taxpayer.
`(D) TREATMENT OF FEES- In determining whether there is risk of loss
from a transaction (and the amount thereof), potential loss of fees and
other transaction expenses shall be disregarded.
`(E) TREATMENT OF ECONOMIC RETURN ENHANCEMENTS- The following shall be
treated as economic returns and not tax benefits:
`(i) The credit under section 29 (relating to credit for producing
fuel from a nonconventional source).
`(ii) The credit under section 42 (relating to low-income housing
credit).
`(iii) The credit under section 45 (relating to electricity produced
from certain renewable resources).
`(iv) The credit under section 1397E (relating to credit to holders
of qualified zone academy bonds) or any similar program hereafter
enacted.
`(v) Any other tax benefit specified in regulations.
`(F) EXCEPTIONS FOR NONBUSINESS TRANSACTIONS-
`(i) INDIVIDUALS- In the case of an individual, this subsection
shall only apply to transactions entered into in connection with a trade
or business or activity engaged in for profit.
`(ii) CHARITABLE TRANSFERS- This subsection shall not apply in
determining the amount allowable as a deduction under section 170,
545(b)(2), 556(b)(2), or 642(c).
`(6) ECONOMIC SUBSTANCE DOCTRINE, ETC., NOT AFFECTED- The provisions of
this subsection shall not be construed as altering or supplanting any rule
of law referred to in section 6662(i)(2)(B) and the requirements of this
subsection shall be construed as being in addition to any such rule of
law.'
SEC. 267. INCREASE IN SUBSTANTIAL UNDERPAYMENT PENALTY WITH RESPECT TO
DISALLOWED NONECONOMIC TAX ATTRIBUTES.
(a) IN GENERAL- Section 6662 of the Internal Revenue Code of 1986
(relating to imposition of accuracy-related penalty) is amended by adding at
the end the following new subsection:
`(i) INCREASE IN PENALTY IN CASE OF DISALLOWED NONECONOMIC TAX
ATTRIBUTES-
`(1) IN GENERAL- In the case of the portion of the underpayment to which
this subsection applies--
`(A) subsection (a) shall be applied with respect to such portion by
substituting `40 percent' for `20 percent', and
`(B) subsection (d)(2)(B) and section 6664(c) shall not
apply.
`(2) UNDERPAYMENTS TO WHICH SUBSECTION APPLIES- This subsection shall
apply to an underpayment to which this section applies by reason of
paragraph (1) or (2) of subsection (b) but--
`(A) only to the extent that such underpayment is attributable
to--
`(i) the disallowance of any noneconomic tax attribute (determined
under section 7701(m)), or
`(ii) the disallowance of any other benefit--
`(I) because of a lack of economic substance or business purpose
for the transaction giving rise to the claimed benefit,
`(II) because the form of the transaction did not reflect its
substance, or
`(III) because of any other similar rule of law,
and
`(B) only if the underpayment so attributable exceeds
$1,000,000.
`(3) INCREASE IN PENALTY NOT TO APPLY IF COMPLIANCE WITH DISCLOSURE
REQUIREMENTS- Paragraph (1)(A) shall not apply if the taxpayer--
`(A) discloses to the Secretary within 30 days after the closing of
the transaction appropriate documents describing the transaction,
and
`(B) files with the taxpayer's return of tax imposed by subtitle
A--
`(i) a statement verifying that such disclosure has been
made,
`(ii) a detailed description of the facts, assumptions of facts, and
factual conclusions with respect to the business or economic purposes or
objectives of the transaction that are relied upon to support the manner
in which it is reported on the return,
`(iii) a description of the due diligence performed to ascertain the
accuracy of such facts, assumptions, and factual
conclusions,
`(iv)(I) a statement (signed by the senior financial officer of the
corporation under penalty of perjury) that the facts, assumptions, or
factual conclusions relied upon in reporting the transaction are true
and correct as of the date the return is filed, to the best of such
officer's knowledge and belief, and
`(II) if the actual facts varied materially from the facts,
assumptions, or factual conclusions relied upon, a statement describing
such variances,
`(v) copies of any written material provided in connection with the
offer of the transaction to the taxpayer by a third party,
`(vi) a full description of any express or implied agreement or
arrangement with any advisor, or with any offeror, that the fee payable
to such person would be contingent or subject to possible reimbursement,
and
`(vii) a full description of any express or implied warranty from
any person with respect to the anticipated tax results from the
transaction.'
(b) MODIFICATIONS TO PENALTY ON SUBSTANTIAL UNDERSTATEMENT OF INCOME
TAX-
(1) MODIFICATION OF THRESHOLD- Subparagraph (A) of section 6662(d)(2) of
such Code is amended to read as follows:
`(A) IN GENERAL- For purposes of this section, there is a substantial
understatement of income tax for any taxable year if the amount of the
understatement for the taxable year exceeds the lesser of--
`(ii) the greater of 10 percent of the tax required to be shown on
the return for the taxable year or $5,000.'
(2) REDUCTION OF PENALTY ON ACCOUNT OF DISCLOSURE NOT TO APPLY TO TAX
SHELTERS- Subparagraph (C) of section 6662(d)(2) of such Code is amended by
striking clause (ii), by redesignating clause (iii) as clause (ii), and by
striking clause (i) and inserting the following new clause:
`(i) IN GENERAL- Subparagraph (B) shall not apply to any item
attributable to a tax shelter.'
(c) TREATMENT OF AMENDED RETURNS- Subsection (a) of section 6664 of such
Code is amended by adding at the end the following new sentence: `For purposes
of this subsection, an amended return shall be disregarded if such return is
filed on or after the date the taxpayer is first contacted by the Secretary
regarding the examination of the return.'
SEC. 268. PENALTY ON MARKETED TAX AVOIDANCE STRATEGIES WHICH HAVE NO
ECONOMIC SUBSTANCE, ETC.
(1) IN GENERAL- Section 6700 of the Internal Revenue Code of 1986
(relating to promoting
abusive tax shelters, etc.) is amended by redesignating subsection (c) as
subsection (d) and by inserting after subsection (b) the following new
subsection:
`(c) PENALTY ON SUBSTANTIAL PROMOTERS FOR PROMOTING TAX AVOIDANCE
STRATEGIES WHICH HAVE NO ECONOMIC SUBSTANCE, ETC-
`(1) IMPOSITION OF PENALTY- Any substantial promoter of a tax avoidance
strategy shall pay a penalty in the amount determined under paragraph (2)
with respect to such strategy if any tax benefit attributable to such
strategy (or any similar strategy promoted by such promoter) is not
allowable by reason of any rule of law referred to in section
6662(i)(2)(A).
`(2) AMOUNT OF PENALTY- The penalty under paragraph (1) with respect to
a promoter of a tax avoidance strategy is an amount equal to 100 percent of
the gross income derived (or to be derived) by such promoter from such
strategy.
`(3) TAX AVOIDANCE STRATEGY- For purposes of this subsection, the term
`tax avoidance strategy' means any entity, plan, arrangement, or transaction
a significant purpose of the structure of which is the avoidance or evasion
of Federal income tax.
`(4) SUBSTANTIAL PROMOTER- For purposes of this subsection --
`(A) IN GENERAL- The term `substantial promoter' means, with respect
to any tax avoidance strategy, any promoter if--
`(i) such promoter offers such strategy to more than 1 potential
participant, and
`(ii) such promoter may receive fees in excess of $1,000,000 in the
aggregate with respect to such strategy.
`(B) AGGREGATION RULES- For purposes of this paragraph--
`(i) RELATED PERSONS- A promoter and all persons related to such
promoter shall be treated as 1 person.
`(ii) SIMILAR STRATEGIES- All similar tax avoidance strategies of a
promoter shall be treated as 1 tax avoidance strategy.
`(C) PROMOTER- The term `promoter' means any person who participates
in the promotion, offering, or sale of the tax avoidance
strategy.
`(D) RELATED PERSON- Persons are related if they bear a relationship
to each other which is described in section 267(b) or 707(b).
`(4) COORDINATION WITH SUBSECTION (a)- No penalty shall be imposed by
this subsection on any promoter with respect to a tax avoidance strategy if
a penalty is imposed under subsection (a) on such promoter with respect to
such strategy.'
(2) CONFORMING AMENDMENT- Subsection (d) of section 6700 of such Code is
amended--
(A) by striking `PENALTY' and inserting `PENALTIES', and
(B) by striking `penalty' the first place it appears in the text and
inserting `penalties'.
(b) INCREASE IN PENALTY ON PROMOTING ABUSIVE TAX SHELTERS- The first
sentence of section 6700(a) of such Code is amended by striking `a penalty
equal to' and all that follows and inserting `a penalty equal to the greater
of $1,000 or 100 percent of the gross income derived (or to be derived) by
such person from such activity.'
SEC. 269. EFFECTIVE DATES.
(a) IN GENERAL- Except as provided in subsections (b) and (c), the
amendments made by this subpart shall apply to transactions after the date of
the enactment of this Act.
(b) SECTION 267- The amendments made by subsections (b) and (c) of section
267 shall apply to taxable years ending after the date of the enactment of
this Act.
(c) SECTION 268- The amendments made by subsection (a) of section 268
shall apply to any tax avoidance strategy (as defined in section 6700(c) of
the Internal Revenue Code of 1986, as amended by this title) interests in
which are offered to potential participants after the date of the enactment of
this Act.
Subpart B--Limitations on Importation or Transfer of Built-in
Losses
SEC. 271. LIMITATION ON IMPORTATION OF BUILT-IN LOSSES.
(a) IN GENERAL- Section 362 of the Internal Revenue Code of 1986 (relating
to basis to corporations) is amended by adding at the end the following new
subsection:
`(e) LIMITATION ON IMPORTATION OF BUILT-IN LOSSES-
`(1) IN GENERAL- If in any transaction described in subsection (a) or
(b) there would (but for this subsection) be an importation of a net
built-in loss, the basis of each property described in
paragraph (2) which is acquired in such transaction shall (notwithstanding
subsections (a) and (b)) be its fair market value immediately after such
transaction.
`(2) PROPERTY DESCRIBED- For purposes of paragraph (1), property is
described in this paragraph if--
`(A) gain or loss with respect to such property is not subject to tax
under this subtitle in the hands of the transferor immediately before the
transfer, and
`(B) gain or loss with respect to such property is subject to such tax
in the hands of the transferee immediately after such transfer.
In any case in which the transferor is a partnership, the preceding
sentence shall be applied by treating each partner in such partnership as
holding such partner's proportionate share of the property of such
partnership.
`(3) IMPORTATION OF NET BUILT-IN LOSS- For purposes of paragraph (1),
there is an importation of a net built-in loss in a transaction if the
transferee's aggregate adjusted bases of property described in paragraph (2)
which is transferred in such transaction would (but for this subsection)
exceed the fair market value of such property immediately after such
transaction.'
(b) COMPARABLE TREATMENT WHERE LIQUIDATION- Paragraph (1) of section
334(b) of such Code (relating to liquidation of subsidiary) is amended to read
as follows:
`(1) IN GENERAL- If property is received by a corporate distributee in a
distribution in a complete liquidation to which section 332 applies (or in a
transfer described in section 337(b)(1)), the basis of such property in the
hands of such distributee shall be the same as it would be in the hands of
the transferor; except that the basis of such property in the hands of such
distributee shall be the fair market value of the property at the time of
the distribution--
`(A) in any case in which gain or loss is recognized by the
liquidating corporation with respect to such property, or
`(B) in any case in which the liquidating corporation is a foreign
corporation, the corporate distributee is a domestic corporation, and the
corporate distributee's aggregate adjusted bases of property described in
section 362(e)(2) which is distributed in such liquidation would (but for
this subparagraph) exceed the fair market value of such property
immediately after such liquidation.'
(c) EFFECTIVE DATE- The amendments made by this section shall apply to
transactions after the date of the enactment of this Act.
SEC. 272. DISALLOWANCE OF PARTNERSHIP LOSS TRANSFERS.
(a) TREATMENT OF CONTRIBUTED PROPERTY WITH BUILT-IN LOSS- Paragraph (1) of
section 704(c) of the Internal Revenue Code of 1986 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:
`(C) if any property so contributed has a built-in loss--
`(i) such built-in loss shall be taken into account only in
determining the amount of items allocated to the contributing partner,
and
`(ii) except as provided in regulations, in determining the amount
of items allocated to other partners, the basis of the contributed
property in the hands of the partnership shall be treated as being equal
to its fair market value immediately after the contribution.
For purposes of subparagraph (C), the term `built-in loss' means the
excess of the adjusted basis of the property over its fair market value
immediately after the contribution.'
(b) ADJUSTMENT TO BASIS OF PARTNERSHIP PROPERTY ON TRANSFER OF PARTNERSHIP
INTEREST IF THERE IS SUBSTANTIAL BUILT-IN LOSS-
(1) ADJUSTMENT REQUIRED- Subsection (a) of section 743 of such Code
(relating to optional adjustment to basis of partnership property) is
amended by inserting before the period `or unless the partnership has a
substantial built-in loss immediately after such transfer'.
(2) ADJUSTMENT- Subsection (b) of section 743 of such Code is amended by
inserting `or with respect to which there is a substantial built-in loss
immediately after such transfer' after `section 754 is in effect'.
(3) SUBSTANTIAL BUILT-IN LOSS- Section 743 of such Code is amended by
adding at the end the following new subsection:
`(d) SUBSTANTIAL BUILT-IN LOSS- For purposes of this section, a
partnership has a substantial built-in loss
with respect to a transfer of an interest in a partnership if the transferee
partner's proportionate share of the adjusted basis of the partnership property
exceeds 110 percent of the basis of such partner's interest in the partnership.'
(A) The section heading for section 743 of such Code is amended to
read as follows:
`SEC. 743. ADJUSTMENT TO BASIS OF PARTNERSHIP PROPERTY WHERE SECTION 754
ELECTION OR SUBSTANTIAL BUILT-IN LOSS.'
(B) The table of sections for subpart C of part II of subchapter K of
chapter 1 of such Code is amended by striking the item relating to section
743 and inserting the following new item:
`Sec. 743. Adjustment to basis of partnership property where section 754
election or substantial built-in loss.'
(c) ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP PROPERTY IF THERE IS
SUBSTANTIAL BASIS REDUCTION-
(1) ADJUSTMENT REQUIRED- Subsection (a) of section 734 of such Code
(relating to optional adjustment to basis of undistributed partnership
property) is amended by inserting before the period `or unless there is a
substantial downward adjustment'.
(2) ADJUSTMENT- Subsection (b) of section 734 of such Code is amended by
inserting `or unless there is a substantial downward adjustment' after
`section 754 is in effect'.
(3) SUBSTANTIAL DOWNWARD ADJUSTMENT- Section 734 of such Code is amended
by adding at the end the following new subsection:
`(d) SUBSTANTIAL DOWNWARD ADJUSTMENT- For purposes of this section, there
is a substantial downward adjustment with respect to a distribution if the sum
of the amounts described in subparagraphs (A) and (B) of subsection (b)(2)
exceeds 10 percent of the aggregate adjusted basis of partnership property
immediately after the distribution.'
(A) The section heading for section 734 of such Code is amended to
read as follows:
`SEC. 734. ADJUSTMENT TO BASIS OF UNDISTRIBUTED PARTNERSHIP PROPERTY WHERE
SECTION 754 ELECTION OR SUBSTANTIAL BASIS REDUCTION.'
(B) The table of sections for subpart B of part II of subchapter K of
chapter 1 of such Code is amended by striking the item relating to section
734 and inserting the following new item:
`Sec. 734. Adjustment to basis of undistributed partnership property where
section 754 election or substantial basis reduction.'
(1) SUBSECTION (a)- The amendment made by subsection (a) shall apply to
contributions made after the date of the enactment of this Act.
(2) SUBSECTION (b)- The amendments made by subsection (a) shall apply to
transfers after the date of the enactment of this Act.
(3) SUBSECTION (c)- The amendments made by subsection (a) shall apply to
distributions after the date of the enactment of this Act.
PART III--ESTATE AND GIFT TAX OFFSETS
SEC. 276. VALUATION RULES FOR TRANSFERS INVOLVING NONBUSINESS ASSETS.
(a) IN GENERAL- Section 2031 of the Internal Revenue Code of 1986
(relating to definition of gross estate) is amended by redesignating
subsection (d) as subsection (e) and by inserting after subsection (c) the
following new subsection:
`(d) VALUATION RULES FOR CERTAIN TRANSFERS OF NONBUSINESS ASSETS- For
purposes of this chapter and chapter 12--
`(1) IN GENERAL- In the case of the transfer of any interest in an
entity other than an interest which is actively traded (within the meaning
of section 1092), the value of such interest shall be determined by taking
into account--
`(A) the value of such interest's proportionate share of the
nonbusiness assets of such entity (and no valuation discount shall be
allowed with respect to such nonbusiness assets), plus
`(B) the value of such entity determined without regard to the value
taken into account under subparagraph (A).
`(2) NONBUSINESS ASSETS- For purposes of this subsection--
`(A) IN GENERAL- The term `nonbusiness asset' means any asset which is
not used in the active conduct of 1 or more trades or businesses.
`(B) EXCEPTION FOR CERTAIN PASSIVE ASSETS- Except as provided in
subparagraph (C), a passive asset shall not be treated for purposes of
subparagraph (A) as used in the active conduct of a trade or business
unless--
`(i) the asset is property described in paragraph (1) or (4) of
section 1221(a) or is a hedge with respect to such property,
or
`(ii) the asset is real property used in the active conduct of 1 or
more real property trades or businesses (within the meaning of section
469(c)(7)(C)) in which the transferor materially participates and with
respect to which the transferor meets the requirements of section
469(c)(7)(B)(ii).
For purposes of clause (ii), material participation shall be
determined under the rules of section 469(h), except that section
469(h)(3) shall be applied without regard to the limitation to farming
activity.
`(C) EXCEPTION FOR WORKING CAPITAL- Any asset (including a passive
asset) which is held as a part of the reasonably required working capital
needs of a trade or business shall be treated as used in the active
conduct of a trade or business.
`(3) PASSIVE ASSET- For purposes of this subsection, the term `passive
asset' means any--
`(A) cash or cash equivalents,
`(B) except to the extent provided by the Secretary, stock in a
corporation or any other equity, profits, or capital interest in any
entity,
`(C) evidence of indebtedness, option, forward or futures contract,
notional principal contract, or derivative,
`(D) asset described in clause (iii), (iv), or (v) of section
351(e)(1)(B),
`(F) real property used in 1 or more real property trades or
businesses (as defined in section 469(c)(7)(C)),
`(G) asset (other than a patent, trademark, or copyright) which
produces royalty income,
`(I) collectible (within the meaning of section 401(m)), or
`(J) any other asset specified in regulations prescribed by the
Secretary.
`(A) IN GENERAL- If a nonbusiness asset of an entity consists of a
10-percent interest in any other entity, this subsection shall be applied
by disregarding the 10-percent interest and by treating the entity as
holding directly its ratable share of the assets of the other entity. This
subparagraph shall be applied successively to any 10-percent interest of
such other entity in any other entity.
`(B) 10-PERCENT INTEREST- The term `10-percent interest'
means--
`(i) in the case of an interest in a corporation, ownership of at
least 10 percent (by vote or value) of the stock in such
corporation,
`(ii) in the case of an interest in a partnership, ownership of at
least 10 percent of the capital or profits interest in the partnership,
and
`(iii) in any other case, ownership of at least 10 percent of the
beneficial interests in the entity.
`(5) COORDINATION WITH SUBSECTION (b)- Subsection (b) shall apply after
the application of this subsection.'
(b) EFFECTIVE DATE- The amendments made by this section shall apply to
transfers after the date of the enactment of this Act.
SEC. 277. CORRECTION OF TECHNICAL ERROR AFFECTING LARGEST ESTATES.
(a) IN GENERAL- Paragraph (2) of section 2001(c) of the Internal Revenue
Code of 1986 is amended by striking `$10,000,000' and all that follows and
inserting `$10,000,000. The amount of the increase under the preceding
sentence shall not exceed the sum of the applicable credit amount under
section 2010(c) (as increased by section 2010A) and $359,200.'
(b) EFFECTIVE DATE- The amendment made by this section shall apply to
estates of decedents dying, and gifts made, after December 31, 2000.
PART IV--OTHER OFFSETS
SEC. 281. CONSISTENT AMORTIZATION PERIODS FOR INTANGIBLES.
(a) START-UP EXPENDITURES-
(1) ALLOWANCE OF DEDUCTION- Paragraph (1) of section 195(b) of the
Internal Revenue Code of 1986 (relating to start-up expenditures) is amended
to read as follows:
`(1) ALLOWANCE OF DEDUCTION- If a taxpayer elects the application of
this subsection with respect to any start-up expenditures--
`(A) the taxpayer shall be allowed a deduction for the taxable year in
which the active
trade or business begins in an amount equal to the lesser of--
`(i) the amount of start-up expenditures with respect to the active
trade or business, or
`(ii) $5,000, reduced (but not below zero) by the amount by which
such start-up expenditures exceed $50,000, and
`(B) the remainder of such start-up expenditures shall be allowed as a
deduction ratably over the 180-month period beginning with the month in
which the active trade or business begins.'
(2) CONFORMING AMENDMENT- Subsection (b) of section 195 is amended by
striking `AMORTIZE' and inserting `DEDUCT' in the heading.
(b) ORGANIZATIONAL EXPENDITURES- Subsection (a) of section 248 of such
Code (relating to organizational expenditures) is amended to read as
follows:
`(a) ELECTION TO DEDUCT- If a corporation elects the application of this
subsection (in accordance with regulations prescribed by the Secretary) with
respect to any organizational expenditures--
`(1) the corporation shall be allowed a deduction for the taxable year
in which the corporation begins business in an amount equal to the lesser
of--
`(A) the amount of organizational expenditures with respect to the
taxpayer, or
`(B) $5,000, reduced (but not below zero) by the amount by which such
organizational expenditures exceed $50,000, and
`(2) the remainder of such organizational expenditures shall be allowed
as a deduction ratably over the 180-month period beginning with the month in
which the corporation begins business.'
(c) TREATMENT OF ORGANIZATIONAL AND SYNDICATION FEES OR PARTNERSHIPS-
Section 709(b) of such Code (relating to amortization of organization fees) is
amended by redesignating paragraph (2) as paragraph (4) and by amending
paragraph (1) to read as follows:
`(1) ALLOWANCE OF DEDUCTION- If a taxpayer elects the application of
this subsection (in accordance with regulations prescribed by the Secretary)
with respect to any organizational expenses--
`(A) the taxpayer shall be allowed a deduction for the taxable year in
which the partnership begins business in an amount equal to the lesser
of--
`(i) the amount of organizational expenses with respect to the
partnership, or
`(ii) $5,000, reduced (but not below zero) by the amount by which
such organizational expenses exceed $50,000, and
`(B) the remainder of such organizational expenses shall be allowed as
a deduction ratably over the 180-month period beginning with the month in
which the partnership begins business.
`(2) DISPOSITIONS BEFORE CLOSE OF AMORTIZATION PERIOD- In any case in
which a partnership is liquidated before the end of the period to which
paragraph (1)(B) applies, any deferred expenses attributable to the
partnership which were not allowed as a deduction by reason of this section
may be deducted to the extent allowable under section 165.'
(d) CONFORMING AMENDMENT- Subsection (b) of section 709 of such Code is
amended by striking `AMORTIZATION' and inserting `DEDUCTION' in the
heading.
(e) EFFECTIVE DATE- The amendments made by this section shall apply to
amounts paid or incurred after the date of the enactment of this Act.
SEC. 282. MODIFICATION OF FOREIGN TAX CREDIT CARRYOVER RULES.
(a) IN GENERAL- Section 904(c) of the Internal Revenue Code of 1986
(relating to limitation on credit) is amended--
(1) by striking `in the second preceding taxable year,', and
(2) by striking `or fifth' and inserting `fifth, sixth, or
seventh'.
(b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to
credits arising in taxable years beginning after December 31, 2000.
SEC. 283. RECOGNITION OF GAIN ON TRANSFERS TO SWAP FUNDS.
(a) INTERESTS SIMILAR TO PREFERRED STOCK TREATED AS STOCK- Clause (vi) of
section 351(e)(1)(B) of the Internal Revenue Code of 1986 (relating to
transfer of property to an investment company) is amended to read as
follows:
`(vi) except as otherwise provided in regulations prescribed by the
Secretary--
`(I) any interest in an entity if the return on such interest is
limited and preferred, and
`(II) interests (not described in subclause (I)) in any entity if
substantially all of the assets of such entity consist (directly or
indirectly) of any assets described in subclause (I), any preceding
clause, or clause (viii).'
(b) CERTAIN TRANSFERS DEEMED TO BE TO INVESTMENT COMPANIES- Subsection (e)
of section 351 of such Code is amended by adding at the end the following new
paragraph:
`(3) TRANSFERS OF MARKETABLE SECURITIES TO CERTAIN CORPORATIONS- A
transfer of property to a corporation if--
`(A) such property is marketable securities (as defined in section
731(c)(2)), other than a diversified portfolio of securities,
`(i) is registered under the Investment Company Act of 1940 as an
investment company, or is exempt from registration as a investment
company under section 3(c)(7) of such Act because interests in such
corporation are offered to qualified purchasers within the meaning of
section 2(a)(51) of such Act, or
`(ii) is formed or availed of for purposes of allowing persons who
have significant blocks of marketable securities with unrealized
appreciation to diversify those holdings without recognition of gain,
and
`(C) the transfer results, directly or indirectly, in diversification
of the transferor's interest.'
(c) TRANSFERS TO PARTNERSHIPS- Subsection (b) of section 721 of such Code
is amended to read as follows:
`(b) SPECIAL RULE- Subsection (a) shall not apply to gain realized on a
transfer of property to a partnership if, were the partnership
incorporated--
`(1) such partnership would be treated as an investment company (within
the meaning of section 351), or
`(2) section 351 would not apply to such transfer by reason of section
351(e)(3).'
(1) IN GENERAL- The amendments made by this section shall apply to
transfers after March 8, 2000.
(2) BINDING CONTRACTS- The amendments made by this section shall not
apply to any transfer pursuant to a written binding contract in effect on
August 4, 1999, and at all times thereafter before such transfer if such
contract provides for the transfer of a fixed amount of property.
END