H4668 CONGRESSIONAL RECORD — HOUSE June 26, 1997

15 The full text of the relevant paragraph of § 7 pro- But in the last 21⁄2 years, since the Philip, and for the grandchildren one vides: ‘‘Every Bill which shall have passed the House of American people elected a new Con- day they will have. Representatives and the Senate, shall, before it be- gress, I am proud to say that the era of Remember, my colleagues, balancing comes a law, be presented to the President of the big government is over and the era of the budget and providing tax relief are United States: If he approves he shall sign it, but if big taxes is over. With the vote that we not matters of accounting; they are is- not he shall return it, with his Objections to that House in which it shall have originated, who shall cast today, we will tell the American sues involving our values, our sense of enter the Objections at large on their Journal, and people that we have heard their mes- right and wrong, how to be helpful and proceed to reconsider it. If after such Reconsider- sage. It is time for Washington to tax how to make the government work for ation two thirds of that House shall agree to pass a change. In the end what we are doing the Bill, it shall be sent, together with the Objec- less, so that the American people can tions, to the other House, by which it shall likewise do more. is downsizing the power and the scope be reconsidered, and if approved by two thirds of This plan provides tax relief for life. of Washington, DC, and upsizing the that House, it shall become a Law. But in all such It lets people keep more of the money power, responsibilities, and opportuni- Cases the Votes of both Houses shall be determined ties of the American people. by Yeas and Nays, and the Names of the Persons that they make so that they can spend voting for and against the Bill shall be entered on it or save it as they see fit. This plan So in closing I dedicate this vote to the Journal of each House respectively. If any Bill will be a helping hand from the child- Debbie and Phil Spindle of Manassas shall not be returned by the President within ten hood years to the education years, and to the millions of other middle-in- Days (Sundays excepted) after it shall have been come Americans who have their taxes presented to him, the Same shall be a Law, in Like from the saving years to the retire- Manner as if he had signed it, unless the Congress by ment years. raised and want relief. What we do their Adjournment prevent its Return, in which It offers a $500 per child tax credit, today we do for Debbie and Phil and Case it shall not be a Law.’’ U.S. Const., Art. I, § 7. including teenagers. It provides edu- working couples across this country 16 The respondents’ assertion of their right to vote who are trying to make ends meet, try- on legislation is not simply generalized interest in cational tax relief so parents can send the proper administration of government, cf. Allen v. their children to college. It creates in- ing to rear their children, trying to Wright, 468 U.S. 737, 754 (1984), and the legislators’ centives for people to work hard and provide an education. They are the personal interest in the ability to exercise their con- save by reducing the capital gains tax backbone of America. stitutionally ensured power to vote on laws is cer- Mr. Chairman, I reserve the balance tainly distinct from the interest that an individual rate, and by expanding the individual of my time. citizen challenging the Act might assert. retirement accounts. It even provides 17 Mr. RANGEL. Mr. Chairman, I yield The majority’s reference to the absence of any long overdue relief from the death tax. similar suit in earlier disputes between Congress myself such time as I may consume. and the President, see ante, at 14–17, does not strike This plan is dedicated to America’s Mr. Chairman, there is a lot of talk me as particularly relevant. First, the fact that oth- forgotten middle-income taxpayers. about this being the first tax cut in 16 ers did not choose to bring suit does not necessarily Fully 76 percent of the tax relief in this mean the Constitution would have precluded them years. We do not hear much about what from doing so. Second, because Congress did not au- plan goes to people with incomes be- President is the one that is advocating thorize declaratory judgment actions until the Fed- tween $20,000 and $75,000 a year. the tax cut. We do not hear much eral Declaratory Judgment Act of 1934, 48 Stat. 955, When it comes to taxes, my philoso- the fact that President Johnson did not bring such about how the economy has improved an action in 1868 is not entirely surprising. phy is simple. We must cut taxes be- from a deficit that was inherited to- f cause tax money does not belong to the ward a balanced budget, and our major government; it belongs to the middle- problem today is that people have a TAXPAYER RELIEF ACT OF 1997 income workers of America who earned different concept of the middle class. The SPEAKER pro tempore (Mr. it, who made it and who are entitled to President Clinton has reached out to ROGAN). Pursuant to House Resolution spend it in the way that they want to my Republican friends and said, ‘‘Can’t 174 and rule XXIII, the Chair declares spend it. People in Washington, I we work together?’’ the House in the Committee of the think, sometimes forget that, but I Mr. Chairman, I think the President Whole House on the State of the Union never will. will speak for himself in saying what a for the consideration of the bill, H.R. Yesterday a young couple working in terrible disappointment it has been 2014. Manassas, VA, came to Washington. where the White House, the policy b 1155 They are middle income. The husband makers, has been excluded from the and wife both have to work in order to Republican bill. IN THE COMMITTEE OF THE WHOLE make ends meet. They are the back- Bipartisanship means Democrats and Accordingly the House resolved itself bone of this country. With two chil- Republicans working together with the into the Committee of the Whole House dren, I told them yesterday and I re- President of the United States, and the on the State of the Union for the con- peat it today, tax relief is dedicated to President now says that this has moved sideration of the bill (H.R. 2014) to pro- them. A working mom and dad, they so far away from the issue of fairness vide for reconciliation pursuant to sub- get up every morning, go to work, play that he would not be able to sign the sections (b)(2) and (d) of section 105 of by the rules and try every day to make Republican bill. the concurrent resolution on the budg- ends meet. Because they are middle in- Even in the State of Texas they have et for fiscal year 1998, with Mr. come, they should not lose this credit so skewed and increased the number of GOODLATTE in the chair. people that will be ineligible for the The Clerk read the title of the bill. as they do on the suggested Democrat The CHAIRMAN. Pursuant to the substitute. child credit that half of the kids in Texas and over half of the kids in the rule, the bill is considered as having b 1200 been read the first time. State of New York will be ineligible for Under the rule, the gentleman from Even with a strong economy they the family tax credit. know how tough it can be to get by, es- Texas [Mr. ARCHER] and the gentleman It seems to me that fairness is some- pecially with teenage children. They from New York [Mr. RANGEL] each will thing that should govern, but somehow control 90 minutes. both have to work so they can live the if we can find people who are working The Chair recognizes the gentleman American dream. every day, paying taxes to local and from Texas [Mr. ARCHER]. Some Democrats in Washington con- State government, that when it comes Mr. ARCHER. Mr. Chairman, I yield sider them rich and want to take the to saying give them a break, the people myself such time as I may consume. $500-per-child credit away, but we will on the other side think that people who Mr. Chairman, it has been 16 years not let that happen. Like millions of work in low incomes are asking for since the American people have re- other middle-income Americans they welfare. ceived tax relief, 16 years. While taxes need and deserve tax relief, and that is Mr. Chairman, I think it is arrogant have not gone down for such a long what the vote today is all about. and all Americans ought to be indig- time, they surely have gone up over Today’s vote is about providing tax nant, when people do not even consider and over again. For too many years, relief to the people who pay taxes. We going on welfare and they work every the Government has failed to listen to are not only providing tax relief to the day, they work with their families. We those who sent us here. For too many couple I mentioned, Debbie and Phil will hear cases like this, but we are years, taxes went up, spending went up, Spindle, we are cutting wasteful Wash- saying, ‘‘We have to pass over you be- and the size and power of Washington ington spending so we can balance the cause we want to make tax lighter on Government went up. budget for their children, James and the very richest of Americans.’’ June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4669 It seemed to me, too, that when my broad-based tax cut program that last speaker talked about the child colleagues get a chance to see the would do a number of things: credit. I think everyone should know Democratic substitute, we really be- One, a child tax credit. Every family that 50 percent of the children in Ohio, lieve that we should have strong law with kids who pay taxes under the in- the State he represents, will not get enforcement but we should concentrate come level $100,000 are going to get a the child credit. That is more than 1.4 on our school system the same way the $500 tax credit. Got two kids? Keeps million children in that State will not other side of the aisle concentrates on $1,000 in their pockets. We do not want get this so-called fair tax credit. death penalties and jail sentences. them to give it to the Government. We Mr. Chairman, I want to talk about What we are talking about is that the want them to be enhanced, we want the fact that Democrats always want Democratic bill improves our public them to be made more powerful. The to reduce taxes but they want to do it educational system, brings in the pri- child tax credit is all about putting fairly, and that is, really, I think, we vate sector working as partners. We do power in the pockets of America’s fam- ought to have a little discussion out not just talk about diplomas, we talk ilies and to reinforce that most pre- here about this question because fair- about jobs, and we are talking about cious American institution. ness is a central issue in taxation in getting America to move forward in Second, capital gains tax cut. Look, this country, in a democracy. this next century with productivity, ef- folks, I am the son of a blue collar We started on taxation without rep- fectiveness and the education to do the worker. The bottom line on a capital resentation. That was what the whole job we have to do. gains tax cut is this: ‘‘If you take a thing was about. That is how we came Mr. Chairman, I now would like to risk, if you work hard, if you put what into existence. But in this debate we hold onto the time that we have for the you have on the table to build some- have to have honesty. other speakers that are here, and I do thing, you ought to get a reward for it. I listen to the special orders that go hope that people listen and see the dif- You ought not to be punished for it.’’ on in this place, and a couple of nights ference between how we can deal with And there are millions upon millions of ago one of the Members got up and said a tax bill in a bipartisan manner in middle income Americans who will re- it is important for the American people which the President would want and alize benefits under the capital gains to understand when they hear things how our Republican friends deserted tax cut, but it is about what is right like, ‘‘If you’re earning $20,000, you’re and left him, locked him out of the about America, the idea that if some- not going to get a tax cut,’’ there is a room when these important decisions one takes a risk, they ought to get a very good reason that a family of four were made. reward. earning $20,000 is not going to get a tax Mr. Chairman, I reserve the balance Estate taxes? We want to reduce es- cut. Listen to this: They do not pay of my time. tate taxes. Why? Mr. Chairman, for Federal taxes. Mr. ARCHER. Mr. Chairman, I yield 4 those men and women who build busi- Now since I was 16 years old I have minutes to the gentleman from Ohio nesses, who have high blood pressure, been working. I started at the National who have bypasses, who have employed [Mr. KASICH] who has really brought us Tea Store in Illinois, and every week here, a gentleman who has spent so many, many people and help many we got a check and always got a tax families across this country . For those many untold hours working so we can stub with it, and I have always looked men and women that made the great achieve the goal of a balanced budget at my tax stub. And everybody watch- sacrifice, at the end of the day they for our children and their children with ing and thinking about this should should not have to give 55 percent of tax relief. take out their tax stub and look at it. everything they earn to the Govern- Mr. KASICH. Mr. Chairman, I have to On my tax stub it says I pay Federal ment. They ought to be able to give take a moment to pay very high trib- tax. That is withholding tax on the in- more to their families. They ought to ute to the gentleman from Texas [Mr. come. be able to give more to their commu- ARCHER], and I would like the Members Then there is something called FICA. nities. of the House to note something that is In my FICA tax, 7 percent of what I The bottom line is today we are sig- very significant that sometimes goes pay is Federal taxes. It goes to pay for nificantly beginning to shift not just unnoticed in this debate. Americans all power and not just influence but our Medicare and Social Security. Anybody of my lifetime argued that lobbyists, constituents’ money away from this who is paying FICA is paying taxes. the special interest groups, should not city, back into their hands. They are paying Federal taxes. The be able to carve out special benefits for Now as we get these tax cuts, as we other side here wants to say, ‘‘If you themselves because they had powerful get more personal power, it is not good don’t have to pay income tax on a 1040, lobbyists or fancy lawyers, and in fact enough. It is not good enough to bury you’re not paying taxes.’’ But if some- for many, many years, the years in that money in the backyard and just one is a $20,000 worker in this country which we were in the minority, the Tax buy a fancy boat. Part of the respon- and they are paying 7 percent of their Code had benefits carved out for spe- sibility as we get more of our money $20,000 on FICA taxes, they are paying cial interest groups who because of the back is not just to take care of our Federal taxes, and they ought to be slickness and because of their ability family, but to help in our own commu- able to get the tax breaks in this bill. to meet with the right people, to gain nities, to help heal the communities There are a number of issues that I access to the right people, were able to across this country. think we ought to talk about, and, Mr. carve out in the Tax Code loopholes The gentleman from Texas [Mr. AR- Chairman, the gentleman from Louisi- that were not fair. CHER] has done a terrific job. He has ana [Mr. JEFFERSON] knows about cap- Now I listened to this from liberals fought the powerful special interests, ital gains. Let us talk about the fair- all these years about the need to close he has closed loopholes, he has pro- ness of capital gains in this bill that loopholes, and it took the elevation of vided tax relief to the American peo- the Republicans have put out here. the gentleman from Texas [Mr. AR- ple. He has helped people who take Mr. JEFFERSON. Mr. Chairman, will CHER] to become chairman of the Com- risks, he has helped people who have the gentleman yield? mittee on Ways and Means so that over built businesses, and he has given them Mr. MCDERMOTT. I yield to the gen- the course of the last 2 years we have a reason to let every boy and girl in tleman from Louisiana. closed loopholes, we have closed loop- this country know that in America if Mr. JEFFERSON. Mr. Chairman, I holes on those powerful special interest someone works hard, if they sacrifice, appreciate the gentleman yielding to groups that were able to carve out ben- they can get ahead, and if we can cou- me. efits that should have flowed to all ple that with some good old fashioned The question is whether ordinary hard-working American taxpayers. American values, America will shine working families, ordinary working Contained in this tax bill are the on. people, will benefit from this capital closing of loopholes to the rich and the Mr. RANGEL. Mr. Chairman, I yield gains tax relief. The answer is very few powerful, and when we closed those 15 minutes to the gentleman from of them will, because to get tax relief loopholes we were able to, instead of Washington [Mr. MCDERMOTT]. they have to own capital assets, and giving special benefits to a select group Mr. MCDERMOTT. Mr. Chairman, I very, very few working families own of people, we were able to have a more would like to begin by saying that the capital assets in this country. H4670 CONGRESSIONAL RECORD — HOUSE June 26, 1997 For instance last year if someone in their estates, and that is about it. It get an earned income tax credit, and he made between zero and $25,000, they is not a bill that is going to help mid- gets the earned income tax credit not paid 2.2 percent of all the capital gains dle-income people or working families. because he is staying home, but be- taxes paid in the country. If they Mr. MCDERMOTT. Mr. Chairman, cause he is out there working every earned between $50,000 and $100,000, once again reclaiming my time, what is day. they paid 8 percent of all the capital the level that the gentleman would say Mr. MCDERMOTT. Mr. Chairman, I gains taxes. that people should stay and watch this would reclaim my time and inquire of Mr. MCDERMOTT. The gentleman program and it is going to do some the gentlewoman, we are talking al- means up to 50 percent. good for them? What kind of income ways about working people here? Mr. JEFFERSON. Up to $50,000, 10 level would it really mean? Mrs. THURMAN. Mr. Chairman, ab- percent of the capital gains taxes were Mr. JEFFERSON. Mr. Chairman, if solutely. Working, every day getting paid, and between $50,000 and $100,000, one makes more $200,000 a year, stay up, or they are not eligible for any of another 16 percent of those persons tuned on capital gains taxes. If one this. paid capital gains tax. So between zero makes more than $100,000, they might That is something that goes back to and $100,000, 26 percent of the capital want to watch part of the program. But the Reagan years when it started and gains taxes were paid, which means $200,000 should really stay tuned. everybody believed that for hard-work- that above $100,000, 74 percent of all the Mr. MCDERMOTT. Mr. Chairman, ing people this was important that this capital gains taxes were paid in the how much money would the gentleman happened. So now they are going to get country. Which means, to put it an- say one would have to have to stay up and they are going to believe that other way, if we give a break in capital tuned for the estate taxes? next April, they have two children and gains, we are going to give a break that Mr. JEFFERSON. Mr. Chairman, for they think, guess what? I am actually is going to affect, 76 percent of the cap- the estate taxes, if one’s estate net is going to receive possibly $1,000 because ital gains tax is going to affect 4 to 5 over $600,000 last year, of course one I have two children. They are going to percent of the taxpayers in this coun- paid estate taxes. This is going to raise be sorely displeased with what happens try. it about to $700,000 or so on their side; in their tax next year. $750,000 I think it goes this year. Mr. Chairman, the other thing that is b 1215 So I suppose that if one has net es- interesting to me, it is the only place Put another way, if one makes over tates of over that amount of money, in this bill at all that one is penalized $200,000, one paid 60 percent of the cap- less than 1 percent of the people in the for taking advantage of what is avail- ital gains taxes last year. That is 1 per- country, then those people want to able to people in the Tax Code today. cent of all of the taxpayers in this stay tuned also. But for everybody else, Let me just say this. If one gets the ex- country; 110,000 taxpayers out of 110 if people are watching this thing on TV ample of having an IRA, which is also million taxpayers in America. to see what is in it for them on estate in this piece of legislation, which most So a great part of this bill, $8 billion taxes and capital gains taxes, they of us support is a good idea to invest a year, is going to end up in benefits might want to turn the TV off and en- and to do those kinds of things. for the top 1 percent of the earners in gage in something else more meaning- Mr. MCDERMOTT. Mr. Chairman, our country, people who make over ful. does the gentlewoman think the aver- $200,000 and who, on the average, make Mr. MCDERMOTT. Mr. Chairman, re- age policeman making $23,000 has the $650,000 a year. So if people are watch- claiming my time, I think that goes to money to put into an IRA? ing this television program now and the whole question of fairness and it Mrs. THURMAN. Oh, no, no. Or prob- are expecting a capital gains tax cut really says this whole thing is skewed ably they are trying to buy their first and are making $30,000 or less, even if to the people at the top. house, so they do not have anything to one makes $50,000, as we just talked Mr. Chairman, we were talking be- sell. I would love the gentleman from about, they can turn the TV off and go fore about the issue of, let us take a Louisiana [Mr. JEFFERSON] to talk and do something more meaningful, be- family making $23,000, living in Geor- about just what a capital gains is, be- cause there is nothing in this bill that gia, a police officer. What is he going cause I think sometimes we get lost in is really going to help those people. to get out of this tax bill? words up here. What is a capital gains? But if one makes over $200,000, they Mrs. THURMAN. Mr. Chairman, will Where does that capital gains come want to stay tuned, because there is a the gentleman yield? from? Generally, for these folks, it whole lot here that is going to get Mr. MCDERMOTT. I yield to the gen- could have been the sale of a house. them out of a big bunch of trouble. tlewoman from Florida. Well, if one is just starting off and Those people are going to save collec- Mrs. THURMAN. Mr. Chairman, he trying to buy a house, one is not going tively, as a group, $7 billion to $8 bil- gets nothing out of this tax bill. to have a capital gains in this. So here lion a year out of this bill just on the Mr. MCDERMOTT. Nothing? Wait a we go. We have an IRA issue in here capital gains issue. minute. The gentlewoman is telling me that is being proposed, we have a cap- On the estate tax, it does not get any a police officer who makes $23,000 is ital gains issue in here, and then on top better. Out of the 2.5 million people going to get nothing out of this tax of that, we have an education savings who died last year, only 39,000 paid es- bill? account that we can do up to $10,000 a tate taxes. That is less than 2 percent. Mrs. THURMAN. Mr. Chairman, he year. Mr. MCDERMOTT. Mr. Chairman, re- certainly will not get the part that has Now, I do not know very many people claiming my time, is the gentleman been debated over the last couple of at that $23,000 level that will have the saying that we are writing this provi- years, and it has been the last couple of advantage of any of those, but those sion on estate taxes for 1.8 percent of years where we have begun to talk folks that can take advantage of that the people? about this $500 child credit or family part of the tax structure get no penalty Mr. JEFFERSON. Mr. Chairman, if credit so that we could make sure that at all. I mean they continue to get ev- the gentleman will yield, those are the every child was given the same advan- erything, plus the $500 child credit. only people who are affected by this tages. The only people that are getting pe- whole discussion about estate taxes. Under this, it is my understanding, nalized would be those below $30,000 Mr. MCDERMOTT. Mr. Chairman, I unless somebody can correct me, that that really would have no access to would ask the gentleman, is that fair? somebody even under $30,000 would not some of these other areas of the tax Mr. JEFFERSON. Mr. Chairman, it is be eligible or would not have the ad- bill. not fair, because it leaves out, as the vantage of that $500 tax credit. So if Mr. BECERRA. Mr. Chairman, will gentleman can see, 98 percent of the one has two children, it is not there. the gentleman yield? taxpayers in one case, and in another In fact, for those who read the article Mr. MCDERMOTT. I yield to the gen- case leaves out almost 99 percent for this morning, it actually goes through tleman from California. any meaningful tax relief. a situation about a police officer who Mr. BECERRA. Mr. Chairman, listen- This is a bill for people who make a might be being paid about $23,078 a ing to all of this, for those of us in a lot of money and who have a great deal year starting off, has two kids, he does place like Los Angeles, a State as big June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4671 as California is, to know that more Mr. BECERRA. Not a nickel of it, big salary from a big company, he can than half of the children in California Mr. Chairman. take his salary in stocks rather than will not get a child tax credit through Mr. MCDERMOTT. And she is work- take it in ordinary income, and there- this bill. ing. fore avoid paying the tax on the stock. Mr. MCDERMOTT. Mr. Chairman, re- Mr. BECERRA. Working full time. Mr. MCDERMOTT. Mr. Chairman, it claiming my time, the gentleman is Mr. MCDERMOTT. Paying taxes. is not fair. talking now about families who are Mr. BECERRA. Paying taxes. Has ANNOUNCEMENT BY THE CHAIRMAN working, with children, working fami- one child in college. The CHAIRMAN. The Chair will re- lies? Mr. MCDERMOTT. Mr. Chairman, mind all Members engaging in dialog Mr. BECERRA. Mr. Chairman, work- how could that be fair? to yield and reclaim time each time ing families. Mr. BECERRA. Mr. Chairman, if the that they yield or reclaim time. Mr. MCDERMOTT. Mr. Chairman, gentleman will continue to yield, I Mr. ARCHER. Mr. Chairman, I yield half the kids in California do not get know it is not fair to Robin. I am for- myself such time as I may consume the tax break. tunate, I got myself a good education, briefly to say that the bottom line of Mr. BECERRA. Mr. Chairman, if the I am making a decent salary. She is all of the colloquy that we just heard is gentleman will continue to yield, more working just as hard as any one of us, that the Democrats want to take than half of the kids, from what we and there is no reason why she should money away from families who are have been able to determine, in this not be able to take advantage of that. middle income with children, who pay tax bill, they will not have an oppor- Mr. MCDERMOTT. Mr. Chairman, re- taxes, pay income taxes, and they want tunity to take advantage of this child claiming my time again, if I could in- to give it to people who do not pay any tax credit, even though they work full quire of the gentleman from Louisiana income taxes. time. [Mr. JEFFERSON], we were talking be- This bill should be a middle-income Mr. MCDERMOTT. And pay FICA fore about the whole issue of what a taxpayer relief bill that was promised taxes. They are paying Federal taxes. really smart person would do with this by the President in 1992 and not be si- Mr. BECERRA. Mr. Chairman, what tax bill if they wanted to make a lot of phoning money away from them and is more interesting, I have a district in money. Tell us about how one could giving it to people who pay no income Los Angeles where it is mostly working play the game with this bill. tax. class. The median income is somewhere Mr. JEFFERSON. Mr. Chairman, this Mr. Chairman, I yield 2 minutes to around $25,000. is what we might call a back-to-the-fu- the gentleman from Pennsylvania [Mr. Mr. MCDERMOTT. Mr. Chairman, I ture kind of an idea here in this tax ENGLISH], a respected member of the would say to the gentleman, just like bill that takes us back to the idea of Committee on Ways and Means. the policeman in Georgia. tax loopholes and tax shelters. Mr. ENGLISH of Pennsylvania. Mr. Mr. BECERRA. Yes, Mr. Chairman, Now, there are any number of ways Chairman, I rise in very strong support just like the policeman there. this game could be played out, but any of the Taxpayer Relief Act, legislation Mr. Chairman, if the gentleman will time one has a marginal tax rate on in- that will provide tax relief to people yield further, to know that 70,000 or so dividual income that is 39 percent and who pay taxes. Under this plan, 76 per- families, working families in my dis- a capital gains rate that is 20 percent, cent of the tax relief goes to people trict are probably at risk of not being which is roughly 20 points in the dif- who make less than $75,000 a year, and able to participate in something that is ferential, one is going to have a great over $100 billion of the tax relief out of being touted as something for all fami- incentive for people to find and cover $135 billion in our bill goes to the child lies with children is unconscionable, ways to avoid paying taxes on salaries tax credit and education tax relief. but that is where we are heading. and to find a way to pay taxes on cap- Our tax cut plan makes the Tax Code If we could put a name to some of ital gains. So it is a natural incentive a little fairer, not only by helping fam- those faces. This individual does not and it is made far greater under this ilies, but also by encouraging economic live in my district, she happens to live bill. growth and by creating and protecting in Missouri. Her name is Robin Acree. There are any number of ways that good paying American jobs. She earns about $21,000. She is di- people can take advantage of this. Let One of the ways we do this is by re- vorced, she has three kids, age 14, 17, us just talk about a couple. If one has forming the AMT. Now, the AMT is and 19. Now, it is interesting, under the a high income, then one has a higher what is called the alternative mini- 1995 bill that this Republican House capability, ordinarily speaking, of bor- mum tax, but it should be called the passed, Robin would have qualified for rowing money. And one probably has a anti-manufacturing tax. The AMT is a $500 tax credit, child tax credit. home that is worth a lot more than one of the biggest tax barriers to the Under this year’s bill, she does not get somebody that does not have a high in- competitiveness of the American man- a cent. Even though she pays some- come. So right now to make a home ufacturing sector. It penalizes compa- where over $2,100 in taxes, income loan, the interest on the home loan is nies that try to invest in jobs and im- taxes, payroll taxes, she will get zero deductible. If one wants to get involved prove their productivity. It directly pe- out of this. in a big capital acquisition like a stock nalizes companies that create the most Now, Robin lives in Missouri, she is purchase, one could take a home loan desirable jobs in America by taxing not in my district in California, but with deductible interest and buy a big companies when they buy equipment she works just as hard, I imagine, as stock purchase with it and take advan- rather than taxing them on their prof- any of the folks and the families in my tage of this huge capital gains break its. The AMT tax penalty directly en- district that are also to be left out. I do we are going to give the folks who are courages companies to create new jobs not understand why under one bill this dealing in stocks. offshore. It is a job killer, stunting new House was willing to give her a $500 tax Mr. MCDERMOTT. Mr. Chairman, job creation and imperiling existing credit, but now this year she gets zero, does the gentleman think that a police- good paying jobs right here in America. even though she pays more than $2,200 man in Georgia could take a loan on The AMT even hurts the environ- in taxes. his house and buy a big stock pur- ment. It imposes what amounts to a 22 Mr. MCDERMOTT. Mr. Chairman, re- chase? percent tax penalty on companies that claiming my time, maybe they needed Mr. JEFFERSON. Mr. Chairman, a invest in pollution control equipment. the money that would have gone to policeman in Georgia probably has a Because it does all of these things to this lady to give the tax breaks to the smaller house, probably would take a companies in a down cycle, the AMT is people who need the estate tax break loan to send his kids to college, is not really the ‘‘kick-them-when-they-are- up at the top. going to be for some big differential down’’ tax, hitting basic industries and Mr. BECERRA. Mr. Chairman, cer- like that, plus there is not going to be union workers when they are more vul- tainly we are going to do away with enough money to play that much in nerable. $135 billion worth of money. the stock market with. So it will not If we reform the AMT as proposed in Mr. MCDERMOTT. And she does not be available for that person. At the this bill, studies have shown that it get a nickel. very top of that level, if a person has a will increase the GDP growth by 1.6 H4672 CONGRESSIONAL RECORD — HOUSE June 26, 1997 percent and increase business invest- they cannot deduct the expenses like that Washington has ignored for 16 ment by 7.9 percent. That will allow us other businesses. years. It is the idea that it is your to build a high-wage economy for the At a time when companies are money. The Government is not entitled next century and restore the American downsizing and workers are striking to it, you are. You earned it. You know dream for millions of working families. out on their own, this does not make how best to spend it, and you deserve If my colleagues care about these any sense. We should not be penalizing to keep it. things, I urge you to vote for this bill. these entrepreneurs. We ought to be Mr. ARCHER. Mr. Chairman, I yield 2 minutes and 15 seconds to the gen- b 1230 encouraging them. This bill reforms the tax rules to do just that. tleman from California [Mr. HERGER], Mr. ARCHER. Mr. Chairman, will the Last, both of these examples high- another respected member of the Com- gentleman yield? light the pivotal ideas behind this bill. mittee on Ways and Means. Mr. ENGLISH of Pennsylvania. I We are getting Government off the Mr. HERGER. Mr. Chairman, this yield to the gentleman from Texas. backs of the people so they can do legislation provides tax relief to Amer- Mr. ARCHER. Mr. Chairman, I ask more on their own. icans who pay taxes. Under this plan, the gentleman, Is it not also true that Mr. Chairman, it has been 16 years 76 percent of the tax relief goes to as this negative impact on buying since the average American got some Americans who make less than $75,000. equipment occurs, does it not work tax relief. It is time to do more. I sup- American families are struggling under against antipollution equipment also, port this bill and urge Members to do the burden of increasing taxes and de- and therefore make it more difficult to the same. serve relief. clean up the air and the water? Mr. ARCHER. Mr. Chairman, I yield 2 The average American now pays al- Mr. ENGLISH of Pennsylvania. That minutes to the gentleman from Michi- most 40 percent of their income to is exactly my point, Mr. Chairman. gan [Mr. CAMP], another respected local, State, and Federal taxes, more And this should be a good green vote, member of the Committee on Ways and than they spend on food, clothing, and to vote for this tax act. Means. shelter combined. Our tax plan pro- Mr. RANGEL. I yield myself 5 sec- Mr. CAMP. Mr. Chairman, I thank vides needed relief by allowing families onds, Mr. Chairman. the chairman of the committee for to keep more of their money through a I would just like to point out that we yielding time to me. $500 per child tax credit. can get all the statistics we want, but Mr. Chairman, I rise in strong sup- In my northern California congres- if we ask the Governors of the States, port of the tax relief bill before us sional district alone, 89,000 children under the Republican bill almost half today. This bill, the first tax relief in will benefit from the child tax credit, of the children will not get the credit 16 years, represents a significant first and more than 41 million children will that the President wants, and that is step in our efforts to allow middle-in- benefit from it nationwide. A family more than 1.6 million children. come taxpayers to keep more of what with one child will get $500 taken off Mr. Chairman, I reserve the balance they earn. the top of their tax bill. A family with of my time. Today the average American pays two children will get $1,000 taken off of Mr. ARCHER. Mr. Chairman, I yield 2 more in taxes than they do for food, their tax bill, and so on. minutes to the gentleman from Ken- clothing, and housing combined. This Mr. Chairman, voting against this tucky [Mr. BUNNING], a respected mem- tax relief bill will help stem this tide. tax plan is to look into the faces of 41 ber of the Committee on Ways and This bill provides a $500-per-child tax million children and say, sorry, we are Means. credit, which will help 41 million chil- not going to help you. Voting against (Mr. BUNNING asked and was given dren. Some people want to stop the tax this tax cut is saying no to giving permission to revise and extend his re- credit once a child reaches 13. Our bill Americans more freedom to spend their marks.) realizes that the cost of raising a child own money, and voting against this tax Mr. BUNNING. Mr. Chairman, I rise does not get any cheaper; in fact, costs cut is saying no to helping struggling in strong support of the Taxpayers Re- rise. families that are just trying to get by. lief Act. This bill also eases the death tax, so Mr. Chairman, families have not had It has been 16 years since Americans our Nation’s farmers and small busi- significant tax relief since 1981, 16 long got real tax relief. Now it is time we ness owners can pass their legacy on to years. Is it not about time we give start letting them keep more of their their children. More than 60 percent of them a break? They deserve it. I urge own money instead of being forced to the family-owned businesses fold before my colleagues to support this measure. Mr. ARCHER. Mr. Chairman, will the send it to Washington, D.C. reaching the second generation, not be- By giving families a child tax credit, gentleman yield? cause of poor management, but because Mr. HERGER. I yield to the gen- by cutting the death tax that ruins the Government taxes them at up to 50 tleman from Texas. small business and family-owned percent. Mr. ARCHER. Mr. Chairman, I ask farms, by cutting capital gains taxes We also make it easier for children to the gentleman if he can point out for for families who sell their homes, by realize the goal of a college education the Members here from these charts making education more affordable, we by including and improving the Presi- precisely where this tax relief goes. are saying that Washington needs to dent’s HOPE scholarship proposal. We The first chart shows that 90 percent of tax less so Americans can spend more. are hearing a lot about distribution the tax relief over 10 years goes to fam- Two specific parts of this package charts that show who benefits from tax ilies and to education, with $23 billion that I have been pushing really help il- relief, and by how much. as a small item that goes to the other lustrate this point. The first is the tax In order to cook the numbers, the ad- areas of relief. cut for withdrawals from State-run ministration calculates how much you The second chart shows 76 percent of prepaid education plans. This bill lets could earn if you rented your house the tax relief goes to people with an- families who save for their kids’ col- and then adds this amount to your in- nual earnings under $75,000. lege education to withdraw up to come. This is how they make you seem Mr. HERGER. I thank the chairman. $40,000 tax-free with these plans. This richer than you really are. In addition, Mr. ARCHER. Mr. Chairman, I yield 3 means that in Kentucky, where the they include your pension fund, your minutes and 50 seconds to the re- families of over 2,600 students are al- health benefits, and your life insurance spected gentlewoman from Connecticut ready saving in our plan, it is about to to your income. The result is that the [Mrs. JOHNSON], a member of the Com- become a whole lot easier to educate number of families with incomes be- mittee on Ways and Means and the their children with this plan. tween $50,000 and $75,000 rises by 25 per- chairman of the Subcommittee on Another exciting part of this tax cent under that plan. Oversight. package is the reform of the home of- The nonpartisan Joint Committee on Ms. JOHNSON of Connecticut. Mr. fice deduction. Fourteen million men Taxation estimates that 76 percent of Chairman, I thank the chairman for and women, mostly women, are now the tax relief in this bill goes to Ameri- yielding time to me. making a living working at home. But cans earning under $75,000 a year. Lost Mr. Chairman, I am proud to rise in because of the snafu in the tax law, in this debate is a fundamental idea strong support of the first tax-cutting June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4673 bill in 16 years. Today we adopt tax re- lican plan gives more money to fami- edge over their American counterparts. And lief for working, tax-paying families, lies with dependent care expenses, this provision is particularly important to Amer- and powerful incentives for economic which is over in the right-hand chart, ica's retirees, most of whom are women. Sen- growth and job creation. and that the Republican plan gives iors hold 80 percent of our assets and 50 per- How does the bill help women, chil- more money to families with children cent of those benefiting from capital gains dren, and fathers? It delivers benefits compared to the Democrat plan or to have incomes under $50,000. So this capital sooner and provides more generous the Clinton plan. gains relief will really help the retiree who benefits than the Democrats’ alter- Mrs. JOHNSON of Connecticut. Mr. needs to replace a roof and sell some stock native. True, it does not help nontax- Chairman, we are far more generous to to do it. Capital gains, the research and devel- paying working families. That is be- families. We give them the benefits opment credit, and reform of the alternative cause they were our first priority. That sooner, give them to more families, minimum tax will put Americans' capital where is because a few years ago we adopted and we retain it longer. jobs can be created. legislation that wipes out the burden of I am proud to rise in strong support of the The bill also makes the orphan drug tax payroll taxes for working families who first tax cutting bill in 16 years. Today we credit permanent, which will explode the re- do not earn enough to pay any income adopt tax relief for working, tax-paying fami- search projects focused on cures for rare dis- taxes. lies, and powerful incentives for economic eases. In the past, while the year-to-year ex- Now we move to relieve the tax bur- growth and job creation. tension of this widely-supported tax credit has den of families earning enough to pay How does this bill help women, children, helped encourage research on rare diseases, income taxes. We do not wipe out their and fathers? It delivers benefits sooner and I believe the certainty of a permanent exten- payroll tax benefit, as we have done for provides more generous benefits than the sion will cause an explosion in those critical families receiving the EITC. We merely Democrats' alternative. True, it doesn't help projects. When Congress made the low-in- offer them a modest $500-per-child re- nontax-paying working families. That's be- come-housing tax credit permanent several duction in their income tax liability in cause they were our first priority. We adopted years ago, interest in the program sky- recognition of the fact that they are legislation to wipe out the burden of payroll rocketed, resulting in better quality housing hard-working, tax-paying families in taxes for those working families. Now we just and yielding 25 percent greater benefit for our America. relieveÐmodestlyÐjust the income tax burden tax dollars. The permanent extension of the Second, this tax bill increases the of those above the tax subsidy level who work orphan drug tax credit, in my view, will result maximum deduction for child care and pay taxes. Unfortunately, the Democrats in a similar explosion of new drugs to treat costs. While for families over $60,000 we pay for additional benefits for working people rare diseases. gradually reduce half of this benefit, who pay no income or payroll taxes by limiting Finally, I would like to mention two lesser- that is far less than the Democrats’ to $300 the credit for tax-paying, working fami- known but important provisions that are in- draconian repeal of the $500-per-child lies until 2001. cluded in H.R. 2014. One helps teachers exer- tax credit for families over $60,000. Second, this tax bill increases the maximum cise their current rights to increase their pen- Again, the Republican bill provides a deduction for child care costs. And while fami- sion benefits by buying back service years more generous bill sooner than does lies over $60,000 will gradually lose half of this when they can afford it. For example, a teach- the alternative. benefit that is far less than the Democrats' er who worked for several years in New York Third, this bill helps families save for draconian repeal of the $500 child credit for all but spent most of her career in Connecticut college, helps kids through HOPE families over $60,000. Again the Republican would receive a pension based on years of scholarships, helps women who want to bill provides more generous benefits sooner. service in Connecticut. Under State law, she set up a business in their home through Third, this bill helps families save for col- has the option to purchase the years worked the home office deduction, and helps lege, helps kids through HOPE scholarships, in other States, however, her ability to do so senior women, who are the biggest win- helps women who want to set up a business is limited by annual contribution restrictions. ners, through capital gains benefits. in their home through the home office deduc- This bill gives greater flexibility to teachers Further, Mr. Chairman, there are tion, and helps senior women who are the big- and other public employees to be able to buy many important provisions in this bill gest winners through capital gains reductions. back years of service, thereby raising their that will help our economy grow more Further, Mr. Chairman, there are many im- pension benefit. And finally, this bill helps States collect their rapidly and create high-paying jobs. portant provisions in this bill that will help our taxes so tax burdens can be held down on Mr. Chairman, the R&D tax credit economy grow more rapidly and create high- America's hard-working folks at the State as helps businesses develop new products, paying jobs. The research and development well as Federal level. Currently, 32 States al- the kind of products they need to com- tax credit is an important incentive that en- ready allow the Federal Government to partici- pete in a global economy. Capital gains courages U.S. corporations to develop the pate in their State income tax refund offset cuts will shift capital to job-creating products they need to compete globally. If the programs. This provision reciprocates, provid- growth industries and particularly help United States fails to provide some assistance ing a great benefit to States while actually our seniors, who hold 80 percent of to American companies, manyÐsuch as the saving the Federal Government a small aerospace, electronics, chemical, health tech- America’s assets. It also makes the or- amount of revenue. phan drug tax credit permanent, which nology, and telecommunications industriesÐ Mr. Speaker, this tax bill takes many impor- will truly explode the research projects will find it difficult to compete in an increas- tant steps forward to stimulate economic focused on rare diseases. ingly globalized marketplace. With Federal dol- growth and high-paying jobs and to help work- It helps teachers exercise their cur- lars in basic and applied research shrinkingÐ ing, tax-paying families. I urge my colleagues rent rights to increase their pension and R&D a strong priority of our major foreign to support it. benefits by buying back service years trade competitorsÐthe extension of the R&D Mr. RANGEL. Mr. Chairman, I yield at a time in their lives when they can credit is critical. In fact, studies show that Unit- myself 1 minute. afford it. Finally, it helps States col- ed States firms spend only about one-third as The President said he wanted work- lect their taxes so that can be con- much as their German counterparts, and only ing families, not welfare families, to trolled at the State level as well as the two-thirds as much as Japan on research and get a tax break for their kids. So no Federal level. product and development. matter how we cut it with charts, the Mr. Speaker, this is a great tax bill, Capital gains reductions will shift capital to bottom line is going to be how many a great step forward. I am proud to job creation, growth industries, and particularly kids are going to be denied because cer- support it. I call Members’ attention to help our seniors who hold 80 percent of the tain people thought they did not make the charts. assets in our country. It is estimated that near- enough money. Mr. ARCHER. Mr. Chairman, will the ly $8 trillion of capital gains are locked in by Almost half of the children in Con- gentlewoman yield? people unwilling to sell their assets and be hit necticut, 44 percent, more than 430,000 Mrs. JOHNSON of Connecticut. I with a punitive tax. It is the sale and reinvest- children, will be denied because these yield to the gentleman from Texas. ment of these very assets which creates the working families are not entitled to Mr. ARCHER. Mr. Chairman, I ask new capital needed to start up, modernize, or the benefits under the Republican bill; that the gentlewoman point out on the expand the businesses of the future. Many and 56 percent in California, that is chart the part that supports the com- countries do not tax their long-term capital over 5 million children, will be denied. ments she has made, that the Repub- gains, giving foreign companies a competitive These are working families. H4674 CONGRESSIONAL RECORD — HOUSE June 26, 1997 Half of the children in Michigan, 1.3 Who is paying for this giveaway to There is no equity in their bill. That million children of working families, the rich? America’s working families. is why the poll that came out this will be denied under the Republican Under the Republican tax bill, the morning said the American people sup- plan; and 50 percent in the State of working parents of almost 1.4 million port the Democratic bill over the Re- Kentucky, children of working fami- children in Michigan, in my State, will publican bill by a 2-to-1 margin, 60 to lies, will be denied the benefit that the be excluded from the child care credit. 30 percent. On top of all of this, their President thought he had a promise That is almost half the children in bill, this tax bill that the Republicans made on when he went into a dialog Michigan. Under the Republican tax are offering actually raises taxes on with the Republicans. bill, the value of the HOPE scholar- the bottom 40 percent of Americans. For these reasons the President finds ships is slashed, in direct violation of Raises taxes. the unfairness, and for these reasons, the budget agreement. The Republicans This Republican bill also includes he would veto. are taking money away from family and encourages big corporations to re- Mr. Chairman, I yield 15 minutes to credit, away from education credit, define their employees as contract the gentleman from Michigan [Mr. away from working Americans, so that workers. What does that mean? That BONIOR], the Democratic whip. the corporate interests, the corporate means you can define your people who b 1245 titans can avoid paying taxes at all. work for you as contract workers and you do not have to worry about paying Mr. BONIOR. Mr. Chairman, I thank According to the Treasury Depart- them the minimum wage. You do not my colleague for yielding me this time ment, the Republican tax bill gives have to worry about paying them and for the outstanding job that he has more benefits to the richest 1 percent, health benefits or pension benefits. done on this piece of legislation, the listen to this figure, the richest 1 per- Under the Republican plan, the rich get Democratic alternative. cent of Americans, than to the bottom Let me point out, before I begin my 60 percent combined. Today’s Wall richer, America’s middle-income fami- remarks, that the charts that we have Street Journal described the Repub- lies have to work twice as hard just to just seen on this side of the aisle, when lican plan as, and I quote, a bonanza stay even. The Republicans tout their $500 child they talked about the child tax credit, for the affluent, crumbs for the work- care credit. It is a good idea, but only let me just reinforce the comments by ing class. if you actually give it to the families the gentleman from New York [Mr. If the Republicans were not writing who need it. Today’s Wall Street Jour- RANGEL]. The percentage of dependent this lopsided tax bill into law, we nal notes that in Speaker GINGRICH’s children ineligible for this $500 child would call it robbery. This tax bill rolls suburban district, a newly-hired police tax credit in the State of Texas, 54 per- back the corporate minimum tax which officer earning $23,000 a year, married cent; 54 percent of kids from families says to big corporations, you have got with two kids, would not qualify for in the State of Texas do not get it. In to pay something like the rest of us. the child care credit under the Repub- Connecticut, 44 percent of the children We had in the 1980’s corporations like lican plan. Why? Well, the Republicans would not be able to get it. So when Texaco and Boeing and AT&T that say that is because this police officer they put up these charts, it is just for were not paying any Federal income a select few. It is not for the hard- already receives the earned income tax taxes. The corporations in the early credit. The child care credit would con- working, middle-income folks that 1960’s would pick up about 25 percent of really need it the most. stitute welfare, they say. That is right. the tax load in this country. That has The Republicans are saying that a America’s working families deserve a decreased because these large corpora- tax cut. The Democratic tax plan gives young police officer who is trying to tions paid no income taxes to the point raise a family, who puts his life on the it to them. Under the Democratic plan, that they were down to about 7 percent 71 percent of the tax cuts go to house- line every day for $23,000 a year and of the load in the mid-1980’s. Everybody pays thousands of dollars in taxes, pay- holds earning less than $100,000. Under was embarrassed so we passed a cor- the Democratic plan, the $500 child roll taxes, excise taxes, does not de- porate minimum tax where they were care credit goes to lower- and middle- serve a tax credit to help his family. required to pay something. Now under income families, the teachers, the po- None, zip, nothing, zero. this bill, the Republicans want to give lice officers, the nurses, the people who The richest 1 percent of Americans them a $22 billion tax break to get that are working harder than ever to get a tax break that is worth more achieve the American dream. Under percentage back down to the low dis- than that police officer makes all year the Democratic plan, the HOPE schol- graceful numbers. under their bill. The richest 1 percent Mr. RANGEL. Mr. Chairman, will the arship is fully funded, making it pos- get more than the police officer makes sible for people from working families gentleman yield? all year. That is an absolute outrage. It Mr. BONIOR. I yield to the gen- to afford that 13th and 14th year of edu- is not right. It is not what this country cation. The Democratic plan helps tleman from New York. is all about. It is America’s working Mr. RANGEL. Mr. Chairman, the America’s working families. families who need this tax cut. Accord- The Republican bill we are debating gentleman is saying that successful ing to a poll, as I said today, the Amer- does just the opposite. It punishes corporations enjoying tax welfare ben- ican people agree with our position. America’s working families and re- efits that now are forced by laws of the Let us give them a tax cut that they wards the wealthy and the biggest cor- Congress to pay taxes, that in the Re- can use and be proud of and we can porations. The New York Times said publican bill is just wiped out. help working families with. this bill, the Republican bill, showers Mr. BONIOR. They move away from Mr. GREEN. Mr. Chairman, will the tax cuts on the Nation’s wealthiest responsibility on the part of the cor- gentleman yield? families. porations in paying any taxes at all in Mr. BONIOR. I yield to the gen- Conservative commentator Kevin this country at the Federal level. tleman from Texas. Phillips said, this bill is a payback to Mr. RANGEL. Mr. Chairman, if the Mr. GREEN. Mr. Chairman, I have big contributors. Speaker GINGRICH ad- gentleman will continue to yield, and sat here on the floor and listened this mitted this last month, when he spoke for years all we have said is that they morning, and time and time again we to hundreds of wealthy contributors at have a responsibility to pay something. have had folks come up and say, we are a black tie dinner given by the Repub- Mr. BONIOR. Mr. Chairman, they going to help the struggling families lican Party. People paid as much as a need to be part of the community of with the first tax cut in 16 years. The quarter of a million dollars each to go people who support our economy, our gentleman said, and I know we have to that dinner. He said, whatever you country and share the load. If they are had Members come up on the floor, for have given, this is the Speaker to these not paying it, working people are going example, the $500 child tax credit in wealthy contributors, whatever you to pick up the difference. That is the Kentucky, over 50 percent, over 50 per- have given is a tiny token of what you problem here. Their bill is top-heavy in cent of the children will not be eligible have saved. terms of benefits to those at the top; for it. In my State of Texas, 54 percent That is what he is paying them back crumbs, as the Wall Street Journal and of the children will not be able to enjoy with today, their bill, what they have the New York Times and others have that child care credit. And I know that saved. scribbled it, for working people. is correct. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4675 The other thing that I wanted to ask I tell the State troopers, computer relief under this bill and to the extent about is, a lot of us support a capital technicians, the chemical worker, the that there are real families like Anna gains tax cut. But in the Democratic school teachers, all of those who think Gonzalez, who just sent me a fax and alternative, we have a solution in that there is something for them under said, I am employed as a medical office there. The small investor, the person this bill? technologist for the Bayonne Dental who is not making a living investing Yet if they are under $57,000 a year, Group. I have been working there for a but is really the person who is invest- according to the Treasury Department, year, making over $20,000 in 1997. I have ing in it and we set a cap of $600,000 as they are only receiving 22 percent of three kids. I pay for child care. Unfor- a lifetime on capital gains tax cuts. So the benefits in that package, while tunately, the Republican child tax if somebody is making a living invest- those over $100,000 a year get over 60 credit gives me no benefit at all. ing, if they are playing the stock mar- percent of the benefits of this package. That is a real person, a real family ket and that is their living, they are It is simply not appropriate. struggling to stay off welfare, to be not getting a benefit from the person So that is why I support, and I have working, to produce for this country. maybe working in a factory in Michi- to ask, how can we say that this bill is This is the family-friendly Congress gan or working in on a ship channel in about giving children tax relief when supposedly. Yet the Republican tax Houston. We are encouraging people most of our States and in West Vir- plan works against working families, who are the workers to also invest and ginia, it is 56 percent, 56 percent of the tax-paying families, families who we they get that capital gains tax cut. children get no tax relief under the should be preserving in this tax cutting That is what I hear. child care credit? bill. That is why Democrats stand up When I talk to people who say we So this is why this is a bad bill, why for tax cutting for working families. want a capital gains tax cut and I say, I am voting today for the Democratic Mr. Chairman, I include for the what if you make your living as a alternative which does give tax relief RECORD the letter to which I referred: stockbroker; no, they ought to pay reg- to the working people who need it ANNA L. GONZALEZ, Bayonne, NJ, June 23, 1997. ular income. Well, that is what the most. But I am not voting for a bill Due to my job responsibilities, I am unable Democratic alternative is doing. It is that denies 56 percent of children of to appear in person for this News Conference. making sure that that individual who working parents a child care tax credit. I would like to show my concern in regard to is investing in part of this great coun- Mr. BONIOR. Mr. Chairman, I thank the guidelines for receiving the proposed try and this great free enterprise sys- the gentleman. I might remind Mem- Child Tax Credit. As a single mother of three tem will be able to take a tax cut. That bers today that originally those 56 per- children, living on a single income, I would is why the Democratic alternative is so cent of the kids under the original Con- like to stress the importance of how a Child Tax Credit would help to alleviate some of important. tract for America were going to get the financial burdens that come with raising Mr. BONIOR. The gentleman has some of those dollars. But all of a sud- a family on a single income. aptly described the difference between den, all the big boys came in and they I am employed as a Medical Office Tech- the capital gains provisions in our bill said, wait a minute, we want to make nologist for the Bayonne Group of Bayonne, and their bill. In addition to that, of sure we get our capital gains index. We New Jersey. I’ve been working there for 1 course, the problem with their capital want to make sure we get this taken year, and will earn $20,202 in 1997. I pay $93 gains provision is that it is indexed and care of and that taken care of. per week for child care which totals to $4,836 per year. I pay for the child care in order to it explodes in the outyears and creates Of course, in the New York Times be able to work. these humongous deficits, $650 billion today there was an article that I do not Unfortunately, the Republican Child Tax drained in the outyears, which will put believe I have with me right here, but Credit proposal is targeted against those who us right back to where we were when they point out a special rifle-shot pro- need it most, those who are an inch away this Congress unfortunately did the vision which will provide huge amounts from going into the welfare system. We are 1982 tax and spending bills that put us of money. Right here, a break for a the working poor, who work to pay for child into debt for so many years. The gen- rich few snuck into the bill. They talk care, food, and a roof over our family’s heads about $9 million a year in lost revenue and not much more. The Child Tax Credit tleman is absolutely right. Ours is tar- should be given to financially benefit the geted to working families, to people and giving a bonanza worth thousands children, and I think the children from a who invest for a decent length of time of dollars to about 1,000 wealthy tax- low-income family would benefit greatly by and who are interested in the future of payers. That is what was snuck into receiving this Credit. However, my family their families and their communities this bill overnight and that is why kids would receive NO BENEFIT AT ALL from and who are not there to make it on a in huge percentages, 56 percent from the proposed Child Tax Credit. rollover basis, on a daily basis. West Virginia, 50 percent from Michi- I am eligible for a Dependent Care Tax Mr. WISE. Mr. Chairman, will the gan, New Jersey, my friend from New Credit that reduces my income tax liability to zero. Therefore, I would receive no benefit gentleman yield? Jersey is standing up today, 48 percent from the Child Tax Credit passed by the Mr. BONIOR. I yield to the gen- of the kids will not be eligible for a Ways and Means Committee. tleman from West Virginia, who under child tax credit in his State. That is Sincerely, the Republican plan would have 56 per- who is getting short cut today to take ANNA L. GONZALEZ. cent of his children ineligible for the care of the fat cats and the big boys. Mr. Chairman, Democrats want greater tax child credit. Mr. MENENDEZ. Mr. Chairman, will relief for lower- and middle-income families, Mr. WISE. Mr. Chairman, I support the gentleman yield? immediate estate tax relief for farms and small tax cuts for rewarding work, particu- Mr. BONIOR. I yield to the gen- family-owned businesses, a capital gains tax larly to those people who are getting tleman from New Jersey. cut for small businesses, and help for post- up every morning, getting their kids Mr. MENENDEZ. Mr. Chairman, I secondary education. off to school, driving to work, putting thank the gentleman for yielding to The Republican tax bill is like the deal to di- in a full day, playing by the rules. And me. vide the gold mine. The rich Republicans get at the end of the day they are going to No wonder 60 percent of the Amer- the gold and the American people get the find out, 56 percent of them are going ican public said the Democratic tax shaft. to find out at least that their children cutting plan is the plan that they More than half of the benefits of the Repub- did not qualify for the guts of this bill, want, because we address working and lican tax plan go to the wealthiest 5 percentÐ which is a child care tax credit. tax-paying families in our plan. people making an average of $250,000 a In West Virginia, where two-thirds of What we do in that respect is try to year. our working families, working families provide greater tax relief for lower- Under the Democratic plan 71 percent of make $30,000 or less and we know that and middle-income families, immediate the tax benefits go to families earning less those making $25,000 or less, if they estate tax relief for farms and small than $100,000. have two children, most likely will not family owned businesses, a capital The Republican plan would cover only half see one dime of the child care credit. gains tax cut for small businesses and of tuition costs for the first 2 years of college. This thing is just a figment. This is il- also for being able to sell your home. The only tax relief for the third and fourth lusory; it is a hoax. What do I tell the To the extent that over 1.1 million New years comes from savings plans that only coal miner, the steel worker? What do Jerseyans, children, get absolutely no wealthier families can afford to join. H4676 CONGRESSIONAL RECORD — HOUSE June 26, 1997 Under the Democratic plan, HOPE Scholar- take advantage, and that 60 percent of ANNOUNCEMENT BY THE CHAIRMAN ship credits would be available for all 4 years the bottom rung of Americans will not The CHAIRMAN. The gentleman of post-secondary-education. After the first 2 take advantage of this? from Michigan [Mr. BONIOR] has the years, a scholarship credit of 20 percent of tui- Mr. BONIOR. The benefits in this tax time and should indicate each time he tion costs is available. These HOPE scholar- bill for the top 1 percent equal that for yields or reclaims the time. ship credits are available to all students who the bottom 60 percent, so that 1 per- b 1300 live in families with incomes under $80,000. cent of the taxpayers in this country Mr. ARCHER. Mr. Chairman, I yield 3 are getting as much as the 60 percent The HOPE scholarship credits are not reduced minutes to the gentleman from Mis- by a student's Pell Grant and other nontaxable at the bottom in this country. sissippi [Mr. PARKER]. Federal scholarships. The Democratic plan Ms. KILPATRICK. Mr. Chairman, the Re- (Mr. PARKER asked and was given makes permanent the tax-free treatment of publican tax bill would deny tax credits for an- permission to revise and extend his re- employer-provided education assistance. other 4 million lower middle-income children. marks.) The Republican bill denies the $500 per Forty percentÐtwo out of every five childrenÐ Mr. PARKER. Mr. Chairman, I thank child tax credit to 15 million families, by refus- would be ineligible for the credit because their the gentleman from Texas [Mr. AR- ing to extend the credit to many working par- family's incomes are not high enough. The CHER], the chairman, for yielding me ents who qualify for an earned income tax total number of children denied this credit be- the time. credit, or to families who only pay payroll cause their families do not make enough Mr. Chairman, I was very interested taxes. More than one-half of the children in money would be 28 million. The Republican's in the comments made by the minority New Jersey would be completely ineligible. highly touted $500 tax credit that is nonrefund- whip and by the ranking member talk- The Democratic plan allows families to off- able allegedly gives tax relief to families. While ing about one particular aspect of the set payroll and income taxes and would con- corporations will reap a $22 billion windfall in committee’s bill dealing with AMT. I tinue the existing day care credit. this bill, 28 million children would get nothing. think a very wise part of this bill has The Republican plan grants massive tax The Republican tax bill denies tax credits to been the removal of the depreciation breaks to wealthy people who make money by working families. For example, a family of four penalty from AMT. selling their stocks, bonds, art works and an- with two children with no child care expenses It is fascinating to me that people al- tiques. Republicans also have designed their would not receive any credit unless its income ways come to the floor of this House proposal so that it explodes over time and exceeded $24,385. Moreover, if the family had and they scream and yell about jobs could wreck the balanced budget. child care expenses, it could earn as much as going overseas, about companies leav- The Democratic Plan targets capital gains $27,180 and fail to qualify for the credit. Also, ing our Nation and us losing jobs. It is relief to homeowners, not mansion owners. families that have more than two children, or fascinating to me that people talk The Republican plan provides large estate have high mortgage or health care costs and about that and at the same time they tax breaks to very wealthy families. Only 1.5 itemize their deductions, could make close to scream about the companies in this percent of families currently pay any estate $30,000 and still not qualify for the credit. country that are not investing in their taxes. The Democratic tax bill has real child care own companies and staying up, being The Democratic plan gives relief for those tax credits. The Democratic bill does not com- modern, being able to produce, increase who dedicated their lives to building the family pute a family's child care tax credit after the their productivity. Let me tell my col- farm or small business. earned income tax credit [EITC] is figured. leagues what the most burdensome The Democratic tax package is a better deal This is a significant differenceÐmillions of part of AMT is and how it has been re- for more people. It gives the most tax relief to lower- to middle-income families owe income moved from this bill. lower and middle-income families: immediate tax before EITC is calculated, but have little or In order for any company to modern- estate tax relief for farms and mom-and-pop no income tax obligation remaining after EITC ize and be able to create new jobs and businesses, a capital gains tax cut for small is calculated. Under the Democratic bill, these increase productivity, they must put businesses, and provides $40 billion in for kids families would be covered. money into the company. You do that to get a college education. The Republican tax bill's largest tax cutsÐ by using depreciation, because equip- Remember who is making the greatest con- capital gains, individual retirement accounts, ment is just like people: It gets old, it tribution to reducing the deficit, it is the vast estate, and corporate taxesÐprovide most of wears out, and it eventually dies. majority of Americans. I can only speak for my their benefits to the rich. The richest 1 percent Depreciation is not a gift, it is an al- district. Most of my people are honest, hard get more of the overall tax break than the bot- lowance to a company to modernize working people who don't have capital gains tom 60 percent combined. According to the and to buy new equipment and to be on their art collectibles. They don't have lavish Center on Budget and Policy Priorities, the state of the art. But what we did when deductions for business expenses. They will Joint Tax Committee's distribution tables do we implemented AMT, and it was a ter- never make enough money to ever worry not reflect any of the benefits that taxpayers rible mistake, is we told companies we about estate taxes. They would love the op- would receive from these four provisions. are going to allow to have deprecia- portunity to pay a minimum alternative tax. The Democratic tax bill makes the benefits tion, ‘‘But, by the way, if you invest in The Republican tax bill abandons 60 per- in these four areas, especially for working your company, what we are going to do cent of all families, giving them a miserly 12 people, fair. It provides 71 percent of the tax is we are going to say that does not percent of the tax cuts. The Democratic tax breaks to families earning $100,000 or less. It count.’’ cut substitute looks out for my people and provides a capital gains tax cut, an estate tax So what we say to these companies their families. That is why the American peo- cut, and tax cuts for small businesses, family is, ‘‘We are going to penalize you, take ple favored the Democratic tax plan by more farms, and homeowners. The only way that away your depreciation, and force you than 2 to 1 when asked by the Wall Street you are eligible for these tax breaks is if you to pay money to the Government in Journal/NBC new poll. Support the Democratic work and pay taxes. taxes,’’ and companies are penalized for substitute. Mr. RANGEL. Mr. Chairman, the of- investing. That is a fascinating situa- Ms. KILPATRICK. Mr. Chairman, ficial count of Democratic and Repub- tion in which we put companies on a will the gentleman yield? lican votes, how many Republicans day-to-day basis in this Nation. As a Mr. BONIOR. I yield to the gentle- voted for the Clinton budget that cre- matter of fact, they are rewarded for woman from Michigan. ated the atmosphere so that we can not investing. Ms. KILPATRICK. Mr. Chairman, did even think about tax cuts? Every union member in this Nation I understand the gentleman to say that Mr. BONIOR. Mr. Chairman, let me should rise up in revolt when leaders in over 1.3 million children in Michigan see here. I have my old 1993 count here, this country say we should have a pen- will not be able to take advantage of and there was not one Republican who alty on depreciation. It keeps them this child credit? voted for the 1993 budget that got us from having more productivity. It pre- Mr. BONIOR. Mr. Chairman, the gen- down from $300 billion. vents them from losing jobs overseas. tlewoman is absolutely correct. Mr. RANGEL. Mr. Chairman, we real- It prevents their salaries from raising. Ms. KILPATRICK. Mr. Chairman, did ly cannot cut taxes when we have a It is the most ridiculous, asinine piece I further understand the gentleman to deficit, can we? of any tax legislation I have ever seen. say that only 1 percent of Americans, Mr. BONIOR. Mr. Chairman, the gen- It needs to be changed. And the gen- the wealthy Americans, will be able to tleman is right. tleman from Texas [Mr. ARCHER], the June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4677 chairman, in this bill has changed it. It for working families, will be passed by ers of 41 million American children will will mean more jobs in this country the House as well and deserves biparti- be able to keep more of their money. than anything else in this bill. san support. I think it is important to The child tax credit is money that des- Mr. RANGEL. Mr. Chairman, I yield note that this is the first real tax relief perately is needed to make ends meet. myself 30 seconds to tell the gentleman bill for working families in Illinois, in The child tax credit is money that can from Mississippi [Mr. PARKER] that the land of Lincoln, in 16 years. be used to pay for school, for clothes, Democrats apologize to him that the I also feel it is very important to for groceries, or for those often unex- corporations, because we are asking note who receives the vast majority of pected expenses that come with raising them to pay some minimum tax and this tax relief. Now the Joint Commit- children. they wipe that out, but the reason we tee on Taxation, which is a bipartisan Women and their families will also do it is because two-thirds of the chil- committee made up of Democrats and get a lot of help in sending their chil- dren in Mississippi will not get the Republicans, it is respected and trusted dren to college. The cost of higher edu- child credit under the Republican bill, by both sides and it is nonpolitical, cation these days is overwhelming. I and that is over a half million children. they have honest numbers. If you look just had two kids in college. I know. That is why we cannot be that gener- at the chart that they provided when Finally, women are provided addi- ous in excluding corporations from analyzing this tax bill, they note that tional options through our bill to save paying taxes. over three-fourths of the tax relief for their retirement through expanded Mr. ARCHER. Mr. Chairman, I yield which is provided in this tax bill that IRA’s that they can get involved. The myself 11⁄2 minutes simply to respond we are going to be voting on today goes fact is that women live longer than to some of the information that has to families with incomes between men, yet we also often have less sav- been misrepresented to this House. $20,000 and $75,000, a group of people ings. We should not force women these The gentleman from Michigan [Mr. that most of us would call working days into choosing whether to buy BONIOR] said, and it is a broken record, middle-class families. Seventy-five per- shoes for their 8-year-old daughter he has used it for so many years, it cent of the tax relief goes to families today or being able to put money aside does not matter what the tax bill is be- with incomes of between $20,000 and for their own retirement later. fore the Congress, it is always the rich $75,000. Let me talk about the workplace. get richer and all of these breaks go to Let me point this out again. In this Today women are starting businesses the rich. bill, 75 percent, actually 76 percent of at twice the rate of men. Our lower It is unfortunate we have to deal the tax relief goes to families with in- capital gains tax leaves more vital cap- with this economic class warfare rhet- comes between $20,000 and $75,000. That ital in the hands of women-owned busi- oric over and over again. Frankly, I am is real tax relief for people in my home nesses, in the hands of women inves- offended by it at a time when this tors and women entrepreneurs. President and all of us should be pull- State, the working families that I rep- Why is this so important to women? ing all Americans together instead of resent. In fact, a family in Illinois with The reason is that in a very late sur- dividing them. But the Joint Commit- a median income of $44,000 will see tax vey, 1995, it was discovered that 84 per- tee evaluation of this bill, and bear in relief of over $10,000 over the lifetime cent of women-owned businesses used mind they are the official estimator, of this bill, $3,000 more than the Presi- their personal savings to get their busi- bear in mind they are nonpartisan, dent proposed with his proposal earlier nesses started. We need to be able to they advise Democrats and Repub- this year. give them this choice. licans, House and Senate, shows that in Clearly, this is a better deal for those Here is another example. After death the top 1 percent of income category, who pay taxes and work hard back in of a spouse where a woman is left with they will pay more under this bill. Illinois. We include tax relief for fami- the family home as her only major Their effective rate will go up from 29.9 lies with children, $500-per-child tax asset, when she sells that home a re- to 30.5 percent. I do not know where credit. In the 11th District of Illinois duction in the estate tax, relief which these numbers come from that say the that I represent, 110,000 children will we offer her, is terribly significant to rich get richer. benefit, 33,000 more than the President The article in the New York Times proposes. her. These are dollars that will make which said that there would be 1,000 Education incentives help send kids her life a little easier. It will help her taxpayers who would get some kind of to college, capital gains tax deductions make ends meet a little bit better dur- relief is a proposal made by the admin- create jobs, individual retirement ac- ing a tough time. istration for simplification of the Tax counts encourage savings, death tax re- The American dream is for everyone, Code. We put it in the bill because it lief helps small business and agri- I say to my colleagues, including was sent to us by the administration culture pass on someone’s fruit of their women. It is a little bit better place for asking us to simplify the code. If they labors to the next generation, and wel- our kids if we did right, little bit better do not like it, we will take it out. But fare-to-work tax incentives. place for our loved ones. But the cur- it is ridiculous for this sort of an alle- This legislation deserves bipartisan rent death tax is so onerous that the gation to be made against a bill when support. Again, the bulk of the tax re- owner of a family farm or a family we are simply trying to simplify the lief, 75 percent, goes to families with business who dies and leaves a home or code. incomes between $20,000 and $75,000. business to his children, these kids So Americans should understand that Working and middle-class families are often have to sell their business or the rhetoric of class warfare, based on the beneficiaries of this tax bill, which their home simply to pay the debt of inaccurate figures in the first place, is deserves bipartisan support. inheritance taxes, and all of this at a not what this should be all about. Mr. ARCHER. Mr. Chairman, I yield 4 very, very tough time, sensitive time Mr. Chairman, I yield 21⁄2 minutes to minutes to the gentlewoman from in the lives of those family people. the gentleman from Illinois [Mr. Washington [Ms. DUNN], a respected Let me give you an example of a WELLER], a respected member of the member of the Committee on Ways and woman who lives in my district in Committee. Means. North Bend, WA. She lives on 50 acres (Mr. WELLER asked and was given Ms. DUNN. Mr. Chairman, for the of timber her parents bought when she permission to revise and extend his re- first time in 16 years, women across was a little girl of four. marks.) America are getting a tax cut. The When her folks died, they left her the Mr. WELLER. Mr. Chairman, I rise in truth is our tax bill helps women timber farm at a value of 155 percent in support of this very important piece of throughout their lives, at home and in estate taxation, so she had to log 20 legislation. I am so proud that this the workplace. The only people who acres of prime timber. That meant cut- House overwhelmingly passed with bi- think that tax relief in this bill is not ting trees that were 60 years old. partisan support yesterday legislation good for women are those who do not Helen did not want to cut those ma- to implement a bipartisan balanced believe we women can manage our own ture trees, but she had to to get the budget agreement. money. That kind of thinking is passe. money. She was paid $565,000 for the Today a key part of the balanced What does this tax relief package timber. Immediately she paid 21 per- budget agreement, which is lower taxes really do for us? First of all, the moth- cent to the forester, and then she paid H4678 CONGRESSIONAL RECORD — HOUSE June 26, 1997 Federal estate taxes, State taxes, and from Nebraska. In Nebraska almost jority, they had a contract for Amer- her lawyers. Not a penny was left, and half the children there will not get the ica, and they had the earned income neither was the beautiful timber that child credit under the Republican bill tax credit in, and yes, they did it the had been enjoyed in that neighborhood on the floor today. right way. You could play off your by folks who hiked through it and by Mr. Chairman, I was on the way to earned income tax credit against pay- animals that lived there. speak here just a little while ago. I had roll tax or your income tax and every- Finally, Mr. Chairman, this bill helps my statement in my hand. I was going thing was OK. But now we have got provide women the flexibility to start to talk as I have talked for years, 10 this bill before us today. We have got a home-based businesses while at the years I have been on the Committee on child credit, a good child credit, except same time staying home to take care Ways and Means, about the earned in- I look down and I see the child credit is of their children. No longer will women come tax credit. Then I said, why played off against the earned income be forced to go to a job and leave their should I talk about that today? Every- tax credit. That means if you have the kids at home in order to pay the fami- body is talking about it. And I should earned income tax credit and you put ly’s tax bill. I urge my colleagues to be happy but I am not because of the that against your Federal income tax support this woman-friendly tax relief way the earned income tax credit is and then you do not have any more bill. being used in relation to the child cred- credit to go against your payroll tax. Mr. ARCHER. Mr. Chairman, I yield 2 it. And so I thought I would give the What that means, Mr. Chairman, is minutes to the gentleman from Ne- genesis of the earned income tax cred- the Republican plan would provide a braska [Mr. CHRISTENSEN], another re- it. $500 child credit for 39 million people, a spected member of the Committee on I got involved in 1986 in tax reform lot, but the Democratic plan before us, Ways and Means. and began to look at this legislation 60 million children get it. Please, I Mr. CHRISTENSEN. Mr. Chairman, and put forth some proposals in that have worked on this a long time. Let this bill is perhaps the best piece of statute. I looked up the history, and it us do it the right way again. small business legislation to come became law, the earned income tax Mr. ARCHER. Mr. Chairman, I yield down the pike in over 40 years. Think credit, in 1975. The Senator from Lou- myself 15 seconds to respond to the about it: Capital gains reductions, isiana, Senator Long, who was head of gentlewoman. Obviously she has not death tax reforms, helping the inde- the Finance Committee, our tax coun- noted the changes in this bill that were pendent contractor, the small business terpart in the Senate, understood accomplished by the rule that was owner. The No. 1 piece of legislation, something. He understood that because passed, because under the rule, any according to small business. Last year of the payroll tax and inflation and the taxpayer with adjusted gross income of the White House Conference on Small way we did our taxes in this country, under $60,000 will not lose the depend- Business said it was their No. 1 issue. for some people who worked hard, it ent care credit under the bill now be- Sixteen hundred delegates from all was not worth working when you took fore the House. across the country, they came and out the payroll tax. He introduced the Mr. Chairman, I yield 3 minutes to thought about it and talked about it, earned income tax credit so those peo- the gentleman from Georgia [Mr. COL- and then took a number of sampling ple could keep the fruit of their labor. LINS], a respected member of the Com- policies, talked with their members That tax was little then, but it grew. mittee on Ways and Means. and said the No. 1 issue for small busi- In 1986 when I got involved, it was Mr. COLLINS. Mr. Chairman, I thank ness in this country was reforming the bigger. But it was complicated to apply the gentleman for yielding me this independent contractor legislation, for it and a lot of people did not. In time. getting simplifications so that the IRS 1990, President Bush was President. He Mr. Chairman, a lot of comments could help decide who is and who is not was looking at his budget. He had a have been made here today by different an independent contractor, who is and chief of staff named John Sununu. He Members in reference to the President who is not an employee, bringing some latched on to a piece of legislation I and his willingness to reach out and clarification to this needed area. had introduced, the Kennelly bill, the Members of this side of the aisle and their willingness to reach back and b about the earned income tax credit, 1315 and he put it in President Bush’s budg- also to reach out with ideas. I want to For 26 years the gentleman from et. I was so delighted. But then it went relate a conversation, a personal con- Texas [Mr. ARCHER] has been here over to the Senate side and Senator versation that I had with President fighting for capital gains, fighting for Bentsen got involved and he took a Bill Clinton in April of 1995, standing small business owners. This is a his- piece of it, he had it, for a good reason, in the little White House in Warm toric day, that the Democrat, the mi- for health insurance for children. Then Springs, GA, the Georgia home of nority side, is talking about tax cuts, there was another piece taken, I be- F.D.R., F.D.R., who was considered the that they are talking about we want lieve John Sununu did it, for the Presi- working man and the little man’s tax cuts, too, we just do not want quite dent, he put it in and that was a tiny friend. As we were departing that day, as much, that it has gone so far, that tot credit. If you stayed home with I looked at the President, and I said, this debate has come this far. The your child, with your baby under 1, you ‘‘You know, sir, we have to look after American people owe the gentleman got some of this earned income tax the little man because the big man can from Texas [Mr. ARCHER] a debt of credit. Lo and behold, it got so com- take care of himself. But every now gratitude for the fact that he has been plicated, it had more money and people and then you have to give just a little here, he has been fighting in the vine- were not using it. something to the big man so he’ll help yards, he has been a lonely voice for a But then in 1993, something hap- the little guy.’’ very long time, but now the President pened. Our President, Mr. Clinton, un- And the President was nodding in is on his side. We are going to pick up derstood the earned income tax credit agreement. And I said, ‘‘Mr. President, 40, 50, maybe 100 Democrats on this like Senator Long did. So what he did that’s our tax bill, the tax bill of the vote. The small business community was infuse a very large amount of 104th Congress.’’ Little known to each thanks him, the American people money into it, $23 billion. He under- of us that day, we would not be back thank him. This is a great tax package stood you could not have it com- with that tax bill but one time, just for small business America. plicated because people would not one opportunity to pass and accept it. Mr. RANGEL. Mr. Chairman, I yield apply for it. So there we were with the But we are back again in the 105th Con- 31⁄2 minutes to the gentlewoman from earned income tax credit finally work- gress. We are back with a lot of the Connecticut [Mrs. KENNELLY], a senior ing. You used it against Federal in- good ideas that he says, ‘‘Yes, there are member of the Committee on Ways and come tax, payroll tax, or the other in- a lot of good things in this tax bill that Means. come tax. Your income tax. I thought we will eventually agree on.’’ But there Mrs. KENNELLY of Connecticut. I that I could relax, and I was very is the old saying, ‘‘Opportunity only thank the gentleman from New York pleased. Then lo and behold we came to knocks once, temptation will beat the [Mr. RANGEL] for yielding me this time. this year. door down.’’ Mr. Chairman, I would like to note But wait, I forgot one year. 1994. How We missed that opportunity in the that the gentleman who just spoke is could I forget 1994? We got a new ma- 104th Congress, but we are back with June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4679 those good ideas, not only our good while they incur expenses caring for bill and maybe we can in conference. In ideas but some ideas of the President’s, their crop and all the while inflation its present form, 58 percent of the chil- in the area of education, AMT relief ticks along. After a couple of decades, dren of Louisiana would not be eligible that the President has proposed, cap- if the trees are still standing, they are and that is 3 out of 5; two-thirds of the ital gains relief that the President has cut and sold. The capital gains tax re- kids in Mississippi will not receive it; proposed. This debate is good, it is real ductions in this bill will reward those 52 percent of the kids in Georgia will good. It is pointing out some dif- landowners who risk their capital to not receive it; 41 percent in the State ferences yet that we still have in this grow those trees, and because of the of Washington will not receive it; half bill. But we have an opportunity here potential for greater rewards, more of those in Illinois will not receive it. today to move this bill forward, pass it, landowners will decide to risk their Mr. Chairman, I yield 4 minutes to move it into conference, work on those capital to grow trees, which will in the gentleman from Wisconsin [Mr. additional ideas and differences that turn provide our forest products indus- KLECZKA]. we have. tries with a ready, affordable source of Mr. KLECZKA. Mr. Chairman, when Let us not miss this opportunity. Let raw material for their factories, which the gentleman from Texas [Mr. AR- us work on the good points and the in turn will provide good-paying jobs CHER] started out the debate, he indi- good parts that we have put in, that for a great many people in Louisiana cated that he is going to dedicate this the President has put in, and let us and across our country. tax bill to Debbie and Bill from Manas- work on those differences to improve But for those jobs to stay here in the sas. But what the Republicans are not this bill over the next 2 to 3 weeks, and United States, our factories must be telling Debbie and Bill and other Amer- let us give tax relief to the little man, competitive in the world marketplace. icans is about a provision in this bill the working people of this country, and For our industries to be competitive, which will have a devastating impact let us also give some assistance to they must continue to increase their on workers, men and women alike, and those who can help those working peo- productivity. To increase their produc- their benefits. ple by providing them jobs. tivity, they must continually invest in b 1330 A lot has been said about the AMT. new equipment for their operations. Business people understand that. They The alternative minimum tax makes it The provision I am about to talk to understand oftentimes under the AMT much more difficult for forest products is disguised in this legislation as tax provisions you can actually lose money companies to invest in plant and equip- bill clarification. What I am talking and still have a tax liability, and it ment when they need to. about is the independent contractor drives behavior of business that also This bill gives some relief from the language inserted by the Republicans deletes a lot of jobs. A lot has been perverse consequences of the AMT, on the committee, and let us use Bill mentioned about the type of equipment which will allow more timely invest- from Manassas as the example. that is purchased that comes under the ment by forest products industries, giv- Let us say Bill is a plumber. If this AMT. Most of those jobs are assembly ing them a better chance to compete provision passes into law, Bill could go line jobs, union jobs. worldwide while continuing to pay high to his company on Monday of next This is a good bill and by the time we wages and benefits to their employees. week, ABC Plumbing Company, and get through with it in 2 to 3 weeks, I The forest products industry and those the employer is going to say, ‘‘Under a know it is going to be a lot better. Let who work in it will benefit from the provision passed by the Republicans I us take advantage of opportunity and tax relief in this bill. That is helpful to don’t have to call you, and I don’t have let us move this piece of legislation an industry that is very important to to treat you as an employee anymore. forward. my State. But there are other indus- I’m going to call you and treat you as Mr. ARCHER. Mr. Chairman, I yield 3 tries, ones important to other States an independent person, an independent minutes to the gentleman from Louisi- around this country, which will also contractor.’’ Bill is going to say: ana [Mr. MCCRERY], another respected benefit. ‘‘Well, why?’’ member of the Committee on Ways and I urge my colleagues not to attempt He says, ‘‘Well, you have your edu- Means. to defeat this bill by demagoging it as cation for being a plumber, you have (Mr. MCCRERY asked and was given a tax cut to big, faceless corporations. your own tools, for the most part you permission to revise and extend his re- Corporations are not faceless. They are work off the employer’s premises; marks.) the faces of all those who work for that’s a definition of independent. So, Mr. MCCRERY. Mr. Chairman, my them and the faces of all those whose Bill, you’re not my employee anymore; colleagues have heard and will con- retirement funds are invested in them. we’re going to pay you by the job, and tinue to hear criticism from some tell- Let us quit trying to win political if you go to Christine Place to replace ing them that the Republicans have points by dividing Americans by in- a hot water heater on Monday or Tues- written a tax cut that benefits big cor- come. Let us work together to provide day, I’ll give you a hundred bucks, you porations. I am here to plead guilty, an economic climate that will create do the job, you keep the money.’’ sort of. I say ‘‘sort of’’ because there is jobs for everybody and make everybody But what happens to Bill and what much in this bill which directly bene- richer. happens to Debbie and their family and fits middle-class families, the $500 per Mr. RANGEL. Mr. Chairman, I yield their kids is that under this provision child tax credit, education assistance, 10 seconds to the gentlewoman from Bill has no retirement plan. For years and exclusions for capital gains on Connecticut [Mrs. KENNELLY]. he has been paying part of it, the em- home sales. In fact, most of the tax re- Mrs. KENNELLY of Connecticut. Mr. ployer has been paying part of it. lief in this bill goes to middle-income Chairman, I would like to respectfully ‘‘Being independent now, Bill, I, the families. But our tax cut will benefit say to the gentleman from Texas [Mr. employer, don’t have to offer you a re- corporations, and those who criticize ARCHER] that he misunderstood me. I tirement.’’ that just do not get it. They cannot see did thank him on the floor the other ‘‘Well, how about health insurance?’’ that benefiting those who create jobs day for the dependent credit under ‘‘It’s a split. I pay 20 percent, you pay ultimately benefits workers as well. $60,000. What I was talking about is a portion. I have family health cov- Let us look at just one industry in something else he could do in con- erage. Sorry, Debbie and Bill. As an my home State of Louisiana, forest ference and that is to fix those under independent, get your own. Take that products. Forestry in my State em- $30,000 who cannot get the child care hundred bucks I gave you to replace ploys some 8,000 in harvesting and credit. the water heater, get your own cov- transplanting trees and another 26,000 Mr. RANGEL. Mr. Chairman, I yield erage.’’ in forest products manufacturing jobs myself 15 seconds to point out that we Well, let us say Bill is injured seri- and some 113,000 Louisianans own wish we could afford the luxury of hav- ously on the job, loses an arm. Under forestland. Tree farmers in Louisiana ing corporations that make money not the current practice and under Bill’s plant seedlings, then they wait, 20, 25, to pay taxes, but again it is just not current condition, he gets workers 30 years. They endure the threats of fair because we would rather see compensation, which will take care of flood, fire and infestation. All the whether we can change the Republican him should something like that occur. H4680 CONGRESSIONAL RECORD — HOUSE June 26, 1997 ‘‘Under this provision, Bill, you’re be fixed under the code, and the White The enactment this year of tax relief independent. You don’t get workers’ House Conference on Small Business overshadows all other domestic prob- comp from us, get it yourself if you decided this. So it is not something lems in this Congress, for we cannot can.’’ that is just being unilaterally decided leave the cause of peace and freedom if And how about the slow period in the by Republicans. It was a joint decision we cease to set the pace here at home. fall? Bill is off for a couple of weeks. by also the administration with the Mr. Chairman, these are not my Right now the employer gives him un- White House Conference on Small Busi- words. These words were spoken three employment compensation, and it ness. decades ago in 1963 during the State of helps feed the family. Under this provi- With that, Mr. Chairman, I yield 2 the Union Address by our President at sion Bill does not get any workers’ minutes to the gentleman from Dallas, that time, John F. Kennedy. President compensation or unemployment com- TX, Mr. SAM JOHNSON. Kennedy made this statement as a man pensation. Mr. SAM JOHNSON of Texas. Mr. ahead of his time with a bold vision for Also, currently under the current sit- Chairman, as my colleagues know, this America’s future. He showed the cour- uation, Bill pays one-half of his Social tax relief bill gives part of America age to look past the skeptics, to look Security and Medicare hospital tax, back to Americans who pay too much past the pessimists and call Americans 7.65, the employer pays the other half. in taxes. There is not a Member here to action in defense of their freedom. Under this provision, ‘‘Bill, you pay who can deny that this bill provides re- Today we find ourselves at a similar the entire 15 percent. I, the employer, lief to families through the $500 per crossroads, on the edge of a new cen- pay nothing.’’ child tax credit. Gives entrepreneurs tury with new challenges to the free- That is what is in this bill. That is and companies the opportunity to cre- doms of Americans and their families. the beginning of the end for employee ate more job opportunities in America Bold action again is needed to benefits and protections as we know by lowering the capital gains tax rate unshackle the American spirit. The them today. than the alternative minimum tax, al- question is whether our President will And know full well I view this as the lows families to keep their farms or seek inspiration from his hero, John biggest gift to employers, and if I were small businesses by providing death Kennedy, and join us in restoring free- dedicating this bill to anyone, Bill and tax relief and gives more Americans a dom to overtaxed, overburdened and Debbie from Manassas, I would not way to send their kids to college and overwhelmed American families. dedicate it to them because they are buy a first home by expanding IRAs. Mr. Chairman, today’s vote is really going to lose, they are going to lose During this debate there are going to about that. It is about freedom, free- under this provision. I will dedicate it be two different arguments about what dom for Americans to save, to spend, to to the ABC Plumbing Companies of the tax cuts mean. By the time we finish, invest and to contribute to their own world and other people who are going I think our differences will be clear. To communities instead of handing an to treat their employees in this man- Democrats tax cuts mean less money ever increasing amount to our govern- ner. And know full well it is not only here in Washington for this Govern- ment, their hopes and dreams along plumbers that are covered. Under this ment to spend. To us Americans tax with it. provision it could be the airline pilots, cuts means people will keep more of Passing this bill today, Washington it could be teachers, it could be police the money that they work so hard to takes a small step in the right direc- officers, plumbers, electricians. earn. In America we ought not to dis- tion. This is a new way to do business. criminate on the basis of race or gen- Mr. RANGEL. Mr. Chairman, I yield This is a gift, a dangerous gift to em- der, and we also should not discrimi- 30 seconds to the gentleman from Wis- ployers who choose to treat their em- nate on the basis of income. consin [Mr. KLECZKA]. ployees this way. And I am saying, and We in Congress have a responsibility Mr. KLECZKA. Mr. Chairman, let me I have talked to the administration, to bring Americans together for every- respond to the gentleman from Ne- they will not sign this bill with that one’s benefit, not divide them with braska on the independent contractor, provision in it. class warfare rhetoric. Seventy-six per- the provision that employees lose their But I challenge the Republicans, if cent of the tax cuts in this bill go to benefits. they are going to dedicate this bill to people making under $75,000, and a hun- First of all, the White House con- working families, talk about this pro- dred percent of these tax cuts go to all ference did meet made up of small busi- vision, talk about how this is going to Americans, who are overtaxed. Neither ness people. As part of that group there harm them, how dangerous this is. And the President nor Democrats in Con- were no working men and women who I ask my colleagues to vote against gress should stand in the way of hard- could object to this provision, and the this bill if for no other reason than this working Americans getting a break question of whether or not it is vol- provision. from high taxes. untary. If someone’s employer calls I can put up with the harassment on As my colleagues know, Americans them on Monday and says, ‘‘Sign on union dues because unions happened to want, need, and deserve their tax relief the dotted line or you have no job, you help Democrats in the last election. So now. have no income,’’ they are going to it is a provision. Go and stick it to the Mr. CHRISTENSEN. Mr. Chairman, I sign. And that is exactly what hap- unions. But this one is the harmful yield 2 minutes to the gentleman from pened at Microsoft, where the employ- one. This is the one that forces me to Ohio [Mr. BOEHNER]. ees were forced to sign the statement vote against this legislation, and I ask Mr. BOEHNER. Mr. Chairman, Amer- that they are independent contractors. my colleagues on behalf of Debbie and ica has enjoyed many months of unin- So do not tell me this was voluntary; Bill and all other Americans to oppose terrupted economic recovery. But the this was forced, and any employee who this particular legislation. recovery is not enough. If we are to does not sign on the dotted line goes Mr. CHRISTENSEN. Mr. Chairman, I prevail in the long run, we must ex- home with no pay. yield myself 30 seconds to respond to pand the long won strength of our Mr. RANGEL. Mr. Chairman, I yield the gentleman from Wisconsin’s accu- economy. To achieve these greater myself 30 seconds. sations. gains, one step above all is essential, When the bottom line is there, we First of all, it is a mutual agreement. the enactment this year of a substan- will find that over half of the kids from There must be a signed agreement from tial reduction and revision in Federal working families in the State of Texas, the individual involved and also the income taxes. This will increase the in the State of Ohio will not benefit person that we are contracting with. purchasing power of American families under the Republican bill. There is an independence and an in- and businesses in every tax bracket Mr. Chairman, I yield 10 minutes to vestment component of this independ- with the greatest increase going to our the gentleman from California [Mr. ent contractor legislation, so it is not low income consumers. It will encour- MATSUI], a senior member of the Com- a unilateral decision by one person to age the initiative and risk taking on mittee on Ways and Means. make that decision. which our free system depends and re- Mr. MATSUI. Mr. Chairman, I thank Second of all, it is the No. 1 area in inforce the American principle of addi- the gentleman from New York, the small-business America that needs to tional reward for additional efforts. ranking member of the Committee on June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4681 Ways and Means, for yielding this time The gentleman points out in that This one, I think, falls short on that to me. chart very clearly the difference be- score. Mr. Chairman, we have been hearing tween the Democratic bill and the Re- I do not see how we, as stewards of from the Republicans capital gains tax publican bill. The Democrat bill has a this land in our time in public office cuts, estate tax cuts. They want to capital gains tax cut in it, but it is here, can think about leaving a coun- eliminate the alternative minimum tax mindful of how much we can afford in try to our children and grandchildren on corporations in America. They want its target. The Republicans not only that is as financially weak as this one to have back ended IRA’s. put in a differential rate for capital will surely be if all we do is a touch We must have amnesia in this room gains, but also indexing, and another and go in the year 2002, and then climb here today because just 24 hours ago we chart that the gentleman has there aboard the space shuttle and take back were saying how wonderful the agree- really points out the fact of how we are off on a rocket ship to oblivion and ment was with the President on bal- going to have exploding deficits if this debt. I am afraid that is exactly what ancing the Federal budget. And now all bill passes and is enacted the way that is going to happen in these outyears. of a sudden we are talking about these it has been presented. This bill was cleverly scored in the enormous tax cuts. It is convenient in the year 2002, the first 5 years. Some of us agree with the I added up all the tax cuts that the year that we have advertised that we prospect of estate tax relief and capital Republicans have been taking about. are going to have a balanced budget, gains tax relief because we think that Over a 10-year period these tax cuts that the capital gains tax actually pro- tax relief, if we are going to have a tax come to $600 billion or about $60 billion duces more revenue for the Treasury, bill now, makes sense from a stand- a year. That is why the President in and why? Because in that year the Re- point of economic activity and the budget agreement said over 10 publican bill allows people to sell and generational transfer of property. But years it can be no more than a net of buy back their assets to get a lower these outyears, this is something that $250 billion, less than half of the total capital gains rate and then to be able the American people really ought to tax cuts as they add up. worry about, because it is going to af- We thought the Republicans were to take advantage of indexing. They get it twice. fect every family. going to be moderate, that they were There are a lot of statistics being To make matters worse, the indexing going to try to compromise, they were bantered about; people read them dif- requires a 3-year holding period so the going to pick and choose and prioritize ferent ways. This affects us all, no revenue losses will not be felt until we what tax cuts they wanted to give the matter who we are. American public. What they did in- are well past the budget window. Mr. MATSUI. Mr. Chairman, reclaim- stead was committed a little duplicity. b 1345 ing my time, I thank the gentleman What they did was they phased these We want to make sure that we do the from Tennessee. The gentleman indi- tax cuts in. They phased them in over right thing as far as the deficit of this cates that this is really going to affect a 10-, 12-, 15-year period. country is concerned, that we actually our children and grandchildren. For example, the capital gains tax have a balanced budget. We have all Mr. LEVIN. Mr. Chairman, will the cut does not come into effect until the been arguing in this budget that we gentleman yield? Mr. MATSUI. I yield to the gen- year 2001, and as a result of that what want to balance the Federal budget and we are going to see is, yes, the net tax tleman from Michigan. keep it balanced. We should learn from cuts for the first 10 years will be $250 Mr. LEVIN. Mr. Chairman, if the gen- history in 1981. This is just one of billion. Revenue loss of $250 billion. tleman from California [Mr. MATSUI] But then if we look at this chart, we about five or six provisions in the Re- would trade places with me for a mo- will find that in the year 2007, 2007 publican bill that advertises very little ment, I want the American public to alone, it will be $41 billion just in that revenue loss in the first 5 years, but see these two charts. This is based on 1 year alone. Then by the year 2017 it they explode in the outyears and we material from the Treasury Depart- will be $90 billion of revenue loss in will have huge deficits. ment. The Democratic tax cut plan, 71 that 1 year alone. It will make the defi- The point that my colleague is mak- percent of Democratic tax cuts go to cits we had over the last 15 years look ing, the chart that he is showing, I low- and middle-income families. Two- like chicken feed compared to the defi- hope that the American people will un- thirds of the Republican tax cuts go to cits that will occur when the children derstand that if we vote for this tax the wealthy based on Treasury mate- and the grandchildren are becoming bill that is on the floor today, we are rial. the age when they want to buy a home voting for large deficits in the future. Here is the 10-year analysis by the or employment. Mr. TANNER. Mr. Chairman, will the Republicans of their plan. It is right We are a great competitive Nation. gentleman yield? here. This is it. There is nothing. There We had growth over the last 6 years. Mr. MATSUI. I yield to the gen- is nothing. The Joint Tax Committee We have been the strongest economy in tleman from Tennessee. will not supply a 10-year distribution the world. And the Republicans, if this Mr. TANNER. Mr. Chairman, I want analysis. I will tell my colleagues why. bill passes and becomes law, will drag to follow up, if I could. I come from the First of all, it puts to a lie, to a false- this economy down so that we will be a wing of the Democratic Party here in hood the notion that my colleagues banana republic. We cannot afford this the Congress that thinks that it is im- have said 76-percent of the tax relief tax bill, which is going to explode the portant that we get our Nation’s books goes to people making below $75,000. deficit, and the American public has to in balance. As a matter of fact, a group Those are 5-year figures. The other know that. called The Coalition had a budget pro- chart, about 90 percent goes to families Mr. CARDIN. Mr. Chairman, will the posal that had entitlement reform and and education has 10 years on it, but gentleman yield? no tax cuts in the belief that more peo- not the 76 percent figure. It is based on Mr. MATSUI. I yield to the gen- ple in this country would benefit if we 5 years because most of the tax cuts, tleman from Maryland. could get our Nation’s books in order the second 5 years, go to wealthy fami- Mr. CARDIN. Mr. Chairman, the gen- and get the Government out of the lies, and my Republican colleagues are tleman is right. Yesterday we were credit market as fast as possible, bor- trying to hide it. talking about trying to balance the rowing the least amount possible, as Second, those second 5-year tax cuts Federal budget and keep it balanced. soon as possible. We did not prevail on explode the deficit, and my Republican We should learn from what happened in that. colleagues do not want to admit it. 1981 when we created the climate for So there was an agreement reached They do not want to admit what the ef- exploding deficits. This bill should be between the President and the leader- fect is. That is it purely and simply. known, since we are going on the ship of the Congress that we would We have begged our Republican col- Fourth of July break at the end of have a tax bill now. leagues, come forth with a 10-year dis- today, as the Fireworks Tax Act of Well, we, in an effort to try to be tribution analysis, and they will not do 1997. We are going to have exploding constructive in the process, think that it. deficits if this bill is passed in a way any tax bill ought to be responsible My Republican colleagues challenge that it has been presented. from the standpoint of the outyears. the Treasury figures, but they are the H4682 CONGRESSIONAL RECORD — HOUSE June 26, 1997 same methodology used by Reagan and politics and partisanship; politics of di- Our plan includes education and per- Bush Treasury Departments, and they vision; politics of confusion; politics of child tax credits to make it a little come up and nitpick about imputing fear. I think it is wrong; I think it is easier for families to raise their kids. this or imputing that. The fact of the bad. I think our country is overregu- Mr. Chairman, for the American tax- matter remains that the analysis by lated, overtaxed. payers, the Fourth of July comes early Treasury is this: 71 percent of the Mr. Chairman, my dad was a lifelong this year, and for once, it is not the Democratic plan goes to low-income Democrat, I say to my colleagues, and taxpayers who are getting barbecued. families, and here it is. Your plan: my dad never worked for a poor guy. I Mr. ARCHER. Mr. Chairman, I yield 1 Treasury Department analysis, two- want to today as a Democrat thank minute to the gentleman from Califor- thirds of the Republicans’ plan go to every man and woman in America, nia [Mr. DREIER]. the wealthy. every entrepreneur that made an in- (Mr. DREIER asked and was given If my Republican colleagues do not vestment, that thought enough of my permission to revise and extend his re- like the Treasury Department figures, dad and our family to give us a job. marks.) come up with something better than They hired my dad. I want to thank Mr. DREIER. Mr. Chairman, this cap- this. The American public will never them for that. ital gains issue is one that I believe is believe my Republican colleagues’ I would also like to say that it is very important, and it is unfortunate blank slate. They explode the deficit very simple today, I say to my col- that we see this class warfare thing and they benefit the very wealthy to leagues. Our Tax Code penalizes going on over and over and over again. the detriment of middle-income fami- achievement, it promotes dependence, When we testified on H.R. 14, the cap- lies. it kills investment, it ships jobs over- ital gains reduction package to take it We can do much better than this, and seas, it discourages savings. It has de- from 28 to 14 percent before the Com- we are going to do that in conference. stroyed families, it has destroyed the mittee on Ways and Means, we had the Americans need a fair tax cut. families in many cases that the Demo- gentleman from Florida [Mr. DEUTSCH] Mr. ARCHER. Mr. Chairman, I yield crats stand for. I hope we come to real- join us. He has stood in this well time myself 30 seconds simply to respond ize that. and time again, talking about the fact and say to the gentleman that it is not The bottom line: This bill is better that 63 million American families own just minuscule as to the Treasury im- than the current law. I am a Democrat, mutual funds today. puting rental value as income to some- and I want tax cuts. There are a lot of It seems to me that we should look one that owns their own home and Democrats in America that want tax at the fact that 85 percent of the re- lives in it and it makes them wealthy. cuts. I am going to vote for it, and I am turns that are filed are among people The joint committee, while it was still going to ask the chairman to give us who have less than $100,000 a year in in- being run by the Democrat Congress, fairness on the independent contractor come. That is very apparent; it cannot dropped that from their analysis be- issue and on that teacher retirement be forgotten, and class warfare is un- cause they knew it was wrong. The issue. fortunate. The late Paul Tsongas was Treasury is still using it. Yes, it was But there is one last thing. I think right when he said, the problem with used under Bush, and yes, it was used this Tax Code must be incentivized to my Democratic Party is that they love under Reagan. It was wrong, and it is recycle the money of the risk-taking employees, but they hate employers. wrong today. The American people un- entrepreneurs throughout America. We Mr. ARCHER. Mr. Chairman, I yield 1 derstand that. should not demean them, we should not minute to the gentleman from Ala- Mr. Chairman, I yield 3 minutes to punish them with our talk, and we cer- bama [Mr. RILEY]. the gentleman from Ohio [Mr. TRAFI- tainly should not scare their money Mr. RILEY. Mr. Chairman, here we CANT]. overseas. There is too much of that. go again. The liberal crowd is abso- (Mr. TRAFICANT asked and was Quite frankly, anyone over there lutely dismayed that this tax bill given permission to revise and extend that can jump up and say, TRAFICANT, today does not contain tax relief for in- his remarks.) this vote hurts you politically; I think dividuals who do not work and do not Mr. TRAFICANT. Mr. Chairman, I it does. But I think this vote of mine pay taxes. The other side of the aisle am going to vote for the bill. There are will help America. That is the bottom just does not get it. tax cuts for working families, a $500- line. Mr. Chairman, we believe that in per-child tax credit, reduction in cap- Mr. ARCHER. Mr. Chairman, I yield 1 order to qualify for tax relief that one ital gains, and other elements I like. It minute to the gentleman from New ought to at least work and at least pay will encourage savings, investments, York [Mr. PAXON]. taxes. Seventy-six percent of the tax and jobs. Mr. PAXON. Mr. Chairman, I find it relief included in this legislation will There are elements of the bill I do appropriate that as the Nation pre- benefit working families who earn less not support, such as independent con- pares to celebrate Independence Day, than $75,000 a year. tractor matters and teacher retirement this House is cutting taxes for our So let us stop the rhetoric and the situations, but I am convinced they hard-working families back home. For scare tactics and talk about the truth. can be removed in conference and too long liberals have treated the mid- The truth is the big spenders on the should not stop this bill. dle class as their personal ATM ma- other side of the aisle will now have But as far as this alternative mini- chine, a cash cow to pay for their big less money to squander on wasteful mum tax, very simple. This AMT government schemes. They taxed your Government spending. The American eliminates depreciation benefits; thus, income, they taxed your gas, your taxpayer works until May 9 to earn it discourages investment; thus, it kills cable, your electricity, your house, and enough income to pay an entire year’s jobs. In 1995 President Clinton agreed they even taxed you when you died. worth of taxes. And the cost of Govern- with the gentleman from Texas [Mr. Liberals have come up with all kinds ment regulations, the average Ameri- ARCHER], and I believe he was on target of clever new taxes, never giving a can’s debt to the government will not then and should support the chairman thought for a second to the people that be satisfied until July 3. That is right. now. have to pay those taxes, people like the Americans this year will spend more In addition, when companies consider truck driver who cannot afford to send than 6 months working for the govern- opening a new plant in America, they his daughter to college, or the nurse ment. shudder and open a plant overseas. In and police officer who cannot give Let us stop this insanity and vote for addition, companies must often decide their twin sons some new school H.R. 2014. under this law whether they are going clothes. b to pay workers’ wages or taxes. Well, today, for those folks and mil- 1400 This is a nonissue. lions more, we declare independence Mr. RANGEL. Mr. Chairman, I yield But I want to talk about the political from big government and high taxes. In myself 10 seconds to respond that there spin here. Unfortunately, to win the fact, 76 percent of our tax cuts go to is nobody on this side that is saying spin we have all played to class war- those families who earn less than that, if you do not work, you should fare: rich, poor; workers, companies; $75,000 a year. get the child credit. Let us not talk June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4683 about class war. The only class of peo- the future of our children and our Mr. LEWIS of Georgia. I yield to the ple that we are talking about benefit- grandchildren. A future that would gentleman from North Carolina. ing and the President wants benefited allow them to compete and succeed in Mr. HEFNER. Mr. Chairman, they by this legislation are hard-working a 21st century global economy. say what goes around comes around. In Americans. If you do not work, you do Mr. Chairman, I want to thank you 1981 we heard the same arguments. We not get it. so much for offering us to shape that passed a package that was unfair in Mr. Chairman, I yield 2 minutes to economy. An economy that will allow 1981, and we have a package today that the gentleman from Oregon [Mr. us to be more competitive. I did not repeats it. It is not fair. BLUMENAUER]. want my children or the children or If the people want to complain about Mr. BLUMENAUER. Mr. Chairman, I grandchildren in this country to end up us engaging in warfare and passing a personally am disappointed and sad- having a Shanghai address. The great tax package that benefits the wealthy, dened with the turn of this debate on a economic competition of Southeast quit offering the packages that do not tax cut proposal. In the rush to pass Asia and China will place us in the sit- help the working people. But if Mem- the Republican tax program, we are uation where many of our children will bers want another package like they leaving behind the vast majority of have to be looking overseas for jobs if had in 1981, this is their baby. Americans. It shortchanges working we do not reduce taxation, reduce tax- Mr. LEWIS of Georgia. Mr. Chair- families, some of whom will end up ation and reduce litigation. man, it is time to be frank and honest paying more to concentrate the relief Mr. Chairman, this particular bill al- about this tax bill. Republicans used to the top 1 percent, who have already lows us to have a better economy for budget gimmicks, smoke and mirrors, received the bulk of Congress’ generos- the 21st century. Yes, it helps the chil- to hide the true effect of their plan. ity over the last 20 years. Instead, we dren of middle class America by having Why? Because the American people should be concentrating on provisions a child tax credit, also an education know the Republicans are looking out that would give all working families tax credit, but the capital gains tax re- for Wall Street and wealthy Republican more equitable treatment. ductions and relief on the alternative supporters. The most burdensome tax for work- minimum tax will allow us to maintain This debate is not about whether to ing families is the Social Security pay- and sustain economic growth. That is a have a tax cut. Democrats support a roll tax, which takes a bite out of ev- key economic variable. That is the tax cut. This debate is about who will eryone, but falls most heavily on those card that my friends on the other side get the tax cut, Wall Street or Main who make lower incomes and on small of the aisle keep overlooking. Street. Democrats support a child tax business people. The simple remedy of If we sustain this kind of economic credit for all working families. We sup- a credit against the Social Security tax growth, Mr. Chairman, we will be able port a HOPE scholarship to help our would help those who need it most, to look at having another tax cut next children, all of our children, go to col- still give the richest Americans a re- year, and reducing our deficit a great lege. We support allowing middle class duction, as well as, most important, deal more to personally reach a bal- American families to sell their homes create jobs, because employing Ameri- anced budget a lot quicker than the without paying taxes. cans would be more economically ad- year 2002. But this is not what the Republicans vantageous. The budget we passed yesterday was want. The Republicans deny more than Another adjustment that would be based on an economic growth of 2.1 per- 10 million working parents a child tax simple, low cost, and make a huge dif- cent, very conservative numbers. Our credit, parents who pay billions of dol- ference would be exempting the profit growth is presently at 5.5 percent plus. lars in Federal taxes. Republicans cut from the sale of residential property If we could sustain and maintain that in half President Clinton’s HOPE schol- from capital gains. This is the capital growth, yes we will have the kind of arship for millions of middle class stu- gains cut that would reach most Amer- economic growth where we can give a dents. Why? So they can give a huge icans. It would cost the Treasury al- tax cut again next year, and where we tax break to the rich. most nothing, because most people do will be able to balance the budget a lot Republicans may tell us a different not pay that tax now. They simply hold quicker. What a gift to give the Amer- story, but do not be fooled. The Repub- onto their property or roll it over to ican families. lican tax bill is not the Good Samari- buy more expensive property. Nobody Let me say, Mr. Chairman, this is not tan on the Jericho road. Do not be mis- pays it but the dumb, the distressed, only an immediate help to American led. What do the Republicans give a and the divorced. families, but the key element of a his- family of four making $24,000 a year? This would enable families to make toric budget that will allow us to have Nothing. What do Republicans give the wiser decisions about homes that best the economic growth for the future. We mother who has left welfare to work at serve their family circumstances, not must shape and craft an economy with a minimum wage job? Nothing. the Tax Code, while it reverses a per- less taxes, less regulations, and less Yesterday Republicans raised the verse tax incentive that promotes litigation, so we can compete in the Medicare premium on the elderly. urban sprawl. Sadly, we are missing most competitive global economy that Today the Republicans will give the el- this opportunity to make America has existed in the history of our coun- derly middle class nothing. What do competitive and to help working fami- try. This is truly a victory for the the Republicans give millions of work- lies, while we read of the special inter- American families. ing families? Nothing, nothing, noth- est provisions that are stuffed into this Mr. RANGEL. Mr. Chairman, I yield ing. bill. How quickly the Republican Com- myself 15 seconds. Empty Republican promises will not mittee on Ways and Means have forgot- Mr. Chairman, I would just point out help hard-working families live the ten all the talk last year about tax that we want all of the kids of working American dream. Republicans give a simplification and fairness. families to receive this benefit. Over $22 billion tax break to America’s larg- Mr. ARCHER. Mr. Chairman, I yield 2 half of the kids in Oklahoma will not est corporations. They give 20 percent minutes to the gentleman from Okla- receive it under the Republican plan. of that tax break to people with an av- homa [Mr. WATKINS], another respected Over half of the kids in Alabama will erage income of half a million dollars. member of the Committee on Ways and not receive it. Fifty-six percent of the At the same time, the Republicans Means. kids in New York will not receive it. raise taxes on people earning less than (Mr. WATKINS asked and was given Almost half of the kids in Ohio will not $10,000 a year. permission to revise and extend his re- receive it. Republicans will steal from the poor marks.) Mr. Chairman, I yield 4 minutes to and give to the rich. When fully phased Mr. WATKINS. Mr. Chairman, I the distinguished gentleman from in, Republicans give 60 percent of their thank the gentleman for yielding time Georgia [Mr. LEWIS], a civil rights lead- tax cut to the wealthiest 10 percent of to me. er, a member of the Democratic leader- Americans. That does not leave much Mr. Chairman, I returned to Congress ship. for America’s middle class. because I wanted my time to be effec- Mr. HEFNER. Mr. Chairman, will the I would say to the gentleman from tive. I wanted a balanced budget for gentleman yield? New York [Mr. RANGEL], Mr. Chairman, H4684 CONGRESSIONAL RECORD — HOUSE June 26, 1997 I was not here for voodoo economics. I Senate, and the Senate works off of 10 it, the tax credit for people who have did not vote for trickle-down econom- years, we are now looking at both, over kids, this is a huge part of this bill, a ics that did not trickle down. We must 10 years with this tax relief the budget huge part, and this does not go to the not make the mistakes of the past. We is still balanced at the end of 10 years. very wealthy, as I would define very must not travel down that road again. Mr. RANGEL. Mr. Chairman, I yield wealthy. It goes to middle-income We must not let the Republicans hide a myself 1 minute and 10 seconds. America. huge tax cut for the rich behind empty Mr. Chairman, it is just how we are I think when you look at the bill and promises for the middle class. designating these working people who you try to put it on balance, there are Mr. Speaker, let us give a real tax are working every day, who will not re- some Members in this House who just cut to hard-working American fami- ceive the benefit, that is almost half of cannot stand the idea of giving the lies. I urge all of my colleagues to re- the families. We keep saying they do American people some tax relief. It has ject, to vote against, this Republican not pay taxes. been 16 years. Republicans tried to do tax scheme for the rich and support the Mr. ARCHER. Mr. Chairman, will the it last year. We were in the last Con- Democrat middle class tax cut for all gentleman yield? gress, it was vetoed. We have now come Americans. Mr. RANGEL. I yield to the gen- together working with the administra- Mr. ARCHER. Mr. Chairman, I yield tleman from Texas. tion in trying to give America a very myself 21⁄2 minutes. Mr. ARCHER. Mr. Chairman, they do much-needed tax bill and give them the Mr. Chairman, I would simply say not pay income taxes, I would say to first tax cut in the last 16 years. That that my friend, the gentleman from my friend, the gentleman from New is what we need to talk about. Georgia [Mr. LEWIS], makes a very ex- York. All the rhetoric and all the voice cellent and emotional presentation. Mr. RANGEL. Mr. Chairman, they raising and all the yelling and scream- And he is right in some regards; he is cannot do this to the working people. ing in the well of the House or at any right, we do not give income tax relief It is just not fair to do it. If they are of the microphones around the House is to people who do not pay income taxes, going out and paying taxes for clothes, not going to change that. The figures absolutely right. Those people in the for food, they do not care whether it is do not lie. That is where the bulk of middle-income category who pay in- the city tax, the State tax, the Federal the tax break is going and that is come taxes, who bear the burden, who tax. These are working, proud people where it is going to be. have received nothing in the last 16 who do not want welfare. One thing that I think all of us need years, do get the majority of the relief The President said, the bipartisan to talk about and need to be concerned under this bill. committee said, if you are working and about, that is job creation. When we As for Wall Street and Main Street, I you have kids, we want to help you. encourage corporate America, encour- do not know how Wall Street benefits But now we are saying, we really did age small businesses, encourage the from the child credit. I do not know not mean you people who do not have American people to invest in jobs, ma- how Wall Street benefits from the edu- the Federal liability; we cannot help chinery and equipment, we become cation credit. But over a 10-year pe- you. more competitive. When we talk about riod, and if this is not true let it be re- Mr. ARCHER. The gentleman is abso- our jobs going overseas, we are trying futed on the other side, $250 billion is lutely right. If you pay in any income to bring them home. We want people the net tax relief. It is $225 billion over tax, you get relief under this bill. If that have invested in machinery and 10 years that goes to the child credit, you do not pay any income tax, you do equipment, that creates jobs. We want which cannot be given to anybody who not get relief. The gentleman is cor- them to be able to get the tax write- has over $100,000 in income, and to the rect. offs that they deserve through the de- educational tax relief. How does that Mr. RANGEL. Taxes they can pay, preciation process. The depreciation help Wall Street? and if it is not Federal income taxes process is just simply being able to Mr. KASICH. Mr. Chairman, will the and they are working hard, they do not subtract from your income a small por- gentleman yield? count. tion every year of your investment so Mr. ARCHER. I yield to the gen- Mr. ARCHER. This is an income tax that at the end of the time, you just tleman from Ohio. relief bill. That is correct. Those peo- have not poured money down the drain. Mr. KASICH. Mr. Chairman, I also ple who pay income tax get income tax The same Members that are complain- want to say what confuses me is I was relief. ing about this are the same Members in this Congress for over a decade lis- Mr. Chairman, I yield 3 minutes to that complain about our jobs going tening to people talk about all these the gentleman from Florida [Mr. overseas. You cannot have it both big giveaways to the rich, powerful spe- SHAW], another respected member of ways. We need economic development, cial interests. Yet, the then-majority the Committee on Ways and Means, economic growth in this country. We did not have the guts to take any of and the chairman of the Subcommittee have had good economic growth but those special benefits away by closing on Human Resources. the jobs have not kept up. Wages have loopholes. Mr. SHAW. Mr. Chairman, I thank not kept up. It was finally when the gentleman the chairman for yielding me this This is what this bill is going to do. from Texas [Mr. BILL ARCHER] became time. Let us get away from the rhetoric. Let chairman of the Committee on Ways Mr. Chairman, I think people who are us stick with the facts and let us sup- and Means that we decided to deny spe- watching this debate have to be just port the bill. cial benefits to companies in Puerto totally confused at this time. I think Mr. ARCHER. Mr. Chairman, I yield 5 Rico that were not living up to the the gentleman from Texas [Mr. AR- minutes to the gentleman from Califor- spirit of the deal, to help people in CHER], the chairman, has made a point nia [Mr. THOMAS] another very re- Puerto Rico, and as the chairman of very, very clearly. If you do not pay in- spected member of the Committee on the Committee on Ways and Means come taxes, you do not get income tax Ways and Means, who is also chairman that has closed a whole lot of loopholes relief. Yet, when we hear the speeches of the Subcommittee on Health. and denied these loopholes to special going on in the well, as they are talk- (Mr. THOMAS asked and was given interest groups so people who are nor- ing about all these people are rich, I permission to revise and extend his re- mal, average working families can get am sorry, I do not think somebody who marks.) tax relief, we ought to be given credit makes $20,000 a year is rich. Those are Mr. THOMAS. Mr. Chairman, first of about that by everybody, on both sides the people, between $20,000 and $70,000, all I want to thank the chairman of the of the aisle. they are the ones who are getting the Committee on Ways and Means for Mr. ARCHER. Mr. Chairman, this has major part of the relief in this bill, up yielding me the time, but more impor- been distorted also, and I would further to 76 percent. tantly, for working cooperatively to add into the debate that over a 10-year produce a bill of which all of us can be b period, and normally the House works 1415 proud. only on 5 years, those are our rules, but That is the bulk of where this relief I have listened to this debate care- because this is a special deal with the is coming from. Look at the child cred- fully, and frankly there are two themes June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4685 that just baffle me. But that is okay. And son, Tom, feeling pretty proud for There are so many assumptions built You folks baffle me often. One of them a 16-year-old, works at a fast-food store into the Republican budget and tax bill is that you have come to the floor and to give himself some pocket change that it is important for them to keep you have presented a number of charts and help out around the house some- them separate. Yesterday, the budget. which explain by graph lines that if times. He feels very good about it. Then after a respectful overnight wait, you give more of the American people’s In real life, that family profile pro- we bring the tax breaks out here onto money back to them, that is, leave it duces no tax paid. As a matter of fact, the floor. Today they give the tax in their pocket, that somehow the Gov- they could earn another $10,000 under breaks to the people who do not need ernment is going to go into deficit. It current law and there would be no tax them. Do they give them to the people is a very simple and fundamental ques- paid. who they hurt yesterday? Well, they tion. What is the economic engine of Look what the Democrats can do to say, with bleeding palms yesterday on this economy? Where are jobs created? this family, using their economic in- the floor, look how much we would like We believe the economic engine is come profile. Do not look at the to help those uninsured children. We the individual, not the Government. It $70,000-a-year people. That is even have no money. Look how much it is quite clear when you make the argu- worse. Look at the Smith family. hurts us to cut the Medicare for the el- ment that if you leave money in the All of a sudden in their family in- derly. We have no money. And then pocket of citizens to invest, to grow, to come profile, Mr. Smith must count his after a respectful overnight wait, the create jobs, you are threatening the $5,000 of separation pay. Tom Smith’s tax break fairy shows up on the floor deficit of the Government. You are fast food money goes onto the ledger, on the Republican side, sprinkling tax wrong. What that does is grow the eco- $3,000, the $5,000 for workmen’s comp, breaks across America. And who do nomic pie. It means they are going to that is added to their income, and they give them to? Do they give them have a better life and there will be guess what, that modest home they to the families with uninsured chil- more revenue available to the Govern- live in that would after expenses rent dren? No. Do they give them to the el- ment. for $500 a month, requires that you slap derly on Medicare? No. They give them I know you do not believe that be- another $6,000 on their income. Under disproportionately, overwhelmingly to cause you do not believe in leaving the Democrats’ arguments about who those that come from families of more money in the pockets of the citi- is getting the benefits in this tax cut, $100,000 or more. zens. the Smiths would have made $20,000 Now, Mr. Chairman, these are the The other thing that I have marveled last year. And if you then take the cur- same Members who said that the about in terms of the presentation rent tax structure and impose it upon Democrats in 1993, when they voted to today is that there is one myth that what they say the Smith family reduce the deficit from $300 billion you absolutely have to perpetuate. I earned, under their economic income down to $50 billion today, were going to was pleased yesterday on the front test, these poor folks, the fellow on ruin the American economy. What do page of the Washington Post that the workmen’s comp who lost his job, they do? They bring out a proposal myth that there were aliens who vis- whose kid felt pretty good about work- here that increases the deficit next ited the Roswell, NM, area 51, I apolo- ing, winds up owing $772 in taxes. year and the year after and the year gize if some of you do not believe that That is what they do to reality to after and the year after and in the year it is a myth; if you believe it is reality, keep the myth alive that the Repub- 2001 magically it is going to balance it- then it just proves my point even more, licans have tax cuts for the rich. self. And how are they going to do it? but I think we are beginning to realize REAL LIFE Auction off spectrum. Auction off spec- that it is a myth. We have just re- Gross income for Mr. and Mrs. Smith, trum, like Rumpelstiltskin forcing the cently realized that spicy foods do not $5,000 (separation pay). young maiden to spin gold. cause ulcers. That is an old wives’ tale. Standard deduction, ($6,000). Mr. ARCHER. Mr. Chairman, will the That is a myth, it is Bacteria. Personal exemptions (for Mr. and Mrs. Smith and son Tom), ($7,950). gentleman yield? There is another other myth that is Taxable income, ($9,850). Mr. MARKEY. I yield to the gen- trying to be perpetuated on the floor of In real life, the Smiths owe no tax. tleman from Texas. the House today. And that is if Repub- Mr. ARCHER. Mr. Chairman, the licans put together a tax cut, it must DEMOCRATS’ FAMILY INCOME gentleman just said that the benefits be for the rich. It cannot be any other COMPENSATION in the child credit went to families way. They say aliens landed in Mr. Smith (separation pay), $5,000 (separa- over $100,000. I am sure he did not mean Roswell, spicy foods cause you ulcers, tion pay). to say that. Republicans’ tax packages are for the Mrs. Smith, none. Mr. MARKEY. Mr. Chairman, I abso- rich. Tom Smith (fast food res. salary), $3,000. lutely did. And it is an incontrovertible Let me give you an example of how Mr. Smith’s workman’s compensation, truth. That is how the tax benefit $5,000. far the Democrats have had to go to Increase in value of life insurance policy, breaks, if you look at it over the 10- maintain the myth that this tax pack- $1,000. year period, as we should have done age is for the rich. Imputed rental value of home, $6,000. with the Reagan tax break in 1981, Let us take a family that really has Total, $20,000. which ultimately turned out to be that not had a very good year this year. It Standard deduction, ($6,900). kind of pinata of goodies for the rich. is the Smith family. There are three of Personal exemptions (for all three family members), ($7,950). Mr. ARCHER. Mr. Chairman, I yield them, Mr. and Mrs. Smith and their Taxable income, $5,150. myself 15 seconds to say that the tax son, Tom, who is 16 years old. Mr. Taxable income, $5,150. benefits for families with children go Smith worked in a foundry but because If Democrats’ family income was law, almost totally to people under $100,000 a lot of the work they are doing is Smiths would owe $772.50 in taxes. in annual income. The gentleman being supplanted by imports, the job Mr. RANGEL. Mr. Chairman, I yield knows that. He did not mean to distort really has been threatened for some myself 10 seconds. it and say they all went to people over time. Mr. Smith was worried. He had The real myth is that this is a bipar- $100,000. an accident on the job and, as a matter tisan bill. The person who reached out Mr. Chairman, I yield 2 minutes and of fact, the foundry closed down. He is to make it bipartisan is the President 30 seconds to the gentleman from Ari- getting workmen’s comp because of his of the United States. He will evaluate zona [Mr. HAYWORTH], respected mem- accident and he did get some severance it and he will find out that it has to be ber of the Committee on Ways and pay from the company. They are fortu- vetoed. Means. nate, though, because over the years Mr. Chairman, I yield 2 minutes to Mr. HAYWORTH. Mr. Chairman, I they have been able to save their the gentleman from Massachusetts thank the chairman of the Committee money and they bought a modest [Mr. MARKEY], an outstanding Member on Ways and Means. I believe it was home. They are living in the home. He of this Congress. Art Linkletter in a joking vein who re- has an insurance policy that is slowly Mr. MARKEY. Mr. Chairman, first of minded us all that kids say the getting bigger, like most of you have. all, this budget is a house of cards. darndest things. I must tell you today, H4686 CONGRESSIONAL RECORD — HOUSE June 26, 1997 Mr. Chairman, that listening to the poor families who struggle every day to the benefit. That is what the President gentleman from Massachusetts, I am get by. wants. We are very disturbed that 1.8 reminded that liberals say the darndest The combined effect of their spending million, that is half the kids in Illinois, things. and tax bill also gives the wealthiest 20 will not get it. Let us say it as it really has been. percent of the U.S. population a whop- Mr. Chairman, I yield 3 minutes to The gentleman from Massachusetts ping 87 percent of the net benefits, the gentleman from South Carolina talks about a house of cards. Here is while the bottom 60 percent would [Mr. SPRATT], the Democratic leader of the problem, Mr. Chairman. It is that share only 4 percent of the net benefits. the Committee on the Budget, and pub- the liberals on this side have built a In fact, under the Republican tax licly thank him for the bipartisan ef- house on credit cards, going to the bill, the average savings for the 20.7 fort that he made on behalf of the American people time and time again percent of families with incomes be- President and the country. to take more money out of their pock- tween $30,000 and $50,000 would be a (Mr. Spratt asked and was given per- ets, and the gentleman from Massachu- measly $38. At the same time, the mission to revise and extend his re- setts speaks of a tax break fairy. No in- wealthiest 1.4 percent of households marks.) deed, Mr. Chairman, a tax break re- would get a tax break of over $21,000. Mr. SPRATT. Mr. Chairman, I thank ality is what the American people de- These tax cuts that benefit upper-in- the gentleman from New York [Mr. serve. And that is what they receive come people include open-ended estate RANGEL] for yielding me the time. under the majority’s plan. tax cuts that benefit only the richest Mr. Chairman, I have been in this The gentleman from Massachusetts, 1.5 percent of families and include the House for 15 years, and it has taken all indeed our friends on this side of the deficit-busting capital gains tax of those years for us to get to this aisle, all know that this tax bill pro- breaks. At the same time, the Repub- point, a day when we can honestly say vides tax relief to working Americans. licans’ proposal denies the working a balanced budget is within our reach. Indeed, well over 70 percent of the tax poor the tax relief they guarantee the Over the last 5 years, we have low- breaks here go to families earning be- rich. ered the deficit by 65 percent, brought tween $20,000 and $75,000 a year. In my The Republicans took the President’s it from a projected $332 billion in fiscal State of Arizona, 570,000 children will education tax package, including the 1993 to $10 billion last year. This year, be eligible for the $500-per-child tax HOPE scholarship, and undermined its it is projected to be $65 billion, the low- credit—$438 million in education tax goal of reaching the neediest students. est level in 20 years. We have suc- benefits will go to Arizona families. The bill undercuts the wages and ceeded, in part, because we finally re- And all Arizona small businessmen and benefits of millions of workers by ena- stored the revenue base of the Federal ranch owners and farmers will benefit bling employers to consider them inde- Government, due in part, large part, to from an increase in the death tax ex- pendent contractors and not employ- the tax bill that we Democrats passed emption. ees. in 1993. No, the fact is, Mr. Chairman, this The bill also denies the $500-per-child Corporate income tax revenues this plan makes imminent sense. Again, to tax credit to over 15 million families. year are up by $72 billion, more than 70 echo the curious findings of my friend Let me give my colleagues an example percent over 1992. And, indeed, the only from Massachusetts who spoke about of what this means. In the State of reason we are standing here debating a Rumpelstiltskin, the sad fact is that California, 56 percent of the children do tax bill, or debating a balanced budget while this Government has not de- not get the child credit under the Re- bill yesterday, is that CBO came up manded the firstborn child of every publican bill. That is more than 5.5 with $225 billion in additional revenues. family, it has asked for more and more million. Now having come this far, our object and more of the average family’s in- The Republican tax bill is an out- is clear. We want to balance the budg- come until the tax-and-spenders who rage. They do not want us to say it, but et, we want to finish the job, we want dominated Washington for so long we are going to say it over and over to get there by 2002. But we do not asked for more and more and more to again; it benefits the wealthiest in this want to blow this opportunity, having the point where, Mr. Chairman, the av- Nation. I urge a ‘‘no’’ vote. come so close to the target. To move a erage family in this country pays more Mr. ARCHER. Mr. Chairman, I yield 1 5-year budget in a divided government, in taxes than on food, shelter, and minute to the gentleman from Illinois we have got to have bipartisan consen- clothing combined. [Mr. MANZULLO]. sus; and to have that consensus, we had In the name of fairness, we ask the Mr. MANZULLO. Mr. Chairman, the to agree to tax cuts. Both sides, in American people to join with us and let people of the district I represent earn truth, want them. us make sure the American people between $30,000 and $40,000 a year. What But since the overriding objective is hang onto more of their own money, does that mean to them? It means that a balanced budget, we had to agree send less of it here to Washington. 113,600 children in my congressional that the tax cuts stay within strict That is the key to our future success. district are eligible for the $500-per- limits: $85 billion in net revenue losses That is the true bridge to the 21st cen- child tax credit. over the first 5 years, $250 billion over tury. That means that people in the dis- the full 10. We fixed those limits, once Mr. RANGEL. Mr. Chairman, I yield trict I represent will have an addi- again, because we have come so far and myself 10 seconds to point out to the tional $48 million in money that they we did not want to lose the ground we gentleman from Arizona that as a re- otherwise would have paid to the Fed- gained, to put our objective back any sult of the Republican bill, working Ar- eral Government. It means to those further or risk the objective. But it is izonan families that do not pay the people that they will be able to keep an so far out that it would be beyond reso- Federal income tax but pay taxes on additional $1,500 in money they would lution. everything that they eat and drink in have paid for Federal income tax in The first fault I have with their tax Arizona will be denied the benefits their own pockets to give to their kids bill is it does not meet our objective. under the Clinton bill. who are going to college. Specifically, it goes beyond limits laid Mr. Chairman, I yield 2 minutes to Who is the beneficiary of this? It is down by our budget agreement. It the distinguished gentlewoman from the people that I represent, the hard- breaks the letter of the agreement be- California [Ms. WATERS], chairperson of working Americans, the ones earning cause the revenue losses in it add up to the Congressional Black Caucus. between $30,000 and $40,000 a year. It is $4 billion too much over 10 years in the 113,000 children in the district that I amount we specified. That is because b 1430 represent. A good tax cut bill for the the Committee on Rules yesterday re- Ms. WATERS. Mr. Chairman, I rise hard-working, middle-income Amer- moved the cutbacks in ethanol tax today in strong opposition to the Re- ican families. preferences without replacing them publican reconciliation tax bill. Their Mr. RANGEL. Mr. Chairman, I yield with anything. $85 billion tax cut package gives the myself 10 seconds. This is not my back-of-the-envelope wealthiest huge tax benefits while ig- Mr. Chairman, we are very pleased estimate, it is a ruling rendered yester- noring the plight of the working and about the number of children that get day by our official scorekeeper, the June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4687 Congressional Budget Office. The CBO outlined, the Maryland school boards’ after graduation. He went on to call refused the attempt to score this bill as existing contractual arrangements graduate students ‘‘privileged,’’ the though the ethanol bill will expire in would be covered by the safe harbor, sort of group that quote, ‘‘ought to be time. Four billion dollars is not a lot of and that is the intent of the commit- the first to pay.’’ money in a budget that runs into the tee. Well, if you are a graduate student, trillions, but it is the spirit. It is sort Mr. GILCHREST. Mr. Chairman, I you certainly are going to pay. And if of a manipulative spirit that gives me thank the gentleman for that clarifica- you want to use the HOPE scholarship the most problem, and it runs through- tion. However, I do have a lingering to finance your tuition cost, forget it. out this particular tax bill. concern about the Maryland school dis- Under the Republican bill you cannot Look what happens to capital gains. tricts’ problem. Under the December 31 because graduate students are totally Let me say something: I am for capital effective date of the independent con- ineligible. gains tax cuts, and I am one of the tractor safe harbor contained in the Many Members today are expressing their Members who are in this House that bill, many school districts will be support for tax cuts for hard-working Ameri- will benefit from tax cuts, I should be forced, since they have this contract cans. But the competing bills before us differ frank to say, that we are going to get. beginning in September, the school dis- greatly in the benefits they offer to working But let me say I do not want a double- tricts will be forced to sign the con- and middle-class Americans. And as Mr. barreled tax cut, low preferential rate tract and potentially lose their buses SPRATT has just stressed, they also differ in coupled with indexation, if it has to and their independent status. their fiscal responsibility, in the extent to which come at the expense of millions of chil- Mr. ARCHER. Mr. Chairman, the they keep the lid on the deficit in future years. dren who will not get the tax credit, if committee intends that section 934 The Republican bill cuts taxes for corporations it has to come at the expense of fami- would address the Maryland situation, and for the wealthiest Americans. But it in- lies on the EITC. This is a bill that among many others. However, we now creases taxes on graduate students and does should be rejected because it did not understand that the provision’s effec- little to help students struggling to attend col- keep the budget agreement, it is not tive date may be too late to thoroughly lege. We can and should do better, and the fair, and it included the extraneous address the problem in the Maryland Democratic alternative shows us the way. provisions in the first place. counties. Vote for the Democratic alternative Vote against this bill. Vote for the I assure the gentleman I will seek to that does justice to this country’s pri- Democratic substitute. correct this problem during the con- orities and values. Mr. ARCHER. Mr. Chairman, I yield 2 ference. Mr. HULSHOF. Mr. Chairman, I yield minutes to the gentleman from Mary- Mr. RANGEL. Mr. Chairman, I yield myself such time as I may consume. land [Mr. GILCHREST] for a colloquy. 11⁄2 minutes to the distinguished gen- I strongly support the tax package Mr. GILCHREST. Mr. Chairman, I tleman from North Carolina [Mr. that came out of our Committee on thank the gentleman from Texas [Mr. PRICE]. Ways and Means. I am privileged to ARCHER] for yielding me the time, and (Mr. PRICE of North Carolina asked serve on that committee. I thank him for the opportunity to and was given permission to revise and When I go back home, Mr. Speaker, I have this colloquy with him. extend his remarks.) am inevitably asked the question, usu- In the State of Maryland, as in many Mr. PRICE of North Carolina. Mr. ally by high school students, ‘‘What is other States, it is common practice for Speaker, I rise today in opposition to the difference between Republicans and school boards to contract out school the Republican tax bill and in favor of Democrats?’’ And I try to tell them, busing services to independent contrac- the Democratic tax relief plan. The Re- Mr. Chairman: tor schoolbus drivers. Nearly every publican plan distorts our priorities as I believe both parties, of course, be- school district on the Eastern Shore a nation and, in particular, does not do lieve in democracy. I believe both on has operated under such a contractual enough for one of the most important either side of this aisle believe in a bet- arrangement for decades. resources our country has, our stu- ter America. But I think our vision of Recently, however, the Internal Rev- dents. how to get to a better America is enue Service made a determination First of all, the Republican bill cuts where we find other differences. that under the 20-factor common law the value of the President’s HOPE I know, certainly, that those of us on test used to classify workers for Fed- scholarship in half, severely limiting our side of the aisle believe that Amer- eral tax purposes, the Maryland school tuition relief for the neediest students ica is an overtaxed nation. We believe boards are required to treat these and students attending community col- it is a matter of principle that hard- schoolbus drivers as employees of the leges. In addition, while the Demo- working men and women in this coun- school districts. These school districts cratic alternative would permanently try stop working so hard for the Gov- are faced with a closing agreement extend the tax credit for employer-pro- ernment. that takes effect September 1 under vided education assistance, the Repub- As a newly elected Member, I have which the school districts would be lican bill offers only a short and tem- got to tell my colleagues that I am a forced to purchase the buses from the porary 6-month extension. little bit incredulous. Why is it that independent contractor owner-opera- Perhaps the worst offenses in this when we talk about letting people keep tors and make them employees of the bill concern graduate students. Grad- more of their money, that that is such school district. uate students are barely scraping by on a novel, radical idea? Why is it that The IRS determination will disrupt small stipends to finance huge tuition when we talk about making Washing- longstanding contractual relationships costs. But the Republican bill creates a ton spend less, that somehow we are that are beneficial to both the school tax on these graduate students who talking about blowing up the deficit? districts and the self-employed school- work part time as teaching assistants I believe, as a fundamental principle, bus drivers who provide this vital serv- and research assistants and receive, in in letting the hard-working people in ice. return, a reduction in their tuition. this country keep more of what they My understanding is that the safe Under the Republican bill, graduate earn. It is their money. It is not the harbor for independent contractors in students would be taxed on this tuition Government’s money. section 934 of the bill will cover the reduction, increasing their tax burden Mr. Chairman, I go back home, hope- longstanding contractual relationships in many cases by as much as $3,000 or fully, after today and after a hard between Maryland school boards and $4,000 a year. week, and I am going to get a chance their independent contractor schoolbus The Durham Herald Sun recently re- to sit on our front porch with my wife drivers. ported that the Committee on Ways and visit with our neighbors. I think it Mr. ARCHER. Mr. Chairman, will the and Means spokesman commented that is best to let the decisions about how gentleman yield? graduate students may not make much their tax money should be spent, that Mr. GILCHREST. I yield to the gen- money while they are in school, but they are better to make that decision, tleman from Texas. many—and he seems to think they are better than I am. Mr. ARCHER. Mr. Chairman, based all going to be doctors or lawyers—will For those that continue to talk on the facts that the gentleman has be earning very high salaries shortly about these capital gains cuts, since H4688 CONGRESSIONAL RECORD — HOUSE June 26, 1997 when did fighting and working for the Mr. SANDERS. Mr. Chairman, I That is just wrong, Mr. Chairman. It American dream, when did it become a think everybody knows what is going is the wrong bill for millions of fami- scarlet letter? When did it become ap- on in America economically. The peo- lies like her. propriate for us to scold and even pun- ple on the top have never had it so This is another set of my constitu- ish or penalize those that have tried to good. The middle class is shrinking, ents. This is Judy and her two daugh- get ahead? and most working people are strug- ters. They are older, they are teen- b 1445 gling hard to make a living. agers. She needs to be thinking about Given that reality, look at the ab- college. Under the Democratic bill she Mr. Chairman, this tax package helps will get the full $1,500 tax credit per the economy, it helps all Americans. surdity of this Republican tax pro- year for the first 2 years of college. For those that are trying to achieve posal. Instead of helping working peo- Why is that important? Because col- the American dream. We encourage ple and the middle class, 58 percent of lege tuition at our 2-year colleges can every business owner, every investor, the benefits go to the upper 5 percent. vary from $800 to $1,500 a year. Under every inventor, every farmer, every After giving out all of those tax business man, every woman, every breaks, they necessitate $115 billion the Republican bill she would only get stockholder, every homeowner to in- cuts in Medicare, which in my State of 50 percent credit for that. It is not fair vest in America’s neighborhoods and Vermont will be a $75 million cut over that she is forced and her children are workplaces by significantly reducing a 5-year period, which will mean dete- forced to consider going to more expen- this tax on savings and investment, riorating health care services for our sive schools just to take advantage of a otherwise known as capital gains. But senior citizens. Huge tax breaks for the full tax credit for college. we continue to resort to this old style rich, significant cuts in health care for Mr. Chairman, the Republican bill is politics of class warfare. I had hoped as our senior citizens. the wrong bill for working middle-class a newly elected Member that we were The bottom 40 percent of wage earn- families. I am going to vote for the beyond that. Instead of dividing Amer- ers get no cuts at all. What an absurd Democratic alternative. ica, instead of pitting one group proposal. Let us defeat it. Mr. CHRISTENSEN. Mr. Chairman, I 1 against another, why are we not work- Mr. CHRISTENSEN. Mr. Chairman, I yield 2 ⁄2 minutes to the distinguished ing together? Why are we not trying to yield 1 minute to the gentleman from gentleman from Nevada [Mr. ENSIGN]. (Mr. ENSIGN asked and was given forge a consensus? Why are we not Colorado, [Mr. BOB SCHAFFER]. permission to revise and extend his re- celebrating this day? Mr. BOB SCHAFFER of Colorado. marks.) Next week when we are home, Mr. Mr. Chairman, this is a picture of my Chairman, we have a chance, of course, Mr. ENSIGN. Mr. Chairman, I rise in grandmother. Here she is, a small little support of the Republican tax bill to celebrate our Nation’s independence, child. This is her in Ukraine when she July 4. I believe that if we support this today because it is truly time for us to was a little baby. This is her soon-to-be give tax relief to all Americans but es- Republican tax package, that we will husband, this is my grandfather in be providing a symbolic victory for pecially to those in the middle income Ukraine before they both immigrated, categories. I want to talk about two those folks who truly want to celebrate or when they immigrated to the United their independence. couples, very close friends of mine. One States. Three percent of their income Mr. Chairman, I yield 1 minute to the of the couples, they both work at Hertz gentleman from Colorado [Mr. was taxed by the Federal Government. Rent A Car. One works at the counter, HEFLEY]. How far we have come. Here is their the other one works actually in the Mr. HEFLEY. Mr. Chairman, I rise to great grandchildren, my children. They parking lot. Between the two salaries, support this bill even though it does were born into a world where they owe they make about $70,000 a year, not in- not go as far as I would like it to. I $20,000 as their share of the national cluding benefits. think our goal should be to get rid of debt. This is their share. The party According to the Democrats and how the capital gains tax, to get rid of the that has been in charge for 40 years has they would calculate their salary on death tax. But I look at this package taken our country from this to this. imputed income and the like, they and see what it means to the folks in The land that my grandparents immi- would probably make about $120,000 a my home State of Colorado. It means grated to in search of freedom and lib- year. But let us take what they say on that the hardworking high school stu- erty and low taxes and opportunity has their tax returns. It is around $70,000, dent from central Denver who cannot become a country where nearly 50 per- two average middle income-type peo- go to college right now will be able to cent of the average family income is ple. They have two kids. What the Re- get some help with books and tuition. taken away, confiscated through tax- publican tax bill will do is give this It means that the middle-class family ation at the Federal, State, and local middle-income family $1,000 per year in in Colorado Springs struggling on a level. a child tax credit. It will also give two-family income may be able to take Here is a farmer from Colorado them the opportunity to send their the vacation they have not been able to standing next to me. Democrats sug- kids to college. But it also gives them, take because they can keep more of the gest he is rich. He is an average Amer- because of the capital gains tax reduc- money they have earned. ican. He deserves a tax break. tion, the incentive to save and invest It means that the family farm in Mr. RANGEL. Mr. Chairman, I yield LaJunta, the one that has been in the for the future. 11⁄2 minutes to the gentleman from Ar- Another couple, he is a police officer, same family for generations, may be kansas [Mr. SNYDER]. a sergeant who actually has been in able to stay in that family, and that Mr. SNYDER. Mr. Chairman, today the mom and pop store in Greeley may Las Vegas for years working for the po- we are considering the first tax cut bill be able to stay in the family and the lice department; she is a receptionist. kids will not be saddled with unbear- in 16 years. Let us choose the right tax They make somewhere around $75,000 a able inheritance taxes. cut bill for working and middle-class year. This chart here clearly shows Yes, I support this bill because it will families. This is one of my constitu- that both of these couples will get 76 create jobs across the State of Colo- ents, Ingrid, and her two lovely chil- percent of this tax break. According to rado and those who have had trouble dren. She makes $7.50 an hour, which what all Americans look at, and that is getting jobs will have a bigger job mar- comes out to approximately $15,000 a what does their tax return show how ket and be able maybe to become pro- year. Every week or every month, like much income they make. ductive again. everybody in America, she gets a pay- The Democrats have been cooking Mr. Chairman, that is what this tax check. This is a copy of her check stub. the books this entire time. When peo- bill and this tax cut does to the people On it it shows what kind of State, Fed- ple ask you how much money do you of Colorado and for all Americans. I eral, and payroll taxes she pays, and I make, you do not think about the num- urge my colleagues to support this leg- circled the payroll tax. The right tax bers the Democrats are using. You islation. America needs a tax break. bill for her is the Democratic bill be- think about what the numbers show on Mr. RANGEL. Mr. Chairman, I yield cause the Republican bill pretends that your tax return. Those are the real 1 minute to the gentleman from Ver- she does not really pay these Federal numbers, not the cooking the books mont [Mr. SANDERS]. taxes. number. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4689 Mr. Chairman, this tax bill is truly police come in and take a few points watching this debate says, ‘‘My gosh, I for working class American citizens. from those that scored the highest and don’t even know who to believe or what Does it also go to some of the wealthy? give it to those that scored at the bot- to believe. Listen to all these num- Yes. But the vast majority of this bill tom. Suddenly they declare, ‘‘Then, bers.’’ by any common sense figures goes to that is fair.’’ Mr. Chairman, it is an attempt here people in the middle income categories My question is, ‘‘Fair to whom?’’ by this side to somehow frame that in America. Mr. RANGEL. Mr. Chairman, I yield they are the only ones who care about Mr. Chairman, I urge a strong yes 2 minutes to the gentleman from Mas- children and seniors, that they are the vote to allow working Americans to sachusetts [Mr. OLVER]. only ones who care about the poor. keep more of the money that they Mr. OLVER. Mr. Chairman, today we That is false, but that is politics. earned, not the money sent to the Gov- are debating alternative bills which Let me tell my colleagues what the ernment. provide identical tax cuts over 5 years. administration did. Confused by all Mr. RANGEL. Mr. Chairman, I yield Now, Americans expect Republicans these numbers? Treasury, in order to 11⁄2 minutes to the gentleman from to be for the wealthy, but they are calculate these numbers that this side North Dakota [Mr. POMEROY]. shocked when they come to realize how of the aisle is using, calculated family Mr. POMEROY. Mr. Chairman, I much the Republicans have helped the income not the way one calculates thank the gentleman for yielding me wealthiest Americans. their family income when they work. this time. The Republican Taxpayer Relief Act They went in and did a family income Mr. Chairman, this is not a balanced is class warfare—the Republican bill economic assessment. And what Treas- bill. A look at what it does to help when fully implemented gives the one ury did was, they took the adjusted folks save for retirement tells the of every six American families whose gross income and added to it what the whole story. earnings are more than $100,000 a year administration’s guess is about other First, the bill will actually force the almost two-thirds of the tax cut. The forms of income. retirement benefits of many retired other five out of six families get just So believe me, what they did was college professors to be reduced, cut over one-third of the tax benefits. something as bizarre as saying, ‘‘If you benefits 3 to 5 percent. Then the bill By contrast, our Democratic alter- own your own home, and if that family does absolutely nothing to help middle native gives over 70 percent of the total lived in the house and had you been income Americans save for retirement tax cuts to those five of six families renting that house, if you paid yourself by expanding individual retirement ac- whose earnings are less than $100,000 a rent, $800 a month, the Treasury then counts to make it a little easier for year. would add $9,600 to your family’s in- them to put money away. No, it does The Republican bill actually gives no come.’’ What that is, is Alice in Won- not do anything there at all. net tax relief to working families derland calculations that show that Rather, it creates a brand new tax whose incomes are below $27,000 a year. the tax benefits are going to wealthier break that benefits the most affluent That happens to be the group of Ameri- people. seniors. The great majority of this new cans who pay the largest percentage of This is a complete distortion, and I tax break, called backloaded IRA’s, their income in taxes of every kind in want America to wake up that there is goes to the wealthiest 5 percent in this this country. a complete distortion here. If I have an country. And so as it is with retire- By contrast, our Democratic alter- axiom for the moment, it is that in ment savings, it is throughout this bill. native gives those working families the Washington, DC, facts and truth may Most of us get nothing. And the benefits of the child tax credit and edu- be interesting things but often irrele- wealthiest get the most. cation tax credit that the Republicans vant. With retirement savings, it is so un- give only to higher income families. Mr. RANGEL. Mr. Chairman, I would fortunate this decision has been made. So Republicans give nothing to the 40 just like to thank the gentleman for Folks need help putting money away million families whose earnings are clarifying the tax bill. for retirement. But rather than extend less than $27,000 per year. They give Mr. Chairman, I yield 11⁄2 minutes to help to those who need it the most, one-third of their tax cut to the half of the distinguished gentleman from middle income and working income American families who earn between Texas [Mr. STENHOLM] who has been so families, the bill does nothing. Rather, $27,000 and $100,000 per year, and they helpful in drafting the Democratic al- it creates all of the benefit for those give two-thirds of their tax cuts to the ternative. who already have the money saved for one of six families who earn more than (Mr. STENHOLM asked and was retirement, the country’s most afflu- $100,000 per year. given permission to revise and extend ent. Americans are pretty smart. They his remarks.) Mr. Chairman, reject this bill. We have learned to expect that Repub- Mr. STENHOLM. Mr. Chairman, I can make it much better. licans help the wealthiest. Under the rise in opposition to the committee Mr. CHRISTENSEN. Mr. Chairman, I Republican bill, the rich get very much bill. I do not come to this point lightly yield 1 minute to the gentleman from richer, middle income America gets the because there are many things in this Florida [Mr. STEARNS]. leftovers at the banquet and the poor bill that I support. However, this bill Mr. STEARNS. Mr. Chairman, I keep lose their shirts. has two serious shortcomings that hearing from that side of the aisle, That is truly class warfare. compel me to vote against it. they talk about fairness and equality. Mr. ARCHER. Mr. Chairman, I yield 1 First, this bill is fiscally irrespon- Let me ask them to listen carefully to minute to the gentleman from Indiana sible and will ultimately undo the ben- an example of a classroom of students [Mr. BUYER]. efit of our work yesterday to balance about to take a final exam. the budget. Second, this bill does not b Some students worked hard all year, 1500 sufficiently target tax relief to small were well prepared for the exam, while Mr. BUYER. Mr. Chairman, I thank businesses, farmers, and working men other students routinely chose to blow the gentleman for yielding this time to and women. off homework assignments and skip me. In our current budget environment most of the reading. I think most I had to come to the House floor. I we cannot approve every worthwhile school teachers today recognize that had to come here because it is obvious tax cut, just as we cannot fund every scenario. The students who worked that there are truths, there are non- worthwhile spending program. Given hard all year, surprise, surprise, almost truths. I believe there are unequivocal this reality, we must set priorities in always do better on the final exam statements of fact and there are truths deciding how to target tax cuts. than those who goofed off. But what if that are self-evident. This bill has its priorities backward. the exam results were tallied and then I now understand that the creators of The capital gains reduction does not the equality police, on this side of the this institution here put ‘‘in God we distinguish between Wall Street specu- aisle, came in and said ‘‘That’s not trust’’ because we are going to have to lators and individuals who make in- fair. That’s not equal. We need to have trust God here because the facts are vestments that create jobs. This bill equality’’? So they go in, the equality getting spun out so far. America terribly shortchanges family farmers H4690 CONGRESSIONAL RECORD — HOUSE June 26, 1997 and small businesses in the area of es- Mr. ARCHER. Mr. Chairman, I assure think what we clearly see is Democrats tate tax relief in order to provide tax the gentleman from Ohio that during and Republicans both want tax relief, breaks that are good but much less the House-Senate conference we will but the issue boils down to those who critical. The House will have an oppor- address this matter so that U.S. air work, play by the rules here in Amer- tunity, though, to provide meaningful charter operations such as these will ica and believe in the American dream, estate tax relief and targeted capital not be unfairly penalized by modifica- that they too deserve a tax break. gains reduction by voting for the Blue tions affecting international travel. They too have the right and should Dog motion to recommit later today. Mr. GILLMOR. Mr. Chairman, I have the privilege to know that their Finally, I am extremely concerned thank the gentleman. children will go to schools with roofs about the impact that this bill will Mr. RANGEL. Mr. Chairman, I yield over their heads, with air-conditioning have on our efforts to balance the 1 minute to the gentleman from Ten- in their schools, and will have the op- budget. The cost of this bill will ex- nessee [Mr. CLEMENT]. portunity to go to college if indeed plode in the next century, sending the Mr. CLEMENT. Mr. Chairman, what they work hard and play by the rules. deficit back up again. The harm to our kind of America do we envision for the Mr. Chairman, I salute the hard work economic future that will result from future? What kind of America do our that the President, the Republicans, an exploding deficit will overwhelm constituents expect? I think all of us and the Democrats put forth on this any benefit that this tax bill will have know, whether it be the Democratic bill, but I say to my colleagues as a in the short run. It would be morally plan or Republican plan, we are going new Member, we have heard the debate irresponsible for this generation to to have some kind of tax relief this about middle class and rich Americans enjoy the benefits of a short-term tax year. We have been fighting for it for a and poor Americans, but let us give a cut and leave our children and grand- long time and it is going to come. tax break to those who get up and go to children with increased debt and a But what about it? work every day. Let us not put a value weak economy. Americans want greater accessibility on work. Who are we to decide what Mr. ARCHER. Mr. Chairman, I yield and affordability to education, Ameri- workers and what Americans will get a myself 15 seconds simply to respond. cans want tax exclusions on home tax break because we do not feel they The gentleman knows that this is a sales, Americans want a child tax cred- earn enough or contribute enough to 10-year budget as demanded by the it, Americans want greater exemptions the American economy? White House and that it is in balance for estate planning. I say to my friends in this Chamber, by the end of 10 years, and that is way More than ever before, America’s Democrats and Republicans alike, do it into the next century. It is not a ex- prosperity hinges on how we educate for the next generation. Give tax relief ploding deficit, but of course rhetoric and train our people. Every day more to those American who get up every seems to command this debate. Americans find an education out of day, work hard and play by the rules. Mr. ARCHER. Mr. Chairman, I yield 1 Mr. Chairman, I yield 11⁄2 minutes to reach of their pocketbooks. HOPE the gentleman from Ohio [Mr. scholarships are a sensible way to ad- minute to the gentleman from South Carolina [Mr. GRAHAM]. GILLMOR] for the purpose of a colloquy. dress this problem; so are tax deduc- Mr. GRAHAM. Mr. Chairman, con- Mr. GILLMOR. Mr. Chairman, I ap- tions. We must understand that every gratulations on a super effort to give a preciate the chairman giving me the investment we make today enhances little money and power back to the opportunity to engage in a colloquy in the dividends we receive tomorrow. American people. respect to a particular problem affect- Yes, let us support the Democratic One thing I want to say: I was out- ing my congressional district. One sec- plan. It offers courage for the future. side listening to the debate. If my col- tion of the Taxpayer Relief Act pro- The American people want nothing leagues have got kids at home, go and vides a $15.50 tax to be placed on the less. mark down on the calendar that the arrival of international airline pas- Mr. ARCHER. Mr. Chairman, I yield 1 Democratic and Republican parties on sengers from destinations outside the minute to the gentlewoman from Flor- the same day put a bill in to cut taxes. United States. While this tax may ida [Mrs. FOWLER]. I am not going to say a bad thing make sense for passengers flying from (Mrs. FOWLER asked and was given about my friends on the other side of London to Washington, it does not permission to revise and extend her re- the aisle. I appreciate them trying to make sense when the distance is neg- marks.) cut taxes and send some money and ligible, and I seek to have this section Mrs. FOWLER. Mr. Chairman, today power back home. I just wish they adjusted. is truly a historic day. For the first would stop distorting what we are try- Here is the problem. Griffing Flying time in 16 years millions of American ing to do. They are making everybody Service from Sandusky, Ohio flies taxpayers are headed toward receiving in America rich to get the numbers up. charter aircraft from Sandusky to real tax relief from the Federal Gov- But that is OK. This is a good day. Pelee Island in Lake Erie and back. ernment. Among the key items of the Both parties are trying to send back Pelee Island is only 25 miles from San- Taxpayer Relief Act are a $500-per- some of their money. Unfortunately, dusky, but it nonetheless lies in the child tax credit and dependent care one party cannot let go of the past by territorial waters of Canada. Under credits, substantial tax breaks to offset demagoging everything we do. We will certain circumstances flights from college expenses, estate tax relief and get over that one day. Pelee Island could be subject to the capital gains relief. These and other Two and a half years we have been in $15.50 international arrival tax pro- measures in this bill will yield signifi- charge, and the best results I can show posed in the House bill. That means cant relief to middle class Americans. the American people what it means to that a $20 plane ride now would cost According to one nationally recog- have us in charge is we got both parties $35.50, which would effectively termi- nized Big Six accounting firm, a mar- wanting to cut taxes. Quit trying to de- nate Griffing’s service to Pelee and ried couple with two children and a fend stuff, Mr. Chairman. Be happy. give the business to a competing Cana- household income of $35,000 a year This is a good day the Lord hath made dian-owned ferryboat service. could see its tax liability cut by over and let us rejoice in it. As a matter of simple fairness and $1,000 a year under this package. Now if Mr. RANGEL. Mr. Chairman, I yield common sense we should not have this one of those children were in college, 1 minute to the gentlewoman from tax apply in such a situation. I seek to that relief would nearly double. California [Ms. PELOSI]. have the chairman’s assurances that Mr. Chairman this legislation rep- Ms. PELOSI. Mr. Chairman, when Griffing Air Service and other short resents a strong, balanced package of people ask me what are the three most distance aircraft operations on the tax relief for our constituents. I urge important issues facing the Congress, I United States-Canadian border should its adoption. always say: the children, the children, not be subject to this onerous tax. Mr. RANGEL. Mr. Chairman, I yield the children. But a close look at the Mr. ARCHER. Mr. Chairman, will the 1 minute to the gentleman from Ten- Republican tax break bill shows that gentleman yield? nessee [Mr. FORD]. the rich are the winners in this bill and Mr. GILLMOR. I yield to the gen- Mr. FORD. Mr. Chairman, today as the losers, the losers are the children, tleman from Texas. we debate this tax relief package I the children, the children. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4691 The children are losers because 40 The real issue is, we are rushing this. Thank you. million children are not eligible for the The question is, who benefits? None of Mr. RANGEL. Mr. Chairman, I yield tax credit. The children are losers be- those who are making under $100,000 a 1 minute to the gentleman from North cause the HOPE scholarships will be year. It is important that we come to- Carolina [Mr. ETHERIDGE]. cut in half in the Republican tax bill. gether and deliberate. Why are we Mr. ETHERIDGE. Mr. Chairman, I The children are losers because the rushing this? This is not a fair tax bill, rise to oppose this Republican bill. Let economic security of their families is and it is not coming from just those of me tell my colleagues why. Fifty-one threatened by the concentrated and us on this side of the aisle. percent of the children in North Caro- reckless assault on the American fam- The Wall Street Journal on Thurs- lina will not be eligible for benefits ily, the American worker and the day, June 26, has indicated that the under this plan. That is 1.1 million American dream. numbers that the Republicans have are children. Hard-working families in my Do not let children be losers, Mr. distorted, and in fact, that the num- district and across America deserve a Chairman. We should all vote for the bers do not suggest that those individ- break from the burden of Federal Democratic tax cut which is a vote for uals who need it most will get the tax taxes, but it should be fair. Unfortu- fairness, for opportunity and for work. plan. I would hope that we vote for the nately, this bill neglects the needs of Children can tell us, looking at this: Democratic alternative. our North Carolina families and pro- ‘‘Mirror, mirror, on the wall, who is Mr. Speaker, I rise today to speak out in vides an unfair windfall for the the fairest of them all?’’ vigorous opposition to this outrageous short- wealthiest of Americans. Clearly the fairest of them all is the changing of American working families. This I strongly support a balanced budget. Democratic tax cut for working, low bill clearly helps those Americans who do not I voted yesterday for spending cuts and moderate income families in Amer- need help. This bill is steak and cake for the that will make that happen. I strongly ica. I urge my colleagues to oppose the wealthy and the crumbs for working families. support helping our middle class fami- Republican tax break for the wealthy Mr. Speaker, Americans want us to help lies, and I have written legislation to and support the Democratic tax plan them in sending their children to college. But, provide estate tax relief for our farm- for fairness. look at the educational provisions of this bill. ers and small businesses, and I strongly Mr. ARCHER. Mr. Chairman, I yield The budget agreement called for $37 billion support education tax relief under the myself 1 minute. for helping those families who need help in Rangel substitute to help families put The gentleman from South Carolina sending their children to college. But, the Re- their children through college. was correct. This is a bipartisan effort, publicans only have $22 billion in their version I am a Democrat, and I am for tax finally, to give back money to people of the budget agreement and look how they cuts, but I am for tax cuts that are fair that they have earned, finally let them want to use tax relief for education. to all the people in this country, and keep more of their money, and I am The Republican plan allows the deduction of this bill is absolutely not fair to the happy that my friends on the Democrat up to $10,000 a year for college costs. These children in America. side of the aisle are joining with us in deductions were originally aimed at lower and Mr. RANGEL. Mr. Chairman, I yield this. I know it is difficult for them be- middle class families who need the help. But, 1 minute to the gentlewoman from Col- now there are no income limits on the deduc- cause their book on tax reductions is orado [Ms. DEGETTE]. tions which means that it is worth twice as about one-sixteenth of an inch thick, Ms. DEGETTE. Mr. Chairman, I sup- but they are trying very hard to follow much to families in the top tax brackets-to port tax relief for working families in our lead and to give tax reductions to families that do not need Government sub- America. It is not right that so many the American people, and that is some- sidies to send their children to college. hard-working parents are struggling to The HOPE scholarship has been changed thing the American people I hope will make ends meet. Yet, instead of help- to give less to students from lower-income and appreciate, that this effort now is bi- ing these families today, we are slam- middle-income families who are more likely to partisan. ming the door on them. We are telling attend community colleges. Students attending Mr. Chairman, I reserve the balance school teachers, law enforcement offi- of my time. the more expensive schools are getting the biggest benefit. Is this a fair plan? Is this the cers, factory workers and nurses and Mr. RANGEL. Mr. Chairman, I yield every other hard-working American myself such time as I may consume. greatest good for the greatest number of Americans who are trying to put their children that we just do not care about their Mr. Chairman, I guess bipartisan economic struggles. We are telling the means liberal Republicans and conserv- through college? Certainly not. But that's what the Republicans want. next generation that we prefer tax ative Republicans but did not include giveaways to America’s wealthy at the many Democrats, but anyway let us In the area of capital gains, the benefits for the wealthy is even more astounding. Under expense of real deficit reduction. move on. Let me tell my colleagues what is Mr. Chairman, I yield 1 minute to the the Republican plan, a wealthy investor could really happening in my home State of gentlewoman from Texas [Ms. JACK- pay a lower effective rate of taxes on a profit Colorado. Forty percent of the kids SON-LEE]. from the sale of stocks than moderate-income (Ms. JACKSON-LEE of Texas asked families pay on their wages and on interest under this proposal will be left behind, and was given permission to revise and they get on their savings accounts. kids from moderate and low-income extend her remarks.) I ask you, Is this fair? Is it fair that the sell- families. Nearly 96 percent of the 23 Ms. JACKSON-LEE of Texas. Mr. ing of a piece of paper should be taxed at a million children whose parents earn Chairman, I thank the ranking member lower rate than the hard earned wages of less than $23,000 would be denied any very much for his leadership and I working class families? Clearly not. But that's child care credit under this bill. This is thank my friend from Texas for his what the Republicans want. inexcusable. concern and initiative. Mr. Speaker, we are all trying to end the I urge my colleagues to pause for a I do think that I will certainly ad- deficits that are building our national debt and moment and think about what this here to those on the other side of the strangling our ability to invest in the future of means to their constituents back aisle, trust God and thank God, but I America. But, look what this tax bill does to home, think about the struggling fami- will thank God that the Democrats the deficits in the long run. Look what this bill lies they are leaving behind with this have offered a rebuttal to this tax plan will cost our children. bill, think about the next generation. offered by the Republicans that will The deficits explode after the initial 5- and Let us pave a straight path, not a U- show a large number, 54 percent of the 10-year phase-ins, $650 billion deficits in the turn. children in Texas, who will not get the out years as the effects of the cuts for the rich Mr. RANGEL. Mr. Chairman, I yield child credit plan under the Republican really begin to be felt. These are the years 1 minute to the gentleman from Penn- bill. That is more than 3.3 million chil- when the baby-boomers will begin to retire sylvania [Mr. DOYLE]. dren. and when we can least afford this kind of fis- (Mr. DOYLE asked and was given cal explosion. permission to revise and extend his re- b 1515 Mr. Speaker, this bill is rotten for working marks.) Then there are those in my district American families and kills Government in- Mr. DOYLE. Mr. Chairman, I rise in that are only making $31,000. They will vestment for our children. I urge Members to strong support of the Democratic tax not get the tax plan. vote against this patently unfair bill. cut plan. I came to Congress in 1995 H4692 CONGRESSIONAL RECORD — HOUSE June 26, 1997 committed to balancing the budget, dent has made it known, at least infor- in the class war, that there is a dif- and in an effort to move the budget mally, that he did not think that the ference philosophically between the process forward, I was one of the 51 budget agreement could afford that Democratic program and the Repub- Democrats who voted for the reconcili- luxury. And where would Congress go lican program. ation spending bill yesterday. to get the money to pay for this type of We are asking that my colleagues I subscribe to the view that we thing? join with the President of the United should balance the budget first and A lot of debate is being had today by States. We can reject this package then consider tax cuts. However, this my Republican friends in saying, if one today by the Republicans. We can do bipartisan budget agreement demands does not pay Federal income taxes, one better with an alternative that we are that tax cuts be enacted this year. I does not get Federal relief. Well, let me working with, and maybe if we allow recognize we must work within these congratulate them, because up until this to go into conference that we will given parameters, so I will support eq- yesterday, they were actually calling be able to pick out the best from both uitable, responsible tax relief that ad- these people that work every day re- of the bills and allow us to come for- heres to the budget agreement. ceiving welfare, and I am glad to see ward once again in an effort to be bi- The Democratic alternative will pro- that has stopped, because as mean-spir- partisan. vide tax relief for middle class families ited as it sounds to other people who Mr. Chairman, I yield back the bal- that can really use it and is still com- work and the people that the President ance of my time. patible with real long-term deficit re- had included, it is so important that Mr. ARCHER. Mr. Chairman, I yield duction. It is a stronger measure than when we say tax relief, that my col- the balance of my time to the gen- the Republican plan because it goes leagues on the other side do not start a tleman from Texas [Mr. ARMEY], the further in helping middle class families class system. respected majority leader of the House cope with the cost of owning a home There is one group of people that we of Representatives. and paying for their kids’ college edu- should talk about, and that is the Mr. ARMEY. Mr. Chairman, I thank cation. working class. I promise that there is the gentleman for yielding. However, the biggest difference is the no reason for us to call people by class, Mr. Chairman, let me first pay my fact that the alternative is more eco- except my Republican colleagues are regards to the committee for the fine nomically responsible and fair. It does saying that if these people do not make work that they have done on writing not lay the groundwork for decades of enough money to pay Federal taxes, this bill. It is such a privilege for me to mounting debt. then the taxes they pay for food for be here today and to stand here in sup- Mr. Chairman, I ask that Members their children, the taxes they pay for port of this legislation and to stand support the Democratic plan. clothes, the excise taxes, and these are here, quite frankly, in appreciation for Mr. RANGEL. Mr. Chairman I yield Federal taxes that are put on airplane this legislation. myself the balance of my time. flights, these are taxes. Why should This legislation is tax reduction for I really think that this President of they be so sophisticated because they American families. It is legislation the United States has singled out one do not make that much money that that realizes that American families of the most important issues that we they should understand now that they come in all shapes and sizes and all as Americans face, and that is whether belong to a different class? configurations of income-earners, and or not we are paying attention to hard- The President and the Congress al- with all configurations of problems, working Americans as relates to the lowed people to believe that when we but all American families are tied to- burden of taxes that we placed on say $500 for a child tax credit, that we gether today by some common under- them. Our President saw fit to reach really mean it. And if we can find a standings and some common hopes and out and to recognize that in the House way to give to the working people, the dreams, and that it is our job in Con- and Senate, Democrats did not win, but people that find that inflation has gress to reflect our understanding of he won, and the Republicans won. eaten them up, the people that every these things faced by the American To that extent, he thought he was time they see an excise tax, it means family and to represent the best of pulling together a group to present to more to them than it means to people their hopes and dreams. the American people a bipartisan that get the salary we get. We do not I think of mom and dad sitting agreement as to spending in the budget care how much a bottle of milk goes up around the kitchen table looking at and in reducing taxes, and in providing or a loaf of bread, but to many fami- the little ones and thinking about all assistance for American education. lies, these changes in supermarket of the things they want to do for them. Somewhere along the line, when it got costs mean how much money they We have all done that while we are to taxes, our Republican colleagues for- would have for other things. doing our bills at the first of the got the bipartisanship, because to my So let me join with the Republicans month, scared half to death we will run knowledge, the Secretary Treasurer, in saying, let us stop this class war and out of paycheck before we run out of representing the President, did not let us start talking about the people bills. And every time we do that we know what was in that package until who work and do not put them in dif- start with the realization that at the the chairman released it. Notwith- ferent categories. If one is a working beginning of that month, our taxes are standing that, there was great hope American, they deserve the relief that too high and if they were lower, we that during the process of amendment, the President wants. could do more for the kids. that we might work out a bill that I do not know how long we will be b would lend itself for the President of able to stick with this bipartisanship. 1530 the United States to say, it is not all The President is looking for the prin- Mr. Chairman, I realize that mom that I wanted, it is not all the Demo- ciples of fairness. The President is and dad struggled on that, and yet they crats wanted, but it is the basis for us looking for his HOPE scholarship that accept their responsibility and they to move forward in a bipartisan way. somehow was promised around $35 bil- say, to the best of our ability to under- Notwithstanding my feelings about it, lion. Somewhere along the line the stand it, we will do our duty to support I knew one thing was abundantly clear, President thinks that he lost several the programs for this country, and yes, that the American people did want and billions, and that he did not see any- especially those programs that touch did deserve a bipartisan effort. thing close to what he thought was an our heart, because they are programs Now when we get to what do we have agreement. that help those who are more needy left here, the President of the United Mr. Chairman, we Democrats, we than ourselves. So while we struggle States looked at the package and said, have stuck together. We have gone to with our taxes, we appreciate the fact but where is the Democratic part of the President, we have provided an al- that for the low-income, the working this? Why did Congress elect to put ternative, we have stuck with his prin- poor, there is an earned income tax something in the bill that would be so ciples, and one of the most important credit that allows them to offset those costly, no matter how much we would things is we expand on the education terribly burdensome payroll taxes; that want to do it, and I am talking about package. So, Mr. Chairman, I think it somebody has understood and cared capital gains indexing, when the Presi- is safe to say, without getting involved about that. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4693 I am willing to pay my share of the They need the tax break. They need Mr. Chairman, my colleagues are taxes, and I am willing to do that in the American dream savings account saying on the $500 per child tax credit, appreciation that someone with a less- so they can again save for their chil- let us give it to somebody who has no er job than mine, a smaller income, the dren, so they can save for emergencies. tax liability, and on the alternative same hopes and dreams for their chil- They work so hard and they try so minimum tax, let us put taxes on peo- dren, have a little relief for that bur- hard, and they do not begrudge other ple who have no earnings. They have it den. people the help we give. exactly backwards. Yet I know, we all know, if we could I laugh at that because, when the lit- What does that mean? It means mom have that $500 for a tax credit, we could tle ones are little, of course you know and dad are going to build a business. do so much for each and every one of they cost money and the $500 is very You build a business so you can provide these children every year; if we both important, but they do not stop costing a living for your family. You hope it is work, mom and dad both work, and we money at the age of 13. We know by a success and you hope it is something get that child care tax credit, we do fact from the Department of Agri- the kids can be proud of. They look at not need the $500 per child tax credit as culture that at the age of 12 they jump the youngsters, and my dad when I was much as a family that has only one in- up to $1,000 more. Mom and dad know young was a grain dealer and built his come earner. Because we have the sec- that. Why do the people on the other own business, he looked at us and said, ond paycheck and we get some com- side of the aisle not understand that: one of these boys should take over that pensation with the child tax credit, we the prom dresses, braces, all the things business. It is my creation, my life’s are willing to accept the trade offer, that come? work. my $500 a year for this child credit, Are we going to cut it off at age 13? That did not happen. He could not over and against the tax credit. That is No, we say. Let us keep it in effect pass it on. When he died, half of it went fair. until the child is 17, before his 18th to government. Do you think your dad I look at my neighbor and I look at birthday. Then, as long as we can, let works all his life, mom pitches in, as me and I see the difference in the way us give this relief to moms and dads. my mom did, as partners, so that at we construct our families, they are We do that. the time of their death the government Now, about the time the child is 13 or configured, and I say that is fair. We can come and take half of their life’s 14, mom and dad begin to have a dif- all accept that. work away from their children? This is ferent realization in their life. They We all need tax reductions, but we not fair. This is not fair. We try to give begin to understand that the best of need to reduce the taxes on those peo- the family some relief for that. If you the American dream is not to have our ple who are paying the taxes. If we have just some kind of accomplish- think in terms of giving tax breaks to own home for the children, but the best ment, some kind of a legacy that you people who have no tax liability, the of the American dream is to get them can hold, the family farm has been in $500 child tax deduction means, when out of it. So we know that saving for the family for three generations and it you finish filing your taxes and you that education is going to pay off has to be sold for taxes, that is not know what you have to pay, you take someday when that youngster will right. the $500 away from that tax liability. If have a chance for a job. When will we get the best job oppor- We hear about this being an unfair I do not have anything to pay, I have tax bill. This is a fair tax bill. It is a nothing from which to make the sub- tunities for our children? When the tax bill that knows the goodness of the traction. economy is growing more, when people American people and respects the good- Mr. Chairman, then we dream about are willing to make investments. I was children and their education. We want talking to a machinist just a few ness of the American people. It is a tax to save. We know the importance of months ago in Dallas, TX. He was look- bill that says, Mr. and Mrs. America, savings. We want children to see that. ing at the machine on which he we know your dreams, we know how There is the idea of the education sav- worked. hard you work, we know how much you ings account, so we can have a hand in He said: Congressman, I can get bet- share your caring and your good for- determining where our children will go ter levels of tolerance, I can do better tune with other people and how little to school. The tuition tax deduction is quality work, I have more productivity you begrudge somebody else a break so important. with this than I had before. I can work and a reduction of taxes. I just finished with five children all my life and I could not afford to buy Mr. and Mrs. America, we want to going through school. I remember when a machine for myself like this ma- give you, at this time that we are I was a grad student raising my own chine. I thank those folks that saved, I marching towards a balanced budget, baby girl, Kathy. That money we paid thank those folks that invested, for at this time when we can afford to do out for tuition, we thought then and putting that machine in place so that I so, we want to give you a reduction in think now, there ought to be a deduc- can have a better job, and I can make your taxes that reflects our under- tion on that in your taxes. It is fair. a higher rate of pay and I can do more standing of your goodness, where you We put that in there, because we un- for my children. can look at us, look at the bill, and derstand how we struggled in order to Working men and women know bet- hear us say through this legislation, pay that tuition and those fees so that ter than anyone else, if you are a truck Mr. and Mrs. America, we are on your education can be obtained. That is the driver, if you do not have the truck, side. We agree with you. This tax best of our dream for our children, that you do not have a job. Investment is should be a tax that allows you to do they will have that education, and we what gives you the capital with which the things you dream about getting to can afford for us to do that, for us to to work. The capital gains tax reduc- do. It should not be a tax that tells you work with them and for them to do tion is about jobs. you must do those things that people that. How about that family that decides, in Washington think you should do. Parents begin a married life, and I let us get together and build our own It should not only know the goodness look at my son David and his beautiful business? Mom and dad and the kids of the American people, but it should wife, Laurie, with my gorgeous pitch in. They build their own business, respect that goodness and it should re- grandbaby with his grandpa’s eyes, and they want and need to be able to make ward that goodness. It should say, you they say, we want to own our own the investments, to make it safe. The are Americans. You deserve to be free home. They struggled hard to save alternative minimum tax should not because you accept your responsibil- money for a down payment. They want come down on them. The alternative ities, and we endorse that and we re- to own their own home. They do not minimum tax says, if you are investing ward it by letting you keep more of want somebody to credit the hypo- in your business and if you are building your own hard-earned dollars. thetical rent they would pay them- your business and you are taking de- Mr. Chairman, this is good legisla- selves if they were renting it out in- preciation under the Tax Code, and it tion for America. I am proud to be as- stead of living in it as a double in- comes to the point where you do not sociated with it. I am proud to tell my crease in their tax, in their income, have any net earnings that are taxable, son and my daughter, build your busi- some hypothetical way to say you do you have to pay taxes on earnings you ness, save for the kids’ education, have not deserve a tax break. did not have. success in your life, and when your H4694 CONGRESSIONAL RECORD — HOUSE June 26, 1997 days are over whatever it is that you families with the costs of raising children. I resources that they need to prepare both have done in your life for your children could never support the illusion of a family teachers and students for a technologically ad- will be your source of joy and happi- credit which is held out to all families but, in vanced present and future. While we are daily ness, and can probably be manifest in reality, available only to more affluent families. amazed at the ways that advanced technology their life as you leave what you have to If the Nation had a balanced budget, I could has improved America's economic competi- them, instead of to the government. support rate reduction for all taxpayers not just tiveness, transformed commerce and commu- How can we do better to respect the those who make their money from Wall Street nications, and improved the quality of life of children of this great Nation? investments. millions of Americans, that same advanced ANNOUNCEMENT BY THE CHAIRMAN PRO We don't have a balanced budget today. technology has not yet made as transforming TEMPORE Until this bill got the House floor, the Nation an impact on the way schools educate chil- The CHAIRMAN pro tempore (Mr. was on the path to a balanced budget but we dren. The Internet and the World Wide Web LATOURETTE). The Chair would remind are not quite there. Perversely, in a bill de- are revolutionizing the way individuals and or- all Members that comments by Mem- signed to balance the budget, we are today ganizations share and find information. Yet bers should be directed towards the considering measures which will have dev- only 14 percent of our classrooms have a tele- Chair and no other party. astating budget results that go well into the phone jack, and about 1 in 50 are connected Mr. PORTMAN. Mr. Chairman, the alter- next century. to the Internet. Furthermore, the most com- native minimum tax [AMT] is recognized on a We owe it to our constituents, our children mon computer in our Nation's schools is the bipartisan basis as one of the most punitive and ourselves to vote ``no'' on this bill. Apple 2c, introduced over a decade ago and provisions in the Tax Code. Simply put, it's a Mr. CUNNINGHAM. Mr. Chairman, I rise in now on display at the Smithsonian Institution; job killer. It also is one of the most com- enthusiastic support of the Taxpayer Relief and while 50 percent of schools have local plicated provisions in the Tax CodeÐaccount- Act. area computer networks [LAN's], less than 10 ing for as much as 26 percent of tax compli- After a 17-year wait, the American people fi- percent of those networks connect with com- ance costs. Anyone concerned about tax sim- nally receive tax relief under this measure. puters in classrooms. plification and the integrity of the Tax Code Families with children get a $500-per-child tax Therefore, bringing America's classrooms has to be alarmed about the AMT. credit. There's tax relief to help with college. into the 21st century requires a major national The current AMT was enacted in 1986 to There's relief from the capital gains tax, which investment in technology, including computers, ensure that no individual or business taxpayer will help spur investment and grow the econ- software, and interactive interconnectivity. with substantial economic income can avoid omy. And there's relief from the onerous death How can we accomplish this task? significant tax liability by using exclusions, de- tax, so Americans who have built their busi- We have three choices. We can do nothing, ductions, and credits. While the drafters of the nesses with their own hard work will be more which appears inexpensive but bears an im- AMT might have been well-intentioned, in re- able to pass their businesses on to their chil- mense cost in lost opportunity and foregone ality there is no longer a sound policy justifica- dren. economic growth. We can create and expand tion for this onerous and complicated provi- It is remarkable to contrast this product of a Federal Government programs which invest in sion. Republican Congress with the product adopt- education technology. However, because of H.R. 2014, the tax cut package being con- ed in 1993 by a Democratic Congress. Presi- the immense scale of the need, and because sidered today, doesn't repeal the AMT but it dent Clinton was elected in 1992, with a primary and secondary education are primarily does provide some important AMT relief and Democratic Congress, and enacted the largest a local and State responsibility, bringing our that's good news for American workers. AMT tax increase in history without a single Repub- classrooms into the 21st century is best done relief will help put U.S. firms on more equal lican vote in the House or the other body. in a manner that does not increase Federal footing with our international competitors by President Clinton was re-elected in 1996, with Government expenditures or bureaucracy. Or eliminating the tax penalty on investments in a Republican Congress, and now we are we can encourage and maximize private in- new plant and equipment in the United States. working together to provide Americans the vestment for this purpose, keeping control as The bill also averts an AMT trainwreck for indi- middle-class tax relief that he promised 5 close as possible to the children, parents, and viduals by indexing the annual exemption for years ago, but has thus far failed to deliverÐ the AMT. Without this change, there will be a teachers who will benefit. This last choice is until now. the option taken by the 21st Century Class- ten-fold increase over the next 10 years in the Together with the bill we adopted yesterday number of individuals who will be subject to rooms Act. cutting spending and preserving Medicare, this We are fortunate that many businesses in- the AMT. tax relief contributes to a balanced Federal Mr. Chairman, I think the AMT provisions vest their time and resources into classrooms. budget, and ends the tide of red ink and defi- are an important job creating component of But we must do more, and we can do better. cits that threaten our future. The tremendous need for additional com- this bill and I hope it can be enacted soon. Mr. STARK. Mr. Chairman, I cannot support Other Members have discussed in detail the puter equipment and software in our class- H.R. 2014, a bill to provide $85 billion in tax many excellent provisions of this bill. I would rooms, plus the wave of computer upgrades cuts because I believe the provisions of this like to focus on just one. I would like to talk taking place among businesses in the United bill are unfair and unwise. about how this legislation includes my provi- States, argue persuasively for an additional fi- Our country would be far better off to delay sion to encourage companies to invest their nancial incentive to encourage businesses to tax cuts for a few years until we have a bal- computers and technology to upgrade our chil- invest their equipment into 21st century class- anced budget. After almost two decades of dren's classrooms. rooms. trying to recover from the Reagan cuts of THE NEED FOR THE 21ST CENTURY CLASSROOM ACT The bipartisan balanced budget agreement 1981, we should have learned that large tax The General Accounting Office reported in offers Congress an opportunity to expand cuts given when a budget is not yet balanced 1995 that ``America's schools are not designed technological investment in our schools can create havoc for decades. We have not or equipped for the 21st century.'' Yet, we all through specialized tax incentives. The budget learned our lesson; this majority persists in know that an excellent education that provides agreement includes tax relief for American pushing tax cuts with abandon. American children with a fighting chance at families. And it also includes tax cuts related If we had the surplus, I would prefer to in- the American Dream includes rigorous aca- to educationÐbut only for higher education. vest $85 billion to preserve the Medicare sys- demic basic instructionÐplus the new require- With so many students entering universities, temÐ$85 billion would guarantee solvency ment for technological literacy and proficiency community colleges and other higher edu- past the year 2020, providing assurance of in working with computers. The need for tech- cation needing remedial coursework, it is right health security for millions of seniors. The ma- nological literacy is immediate. By the year and wise for Congress to use this opportunity jority party rejects that option. 2000, just 3 years way, 60 percent of Amer- to spur private investment into technology up- If the Nation had a balanced budget, I could ican jobs will require high technology skills. grades for K±12 education. support tax cuts but they would have to bene- Thus, without early training in technological lit- PROVISIONS OF THE 21ST CENTURY CLASSROOMS ACT fit all workers, not just the upper brackets. I eracy, many of our future leaders will start The 21st Century Classrooms Act could support education benefits, if they went their adult lives at a severe economic dis- (CunninghamÐH.R. 1153), included in the to all young people, not just those whose par- advantage. Taxpayer Relief Act as title II, subtitle C, sec. ents have $10,000 a year to stuff in an edu- While America's classrooms are supported 223, is designed to spur private investment for cation fund. by dedicated teachers, involved families, and technological upgrades to create and sustain a If the Nation had a balanced budget, I could bright young children, many of our Nation's greater number of 21st century classrooms. support a child credit to help the hard working classrooms lack the important technological Enactment of the 21st Century Classrooms June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4695 Act will help provide schools the tools they SUPPORTED BY EDUCATORS AND CORPORATIONS breaks for the rich. The majority has done ev- need to offer a better education to our young The 21st Century Classrooms Act has erything possible to ensure that the wealthiest people, increase local private investment in gained the support of over 30 members of the families will get the bulk of the benefits. A re- our schools, and ensure a better future for our House, both Republicans and Democrats, in- cent study by the Center for Budget and Pol- country. cluding the chairman of the House Education icy Priorities found that the effect of the com- This provision expands the tax deduction and Workforce Committee, Mr. GOODLING. And bined budget and tax bills will give a $27,000 currently available to computer manufacturers obviously it was included in the Taxpayer Re- annual boost to the top 1 percent of Ameri- making donations of high-tech equipment to lief Act by the Ways and Means Committee cans while raising taxes for the bottom 20 per- university research institutions. It expands the Chairman, Mr. ARCHER. cent of families. class of donors to include any corporation, not Let me summarize just a few of the letters Not only does this bill work against families, just computer manufacturers. And it expands I have received in support of this measure: it is fiscally unsound and irresponsible. Paying the class of recipients to include K±12 Dr. Bertha Pendleton, superintendent of San for these tax breaks will cost us $85 billion schools, certain private foundations, and cer- Diego City Schools, says ``The 21st Century over the next 5 years. In the next 10 years, tain other recipients whose primary purpose is Classroom Act will provide additional incen- that amount jumps up to $250 billion. And 10 to support K±12 education. tives for private enterprise to involve them- years after that we will be spending $700 bil- The measure is intended to provide corpora- selves in preparing students for future employ- lion on these tax cuts. If you support this bill, tions a greater incentive to donate the right ment by giving tax (deductions) to corpora- you will be giving away $700 billion in tax kind of quality computer equipment and tech- tions who donate used computer equipment to breaks to the wealthiest Americans. All of nology toward K±12 education. It takes advan- schools. We applaud this effort and fully sup- America's taxpaying families should share fair- tage of the many ways such donations may be port this measure to help further education ly in any tax cuts that we propose, not just the accomplished, including donations to computer technology.'' select few who will profit under this bill. recycling programs whose primary purpose is Michael Casserly, executive director of the With these facts in mind, I hope that you will supporting K±12 education. It limits the ex- Council of the Great City Schools, says ``the join me in asking a few questions of the bill's panded tax deduction to donations of relatively Council is supportive of incentives to attract supporters. We should ask why they con- new equipment of 2 years age or less. It also contemporary technology into our schools, structed a bill where the bottom 60 percent of limits the expanded tax deduction to donations particularly the neediest schools. As such, the our population shares only 4 percent of the which will expressly fit productively into the re- Council is also supportive of H.R. 1153.* * * benefits and the top 20 percent of the U.S. cipient's education plan. Congratulations on your success.* * *'' population receives 87 percent of the benefits from this tax cut. We should ask why they PRACTICAL EXAMPLES OF HOW THE 21ST CENTURY Thomas Tauke, executive vice president of CLASSROOMS ACT WORKS government affairs for Nynex, says, ``Nynex support a bill that adds to the assault on our Let me describe how this tax incentive fully supports your efforts to encourage busi- already fragile social safety net. We should works. For example, if a corporation buys a nesses to invest in our children. Your new leg- ask them why they're giving a capital gains computer as an asset, it pays $1,000, which is islative proposal, the 21st Century Classrooms break to the 5 percent of Americans who earn the basis. If it sells the computer a year later, Act for Private Technology Investment, $100,000 a year and will reap 75 percent of it may receive $400 in cash. If the company through its expanded tax incentives, will en- the benefits. But don't expect an answer to any of these donates the computer to a nonprofit or school able schools to immerse students into the new questions. With their underhanded approach, under current law, it may take a charitable tax technological environment that they will live the majority has abandoned millions of hard- deduction of the lower of fair market valueÐ and work in!'' working, taxpaying Americans. If the support- $400Ðor the amount that has not been depre- There are many more letters of support. But ers of these tax breaks on both sides of the ciated. If the company donates the computer these excerpts summarize the enthusiasm aisle wanted to be honest about this bill's ef- to an eligible K±12 education recipient under which greets this initiative to technologically fects, they should stand up and tell the Amer- this act, however, it may take a charitable tax upgrade our K±12 classrooms. ican people: ``We don't care if you can't afford deduction of $1,000, which is the basis of IN APPRECIATION day care for your children. We don't care if $1,000, plus one-half of the asset's apprecia- There are many men and women who de- you can't afford to send your sons and daugh- tion, which is zero. serve credit for helping me to develop this ters to college. We don't care that our tax and If a corporation buys a computer as inven- measure, and include it into our bipartisan budget plans will assure that the rich get rich- tory, for example, it pays $500 to build it. If it Taxpayer Relief Act. er at your expense.'' sells the computer on the open market, it re- In San Diego County, I want to specifically But don't expect this kind of honesty from a ceives $1,000 in cash. If instead of selling the recognize Scott Himelstein and Bill Lynch at group that has constructed a child tax credit computer, the company donates it to a non- the Lynch Foundation for Children, John and that is more restrictive than the one proposed profit or schoolÐnot to a scientific research in- Diana Detwiler at the Detwiler Foundation in the contract on America. Passing this bill stitutionÐit may take a charitable tax deduc- Computers for Schools Program in San Diego, will mean that virtually all families with in- tion of $500, which is the lower of fair market and the students, teachers and principals at all comes under $20,000 a year would not be eli- valueÐ$1,000Ðor the amount that has not of the San Diego County schools that showed gible for this child tax credit. If you support this depreciated, an amount equal to or less than me their education technology and their need bill, 28 million of our neediest children and the basis of $500. If instead of selling the for more. I also want to express my apprecia- their families will receive no tax credit because computer, the company donates it to a quali- tion to the House Republican Leadership and their incomes are too low to qualify. We can- fied scientific research institution under current to Chairman ARCHER for including this provi- not allow such an attack on the American fam- law, it may take a charitable tax deduction of sion into the Taxpayer Relief Act. ily to continue unchecked. $750, which is the $500 basis, plus one half Mr. Chairman, a vote today for the Taxpayer I urge my colleagues to oppose this inequi- of the $500 appreciation, totaling no more Relief Act provides Americans long overdue table tax cut. Unlike Mr. GINGRICH, who labels than twice the basis. And, finally, if instead of tax cuts. It also spurs private investment into any proposal that gives lower and middle selling the computer, the company donates it technology upgrades for our schools and for class families their proper share of these tax to a qualified K±12 education recipient under our children, through inclusion of the 21st cuts welfare, I believe that hardworking Ameri- the 21st Century Classrooms Act, it may take Century Classrooms Act. cans should be treated fairly under any tax cut the charitable tax deduction of $750, which is I encourage adoption and enactment of this proposal. I hope that you will demand answers now only available to donations to certain sci- bill. to the questions I have raised and join me in entific research institutions. Mr. CONYERS. Mr. Chairman, I rise in op- exposing this bill for what it really isÐa thinly This measure is designed to work hand-in- position to the so-called Taxpayer Relief Act. veiled scheme to provide welfare for the rich. hand with the educational connectivity provi- Yet again, the majority has demonstrated that Mr. STEARNS. Mr. Chairman, I would like sions of the Telecommunications Act. As the their first priority is to line the pockets of the to talk to you about an amendment I offered Federal Communications Commission devel- richest Americans at the expense of working, at the Rules Committee to the Budget Rec- ops regulations to insure that schools have af- taxpaying families. onciliation Act. This amendment would have fordable high-technology telecommunications I urge you not to be fooled by the majority's established a national fund for health re- connectivity available to them, the 21st Cen- effort to pull the wool over the American tax- search. I offered this amendment because I tury Classrooms Act accelerates the availabil- payers' eyes. Despite claims to the contrary, believe one of the best ways to bring health ity of high-tech equipment in our schools and this tax bill will devastate both middle- and care costs down is to fund health care re- our classrooms. working-class families in order to pay for tax search. Did you know that nearly four to five H4696 CONGRESSIONAL RECORD — HOUSE June 26, 1997 peer reviewed projects deemed worthy of delaying the onset of diseases such as Alz- in many areas. But I am very happy with this funding by the National Institutes of Health heimer's, stroke, and cardiovascular disease major step forward. I am going to consider it [NIH] are not funded? we would save an estimated $35 billion a substantial down payment on a commitment The purpose of my amendment was to pro- through a reduction in the need for nursing we made to the American people 4 years ago vide additional funds for biomedical research home care. Now, to my way of thinking that's when we promised to downsize Government, by investing 1 percent of the Medicare savings not chump change. balance the budget, and cut taxes. included in the bill in critical projects at NIH. Ample evidence exists to demonstrate that We must continue to work in this House and This would accomplished by transferring to health research has improved the quality of in this Congress to totally deliver that promise this account each year an amount equal to 1 health care in the United States. Advances in the next few years. percent of the savings which are achieved in such as the development of vaccines, the cure Mr. CRANE. Mr. Chairman, I rise in enthu- that year from the Medicare amendment in- of many childhood cancers, drugs that effec- siastic support of this bill to provide long-over- cluded in the 1997 Budget Reconciliation Act. tively treat a host of diseases and disorders, due tax relief to the American people. It is estimated that this would provide approxi- a process to protect our Nation's blood supply I have heard criticisms of this bill primarily mately $1.2 billion over 5 years. from HIV virus, progress against cardio- from liberals who are playing the old tired This amendment provides that funds depos- vascular disease including heart attack and game of class warfare. I find their argu- ited in the research fund shall be distributed stroke, and new strategies for the early detec- mentsÐthat this tax relief is unfairly targeted among NIH centers in the same proportion as tion and treatment of diseases such as colon, to the richÐrather ridiculous. These class war- provided in the regular appropriations bill. It is breast, and prostate cancer clearly dem- fare antagonists are from the same crowd who estimated that an additional 1,000 or more re- onstrates the benefits of health research. in 1993 rammed through the largest tax in- search grants could be funded over 5 years in Expanded Medicare research is critical to crease in the history of our Republic. It is no such critical areas as Alzheimer's, Parkinson's holding down the long-term costs of the Medi- wonder that they are resisting the attempt by disease, diabetes, breast cancer, etc. care Program under title XVIII of the Social House Republicans to allow Americans to It also ensures that the full $155 billion of Security Act. For example, recent research keep more of their own money, rather than savings required are still achieved by provid- had demonstrated that delaying the onset of sending it to Washington's bureaucrats. The liberal misinformation campaign about ing that no funds will be transferred to the NIH debilitating and costly conditions like Alz- this tax package is so out of touch with reality unless net savings to Medicare are estimated heimer's disease could reduce general health that they are alienating their overtaxed rank by CBO to reach the $115 billion level. Thus, care and Medicare costs by billions of dollars and file constituents. The fact of the matter is no transfer would occur until gross savings ex- annually. I am hopeful that such a proposal ceed $116.5 billion. It does not impose any that the vast majority of the tax relief in this bill will be enacted by Congress in the future. is provided for individuals, not corporations. new taxes. Mr. KOLBE. Mr. Chairman, this is a great Less than 3 percent of the nearly $1 trillion More specifically, over 71 percent of the tax day for this House and for the citizens of the our Nation spends on health care is devoted relief in this bill will go to those who earn be- United States. Today we take a giant step in to health research, while the defense industry tween $20,000 and $75,000 a year. I do not providing the tax relief that Americans so des- spends 15 percent of its budget on research know what some of my liberal colleagues con- perately need and deserve. and development. sider the rich, but a family earning $40,000 a Today we are about to let people keep more Public opinion surveys have shown that year with two children living in Palatine, IL, a of their income to spend as they wantÐnot as Americans want more Federal resources put city in my district, is far from rich. into health research and are willing to pay for the Federal Government wants. This is the Let me put this in another perspective. It it. That is why I support the initiative to double right thing to do. Taxpayers deserve to enjoy has been 16 years since American taxpayers the NIH budget over the next 5 years. more of the fruits of their labors. The Federal have had a significant tax cut from Washing- The Alliance for Aging has recently con- Government has become too greedy, contin- ton. President Clinton signed the largest tax ducted a study that supports the savings for ually increasing the burden on our citizens so increase in history in 1993 and when vetoed health care costs for the elderly and perma- Washington can distribute taxpayer earnings a major tax cut bill, the Balanced Budget Act, nently disabled who are Medicare eligible by to other groups in society. Today we begin to in 1995. All the while, middle-income families investing in biomedical research efforts as pro- reverse that condition. Even so, we still have have shouldered the largest tax burden than posed under my amendment. a long way to go. at any other time in our history. A family at the In 1995, NIH issued a report that found the Mr. Chairman, I am pleased with many pro- median income level budgets over half of their economic burden of several diseases was es- visions of this bill. But two stand out as espe- annual income to pay for government at all timated to be of tremendous proportions. For cially important for working Americans. The levels. Tax relief for them is long overdue. instance: The costs involved with heart dis- child tax credit and the education incentives. I am pleased to see a number of items in ease was $128 billion; cancer, $104 billion; These provisions actually put money back in this bill that I have been working on for some Alzheimer's, $100 billion; diabetes, $138 bil- the pockets of ordinary, middle income people time. For example, I have promoted legislation lion; mental disorders, $148 billion; arthritis, and help them provide for their children's edu- to increase the value of the tax exemption for $65 billion, stroke, $30 billion, and cation. children and other dependents. The $500-per- osteoporosis, $10 billion. Taxpayers with children get to take $500 child tax credit will give parents this tax relief It is apparent to me that we must do all that per child off their total tax liability. Think of I have sought for so long. In addition, I have we can to either prevent or least slow down what that means to a young family struggling pushed for capital gains tax relief, provided in the onset of these diseases. And we know to get ahead and give their children opportuni- this bill, which is so valuable to home and that many of these diseases do not strike until ties. small business owners. I also support the re- we are in our golden years. These years This bill gives families who send their chil- lief in this bill from the estate or death tax would, in fact, be golden if we could prevent dren to college or other post secondary institu- which has been particularly devastating on or least find a way to treat diseases such as tions a chance to keep more of their earnings family farms and small businesses. I would Alzheimer's. to help with those higher education expenses. rather abolish the capital gains and death Current data tells us that one-third of the $1 It provides a tax credit, up to $1,500 for each taxes, but I believe this bill makes significant trillion spent on health care today goes to peo- student, for half of the tuition and related ex- improvements in both areas. ple 65 and older. In a scant 15 years, the penses during the first 2 years of college or While the bulk of this bill provides tax cuts baby boom generation will begin qualifying for vocational training. It provides a $10,000 de- to individuals, employers also receive some Social Security and Medicare and so, too, will duction per student per year for expenses much-needed tax relief. And let me make it their susceptibility to age-related diseases. through State prepaid tuition plans or edu- clear that tax relief for businesses is about job That is why it is incumbent upon us to find cation investment accounts. Further, it allows creation, competitiveness in world markets, better ways to treat, prevent, or slow down families to make penalty-free withdrawals from and more money in the pockets of American these diseases and we can and must do this any IRA to cover the cost of education after workers. Although the Constitution protects its through research funded by the National Insti- high school Think what a relief this will be for citizens from double jeopardy in criminal tutes of Health because the future costs of hardworking families struggling to make sure cases, the Tax Code offers no similar protec- health care will increase dramatically as the their kids get an education. tion. The alternative-minimum-tax [AMT] forces boomers begin to experience these age-relat- Mr. Chairman, I wish we could be voting on businesses into double jeopardy with two dif- ed maladies. bigger tax cuts. I wish the capital gains tax ferent sets of tax rules, the regular corporate In these days of trying to balance the budg- had been cut more. I wish we had abolished schedule and the AMT schedule. If, after fol- et, we must not lose sight of the fact that by the estate tax. I wish we had given more relief lowing the complex rules and regulations in June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4697 the corporate tax code, the company does not Social Security and Medicare payroll taxes, an centÐhis previous payroll tax for Social Secu- owe enough taxes, they must start all over additional 7.65 percent. rity and Medicare while his former employer with the AMT code, with its own rules and reg- In addition, although this provision purports would pay nothing. He could lose the ability to ulations. The compliance costs, in addition to to be limited to classification for tax purposes, participate in the company pension plan. If ei- the tax burden, has hurt the competitiveness it is likely that employers will also treat work- ther Bill or his wife, Debbie, needed to see a of U.S. businesses against foreign businesses. ers as independent contractors for other pur- doctor, they might be surprised to find that This translates into lost jobs and lower wages poses. Worker compensation laws, minimum they no longer had employer health coverage for American workers. H.R. 2014 provides wage and hour laws, occupational safety laws, through Bill's work. If Bill was badly injured on some much-needed relief from the burdens of and age discrimination laws do not apply in the job, he might be disappointed to find that the AMT. the case of workers classified as independent he could no longer collect workers compensa- If I had any criticism of this bill, it is that it contractors. tion to help put food on the table and pay the does not provide as much tax relief as the Reclassification is already being used mortgage while laid up. If he was laid off dur- American people deserve. I also appreciate against workers and this bill would make it ing a slow period, he might show up at his the view of those who suggest that this bill even easier for employers to drop worker State labor office to collect unemployment, but does not provide for Tax Code simplification. wages, benefits, and protections. The potential would no longer qualify for unemployment in- I, too, am disappointed on both of these for abuse of this provision is real. Last year surance through his employer. counts, but given the current political situation the Department of Labor found that 134 work- Similar reclassifications could occur not just in Washington, we must deal with a President ers in Ohio were improperly classified as inde- for other tradespeople like electricians and who, despite his rhetoric, is not interested in pendent contractors and were receiving as lit- carpenters, but also delivery people, police- providing large-scale tax relief or reform to our tle as $1.50 per hour. In October of last year, men, reporters, and others. country. Given these constraints, I believe that the Ninth Circuit Court of Appeals found that It is not only workers who are concerned Chairman BILL ARCHER of our Committee on Microsoft must pay benefits to a group of about this provision, but conscientious firms Ways and Means did an admirable job in con- workers that the company had intentionally who are wary of unfair competition by unscru- structing this tax bill. misclassified as independent contractors. Re- pulous employers. A group of construction in- I urge my colleagues to support H.R. 2014 classification has been regularly employed by dustry employers testified before the Senate and I look forward to moving ahead and meet- some in the construction industry with respect Finance Committee on June 5 of this year op- ing with members of the other body to put the to laborers and other workers such as super- posing a similar proposal. The Mechanical/ finishing touches on tax relief for Americans. I vised carpenters, masons, plumbers, and elec- Electrical/Sheet Metal Alliance consists of the only hope that the President will see fit to sign tricians. This practice is being carried out Mechanical Contractors Association, the Na- this bill into law. across this country by both large and small tional Electrical Contractors Association, and Mr. KLECZKA. Mr. Chairman, I rise today to employers. the Sheet Metal and Air Conditioning Contrac- This provisionÐidentical to H.R. 1972 of last voice two major concerns regarding H.R. tors National Association. They testified that: CongressÐtoo easily allows an employee to 2014, the reconciliation tax legislation before ``the Alliance does not support the proposals be reclassified as an independent contractor. the House today. I understand that section under consideration today because we are The measure establishes a test which is too 1053 of this bill is Republican payback against gravely concerned that the proposed classi- easy to meet, and therefore many workers the unions who mainly supported Democrats fication criteriaÐwhen applied to the skilled could be reclassified if it were to become law. in the last election. I object to use of the Tax construction workforceÐwould jeopardize the First, the worker must sign a written agree- Code to punish political adversaries, but that entire structure of training, health and welfare, ment providing that he or she will not be treat- is not even among the two main reasons I will pension and other workforce development and ed as an employee. This is not voluntary in cast my vote against this bill today. retention benefits.'' Citing a Bureau of Labor To begin with, I believe we should give the any sense of the word: if a worker wants the Statistics study showing independent contrac- American people capital gains tax relief, but job, he is going to have to sign that agreement tors disproportionately represented in con- this bill clearly provides more than is reason- or he returns home without work. Under the struction, the construction industry alliance wit- able. It both cuts the capital gains rates as measure, once the written agreement has ness alleged that: ``The rise of worker well as indexes the values of assets for infla- been signed, a worker can be classified as an misclassification in construction has nothing to tion. I am all for providing relief, but consider- independent contractor if the worker meets do with career enhancement and everything to ing the huge potential revenue loss of these one criteria in test 1 and one criteria in test 2. do with unfair low-wage competition.'' combined provisions 10, 15, or 20 years from Test 1: The workerÐhas a significant in- now, we should pare down the capital gains vestment in assets or training; or incurs signifi- The alliance alleged that this provision rep- cuts to a more reasonable size. After all, as cant unreimbursed expenses; or agrees to resents a threat to those conscientious con- the bill stands today, the capital gains cuts perform services for a particular time or to struction businesses that undertake to pay, at lead to a loss of $36 billion in 2003 through complete a specific result; or is paid primarily the very least, the legally obligated minimum 2007 alone. This bill should either cut the cap- on a commission basis; or purchases products employer overhead taxes that are a legitimate ital gains rate or index assets, but not both. for resale. cost of doing business. He concluded by stat- But, Mr. Chairman, I rise today mainly to ex- Test 2: The workerÐhas a principal place of ing that ``businesses that cannot afford to pay press my concerns about another provision in business; or does not primarily provide the for the social policy objectives of unemploy- the tax bill before us today that could have a service at the employer's place of business; or ment insurance, social security and workers devastating impact on workers and their bene- pays fair market rent for use of the employer's compensation should not per permitted greater fits. The measure is not only bad policy, but it place of business; or is not required to per- leeway to avoid paying for these established does not belong in this bill in the first place. form services exclusively for the employer, social responsibility programs and shifting It is an attack on working men and women and in the current, preceding, or subsequent even greater costs on their employees, fair disguised as a Tax Code clarification. It could year has: performed a significant amount of employers and the government, as well.'' lead to the end of employee benefits and services for others, or offered to perform serv- This is a dangerous provision that will result workplace protections as we know it. ices for others through advertising, solicita- in a race to the bottom where working men The provision, innocently labeled as a safe tions, or listing with referral agencies, or pro- and women will lose workplace benefits and harbor for independent contractors, would per- vided services under a registered business protections as we know them while legitimate mit many employers to reclassify their workers name. employers will be forced to reduce benefits as independent contractors and thus deny Let me give an example to illustrate my and worker protections to compete with un- those workers employee benefits and worker point. Bill is a plumber who is an employee for scrupulous employers taking advantage of the protections. a plumbing construction and repair company. Republican independent contractor provision. Much of the social safety net enjoyed by If this provision were to pass into law, Bill Mr. Chairman, because of the presence of workers in this country depends on employ- would meet the criteria under this provision this ill-conceived provision and the combina- ment status. Workers classified as independ- because he has his own tools and has paid tion of both a capital gains rate cut in addition ent contractors are not eligible for employer- for his own training and performs his work on- to capital gains indexing, I must vote against provided health insurance or pensions. Inde- site at residences and businesses throughout the bill before us today. I am hopeful that dur- pendent contractors are not eligible for unem- the metropolitan area. Therefore he could be ing conference my concerns will be addressed ployment compensation. Independent contrac- reclassified as an independent contractor. He and I will be able to support the final version tors also have to pay the employer side of the would now have to pay doubleÐabout 15 per- of this legislation. H4698 CONGRESSIONAL RECORD — HOUSE June 26, 1997 Mr. DINGELL. Mr. Chairman, a few weeks economy is growing and inflation is low. The families make so little money that they have ago. I cast my vote in favor of the budget res- Federal deficit has been reduced from more no Federal income tax liability. While these olution with the hope that it would yield a well- than 6 percent of our national output to rough- families pay a significant percentage of their reasoned reconciliation package which I could ly 1 percent. These are things to celebrate, incomes in Federal payroll and excise taxes, support. Clearly, the majority has failed to as- and I join with my colleagues in rejoicing over many of them will nevertheless be denied the sembled such a package. our good fortune and relatively responsible family credit. In addition, under the House Re- I have heard the quote, ``Here we go again,'' management. But as tempting as it would be publicans' bill, the family tax credit is stacked used by some of my Republican colleagues. to indulge ourselves, given these happy cir- after the earned income tax credit, meaning While I applaud the rhetorical effulgence and cumstances, in cutting taxes, I believe that it that taxpayers must offset their tax liability with I agree that it is appropriate in this instance, would be unwise and irresponsible to do so. It the EITC before they can claim the family I question the context in which it is being is at just such a prosperous time that we credit. Given that the family credit is non- used. The legacy of that former PresidentÐ should begin addressing the long-term prob- refundable, many working families will not who so eloquently spoke those wordsÐis the lems that we know will confront us in a few have enough income tax liability left to claim massive Federal debt we are confronting short years. Let's not wait until a crisis is upon the credit; other working families will receive today. So, after a careful review of this tax us and more draconian solutions are nec- far less than the full $500 credit. In all of these package, the only proper conclusion is, ``Here essary. Let us show some leadership today. cases, the low- and moderate-income families we go again.'' What problems lie on the horizon? What who deserve and need a tax break as much We have yet to learn the lesson of 1981. should we be doing instead of enacting tax or more than more affluent families will receive Yesterday, I spoke of how the proposed $20.3 cuts? In the coming years, we will face an in- little or no tax relief under this bill. This is es- billion savings from the broadcast spectrum creasingly competitive global economy and a pecially unfortunate, given that a modest in- auctions are an illusion. It isn't surprising that demographic shift unparalleled in modern his- crease in their disposable income would make those very savings account for nearly one tory. We will need to dedicate more of our na- a real difference in their lives. quarter of the offset for the tax package. tional resources to caring for an increasingly Other provisions in this legislation would re- The budget gimmickry used for the capital older population and taking steps to increase duce taxes on capital gains and index future gains tax cut will explode the deficit after our economic productivity. That means taking capital gains for inflation. These provisions 2002. Because wealthy Americans can pay modest steps now to ensure the long-term sol- would do little or nothing for most Americans, their accrued capital gains in 2002 to receive vency of Social Security and Medicare. That whose major life-time capital gain, the sale of the benefit of indexation, the end result is a means keeping Federal deficits under control. their home after age 55, already goes untaxed one time $6 billion golden egg paid to the U.S. That means investing in our infrastructure and in most cases. And because most capital Treasury. It is a Ponzi scheme which benefits promoting research and development. It gains taxes are paid by the wealthiest Ameri- the wealthiest Americans, a throwback to the means investing in early childhood develop- cans, such a change would reduce the pro- ``voodoo economics'' another Republican ment and improving public education. It means gressivity of the Federal Tax Code signifi- President warned us against. increasing access to higher education. And it cantly. Moreover, the lower capital gains tax In 1948, my father argued against a Repub- means making health care available to all rate and the indexation of capital gains for in- lican plan to allow employers to skip out on Americans. Our country would be better flation would result in a substantial Federal Social Security taxes. It is ironic that I am here served by addressing these challenges than revenue loss in the years beyond the 5- and nearly 50 years later to argue the same posi- by cutting taxes for the affluent. 10-year windows used in the budget reconcili- tion. This bill allows employers to easily re- In addition, I am concerned that these tax ation process. That revenue loss would kick in classify employees as independent contractors cuts will increase Federal deficits substantially at just the time when the Federal Government and to deny employees health care coverage once they are fully phased in. I feel compelled will need to increase spending substantially for as well as their Social Security contribution. to remind my colleagues that the last time we Social Security and Medicare to cover the Republicans speak of class warfare; it is obvi- indulged in a package of massive tax cuts, we costs associated with the retirement of the ous who is on the offensive. This is a blatant precipitated a long series of budget deficits baby boom generation. assault on hard-working Americans. that we are still paying off. As every spend- Similarly, this legislation has changed the It is clear that we are not talking about thrift knows, you can have a pretty good time college tuition tax credit proposed by Presi- granting tax relief for those who need it most. spending borrowed money, but eventually the dent Clinton so that only taxpayers that spend A majority of the benefits in this package go money runs out and the loan comes due. The over $3,000 on college costs will get the full to the wealthiest Americans and it squeezes massive budget deficits of the Reagan years $1,500 credit. The President's HOPE credit those who need relief most, the working poor. helped spur economic growth following the re- would have provided a full dollar-for-dollar tax Why will millionaires be able to sell off stock cession of the early 1980's, but at a heavy credit for the first $1,500 in higher education portfolios and pay less in taxes than middle- cost. Much of the more than $200 billion in in- costs. These changes from the President's class Americans currently pay on income tax? terest payments the Federal Government proposal would make the credit less helpful to It is shameful. makes each year is due to the deficit spending the low-income students who often attend low- The Democratic substitute would correct of the 1980's. The tax cuts enacted in 1981 cost community colleges, and they could pre- these flaws. Our tax relief plan would allow the contributed substantially to those deficits. vent some of these students from pursuing parents of 24 million more children to benefit Similarly, the tax cuts contained in the legisla- education beyond high school. Such an out- from the $500-per-child tax credit. Capital tion we are considering here today will come would deny many low-income individ- gains and estate tax relief are targeted to- produce large revenue losses in the coming uals access to educational opportunity, but we wards small businesses and families. It per- decadesÐjust when the retirement of the baby would all suffer from the adverse impact that mits homeowners to who sell their homes at a boom generation will place increasing pres- this outcome would have on our country's pro- loss to take a tax deduction. Most importantly, sure on the Federal budget. I believe that the ductivity. two-thirds of the benefit go to those making short-term benefits this legislation would pro- The pattern is clear. The distributional ef- less than $75,000. vide would be more than offset in the out- fects of this tax cut package are abysmal. I urge all of my colleagues to oppose this years by the long-term fiscal difficulties that it More than half of the tax relief in this bill shameful Republican tax scheme and vote for would produce. That is a second reason that would go to the top 5 percent of taxpayersÐ the Democratic substitute. I believe these tax cuts are unwise. those with incomes of more than $100,000Ð Mr. COYNE. Mr. Chairman, I rise today in As I stated earlier, however, it is clear that once its provisions are completely phased in. opposition to the tax provisions of the 1997 Congress intends to pass a substantial tax bill If Congress is determined to pass a tax cut, it reconciliation bill. I oppose this legislation for this year. Given the likelihood that we will, in should at least ensure that the bulk of the tax a number of reasons. The most important rea- fact, do so, I strongly believe that we should relief that it provides goes to the people who son is that I believe that now is not the time pass a bill that is more equitable than the bill need it mostÐthe hard-pressed, hard-working for tax cuts. I believe that such a move would we have before us today. The Republicans low- and moderate-income households that be irresponsible. Given the widespread sup- have produced a bill that would do relatively are playing by the rules and struggling to port in Congress for a tax cut bill, however, I little for the average American family. make ends meet. believe that a much more equitable bill The $500 family tax credit is not refundable, There are a number of other objectionable couldÐand shouldÐbe enacted. which means that families that do not have provisions in this legislation, too many to be The economy today is in better shape than any Federal income tax liability will not receive mentioned here. Let me just mention one in at any other time in the last 25 years. The any family tax credit money. Many low-income passing. The bill would change the way in June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4699 which independent contractor status is deter- ence would dictate and common sense prevail a normal recreational activity. There mined. This change would most likely have that such aspects of the Tax Code shouldn't are at least 14 other controversial films the result of stripping thousandsÐand perhaps be placed on automatic. distributed by Women Makes Movies, millionsÐof workers of their employee status While I do not support the present tax bill, Inc. and the benefits that that status conveys. It I do strongly support the alternative that will The Federal Government should not could lead to lower pay, the loss of health in- be offered today. That alternative provides a be in the business of determining what surance coverage, ineligibility for pensions, more targeted approach to tax relief. The is art and what isn’t art. Individual and the loss of protection under State and Democratic substitute legislation fulfills the citizens and private groups should have Federal labor and workplace safety laws for commitment to helping middle and working the freedom to choose what art we wish many hard-working individuals. class families and children to afford the costs to patronize and what we choose to ig- Mr. Speaker, this legislation has very seri- of post-secondary education. This alternative nore. ous problems. I urge my colleagues to reject provides a child credit and does not deny that Today, I would like to enter into the a major tax cut and, instead, to address the credit to families that have lower incomes and CONGRESSIONAL RECORD a copy of a long-term fiscal problems that confront our whose major tax payments are the payroll tax. brief article from the May 30th edition country. Barring that approach, I urge them to The Democratic substitute maintains the com- of Human Events which covered Chris- work with me to produce a reconciliation bill mitment to estate tax reform and to reducing tian Action Network’s art exhibit on that we can all supportÐone that provides tax the real estate capital gains taxes without Capitol Hill. I urge my colleagues to relief for America's working families in a fis- mortgaging our future. It permits the full read this article and to vote to abolish cally responsible fashion. earned income tax credit to remain in place, the National Endowment for the Arts Mr. VENTO. Mr. Chairman, this legislation benefiting the working poor. for fiscal year 1998. reminds me of Cinderella's stepsister trying to Mr. Speaker, the Rangel alternative builds [From Human Events, May 30, 1997] slip a size 10 foot in a size 5 glass slipper. It upon the outstanding success that Congress CAPITOL POLICE CONFISCATE NEA ‘ART’ AS just won't work. And hopefully the American has had in working with President Clinton to OBSCENE people will, like the Prince's emissary, dis- reduce the deficit. This has not been an easy On May 21, the U.S. Capitol Police con- cover what a fraud this legislation is. process but now that the goal of a balanced fiscated 17 pieces of taxpayer-funded ‘‘art’’ I supported the budget framework adopted budget is so close we must not yield to the displayed on the Capitol steps as a part of an by Congress this year. Frankly, I was con- exhibit put on by the Christian Action Net- siren call of tax breaks without discipline. We work (CAN). Congress’ security force is now cerned and did have reservations about the cannot and should not turn back on that seeking an arrest warrant for CAN President tax portion of the agreement. I was concerned progress to merely score political points. I Martin Mawyer for publicly displaying ob- that the Republican majority would not be able urge my colleague to support meaningful defi- scene images. to resist the opportunity to load up the tax bill cit reduction and balanced tax reform by pass- The National Endowment for the Arts with provisions that benefit the very rich at the ing the Democratic alternative. (NEA), long a target of conservatives for expense of working and middle class Ameri- Mr. SOUDER. Mr. Chairman, on being wrong in principle, wasting taxpayer cans and that despite its rhetoric, the majority Wednesday, May 21, the Christian Ac- money and funding obscene and blasphemous tion Network, a nonprofit lobbying or- art, granted federal funds to the artists who leadership is willing to sacrifice deficit reduc- created the unfit-to-be-seen works. ‘‘Fi- tion and the real progress that we have made ganization dedicated to the protection nally,’’ Mawyer told Human Events, ‘‘some- over the past 4 years. of the American family, tried to dis- one in law enforcement authority has de- Unfortunately, these fears have been real- play art funded by the National Endow- cided this is obscene. . . . Now, when we go ized. Like children in a candy store, the major- ment for the Arts on the steps of the around from [congressional] district to dis- ity party has not been able to restrain them- U.S. Capitol as part of their touring ex- trict to increase support for eliminating the selves from loading up with goodies. Like all hibit, ‘‘A Graphic Picture is Worth a NEA, we can show pictures of the Capitol candy, this bill is fattening. It will fatten the Thousand votes.’’ The purpose of this Hill police confiscating this.’’ NEA-funded photographs titled ‘‘Bobby pocketbooks of the wealthiest in our Nation touring exhibit is to protest NEA fund- Masturbating’’ and ‘‘Woman Castrating a while swelling the Federal deficit. ing of obscene and anti-Christian art. Man’’ were among the confiscated material, The nonpartisan research organization, the However, the U.S. Capitol Police as was a collection of stories called the Citizens for Tax Justice, has analyzed the real would not let the Christian Action Net- ‘‘Highways Brochure.’’ One of them ‘‘in- impacts of this tax bill. Their analysis has de- work display the NEA funded art on cluded a description of sex with [House termined that 57 percent of the benefits of the the basis that the art was obscene. In Speaker] Newt Gingrich’s mother,’’ said tax cuts will go to people with incomes over addition, the Capitol Police confiscated Mawyer. $109,000, while average families, with in- 17 pieces of NEA-funded art and are U.S. Capitol Police spokesman Sgt. Dan Nichols said May 22, ‘‘It is up to the U.S. at- comes between $21,000 and $57,500, will seeking a warrant for the arrest of torney’s office for the District of Columbia only receive 17 percent of the benefits. Incred- Christian Action Network president, to decide whether or not to issue a warrant. ibly, families with income levels below $21,000 Martin Mawyer. We will probably submit an affidavit today, will get no tax cut or could actually pay more The simple fact that the U.S. Capitol perhaps tomorrow.’’ He said they were defi- taxes under this bill. This outcome is particu- Police would not let the Christian Ac- nitely seeking Mawyer’s arrest. larly harsh for young families trying to suc- tion Network display this art proves Since taking over Congress, Republicans ceed. The discrepancy between the very rich Mr. Mawyer’s point that the National have cut the NEA’s budget to $99.5 million a Endowment for the Arts is using tax- year. But conservatives vow to enforce a deal and ordinary working families is highlighted by struck in 1995 with House GOP moderates the disclosure that this tax bill contains a $9 payer money to pay for obscenity and which called for the complete elimination of million tax break that benefits approximately to support people who produce illegal the NEA’s funding by Fiscal 1998. 1,000 individuals. art. The NEA is an affront to religious Mr. BERRY. Mr. chairman, I rise today in re- Through a creative implementation sched- beliefs, heritage, and sense of fairness gretful opposition to the Republican tax pro- ule, the tax bill masks the true impact the loss and the agency needs to be eliminated. posal. of revenue and size of the tax breaks, result- It has been proven over and over again I am a strong supporter of tax relief for the ing in a gap between tax expenditures and that simple restrictions and reforms on American family and for our small business. program expenditures. Just when the Amer- the NEA don’t work. Were I to craft the perfect tax package, I ican taxpayer thinks the long fight to end the Jane Alexander maintains that she would devote over half of its tax relief to small Federal deficit is at an end, the full impact of has cleaned up the NEA but this is businessÐreducing the estate tax so that fam- this backend loaded legislation will hit. The clearly in doubt. For instance, the NEA ilies can pass on their business from genera- Center on Budget and Policy Priorities esti- has given $112,700 over the past 3 years tion to generationÐestablishing a better home mates that the Republican tax bill will blow a to Women Make Movies, Inc., a non- office deductionÐincluding provisions to allow hole of between $600 and $700 billion for the profit organization that produces and for some independent contracting. In addition, second 10-year period from 2008 through distributes independent films by and I would provide relief for our families by includ- 2017. That type of fiscal time bomb should not about women. One such film was ‘‘Wa- ing a $500 per-child tax creditÐthe Presi- be fused by the passage of such a tax policy termelon Woman’’ which portrays dent's tax credits for higher educationÐand measure. Indexation of various tax breaks in graphic sex images, is strewn with deductibility of tuition and expenses. this measure further digs the deficit hole that graphic and degrading sexual language, This proposal violates the bipartisan budget we are trying to extract ourselves from, experi- and portrays the use of illegal drugs as deal and results in an escalating deficit over H4700 CONGRESSIONAL RECORD — HOUSE June 26, 1997 the next 10 years. Not only does it not meet The Democratic plan is the one that makes the President work toward simplifying the tax our objectives of balancing the budget, it wors- the most sense for our economy, for edu- code wherever possible.'' ens the deficit. cation, and for our future. We provided Congress with 60 specific pro- My ideal proposal would not include the Re- Mr. UNDERWOOD. Mr. Chairman, it is truly visions of the tax code that the tax writing publicans' costly reduction in tax cuts to large unfortunate that this bill shortchanges the committees could consider simplifying or re- corporations that explode our Nation's deficit working poor of this Nation and carves out tre- forming. And, I'm pleased to note that, under and make it impossible to balance the Federal mendous benefits for the wealthy. Those who the leadership of Chairman ARCHER, 23 of budget. While I support and will continue to need the relief the most are given the least these tax simplification proposals are in this fight for the enactment of the small business under this legislation. It uses the language of bill. proposals included in the Republican package, helping all families with children but delivers to I'd like to mention two: providing broad cap- and would in fact have preferred a larger re- only halfÐthe top half. But Mr. Chairman, I ital gains tax relief for those who sell their duction in the estate tax, I cannot support a rise this afternoon to bring to the attention of homes; and protecting State and local public return to the so-called trickle down economics my colleagues an issue of specific concern to pension plans from needless IRS regulation. that resulted in the rapid expansion of our na- Guam and the Insular areasÐthe airline tax Several months ago, BEN CARDIN and I in- tional deficit since 1981. I am old enough to provision contained in this reconciliation bill. I troduced legislation to provide a capital gains remember the incredibly adverse impact of the want my colleagues to know when they vote exclusion from taxes for home sales. Under Reagan plan on our national economy. for this bill they will be voting to treat Amer- our proposal, which is incorporated in this bill, In casting this vote today, I had to carefully ican citizens as foreigners. The new inter- the number of people paying capital gains on consider what was best for those I representÐ national tax of $15.50 for both departure and the sale of a home will be reduced from the citizens of the First District. I believe that arrival may be a good idea when applied to 150,000 to 10,000 a year. This provision will the immediate, temporary political gain from just thatÐinternational passengersÐbut unfor- eliminate the need to keep detailed records supporting this Republican tax reform proposal tunately this tax goes beyond just taxing inter- and file complicated reports. Mr. Speaker, is not worth the ultimate, long-term harm to national tourists. It affects American citizens that's real simplification. And by doing away with the current rollover America's economy that would result from the flying from Guam traveling to the mainland rules and the limited ``over 55 exclusion,'' enactment of this tax package. The Repub- United States. This issue has been addressed homeowners will have more flexibility. They no lican tax proposal makes a lot of promises but by a special rule for other communities that longer will be forced to buy up in order avoid does not contain any mechanism to ensure face a similar burden during an already costly the tax bite. This will allow homeowners to use that the budget will continue to be balanced. trip to the U.S. mainland. I hope that the chair- their savings to plan for retirement, meet edu- It is fiscally irresponsibleÐphasing in the larg- man examines this provision in conference cation expenses for their kids and otherwise est tax cuts over a 10-year period harms the and works to bring fairness in a bipartisan way enhance their quality of life. budget and will destroy the deficit. to our American citizens from Guam and the Our proposal recognizes that a home is the The Blue Dog Democratic alternative that I other insular areas. primary source of savings for most American am supporting today is better for the American Mr. DUNCAN. Mr. Chairman, as members families. Instead of forcing homeowners to taxpayer, and better for American small busi- of the House of Representatives, we each give up all the money they've made on their ness, than the Republican proposal for the fol- hold dear to us a number of founding prin- home sale to Uncle Sam, Congress can give lowing reasons: Our bill eliminates the so- ciples which make our democracy truly excep- families a real break. called back loading from the Republican plan, tional. One of these principles I am sure we all The second proposal, which I also authored which harms the economy in the long term cherish is sensible, responsible, and coordi- with BEN CARDIN, will ensure that State and and will increase the federal deficit; it provides nated government. local pension plans will not have to undergo more estate tax relief than the Republican It has been a long-standing, established unnecessary and costly testing of their plans planÐphasing it in immediately for our family practice in the aviation industry to deduct as for compliance with complicated pension cov- farms and businesses; it eliminates the cor- current expenses the costs of FAA-mandated erage rules. These rules are inappropriate for porate welfare provisions in the Republic bill aircraft safety inspections, maintenance, and public plans. In fact, participation in public and dedicates that money to deficit reduction; repairs. pension plans is often mandatory, and full-time and, it includes a $500 per-child tax credit; the Recently, however, the IRS has sought to public employees enjoy almost twice the pen- President's Hope Scholarship, and deductibil- drastically reverse this policy. This reversal sion coverage rate of their counterparts in the ity of tuition for students. forces the cost of major FAA-mandated safety private sector. Furthermore, State and local Mr. Speaker, today's vote is simply the first inspections, maintenance, and repairs to be governmental plans already come under a step in a long budget process. I am confident capitalized, rather than being immediately ex- high level of scrutiny from elected officials, that Congress will be able to work in a biparti- pensed. This action unfairly penalizes airlines voters, and the media. There simply is no san manner to provide meaningful tax relief to for complying with the FAA's mandated safety need to burden plans with unnecessary IRS America's families and small businesses. regulations. regulations and costs. Mr. FAZIO of California. Mr. Chairman, I Further, the IRS has not submitted this Mr. Chairman, both of these proposals offer thank the ranking member. change to Congress as proposed regulation, true simplification. I'm pleased the Ways and It is easy to see what the special interests nor as a proposed regulation change. If it had, Means Committee included them and I'd like want in a tax cut. Just look at the Republican these actions would be open to public scru- to note that the other body has incorporated bill. tiny, interagency coordination and congres- them in its tax package as well. I urge my col- But American families, according to a poll in sional review. leagues to support H.R. 2014. the Wall Street Journal published today, want Changing tax-policy on airline safety-related Mr. PACKARD. Mr. Chairman, Americans two things: A tax cut to make college afford- activities should be consistent with, not con- are working harder than ever before, too often able, and a tax credit so they can afford child tradict, the actions of the FAA. It is bad public struggling to make ends meet, even with two care. policy to create a tax penalty on the safety-re- incomes. The Taxpayer Relief Act is a first On both counts, the Democratic alternative lated efforts that others within the administra- step toward allowing taxpayers to keep more wins hands down. tion are trying to encourage. of what they earn. We need to send more Instead of being loaded with fat capital In addition, the IRS, by avoiding the regu- money back to hard-working Americans and gains cuts and benefits for corporations, it latory rulemaking and legislative process, is keep it out of the Government coffers. puts higher education in reach for millions of denying the public, other affected agencies, The Taxpayer Relief Act gives the American more Americans. and, to some degree, even Congress partici- people the tax relief they deserve. We are Instead of tax breaks for the rich, it makes pation in this aviation safety policy matter. helping every taxpayer at every stage of life. community college an option for nearly every Mr. PORTMAN. Mr. Chairman, as many of This tax relief proposal helps every taxpayer American who wants the opportunity to enroll. you know, for the last year, I have cochaired at every stage of life. Our child tax credit will Instead of massive estate tax reductions, it the Commission on Restructuring the Internal help parents meet the needs of children and allows workers who want to learn new skills Revenue Service. Yesterday we issued our re- teenagers. Higher education is more within needed in our changing economy, tax credits portÐthe culmination of a year-long study of reach because we have built on the Presi- so they can afford to learnÐand earnÐmuch the IRS. One of our central recommendations dent's HOPE education proposal. And those more. deals with the need to simplify our tax system. who have worked hard, played by the rules This debate isn't about whether we cut In fact, quoting from our report, the Commis- and saved for retirement will be rewarded, not taxes. It's who we cut them for. sion ``strongly recommends that Congress and penalized. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4701 Mr. Speaker, critics of our tax relief plan hold income in the Fourth Congressional Dis- ering tax relief for American families: First, tax claim that it is geared toward the rich. Three- trict is 50 percent higher than the national av- cuts should not explode the deficit in future quarters of the tax relief provided in this pro- erage, but we are not rich, because taxes and years, increasing the tax burden on our chil- posal will go to those earning less than the cost of electricity take so much out of our dren; second, the majority of the tax cut bene- $75,000. I'd say it's obvious that hard-working, pockets. It is not uncommon for a two-income fits should flow to those who need it most, middle-income Americans benefit the most household in my district to make over $70,000 working and middle-income families; and third, from our plan. a year and still just get by, having trouble put- tax cuts should enhance the economic and re- Under our plan, the typical family of four ting their kids through college. tirement security of average Americans. with a household income of $35,000 a year Long Island is a great place to live and raise Unfortunately, in my view, the Ways and would see its taxes slashed 40 percent from a family, but the tax burden is driving young Means tax bill fails to adhere to these prin- $2,625 to $1,573 a year. If one child were in people and businesses away from our region. ciples. I am especially concerned about the college, the tax relief would rise to 78 percent. My constituents tell me that the best way to bill's shortcoming with regard to retirement se- This is real relief for middle-income families. ensure Long Island remains productive and curity. First, the bill makes the wrong choices Mr. Speaker, the average Californian healthy is through tax relief. when it comes to expanding individual retire- spends 2 hours and 45 minutes of each work- The bill we are debating today is far from ment accounts [IRA's]. And second, it targets ing day laboring to pay taxes. This is greater perfect, but I cannot in good conscience deny educators for pension reductions. than the time worked to pay for food, shelter my constituents much-needed relief from taxes Mr. Chairman, I am a strong proponent of and clothing combined. It hasn't always been by letting the perfect be the enemy of the expanding IRA's for working and middle-in- that way. Our plan ensures that this will not be good. This bill will make a positive difference come families and have introduced legislation the case in the future. in the lives of people in my district, and for to do so. Yet, there is a right way to go about Hard-working, tax-paying citizens have fi- that reason alone, I plan to support it. IRA expansion and a wrong way. The right nally won a major victory. Tax relief has be- The family tax credit will provide relief for way is to create new savers by providing extra come a reality because the American people families struggling to make ends meet. The tax incentives for low-wage workers and mak- spoke loudly and we have listened. capital gains tax reductions will provide direct ing more middle-income families eligible for Ms. VELAÂ ZQUEZ. Mr. Chairman, I rise in tax relief for the Fourth District, where the av- IRA tax deductions. Working income Ameri- strong opposition to this tax giveaway for the erage home value is $173,600. The bill also cans have tremendous difficulty saving today rich act of 1997. From capital gains tax breaks provides needed estate tax reform, increasing amid the press of monthly expenses and it is to hidden loopholes for the privileged fewÐ the exemption from $600,000 to $1 million. toward this group that we should direct IRA Republicans have loaded this budget. This will help family-owned businesses in New tax savings. Unfortunately, the bill before goes about IRA America's wealthy have much to celebrate York, a State which has over 600,000 small expansion in precisely the wrong way. It es- under this billÐ41 percent of the tax cuts will businesses. tablishes so-called backloaded IRA's which al- benefit taxpayers making more than $250,000. Most importantly, this bill will provide tax in- most exclusively benefit the wealthy and which Meanwhile, families earning less than $23,000 centives for higher education. My constituents absolutely explode in cost outside the budget will get no tax relief. This is unfair, Mr. speak- believe very strongly in the importance of edu- window. With backloaded IRA's, wealthy indi- er. Democrats and the American people will cation, and they tell me that they want the viduals can place substantial amounts of their Federal Government to help prepare young not stand for this tax sham. investment income in an account where earn- Who do Republicans think they are fooling? people for the future. As a member of the ings and distributions will never be taxed. They want to fatten the pockets of the rich and House Education and the Workforce Commit- While the well-to-do can shelter their income of the big corporations. Even the Wall Street tee, I believe expanding access to education in this way, backloaded IRA's do nothing to Journal admits that the poor and middle class will lead young people to success in life and provide tax relief to the low- and moderate-in- are given scraps. Just look at how this out- away from crime and gun violence. come families who have such a difficult time As I said, there are several provisions in this rageous bill treats working mothers. saving for retirement. In fact, while taxpayers Republicans promised a $500 child tax bill which trouble me. For one thing, I am with incomes in the top 5 percent would save credit to help all families. But now they want deeply concerned that section 931 will threat- thousands per year with backloaded IRA's, to exclude more than half of the children en the economic well-being of thousands of families in the bottom 40 percent would realize around the country. In New York alone, they bakery drivers and their families. This provi- no tax savings whatsoever. would exclude over 3 million children. To Re- sion, which would drastically overturn long- Mr. Chairman, if there was one group publicans, the child tax credit is acceptable standing Federal policy, was attached to this whose retirement security we should all want only for a wealthy family, but they call it wel- bill with no debate or discussion in committee to protect it is the dedicated individuals who fare for a working family. or the full House. educate our children. Yet, this bill singles out If that injustice is not enough, Republicans in addition, I oppose provisions which would for pension reductions the educators who work want to punish 2 million working, middle-class reduce the retirement savings of current and to impart knowledge and values to our young women by reducing their child tax credit for future college and university retirees by re- people, the researchers who achieve the sci- child care. it is sad that the party of ``family moving the tax-exempt status of the Teachers entific and medical breakthroughs so critical to values'' does not want to help working fami- Insurance and Annuity Association-College our quality of life, and the office and service lies. Retirement Equities Fund [TIAA±CREF]. workers who help make our universities the Real tax relief should go to the struggling Furthermore, I am afraid that provisions of pride of the world. These are the people who single mother with children, to the low-income this bill unfairly penalize graduate students by have been served for 80 years by the Teach- family fighting poverty, to the middle class who repealing section 117(d), which makes remit- ers Insurance and Annuity Association-College carry the vast majority of the tax burden. ted tuition tax-free, and by failing to extend the Retirement Equities Fund [TIAA±CREF]. These are the victims of your tax bill. These section 127 exclusion for employer-provided This tax bill would revoke the longstanding are the Americans who will suffer. We need tuition assistance for graduate students. As a tax-exempt status of TIAA±CREF's pension tax relief that fairly benefits all communities. cosponsor of H.R. 127, legislation to perma- operations, a change which could reduce the The Republicans could not be trusted to nently extend section 127 for both under- incomes of retired university personnel by as keep their word under the budget agreement. graduate and graduate students, I will work to much as 3 to 5 percent. And we're not talking And, they cannot be trusted with our children's make this provision fair for all higher education about a group of wealthy professors here. The future. They have failed working women. They students. average TIAA±CREF beneficiary earns less have failed our children. They have failed the I pledge my continued efforts in the coming than $12,000 per year in pension income. Mr. hard-working American family struggling to weeks to address these concerns, and I am Chairman, at a time when we are rightly trying bring in a paycheck. hopeful that the bill will be improved in the to attract the very best talent to help educate I strongly urge my colleagues to fail this out- conference committee. More importantly, I our Nation's children, we should not single out rageous Republican tax plan. plan to work hard to ensure that Congress educators and jeopardize their retirement se- Mrs. MCCARTHY of New York. Mr. Chair- passes immediate, meaningful tax relief for the curity. man: I rise in support of H.R. 2014, the budget families and businesses of the Fourth Con- Mr. Chairman, I urge may colleagues to op- reconciliation tax legislation. gressional District and the entire Nation. pose this tax bill. The Senate has taken a When I talk to my constituents back home, Mr. POMEROY. Mr. Chairman, I believe that more balanced approach and I sincerely hope they tell me overwhelmingly that taxes are by there are three important principles that Con- that the tax bill will come back from the con- far their biggest concern. The median house- gress and the President should follow in deliv- ference in a form that we can all support. H4702 CONGRESSIONAL RECORD — HOUSE June 26, 1997 However, this bill represents the wrong tax re- In despicable disregard for the nonwealthy in 1988, this bill mostly provides tax relief for lief priorities and undermines rather than ad- American worker, Republicans have included upper income Americans with little relief for vances our Nation's retirement security. a provision in H.R. 2014 that would expand middle-income families. Mr. OWENS. Mr. Chairman, I rise in vehe- the definition of independent contractor provid- A report issued by the Center on Budget ment opposition to H.R. 2014, the Budget ing employers wholesale freedom to change and Policy Priorities shows that under this bill, Reconciliation Tax Act. It is appalling that just the classification of their workers from employ- the very wealthiest 1 percent of families would 1 month ago, Republicans enjoyed photo op- ees to independent contractors. No one pre- get their incomes boosted by an average of portunities and media blitzes in which they pared the American people for another assault $27,000 a year, while families struggling at the celebrated an historic agreement between the on the average worker and this provision was bottom 20 percent of the economic ladder ac- White House and the Republican leadership. definitely not apart of the White House-Repub- tually end up losing an average of $63 a year. Unsurprisingly, the parameters of this agree- lican budget agreement. If a worker is classi- I will be supporting the Democratic alter- ment have begun to unravel and H.R. 2014 fied as an employee then he or she is pro- native because it ensures that over 70 percent represents the consummate slap in the face to tected by a myriad of laws regarding minimum of the tax cuts go to families earning less than everyone who was told that this agreement wage, overtime pay, workers' compensation, $100,000 per year. The American people want was honorable and genuinely beneficial to all and health care and retirement benefits pack- to see our Federal budget balanced. However, of the children, women, and men of America. ages. However, if a worker is classified as an lower- and middle-income families need tax in- It must be exposed the H.R. 2014 is a moral independent contractor, the employer can centives themselves as they struggle to make and economic sneak attack on people who are deny this worker these very basic protections ends meet financially. not lucky enough to be rich, realize capital and benefits. It is estimated that millions of The cost of college education for children is gains, utilize a corporate depreciation allow- workers would be affected should this provi- of major concern to many lower- and middle- ance, work on a job that provides real bene- sion be enacted into law. income families. College tuition rates continue fits. Finally, H.R. 2014 would provide small tax to increase at a staggering rate each year. At a time when individuals are bearing a incentives to economically depressed areas in The Democratic bill makes the HOPE scholar- larger share of the Federal tax burden, H.R. the District of ColumbiaÐa laudable goal at ship tax credit available for all 4 years of col- 2014 includes changes to U.S. tax policy first glance. However, given the overall eco- lege education, instead of just 2 years under which would overwhelmingly benefit the cor- nomic hunger in many U.S. cities, including the GOP bill. In the final 2 years, a 20-percent porate wealth. H.R. 2014 would reduce the our Capital City, the crumbs in this bill are credit for tuition costs would be available. capital gains tax and modify the estate tax grossly inadequate. The bill would designate a Also, the HOPE scholarship credits would not structure. According to the Center on Budget number of areas in the District of Columbia as be reduced by a student's Pell grant and other and Policy Priorities, the top 20 percent of the enterprise zones for 5 yearsÐfour specific nontaxable Federal scholarships. U.S. population would receive 87 percent of areas and any census tract where the poverty Many middle-income families operate small the benefits, while the bottom 60 percent of level is at least 35 percent. However, the businesses and farms and need estate and the population would receive a paltry 4 per- Democratic substitute bill would expand the gift tax reform. The Democratic substitute cent of these tax benefits. In fact, the wealthi- number of current empowerment zones from 9 raises the exemption among from paying es- est 1 percent of the population would enjoy a to 29Ðand the number of enterprise commu- tate taxes from $600,000 to $1 million effec- rise in after-tax income of approximately nities from 20 to 100. Empowerment zones re- tive January 1, 1998, instead of the year 2007 $27,000. And more than half of the benefits of ceive a combination of tax incentives and Fed- in the Republican version. Many of our family the Republican tax plan would go to the eral grants in order to enhance employment farms and family-owned businesses cannot wealthiest 5 percentÐpeople making an aver- opportunities and encourage community devel- survive from one generation to the next be- age of $250,000 a year. opment in blighted areas. In 1994, when the cause of the high taxes our current laws bring Moreover, H.R. 2014 would deny the highly first round of Federal EX's and EC's was com- about. Family-owned businesses are vital to publicized child tax credit to working-class pleted, out of the 500 applications, only 29 expand our national economy, and this sub- families. Some families would be able to bene- were awarded. There are hundreds of cities in stitute allows for these businesses and farms fit from the $500 per child tax credit. However, the United States with double-digit unemploy- to thrive. those lower income families who receive the ment rates and high poverty rates and the Re- Finaly, the Democratic bill targets the capital earned income tax credit [EITC] and have no publicans wish to focus only on the District of gains reductions to middle-income American Federal tax liability would be declared ineli- ColumbiaÐa city where a great deal of media families. Mr. Speaker, I realize that difficult gible for the child creditÐ15 million families. attention is concentrated. We cannot be satis- choice have to be made to take on a chal- Under H.R. 2014, the child tax credit could be fied by this pittance when the overall need is lenge as large as reducing the Federal debt nonrefundable and reduced by amounts re- so dramatic. once and for all by 2002. However, I cannot ceived by families under EITC or the depend- The Children's Defense Fund, Public Citi- support legislation which ignores the financial ent care tax creditÐwhich pays a portion of zen, National Low-Income Housing Coalition, needs of lower- and middle-income families in child care expenses. This means that a family AFL±CIO, the National Education Association, order to benefit the wealthy. All time for general debate has ex- with two children earning $25,000 per year and two dozen other organizations have cir- pired. would not receive the child credit. Republicans culated a letter to Members of Congress in The CHAIRMAN pro tempore. Pursu- argue that the credit is not for families who collective opposition to the regressive tax cuts ant to the rule, the amendment num- have no Federal tax liability. Unfortunately, that are included in H.R. 2014. They state un- bered 2 in the CONGRESSIONAL RECORD this shortsighted argument presents only half equivocally, the picture: These families still pay payroll is adopted. The bill, as amended, is We * * * urge you to oppose significant tax considered as an original bill for the taxes, State taxes, and local taxes. As such, cuts for our Nation’s wealthiest citizens. they deserve relief. * * * The budget accord diverts important purpose of further amendment and is The Republicans further contend that fami- resources to tax reductions * * * we hope you considered as read. lies already receive a credit [EITC] and should will focus on moderate tax cuts for low and The text of H.R. 2014, as amended, not benefit from another one. This argument is middle-income Americans, not tax subsidies pursuant to House Resolution 174, is as laughable given that the majority is prepared for the wealthy that have little economic ra- follows: to repeal and scale back the alternative mini- tionale and blow a hole in the deficit. SECTION 1. SHORT TITLE; AMENDMENT OF 1986 mum tax [AMT]Ða tax that was first levied in I challenge my colleagues to declare the CODE. (a) SHORT TITLE.—This Act may be cited as 1969 and strengthened in 1986 when it was Republican crown jewel null and void. Send it the ‘‘Taxpayer Relief Act of 1997’’. discovered that corporations took advantage back to the drawing board and bring the (b) AMENDMENT OF 1986 CODE.—Except as of hundred of billions of dollars' worth of tax American people and this Congress a bill that otherwise expressly provided, whenever in breaks and ended up paying no income taxes is fair and genuinely poised to provide the this Act an amendment or repeal is ex- at all. The scaling back and repeal of AMT is economic relief that is needed by all of our pressed in terms of an amendment to, or re- expected to cost U.S. taxpayers an abomi- communities and families. A great injustice is peal of, a section or other provision, the ref- nable $22 billion over a 10-year period. Be- taking place. Vote ``no;; on H.R. 2014. erence shall be considered to be made to a cause the Tax Code is rife with more than $70 Mr. COSTELLO. Mr. Chairman, I rise today section or other provision of the Internal Revenue Code of 1986. billion in tax breaks, deductions, and creditsÐ in opposition to the Republican leadership's (c) TABLE OF CONTENTS.—The table of con- corporate welfareÐbillion-dollar corporations tax bill. While I have supported a balanced tents for this Act is as follows: can end up owning $0 in taxes. budget amendment since coming to Congress Sec. 1. Short title; amendment of 1986 Code. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4703 TITLE I—CHILD TAX CREDIT; TAX INCEN- Sec. 504. Extension of treatment of certain Sec. 917. Minimum pension accrued benefit TIVES FOR DEPENDENT CARE AND rents under section 2032A to lin- distributable without consent HEALTH CARE FOR CHILDREN eal descendants. increased to $5,000. Sec. 101. Child tax credit. Sec. 505. Clarification of judicial review of Sec. 918. Clarification of certain rules relat- Sec. 102. Inflation adjustment of limits and eligibility for extension of time ing to employee stock owner- other modifications of depend- for payment of estate tax. ship plans of S corporations. ent care credit. Sec. 506. Gifts may not be revalued for es- Subtitle C—Revisions Relating to Disasters tate tax purposes after expira- TITLE II—EDUCATION INCENTIVES Sec. 921. Authority to postpone certain tax- tion of statute of limitations. related deadlines by reason of Subtitle A—Tax Benefits Relating to Sec. 507. Termination of throwback rules for presidentially declared disaster. Education Expenses domestic trusts. Sec. 922. Use of certain appraisals to estab- Sec. 201. Hope credit for higher education Sec. 508. Unified credit of decedent increased lish amount of disaster loss. tuition and related expenses. by unified credit of spouse used Sec. 923. Treatment of livestock sold on ac- Sec. 202. Deduction for qualified higher edu- on split gift included in dece- count of weather-related condi- cation expenses. dent’s gross estate. tions. Sec. 203. Penalty-free withdrawals from in- Sec. 509. Reformation of defective bequests, Sec. 924. Mortgage financing for residences dividual retirement plans for etc., to spouse of decedent. higher education expenses. located in disaster areas. Subtitle B—Generation-Skipping Tax Sec. 204. Expenses for education which sup- Subtitle D—Provisions Relating to Provisions plements elementary and sec- Employment Taxes Sec. 511. Severing of trusts holding property ondary education. Sec. 931. Clarification of employment tax having an inclusion ratio of Subtitle B—Expanded Education Investment status of individuals distribut- greater than zero. Savings Opportunities ing bakery products. Sec. 512. Expansion of exception from gen- Sec. 932. Clarification of standard to be used Sec. 211. Eligible educational institutions eration-skipping transfer tax in determining employment tax permitted to maintain qualified for transfers to individuals with status of retail securities bro- tuition programs; other modi- deceased parents. fications of qualified State tui- kers. tion programs. TITLE VI—EXTENSION AND MODIFICA- Sec. 933. Clarification of exemption from Sec. 212. Education investment accounts. TION OF CERTAIN EXPIRING PROVI- self-employment tax for certain SIONS Subtitle C—Other Education Initiatives termination payments received Sec. 601. Research tax credit. by former insurance salesmen. Sec. 221. Extension of exclusion for em- Sec. 602. Contributions of stock to private Sec. 934. Standards for determining whether ployer-provided educational as- foundations. individuals are not employees. sistance. Sec. 603. Work opportunity tax credit. Sec. 222. Increase in limitation on qualified Subtitle E—Provisions Relating to Small Sec. 604. Orphan drug tax credit. Businesses 501(c)(3) bonds other than hos- Sec. 605. Budgetary treatment of expiring pital bonds. preferential excise tax rates Sec. 941. Waiver of penalty through 1998 on Sec. 223. Contributions of computer tech- which are dedicated to trust small businesses failing to nology and equipment for ele- funds. make electronic fund transfers mentary or secondary school of taxes. purposes. TITLE VII—INCENTIVES FOR REVITAL- Sec. 942. Clarification of treatment of home Sec. 224. Treatment of cancellation of cer- IZATION OF THE DISTRICT OF COLUM- office use for administrative tain student loans. BIA and management activities. TITLE III—SAVINGS AND INVESTMENT Sec. 701. Tax incentives for revitalization of Subtitle F—Other Provisions INCENTIVES the District of Columbia. Sec. 702. Incentives conditioned on other DC Sec. 951. Use of estimates of shrinkage for Subtitle A—Retirement Savings reform. inventory accounting. Sec. 301. Establishment of American Dream Sec. 952. Assignment of workmen’s com- TITLE VIII—WELFARE-TO-WORK IRA. pensation liability eligible for INCENTIVES Subtitle B—Capital Gains exclusion relating to personal Sec. 801. Incentives for employing long-term injury liability assignments. PART I—INDIVIDUAL CAPITAL GAINS family assistance recipients. Sec. 953. Tax-exempt status for certain Sec. 311. 20 percent maximum capital gains TITLE IX—MISCELLANEOUS PROVISIONS State worker’s compensation rate for individuals. act companies. Sec. 312. Indexing of certain assets acquired Subtitle A—Provisions Relating to Excise Taxes Sec. 954. Election to continue exception after December 31, 2000, for pur- from treatment of publicly Sec. 901. Repeal of tax on diesel fuel used in poses of determining gain. traded partnerships as corpora- recreational boats. Sec. 313. Exemption from tax for gain on tions. Sec. 902. Continued application of tax on im- sale of principal residence. Sec. 955. Exclusion from unrelated business ported recycled Halon-1211. PART II—CORPORATE CAPITAL GAINS taxable income for certain Sec. 903. Uniform rate of tax on vaccines. Sec. 321. Reduction of alternative capital Sec. 904. Operators of multiple gasoline re- sponsorship payments. gain tax for corporations. Sec. 956. Associations of holders of tail outlets treated as whole- timeshare interests to be taxed TITLE IV—ALTERNATIVE MINIMUM TAX sale distributor for refund pur- like other homeowners associa- REFORM poses. Sec. 401. Adjustment of exemption amounts Sec. 905. Exemption of electric and other tions. Sec. 957. Additional advance refunding of for taxpayers other than cor- clean-fuel motor vehicles from certain Virgin Island bonds. porations. luxury automobile classifica- Sec. 958. Nonrecognition of gain on sale of Sec. 402. Exemption from alternative mini- tion. stock to certain farmers’ co- mum tax for small corpora- Subtitle B—Provisions Relating to Pensions operatives. tions. and Fringe Benefits Sec. 959. Exception from reporting of real Sec. 403. Repeal of adjustment for deprecia- Sec. 911. Section 401(k) plans for certain ir- estate transactions for sales tion. Sec. 404. Minimum tax not to apply to farm- rigation and drainage entities. and exchanges of certain prin- ers’ installment sales. Sec. 912. Extension of moratorium on appli- cipal residences. cation of certain non- Sec. 960. Increased deductibility of business TITLE V—ESTATE, GIFT, AND GENERA- discrimination rules to State meal expenses for individuals TION-SKIPPING TAX PROVISIONS and local governments. subject to Federal hours of Subtitle A—Estate and Gift Tax Provisions Sec. 913. Treatment of certain disability service. Sec. 501. Cost-of-living adjustments relating benefits received by former po- Sec. 961. Qualified lessee construction allow- to estate and gift tax provi- lice officers or firefighters. ances for short-term leases. sions. Sec. 914. Portability of permissive service Sec. 962. Tax treatment of consolidations of Sec. 502. 20-year installment payment where credit under governmental pen- life insurance departments of estate consists largely of inter- sion plans. mutual savings banks. est in closely held business. Sec. 915. Gratuitous transfers for the benefit Sec. 963. Offset of past-due, legally enforce- Sec. 503. No interest on certain portion of of employees. able State tax obligations estate tax extended under sec- Sec. 916. Treatment of certain transpor- against overpayments. tion 6166, reduced interest on tation on non-commercially op- Sec. 964. Exemption of the incremental cost remaining portion, and no de- erated aircraft as a fringe bene- of a clean fuel vehicle from the duction for such reduced inter- fit excludable from gross in- limits on depreciation for vehi- est. come. cles. H4704 CONGRESSIONAL RECORD — HOUSE June 26, 1997 Sec. 965. Tax benefits for law enforcement Sec. 1037. Returns of beneficiaries of estates Sec. 1106. Treatment of personal trans- officers killed in the line of and trusts required to file re- actions by individuals under duty. turns consistent with estate or foreign currency rules. Sec. 966. Temporary suspension of taxable trust return or to notify sec- Sec. 1107. All noncontrolled section 902 cor- income limit on percentage de- retary of inconsistency. porations which are not passive pletion for marginal produc- Subtitle E—Excise Tax Provisions foreign investment companies tion. in one foreign tax limitation Sec. 1041. Extension and modification of Air- basket. Subtitle G—Extension of Duty-Free Treat- port and Airway Trust Fund ment Under Generalized System of Pref- taxes. Subtitle B—Treatment of Controlled Foreign erences; Tariff Treatment of Certain Sec. 1042. Kerosene taxed as diesel fuel. Corporations Equipment and Repair of Vessels Sec. 1043. Restoration of Leaking Under- Sec. 1111. Gain on certain stock sales by Sec. 971. Generalized system of preferences. ground Storage Tank Trust controlled foreign corporations Sec. 972. Equipment and repair of vessels. Fund taxes. treated as dividends. Sec. 1112. Miscellaneous modifications to Subtitle H—United States-Caribbean Basin Sec. 1044. Application of communications subpart F. Trade Partnership Act tax to long-distance prepaid telephone cards. Sec. 1113. Indirect foreign tax credit allowed Sec. 981. Short title. for certain lower tier compa- Subtitle F—Provisions Relating to Tax- Sec. 982. Findings and policy. nies. Sec. 983. Definitions. Exempt Entities Subtitle C—Treatment of Passive Foreign Sec. 984. Temporary provisions to provide Sec. 1051. Expansion of look-thru rule for in- Investment Companies NAFTA parity to partnership terest, annuities, royalties, and countries. rents derived by subsidiaries of Sec. 1121. United States shareholders of con- Sec. 985. Effect of NAFTA on sugar imports tax-exempt organizations. trolled foreign corporations not from beneficiary countries. Sec. 1052. Limitation on increase in basis of subject to PFIC inclusion. Sec. 986. Duty-free treatment for certain property resulting from sale by Sec. 1122. Election of mark to market for beverages made with Caribbean tax-exempt entity to a related marketable stock in passive rum. person. foreign investment company. Sec. 1123. Effective date. Sec. 987. Meetings of trade ministers and Sec. 1053. Modifications to exception from USTR. reporting, etc. of lobbying ac- Subtitle D—Repeal of Excise Tax on Sec. 988. Report on economic development tivities. Transfers to Foreign Entities and market oriented reforms in Sec. 1054. Termination of certain exceptions Sec. 1131. Repeal of excise tax on transfers the Caribbean. from rules relating to exempt to foreign entities; recognition TITLE X—REVENUES organizations which provide of gain on certain transfers to commercial-type insurance. foreign trusts and estates. Subtitle A—Financial Products Subtitle G—Other Revenue Provisions Subtitle E—Information Reporting Sec. 1001. Constructive sales treatment for appreciated financial positions. Sec. 1061. Termination of suspense accounts Sec. 1141. Clarification of application of re- Sec. 1002. Limitation on exception for in- for family corporations re- turn requirement to foreign vestment companies under sec- quired to use accrual method of partnerships. Sec. 1142. Controlled foreign partnerships tion 351. accounting. subject to information report- Sec. 1003. Modification of rules for allocat- Sec. 1062. Modification of taxable years to ing comparable to information ing interest expense to tax-ex- which net operating losses may reporting for controlled foreign empt interest. be carried. corporations. Sec. 1004. Gains and losses from certain ter- Sec. 1063. Expansion of denial of deduction Sec. 1143. Modifications relating to returns minations with respect to prop- for certain amounts paid in required to be filed by reason of erty. connection with insurance. changes in ownership interests Sec. 1005. Determination of original issue Sec. 1064. Allocation of basis among prop- in foreign partnership. discount where pooled debt ob- erties distributed by partner- Sec. 1144. Transfers of property to foreign ligations subject to accelera- ship. partnerships subject to infor- tion. Sec. 1065. Repeal of requirement that inven- mation reporting comparable to Sec. 1006. Denial of interest deductions on tory be substantially appre- information reporting for such certain debt instruments. ciated. Sec. 1066. Extension of time for taxing transfers to foreign corpora- Subtitle B—Corporate Organizations and precontribution gain. tions. Reorganizations Sec. 1067. Restrictions on availability of Sec. 1145. Extension of statute of limitation Sec. 1011. Tax treatment of certain extraor- earned income credit for tax- for foreign transfers. dinary dividends. payers who improperly claimed Sec. 1146. Increase in filing thresholds for re- Sec. 1012. Application of section 355 to dis- credit in prior year. turns as to organization of for- tributions followed by acquisi- Sec. 1068. Limitation on property for which eign corporations and acquisi- tions and to intragroup trans- income forecast method may be tions of stock in such corpora- actions. used. tions. Sec. 1013. Tax treatment of redemptions in- Sec. 1069. Repeal of special rule for rental Subtitle F—Determination of Foreign or volving related corporations. use of vacation homes, etc., for Domestic Status of Partnerships Sec. 1014. Modification of holding period ap- less than 15 days. Sec. 1151. Determination of foreign or do- plicable to dividends received Sec. 1070. Expansion of requirement that in- mestic status of partnerships. deduction. voluntarily converted property Subtitle G—Other Simplification Provisions Subtitle C—Other Corporate Provisions be replaced with property ac- Sec. 1161. Transition rule for certain trusts. quired from an unrelated per- Sec. 1021. Registration and other provisions Sec. 1162. Repeal of stock and securities safe son. relating to confidential cor- harbor requirement that prin- Sec. 1071. Treatment of exception from in- porate tax shelters. cipal office be outside the Unit- stallment sales rules for sales Sec. 1022. Certain preferred stock treated as ed States. boot. of property by a manufacturer to a dealer. Subtitle H—Other Provisions Subtitle D—Administrative Provisions TITLE XI—SIMPLIFICATION AND OTHER Sec. 1171. Definition of foreign personal Sec. 1031. Reporting of certain payments FOREIGN-RELATED PROVISIONS holding company income. made to attorneys. Sec. 1172. Personal property used predomi- Sec. 1032. Decrease of threshold for report- Subtitle A—General Provisions nantly in the United States ing payments to corporations Sec. 1101. Treatment of computer software treated as not property of a like performing services for Federal as FSC export property. kind with respect to property agencies. Sec. 1102. Adjustment of dollar limitation on used predominantly outside the Sec. 1033. Disclosure of return information section 911 exclusion. United States. for administration of certain Sec. 1103. Certain individuals exempt from Sec. 1173. Holding period requirement for veterans programs. foreign tax credit limitation. certain foreign taxes. Sec. 1034. Continuous levy on certain pay- Sec. 1104. Exchange rate used in translating Sec. 1174. Penalties for failure to disclose ments. foreign taxes. position that certain inter- Sec. 1035. Modification of levy exemption. Sec. 1105. Election to use simplified section national transportation income Sec. 1036. Confidentiality and disclosure of 904 limitation for alternative is not includible in gross in- returns and return information. minimum tax. come. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4705 Sec. 1175. Denial of treaty benefits for cer- Sec. 1243. Special rules for administrative Sec. 1311. Limitation on taxable year of es- tain payments through hybrid adjustment requests with re- tates. entities. spect to bad debts or worthless Sec. 1312. Treatment of funeral trusts. Sec. 1176. Interest on underpayments not re- securities. Sec. 1313. Adjustments for gifts within 3 duced by foreign tax credit PART III—PROVISION RELATING TO CLOSING OF years of decedent’s death. carrybacks. PARTNERSHIP TAXABLE YEAR WITH RESPECT Sec. 1314. Clarification of treatment of sur- Sec. 1177. Clarification of period of limita- TO DECEASED PARTNER, ETC. vivor annuities under qualified tions on claim for credit or re- terminable interest rules. Sec. 1246. Closing of partnership taxable fund attributable to foreign tax Sec. 1315. Treatment under qualified domes- year with respect to deceased credit carryforward. tic trust rules of forms of own- Sec. 1178. Miscellaneous clarifications. partner, etc. ership which are not trusts. TITLE XII—SIMPLIFICATION PROVISIONS Subtitle D—Provisions Relating to Real Sec. 1316. Opportunity to correct certain RELATING TO INDIVIDUALS AND BUSI- Estate Investment Trusts failures under section 2032A. NESSES Sec. 1251. Clarification of limitation on Sec. 1317. Authority to waive requirement of Subtitle A—Provisions Relating to maximum number of sharehold- United States trustee for quali- Individuals ers. fied domestic trusts. Sec. 1252. De minimis rule for tenant serv- Sec. 1201. Basic standard deduction and min- TITLE XIV—SIMPLIFICATION PROVI- ices income. SIONS RELATING TO EXCISE TAXES, imum tax exemption amount Sec. 1253. Attribution rules applicable to for certain dependents. TAX-EXEMPT BONDS, AND OTHER MAT- tenant ownership. TERS Sec. 1202. Increase in amount of tax exempt Sec. 1254. Credit for tax paid by REIT on re- Subtitle A—Excise Tax Simplification from estimated tax require- tained capital gains. ments. Sec. 1255. Repeal of 30-percent gross income PART I—EXCISE TAXES ON HEAVY TRUCKS AND Sec. 1203. Optional methods for computing requirement. LUXURY CARS SECA tax combined. Sec. 1256. Modification of earnings and prof- Sec. 1401. Increase in de minimis limit for Sec. 1204. Treatment of certain reimbursed its rules for determining wheth- after-market alterations for expenses of rural mail carriers. er REIT has earnings and prof- heavy trucks and luxury cars. Sec. 1205. Treatment of traveling expenses its from non-REIT year. Sec. 1402. Credit for tire tax in lieu of exclu- of certain Federal employees Sec. 1257. Treatment of foreclosure property. sion of value of tires in comput- engaged in criminal investiga- Sec. 1258. Payments under hedging instru- ing price. tions. ments. PART II—PROVISIONS RELATED TO DISTILLED Sec. 1206. Payment of tax by commercially Sec. 1259. Excess noncash income. SPIRITS, WINES, AND BEER acceptable means. Sec. 1260. Prohibited transaction safe har- Subtitle B—Provisions Relating to bor. Sec. 1411. Credit or refund for imported bot- Businesses Generally Sec. 1261. Shared appreciation mortgages. tled distilled spirits returned to distilled spirits plant. Sec. 1211. Modifications to look-back meth- Sec. 1262. Wholly owned subsidiaries. Sec. 1263. Effective date. Sec. 1412. Authority to cancel or credit ex- od for long-term contracts. port bonds without submission Sec. 1212. Minimum tax treatment of certain Subtitle E—Provisions Relating to Regulated Investment Companies of records. property and casualty insur- Sec. 1413. Repeal of required maintenance of ance companies. Sec. 1271. Repeal of 30-percent gross income records on premises of distilled Subtitle C—Simplification Relating to limitation. spirits plant. Electing Large Partnerships Subtitle F—Taxpayer Protections Sec. 1414. Fermented material from any PART I—GENERAL PROVISIONS Sec. 1281. Reasonable cause exception for brewery may be received at a Sec. 1221. Simplified flow-through for elect- certain penalties. distilled spirits plant. ing large partnerships. Sec. 1282. Clarification of period for filing Sec. 1415. Repeal of requirement for whole- Sec. 1222. Simplified audit procedures for claims for refunds. sale dealers in liquors to post electing large partnerships. Sec. 1283. Repeal of authority to disclose sign. Sec. 1223. Due date for furnishing informa- whether prospective juror has Sec. 1416. Refund of tax to wine returned to tion to partners of electing been audited. bond not limited to large partnerships. Sec. 1284. Clarification of statute of limita- unmerchantable wine. Sec. 1224. Returns may be required on mag- tions. Sec. 1417. Use of additional ameliorating netic media. Sec. 1285. Awarding of administrative costs. material in certain wines. Sec. 1225. Treatment of partnership items of Sec. 1286. Penalty for unauthorized inspec- Sec. 1418. Domestically produced beer may individual retirement accounts. tion of tax returns or tax re- be withdrawn free of tax for use Sec. 1226. Effective date. turn information. of foreign embassies, legations, Sec. 1287. Civil damages for unauthorized in- PART II—PROVISIONS RELATED TO TEFRA etc. spection of returns and return PARTNERSHIP PROCEEDINGS Sec. 1419. Beer may be withdrawn free of tax information; notification of un- for destruction. Sec. 1231. Treatment of partnership items in lawful inspection or disclosure. Sec. 1420. Authority to allow drawback on deficiency proceedings. exported beer without submis- Sec. 1232. Partnership return to be deter- TITLE XIII—SIMPLIFICATION PROVI- sion of records. minative of audit procedures to SIONS RELATING TO ESTATE AND GIFT Sec. 1421. Transfer to brewery of beer im- be followed. TAXES ported in bulk without payment Sec. 1233. Provisions relating to statute of Sec. 1301. Gifts to charities exempt from gift of tax. limitations. tax filing requirements. Sec. 1422. Transfer to bonded wine cellars of Sec. 1234. Expansion of small partnership ex- Sec. 1302. Clarification of waiver of certain wine imported in bulk without ception. rights of recovery. Sec. 1235. Exclusion of partial settlements Sec. 1303. Transitional rule under section payment of tax. from 1-year limitation on as- 2056A. PART III—OTHER EXCISE TAX PROVISIONS sessment. Sec. 1304. Clarifications relating to dis- Sec. 1431. Authority to grant exemptions Sec. 1236. Extension of time for filing a re- claimers. from registration requirements. quest for administrative adjust- Sec. 1305. Increase of amount of lapse of gen- Sec. 1432. Repeal of expired provisions. ment. eral power of appointment not Subtitle B—Tax-Exempt Bond Provisions Sec. 1237. Availability of innocent spouse re- treated as release for purposes Sec. 1441. Repeal of $100,000 limitation on lief in context of partnership of estate and gift tax (5 or 5 unspent proceeds under 1-year proceedings. power). exception from rebate. Sec. 1238. Determination of penalties at Sec. 1306. Treatment for estate tax purposes Sec. 1442. Exception from rebate for earn- partnership level. of short-term obligations held ings on bona fide debt service Sec. 1239. Provisions relating to court juris- by nonresident aliens. fund under construction bond diction, etc. Sec. 1307. Certain revocable trusts treated as Sec. 1240. Treatment of premature petitions part of estate. rules. filed by notice partners or 5- Sec. 1308. Distributions during first 65 days Sec. 1443. Repeal of debt service-based limi- percent groups. of taxable year of estate. tation on investment in certain Sec. 1241. Bonds in case of appeals from cer- Sec. 1309. Separate share rules available to nonpurpose investments. tain proceeding. estates. Sec. 1444. Repeal of expired provisions. Sec. 1242. Suspension of interest where delay Sec. 1310. Executor of estate and bene- Sec. 1445. Effective date. in computational adjustment ficiaries treated as related per- Subtitle C—Tax Court Procedures resulting from certain settle- sons for disallowance of losses, Sec. 1451. Overpayment determinations of ments. etc. Tax Court. H4706 CONGRESSIONAL RECORD — HOUSE June 26, 1997 Sec. 1452. Redetermination of interest pur- ‘‘(III) $25,000 in the case of a married indi- for filing individual income tax returns for suant to motion. vidual filing a separate return. taxable years beginning in 1998 a notice Sec. 1453. Application of net worth require- For purposes of this clause, marital status which states only the following: ‘‘The Tax- ment for awards of litigation shall be determined under section 7703. payer Relief Act of 1997 which was recently costs. ‘‘(iv) MODIFIED ADJUSTED GROSS INCOME.— passed by the Congress has fulfilled its prom- Sec. 1454. Proceedings for determination of For purposes of this subparagraph, the term ise to provide tax relief to American fami- employment status. ‘modified adjusted gross income’ has the lies. The Act’s child tax credit allows Amer- Subtitle D—Other Provisions meaning given such term by section 26(c).’’. ican families to reduce their taxes by $400 Sec. 1461. Extension of due date of first ‘‘(C) NO REDUCTION FOR DEPENDENT CARE OF per child for 1998 and $500 per child after 1998. quarter estimated tax payment INDIVIDUALS INCAPABLE OF SELF-CARE.—Sub- You may wish to check with your employer by private foundations. paragraph (A) shall not apply to so much of about changing your tax withholding.’’. Sec. 1462. Clarification of authority to with- the credit which would have been allowed (f) ADJUSTMENTS TO WITHHOLDING.— hold Puerto Rico income taxes under section 21 (determined without regard (1) IN GENERAL.—The Secretary of the from salaries of Federal em- to section 26(c)) if only qualifying individ- Treasury or his delegate shall modify the ta- ployees. uals described in subparagraph (B) or (C) of bles and procedures under section 3402 of the Sec. 1463. Certain notices disregarded under section 21(b)(1) were taken into account. Internal Revenue Code of 1986 such that provision increasing interest ‘‘(3) LIMITATION BASED ON AMOUNT OF TAX.— every employer making payment of wages rate on large corporate under- The credit allowed by subsection (a) (deter- during calendar year 1998 to any specified payments. mined after paragraphs (1) and (2)) shall not employee— exceed the excess (if any) of— TITLE XV—TECHNICAL AMENDMENTS (A) shall reduce the amount deducted and ‘‘(A) the taxpayer’s regular tax liability for RELATED TO SMALL BUSINESS JOB withheld as tax under chapter 24 of such the taxable year reduced by the credits al- PROTECTION ACT OF 1996 AND OTHER Code for any payroll or other period during lowable against such tax under this subpart LEGISLATION such year to reflect such period’s propor- (other than this section), over tionate share of the child care credit Sec. 1501. Amendments related to Small ‘‘(B) the sum of— amount, and Business Job Protection Act of ‘‘(i) the taxpayer’s tentative minimum tax (B) shall, before implementing such reduc- 1996. for such taxable year (determined without tion, provide reasonable notice to such em- Sec. 1502. Amendments related to Health In- regard to the alternative minimum tax for- ployees that such a reduction will apply to surance Portability and Ac- eign tax credit), plus each specified employee who does not pro- countability Act of 1996. ‘‘(ii) the credit allowed for the taxable year vide the employer with the notice referred to Sec. 1503. Amendments related to Taxpayer under section 32. in paragraph (5). Bill of Rights 2. ‘‘(c) QUALIFYING CHILD.—For purposes of (2) SPECIFIED EMPLOYEE.—For purposes of Sec. 1504. Miscellaneous provisions. this section— this subsection, the term ‘‘specified em- TITLE I—CHILD TAX CREDIT; MODIFICA- ‘‘(1) IN GENERAL.—The term ‘qualifying ployee’’ means any employee— TION OF DEPENDENT CARE CREDIT child’ means any individual if— (A) whose wages from the employer on an SEC. 101. CHILD TAX CREDIT. ‘‘(A) the taxpayer is allowed a deduction annualized basis are reasonably expected to (a) IN GENERAL.—Subpart A of part IV of under section 151 with respect to such indi- be at least $30,000 but not more than $100,000, subchapter A of chapter 1 (relating to non- vidual for the taxable year, and refundable personal credits) is amended by ‘‘(B) such individual has not attained the (B) who claims more than the base number inserting after section 23 the following new age of 17 as of the close of the calendar year of withholding exemptions on the withhold- section: in which the taxable year of the taxpayer be- ing exemption certificate furnished to the ‘‘SEC. 24. CHILD TAX CREDIT. gins, and employer. ‘‘(C) such individual bears a relationship to ‘‘(a) ALLOWANCE OF CREDIT.—There shall be For purposes of the preceding sentence, the allowed as a credit against the tax imposed the taxpayer described in section 32(c)(3)(B). term ‘‘base number’’ means 1 withholding ex- by this chapter for the taxable year an ‘‘(2) EXCEPTION FOR CERTAIN NONCITIZENS.— emption if the certificate reflects withhold- amount equal to $500 multiplied by the num- The term ‘qualifying child’ shall not include ing for an unmarried individual and 2 with- ber of qualifying children of the taxpayer. any individual who would not be a dependent holding exemptions if the certificate reflects ‘‘(b) LIMITATIONS.— if the first sentence of section 152(b)(3) were withholding for a married individual. ‘‘(1) LIMITATION BASED ON ADJUSTED GROSS applied without regard to all that follows (3) CHILD CARE CREDIT AMOUNT.—For pur- INCOME.—For limitation based on adjusted ‘resident of the United States’. poses of this subsection, the term ‘‘child care ‘‘(d) TAXABLE YEAR MUST BE FULL TAX- gross income, see section 26(c). credit amount’’ means the lesser of $800 or ABLE YEAR.—Except in the case of a taxable ‘‘(2) REDUCTION FOR DEPENDENT CARE CRED- the amount equal to the product of— year closed by reason of the death of the tax- IT.—In the case of taxable years beginning (A) $400, and payer, no credit shall be allowable under this after December 31, 1999— (B) the number of withholding exemptions section in the case of a taxable year covering ‘‘(A) IN GENERAL.—The credit allowed by claimed by the employee on the withholding a period of less than 12 months. subsection (a) for the taxable year (deter- exemption certificate furnished to the em- ‘‘(e) PHASEIN OF CREDIT.—In the case of ployer to the extent such number exceeds mined after paragraph (1) but before para- taxable years beginning in 1998, subsection the base number (as defined in paragraph (2)) graph (3)) shall be reduced by the amount (a) shall be applied by substituting ‘$400’ for of such exemptions. equal to 50 percent of the credit allowed ‘$500’.’’. (4) PROPORTIONATE SHARE.—For purposes of under section 21 for such taxable year (deter- (b) HIGH RISK POOLS PERMITTED TO COVER this subsection, except as provided by the mined after section 26(c)). DEPENDENTS OF HIGH RISK INDIVIDUALS.— ‘‘(B) EXCEPTION BASED ON ADJUSTED GROSS Paragraph (26) of section 501(c) is amended Secretary of the Treasury or his delegate, a INCOME.— by adding at the end the following flush sen- period’s proportionate share of the child care ‘‘(i) IN GENERAL.—Subparagraph (A) shall tence: credit amount is the amount which bears the not apply to a taxpayer whose modified ad- same ratio to the child care credit amount as ‘‘A qualifying child (as defined in section justed gross income for the taxable year does the number of days in such period bears to 24(c)) of an individual described in subpara- not exceed the threshold amount. 365. graph (B) (without regard to this sentence) ‘‘(ii) PHASEIN OF REDUCTION.—If the modi- (5) NOTICE TO HAVE SUBSECTION NOT APPLY shall be treated as described in subparagraph fied adjusted gross income of the taxpayer TO EMPLOYEE.—This subsection shall not (B).’’. for the taxable year exceeds the threshold apply to any employee who provides written (c) CONFORMING AMENDMENTS.— amount by less than $5,000, the amount of notice (in such form as the Secretary shall (1) Subsection (a) of section 26 is amended prescribe) to the employer of such employ- the reduction under subparagraph (A) shall by inserting ‘‘(other than the credit allowed be an amount which bears the same ratio to ee’s decision not to have this subsection by section 24)’’ after ‘‘credits allowed by this apply to such employee. the amount of such reduction (determined subpart’’. without regard to this clause) as the excess (6) DEFINITIONS.—Terms used in this sub- (2) The table of sections for subpart A of section which are also used in chapter 24 of of the taxpayer’s modified adjusted gross in- part IV of subchapter A of chapter 1 is come over the threshold amount bears to the Internal Revenue Code of 1986 shall have amended by inserting after the item relating the respective meanings given such terms by $5,000. In the case of a joint return, the pre- to section 23 the following new item: ceding sentence shall be applied by sub- such chapter. stituting ‘$10,000’ for ‘$5,000’ each place it ap- ‘‘Sec. 24. Child tax credit.’’. SEC. 102. INFLATION ADJUSTMENT OF LIMITS pears. (d) EFFECTIVE DATE.—The amendments AND OTHER MODIFICATIONS OF DE- ‘‘(iii) THRESHOLD AMOUNT.—For purposes of made by this section shall apply to taxable PENDENT CARE CREDIT. this subparagraph, the term ‘threshold years beginning after December 31, 1997. (a) INFLATION ADJUSTMENT.— amount’ means— (e) NOTICE OF CREDIT.—The Secretary of (1) IN GENERAL.—Subsection (c) of section ‘‘(I) $60,000 in the case of a joint return, the Treasury or his delegate shall include in 21 (relating to expenses for household and de- ‘‘(II) $33,000 in the case of an individual any booklet of instructions for Form 1040, pendent care services necessary for gainful who is not married, and 1040A, or 1040EZ prepared by such Secretary employment) is amended to read as follows: June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4707

‘‘(c) DOLLAR LIMIT ON AMOUNT CRED- (B) The section heading for section 26 is ‘‘(3) MODIFIED ADJUSTED GROSS INCOME.— ITABLE.— amended by inserting before the period ‘‘; The term ‘modified adjusted gross income’ ‘‘(1) IN GENERAL.—The amount of the em- phaseout of certain credits based on income’’. means the adjusted gross income of the tax- ployment-related expenses incurred during (C) The item relating to section 26 in the payer for the taxable year increased by any any taxable year which may be taken into table of sections for subpart A of part IV of amount excluded from gross income under account under subsection (a) shall not ex- subchapter A of chapter 1 is amended by in- section 911, 931, or 933. ceed— serting before the period ‘‘; phaseout of cer- ‘‘(d) DEFINITIONS.—For purposes of this sec- ‘‘(A) $2,400 if there is 1 qualifying individ- tain credits based on income’’. tion— ual with respect to the taxpayer for such (c) EFFECTIVE DATE.—The amendments ‘‘(1) QUALIFIED TUITION AND RELATED EX- taxable year, or made by this section shall apply to taxable PENSES.— ‘‘(B) $4,800 if there are 2 or more qualifying years beginning after December 31, 1997. ‘‘(A) IN GENERAL.—The term ‘qualified tui- individuals with respect to the taxpayer for TITLE II—EDUCATION INCENTIVES tion and related expenses’ means tuition and fees required for the enrollment or attend- such taxable year. Subtitle A—Tax Benefits Relating to ance of— The amount determined under subparagraph Education Expenses (A) or (B) (whichever is applicable) shall be ‘‘(i) the taxpayer, SEC. 201. HOPE CREDIT FOR HIGHER EDUCATION ‘‘(ii) the taxpayer’s spouse, or reduced by the aggregate amount excludable TUITION AND RELATED EXPENSES. ‘‘(iii) any dependent of the taxpayer with from gross income under section 129 for the (a) IN GENERAL.—Subpart A of part IV of respect to whom the taxpayer is allowed a taxable year. subchapter A of chapter 1 (relating to non- deduction under section 151, ‘‘(2) INFLATION ADJUSTMENT.—In the case of refundable personal credits) is amended by at an eligible educational institution and taxable years beginning in a calendar year inserting after section 25 the following new books required for courses of instruction of after 1997, each of the dollar amounts con- section: such individual at such institution. tained in paragraph (1) shall be increased by ‘‘SEC. 25A. HIGHER EDUCATION TUITION AND RE- ‘‘(B) EXCEPTION FOR EDUCATION INVOLVING an amount equal to— LATED EXPENSES. SPORTS, ETC.—Such term does not include ex- ‘‘(A) such dollar amount, multiplied by ‘‘(a) ALLOWANCE OF CREDIT.—In the case of penses with respect to any course or other ‘‘(B) the cost-of-living adjustment deter- an individual, there shall be allowed as a education involving sports, games, or hob- mined under section 1(f)(3) for such calendar credit against the tax imposed by this chap- bies, unless such course or other education is year by substituting ‘calendar year 1996’ for ter for the taxable year the amount equal to part of the individual’s degree program. ‘calendar year 1992’ in subparagraph (B) 50 percent of qualified tuition and related ex- ‘‘(C) EXCEPTION FOR NONACADEMIC FEES.— thereof. penses paid by the taxpayer during such tax- Such term does not include student activity able year for education furnished during any If any amount as adjusted under the preced- fees, athletic fees, insurance expenses, or academic period beginning in such year. ing sentence is not a multiple of $50, such other expenses unrelated to an individual’s ‘‘(b) LIMITATIONS.— amount shall be rounded to the next lowest academic course of instruction. ‘‘(1) DOLLAR LIMITATION.—The amount al- multiple of $50.’’. ‘‘(2) ELIGIBLE EDUCATIONAL INSTITUTION.— lowed as a credit under subsection (a) for any (2) CONFORMING AMENDMENT.—Paragraph The term ‘eligible educational institution’ taxable year with respect to the qualified (2) of section 21(d) is amended by striking means an institution— tuition and related expenses of any 1 individ- ‘‘(c)(1)’’ and inserting ‘‘(c)(1)(A)’’ and by ‘‘(A) which is described in section 481 of the ual shall not exceed $1,500. striking ‘‘(c)(2)’’ and inserting ‘‘(c)(1)(B)’’. Higher Education Act of 1965 (20 U.S.C. 1088), ‘‘(2) CREDIT ALLOWED ONLY FOR 2 TAXABLE (b) REDUCTION OF BENEFIT BASED ON AD- as in effect on the date of the enactment of YEARS.—No credit shall be allowed under JUSTED GROSS INCOME.— this section, and subsection (a) for a taxable year with respect (1) IN GENERAL.—Section 26 is amended by ‘‘(B) which is eligible to participate in a to the qualified tuition and related expenses redesignating subsection (c) as subsection (d) program under title IV of such Act. of an individual unless the taxpayer elects to and by inserting after subsection (b) the fol- ‘‘(3) ELIGIBLE STUDENT.—The term ‘eligible have this section apply with respect to such lowing new subsection: student’ means, with respect to any aca- individual for such year. An election under ‘‘(c) REDUCTION OF DEPENDENT CARE CREDIT demic period, a student who— this paragraph shall not take effect with re- AND CHILD CREDIT BASED ON ADJUSTED GROSS ‘‘(A) meets the requirements of section spect to an individual for any taxable year if INCOME.— 484(a)(1) of the Higher Education Act of 1965 an election under this paragraph (by the tax- ‘‘(1) IN GENERAL.—The aggregate amount (20 U.S.C. 1091(a)(1)), as in effect on the date payer or any other individual) is in effect which would (but for subsection (a), this sub- of the enactment of this section, and with respect to such individual for any 2 section, and paragraphs (2) and (3) of section ‘‘(B) is carrying at least 1⁄2 the normal full- prior taxable years. 24(b)) be allowed under sections 21 and 24 time work load for the course of study the ‘‘(3) CREDIT ALLOWED FOR YEAR ONLY IF IN- shall be reduced (but not below zero) by $25 student is pursuing. DIVIDUAL IS AT LEAST 1⁄2 TIME STUDENT FOR for each $1,000 (or fraction thereof) by which ‘‘(4) OTHER TERMS RELATING TO THE HIGHER PORTION OF YEAR.—No credit shall be allowed the taxpayer’s modified adjusted gross in- EDUCATION ACT.—The following terms shall under subsection (a) for a taxable year with come exceeds the threshold amount. For pur- have the meanings prescribed in regulations respect to the qualified tuition and related poses of the preceding sentence, the term under section 481(g) of the Higher Education expenses of an individual unless such indi- ‘modified adjusted gross income’ means ad- Act of 1965 (20 U.S.C. 1088(g)), as added by the vidual is an eligible student for at least one justed gross income increased by any Student Financial Aid Improvements Act of academic period which begins during such amount excluded from gross income under 1997: year. section 911, 931, or 933. ‘‘(A) Academic period. ‘‘(4) CREDIT ALLOWED ONLY FOR FIRST TWO ‘‘(2) THRESHOLD AMOUNT.—For purposes of ‘‘(B) Normal full-time workload. YEARS OF POSTSECONDARY EDUCATION.—No paragraph (1), the term ‘threshold amount’ ‘‘(C) First two years of postsecondary edu- credit shall be allowed under subsection (a) means— cation. for a taxable year with respect to the quali- ‘‘(A) $110,000 in the case of a joint return, ‘‘(e) TREATMENT OF EXPENSES PAID BY DE- fied tuition and related expenses of an indi- ‘‘(B) $75,000 in the case of an individual PENDENT.—If a deduction under section 151 who is not married, and vidual if the individual has completed (be- with respect to an individual is allowed to ‘‘(C) $55,000 in the case of a married indi- fore the beginning of such taxable year) the another taxpayer for a taxable year begin- vidual filing a separate return. first 2 years of postsecondary education at ning in the calendar year in which such indi- an eligible educational institution. For purposes of this paragraph, marital sta- vidual’s taxable year begins— ‘‘(c) LIMITATION BASED ON MODIFIED AD- ‘‘(1) no credit shall be allowed under sub- tus shall be determined under section 7703. JUSTED GROSS INCOME.— ‘‘(3) REMAINING CREDIT TREATED AS ATTRIB- section (a) to such individual for such indi- ‘‘(1) IN GENERAL.—The amount which would vidual’s taxable year, and UTABLE TO DEPENDENT CARE TAX CREDIT.—The (but for this subsection) be taken into ac- aggregate amount allowable under sections ‘‘(2) qualified tuition and related expenses count under subsection (a) for the taxable paid by such individual during such individ- 21 and 24 after the application of paragraph year shall be reduced (but not below zero) by (1) shall be treated as allowable solely under ual’s taxable year shall be treated for pur- the amount determined under paragraph (2). poses of this section as paid by such other section 21 to the extent such amount does ‘‘(2) AMOUNT OF REDUCTION.—The amount not exceed the amount allowable under sec- taxpayer. determined under this paragraph is the ‘‘(f) TREATMENT OF CERTAIN PREPAY- tion 21 (determined without regard to sec- amount which bears the same ratio to the tion 21(a)(3)).’’. MENTS.—If qualified tuition and related ex- amount which would be so taken into ac- penses are paid by the taxpayer during a tax- (2) CONFORMING AMENDMENTS.— count as— able year for an academic period which be- (A) Subsection (a) of section 21 is amended ‘‘(A) the excess of— gins during the first 3 months following such by adding at the end the following new para- ‘‘(i) the taxpayer’s modified adjusted gross taxable year, such academic period shall be graph: income for such taxable year, over treated for purposes of this section as begin- ‘‘(3) LIMITATION BASED ON ADJUSTED GROSS ‘‘(ii) $40,000 ($80,000 in the case of a joint re- ning during such taxable year. INCOME.— turn), bears to ‘‘(g) SPECIAL RULES.— ‘‘For limitation based on adjusted gross in- ‘‘(B) $10,000 ($20,000 in the case of a joint re- ‘‘(1) IDENTIFICATION REQUIREMENT.—No come, see section 26(c).’’. turn). credit shall be allowed under subsection (a) H4708 CONGRESSIONAL RECORD — HOUSE June 26, 1997

to a taxpayer with respect to the qualified ‘‘(B) ROUNDING.—If any amount as adjusted made by the officer or employee appro- tuition and related expenses of an individual under subparagraph (A) is not a multiple of priately designated for the purpose of mak- unless the taxpayer includes the name and $5,000, such amount shall be rounded to the ing such return. taxpayer identification number of such indi- next lowest multiple of $5,000. ‘‘(d) STATEMENTS TO BE FURNISHED TO INDI- vidual on the return of tax for the taxable ‘‘(i) REGULATIONS.—The Secretary may VIDUALS WITH RESPECT TO WHOM INFORMA- year. prescribe such regulations as may be nec- TION IS REQUIRED.—Every person required to ‘‘(2) ADJUSTMENT FOR CERTAIN SCHOLAR- essary or appropriate to carry out this sec- make a return under subsection (a) shall fur- SHIPS, ETC.—The amount of qualified tuition tion, including regulations providing for a nish to each individual whose name is re- and related expenses otherwise taken into recapture of credit allowed under this sec- quired to be set forth in such return under account under subsection (a) with respect to tion in cases where there is a refund in a sub- subparagraph (A) or (B) of subsection (b)(2) a an individual for an academic period shall be sequent taxable year of any amount which written statement showing— reduced (before the application of sub- was taken into account in determining the ‘‘(1) the name, address, and phone number sections (b) and (c)) by the sum of any amount of such credit.’’. of the information contact of the person re- amounts paid for the benefit of such individ- (b) EXTENSION OF PROCEDURES APPLICABLE quired to make such return, and ual which are allocable to such period as— TO MATHEMATICAL OR CLERICAL ERRORS.— ‘‘(2) the aggregate amounts described in ‘‘(A) a qualified scholarship which is ex- Paragraph (2) of section 6213(g) (relating to subsection (b)(2)(C). cludable from gross income under section the definition of mathematical or clerical er- 117, rors) is amended by striking ‘‘and’’ at the The written statement required under the ‘‘(B) an educational assistance allowance end of subparagraph (G), by striking the pe- preceding sentence shall be furnished on or under chapter 30, 31, 32, 34, or 35 of title 38, riod at the end of subparagraph (H) and in- before January 31 of the year following the United States Code, or under chapter 1606 of serting ‘‘, and’’, and by inserting after sub- calendar year for which the return under title 10, United States Code, and paragraph (H) the following new subpara- subsection (a) was required to be made. ‘‘(C) a payment (other than a gift, bequest, graph: ‘‘(e) DEFINITIONS.—For purposes of this sec- devise, or inheritance within the meaning of ‘‘(I) an omission of a correct TIN required tion, the terms ‘eligible educational institu- section 102(a)) for such individual’s edu- under section 25A(g)(1) (relating to higher tion’ and ‘qualified tuition and related ex- cational expenses, or attributable to such in- education tuition and related expenses) to be penses’ have the meanings given such terms dividual’s enrollment at an eligible edu- included on a return.’’. by section 25A. cational institution, which is excludable (c) RETURNS RELATING TO TUITION AND RE- ‘‘(f) RETURNS WHICH WOULD BE REQUIRED from gross income under any law of the LATED EXPENSES.— TO BE MADE BY 2 OR MORE PERSONS.—Except United States. (1) IN GENERAL.—Subpart B of part III of to the extent provided in regulations pre- ‘‘(3) DENIAL OF CREDIT IF STUDENT CON- subchapter A of chapter 61 (relating to infor- scribed by the Secretary, in the case of any VICTED OF A FELONY DRUG OFFENSE.—No cred- mation concerning transactions with other amount received by any person on behalf of it shall be allowed under subsection (a) for persons) is amended by inserting after sec- another person, only the person first receiv- qualified tuition and related expenses for the tion 6050R the following new section: ing such amount shall be required to make enrollment or attendance of a student for ‘‘SEC. 6050S. RETURNS RELATING TO HIGHER the return under subsection (a). any academic period if such student has been EDUCATION TUITION AND RELATED ‘‘(g) REGULATIONS.—The Secretary shall convicted of a Federal or State felony of- EXPENSES. prescribe such regulations as may be nec- fense consisting of the possession or distribu- ‘‘(a) IN GENERAL.—Any person— essary to carry out the provisions of this sec- tion of a controlled substance before the end ‘‘(1) which is an eligible educational insti- tion. No penalties shall be imposed under of the taxable year with or within which tution which receives payments for qualified section 6724 with respect to any return or such period ends. tuition and related expenses with respect to statement required under this section until ‘‘(4) DENIAL OF DOUBLE BENEFIT.—No credit any individual for any calendar year, or such time as such regulations are issued.’’. shall be allowed under this section for any ‘‘(2) which is engaged in a trade or business (2) ASSESSABLE PENALTIES.— expense for which a deduction is allowed and which, in the course of such trade or (A) Subparagraph (B) of section 6724(d)(1) under any other provision of this chapter. business, makes payments during any cal- (relating to definitions) is amended by redes- ‘‘(5) NO CREDIT FOR MARRIED INDIVIDUALS endar year to any individual which con- ignating clauses (ix) through (xiv) as clauses FILING SEPARATE RETURNS.—If the taxpayer stitute reimbursements or refunds (or simi- (x) through (xv), respectively, and by insert- is a married individual (within the meaning lar amounts) of qualified tuition and related ing after clause (viii) the following new of section 7703), this section shall apply only expenses of such individual, if the taxpayer and the taxpayer’s spouse file shall make the return described in sub- clause: a joint return for the taxable year. section (b) with respect to the individual at ‘‘(ix) section 6050S (relating to returns re- ‘‘(6) NONRESIDENT ALIENS.—If the taxpayer such time as the Secretary may by regula- lating to payments for qualified tuition and is a nonresident alien individual for any por- tions prescribe. related expenses),’’. tion of the taxable year, this section shall ‘‘(b) FORM AND MANNER OF RETURNS.—A re- (B) Paragraph (2) of section 6724(d) is apply only if such individual is treated as a turn is described in this subsection if such amended by striking ‘‘or’’ at the end of the resident alien of the United States for pur- return— next to last subparagraph, by striking the poses of this chapter by reason of an election ‘‘(1) is in such form as the Secretary may period at the end of the last subparagraph under subsection (g) or (h) of section 6013. prescribe, and inserting ‘‘, or’’, and by adding at the ‘‘(h) INFLATION ADJUSTMENTS.— ‘‘(2) contains— end the following new subparagraph: ‘‘(1) DOLLAR LIMITATION ON AMOUNT OF ‘‘(A) the name, address, and TIN of the in- ‘‘(Z) section 6050S(d) (relating to returns CREDIT.— dividual with respect to whom payments de- relating to qualified tuition and related ex- ‘‘(A) IN GENERAL.—In the case of a taxable scribed in subsection (a) were received from penses).’’. year beginning after 1998, the $1,500 amount (or were paid to), (3) CLERICAL AMENDMENT.—The table of in subsection (b)(1) shall be increased by an ‘‘(B) the name, address, and TIN of any in- sections for subpart B of part III of sub- amount equal to— dividual certified by the individual described chapter A of chapter 61 is amended by insert- ‘‘(i) such dollar amount, multiplied by in subparagraph (A) as the taxpayer who will ing after the item relating to section 6050R ‘‘(ii) the cost-of-living adjustment deter- claim the individual as a dependent for pur- the following new item: mined under section 1(f)(3) for the calendar poses of the deduction allowable under sec- ‘‘Sec. 6050S. Returns relating to higher edu- year in which the taxable year begins, deter- tion 151 for any taxable year ending with or cation tuition and related ex- mined by substituting ‘calendar year 1997’ within the calendar year, and penses.’’. for ‘calendar year 1992’ in subparagraph (B) ‘‘(C) the— thereof. ‘‘(i) aggregate amount of payments for (d) COORDINATION WITH SECTION 135.—Sub- ‘‘(B) ROUNDING.—If any amount as adjusted qualified tuition and related expenses re- section (d) of section 135 is amended by re- under subparagraph (A) is not a multiple of ceived with respect to the individual de- designating paragraphs (2) and (3) as para- $50, such amount shall be rounded to the scribed in subparagraph (A) during the cal- graphs (3) and (4), respectively, and by in- next lowest multiple of $50. endar year, and serting after paragraph (1) the following new ‘‘(2) INCOME LIMITS.— ‘‘(ii) aggregate amount of reimbursements paragraph: ‘‘(A) IN GENERAL.—In the case of a taxable or refunds (or similar amounts) paid to such ‘‘(2) COORDINATION WITH HIGHER EDUCATION year beginning after 2000, the $40,000 and individual during the calendar year, and CREDIT.—The amount of the qualified higher $80,000 amounts in subsection (c)(2) shall ‘‘(D) such other information as the Sec- education expenses otherwise taken into ac- each be increased by an amount equal to— retary may prescribe. count under subsection (a) with respect to ‘‘(i) such dollar amount, multiplied by ‘‘(c) APPLICATION TO GOVERNMENTAL the education of an individual shall be re- ‘‘(ii) the cost-of-living adjustment deter- UNITS.—For purposes of this section— duced (before the application of subsection mined under section 1(f)(3) for the calendar ‘‘(1) a governmental unit or any agency or (b)) by the amount of such expenses which year in which the taxable year begins, deter- instrumentality thereof shall be treated as a are taken into account in determining the mined by substituting ‘calendar year 1999’ person, and credit allowable to the taxpayer or any other for ‘calendar year 1992’ in subparagraph (B) ‘‘(2) any return required under subsection person under section 25A with respect to thereof. (a) by such governmental entity shall be such expenses.’’. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4709

(e) CLERICAL AMENDMENT.—The table of ‘‘(3) any dependent of the taxpayer with re- ‘‘(A) TERMINATION.—Paragraph (1) shall not sections for subpart A of part IV of sub- spect to whom the taxpayer is allowed a de- apply to any qualified tuition reduction for chapter A of chapter 1 is amended by insert- duction under section 151, any course of instruction beginning after De- ing after the item relating to section 25 the at an eligible educational institution (as de- cember 31, 2001. following new item: fined in section 529(e)(5)). ‘‘(B) PHASEOUT.—The amount excludable from gross income under paragraph (1) for ‘‘Sec. 25A. Higher education tuition and re- ‘‘(d) TREATMENT OF EXPENSES PAID BY DE- any course of instruction beginning in a cal- lated expenses.’’. PENDENT.—If a deduction under section 151 with respect to an individual is allowed to endar year after 1997 and before 2002 shall not (f) EFFECTIVE DATE.—The amendments another taxpayer for a taxable year begin- exceed the applicable percentage (deter- made by this section shall apply to expenses ning in the calendar year in which such indi- mined in accordance with the following paid after December 31, 1997 (in taxable years vidual’s taxable year begins— table) for such calendar year of the amount ending after such date), for education fur- ‘‘(1) no deduction shall be allowed under which would be so excludable but for this nished in academic periods beginning after subsection (a) to such individual for such in- subparagraph: such date. dividual’s taxable year, and In the case of The applicable SEC. 202. DEDUCTION FOR QUALIFIED HIGHER ‘‘(2) qualified higher education expenses calendar year: percentage is: EDUCATION EXPENSES. paid by such individual during such individ- 1998 ...... 80 (a) DEDUCTION ALLOWED.— Part VII of sub- ual’s taxable year shall be treated for pur- 1999 ...... 60 chapter B of chapter 1 (relating to additional poses of this section as paid by such other 2000 ...... 40 itemized deductions for individuals) is taxpayer. 2001 ...... 20.’’. amended by redesignating section 221 as sec- ‘‘(e) COORDINATION WITH AMOUNTS INCLUD- (d) TECHNICAL AMENDMENTS.— tion 222 and by inserting after section 220 the IBLE IN GROSS INCOME UNDER SECTION 529 OR (1) Subparagraph (A) of section 529(e)(3) is following new section: 530.—If any deduction is allowed under sub- amended by inserting ‘‘(except as provided in ‘‘SEC. 221. QUALIFIED HIGHER EDUCATION EX- section (a) with respect to the qualified high- section 221(e))’’ after ‘‘distributee’’. PENSES. er education expenses of an individual with (2) The table of sections for part VII of sub- ‘‘(a) ALLOWANCE OF DEDUCTION.—In the respect to whom the taxpayer is allowed a chapter B of chapter 1 is amended by strik- case of an individual, there shall be allowed deduction under section 151(c), any amount ing the item relating to section 221 and in- as a deduction the amount of qualified high- which would (but for this subsection) be in- serting: er education expenses paid by the taxpayer cludible in such individual’s gross income by ‘‘Sec. 221. Qualified higher education ex- during the taxable year for education fur- reason of section 529 or section 530 shall be penses. nished during any academic period (within includible in the gross income of the tax- ‘‘Sec. 222. Cross reference.’’. the meaning of section 25A) beginning in payer and not such individual. such year. ‘‘(f) ADJUSTMENT FOR CERTAIN SCHOLAR- (e) EFFECTIVE DATE.—The amendments ‘‘(b) LIMITATIONS.— SHIPS, ETC.—The amount of qualified higher made by this section shall apply to expenses ‘‘(1) ANNUAL LIMIT.—The amount allowed education expenses otherwise taken into ac- paid after December 31, 1997 (in taxable years as a deduction under subsection (a) for any count under subsection (a) with respect to an ending after such date), for education fur- taxable year with respect to expenses paid individual for an academic period shall be re- nished in academic periods beginning after for education furnished to any 1 individual duced (before the application of subsection such date. shall not exceed the lesser of— (b)) by the sum of— SEC. 203. PENALTY-FREE WITHDRAWALS FROM ‘‘(A) $10,000, or ‘‘(1) the aggregate amount of the reduc- INDIVIDUAL RETIREMENT PLANS ‘‘(B) the amount includible in the tax- tions under section 25A(g)(2) for the benefit FOR HIGHER EDUCATION EXPENSES. payer’s gross income for such taxable year of such individual for such period, and (a) IN GENERAL.—Paragraph (2) of section by reason of a distribution from a qualified ‘‘(2) the amount excludable from gross in- 72(t) (relating to exceptions to 10-percent ad- tuition program (as defined in section 529), come under section 135 by reason of such ex- ditional tax on early distributions from or an education investment account (as de- penses with respect to such individual which qualified retirement plans) is amended by fined in section 530), the beneficiary of which are allocable to such period. adding at the end the following new subpara- is such individual. ‘‘(g) DENIAL OF DEDUCTION IF STUDENT CON- graph: ‘‘(2) AGGREGATE LIMIT.—The amount al- VICTED OF A FELONY DRUG OFFENSE.—No de- ‘‘(E) DISTRIBUTIONS FROM INDIVIDUAL RE- lowed as a deduction under subsection (a) to duction shall be allowed under subsection (a) TIREMENT PLANS FOR HIGHER EDUCATION EX- the taxpayer or any other individual with re- for qualified higher education expenses for PENSES.—Distributions to an individual from spect to expenses paid for education fur- the enrollment or attendance of a student an individual retirement plan to the extent nished to any 1 individual shall not exceed for any academic period if such student has such distributions do not exceed the quali- $40,000 for all taxable years. been convicted of a Federal or State felony fied higher education expenses (as defined in ‘‘(3) DEDUCTION ALLOWED FOR YEAR ONLY IF offense consisting of the possession or dis- paragraph (7)) of the taxpayer for the taxable INDIVIDUAL IS AT LEAST 1⁄2 TIME STUDENT FOR tribution of a controlled substance before year. Distributions shall not be taken into PORTION OF YEAR.—No deduction shall be al- the end of the taxable year with or within account under the preceding sentence if such lowed under subsection (a) for a taxable year which such period ends. distributions are described in subparagraph with respect to the qualified higher edu- ‘‘(h) DENIAL OF DOUBLE BENEFIT.—No de- (A), (C), or (D) or to the extent paragraph (1) cation expenses of an individual unless such duction shall be allowed under subsection (a) does not apply to such distributions by rea- individual is an eligible student (as defined for any expense for which a deduction is al- son of subparagraph (B).’’. in section 25A(d)(3)) for at least one aca- lowed to the taxpayer under any other provi- (b) DEFINITION.—Section 72(t) is amended demic period which begins during such year. sion of this chapter.’’. by adding at the end the following new para- ‘‘(4) DEDUCTION ALLOWED ONLY FOR FIRST 4 (b) DEDUCTION ALLOWED WHETHER OR NOT graph: YEARS OF POSTSECONDARY EDUCATION.—No de- TAXPAYER ITEMIZES OTHER DEDUCTIONS.— ‘‘(7) QUALIFIED HIGHER EDUCATION EX- duction shall be allowed under subsection (a) (1) IN GENERAL.—Subsection (b) of section PENSES.—For purposes of paragraph (2)(E)— for a taxable year with respect to the quali- 63 is amended by striking ‘‘and’’ at the end of ‘‘(A) IN GENERAL.—The term ‘qualified fied higher education expenses of an individ- paragraph (1), by striking the period at the higher education expenses’ means qualified ual if the individual has completed (before end of paragraph (2) and inserting ‘‘, and’’, higher education expenses (as defined in sec- the beginning of such taxable year) the and by adding at the end the following new tion 529(e)(3) without regard to subparagraph equivalent of the first 4 years of postsecond- paragraph: (C) thereof) for education furnished to— ary education at an eligible educational in- ‘‘(3) the deduction allowed by section 221 ‘‘(i) the taxpayer, stitution (determined under the rules of sec- (relating to deduction for qualified higher ‘‘(ii) the taxpayer’s spouse, or tion 25A). education expenses).’’. ‘‘(iii) any child (as defined in section ‘‘(5) COORDINATION WITH CREDIT FOR HIGHER (2) CONFORMING AMENDMENT.—Subsection 151(c)(3)) or grandchild of the taxpayer or the EDUCATION EXPENSES.—No deduction shall be (d) of section 63 is amended by striking taxpayer’s spouse, allowed under this section for a taxable year ‘‘and’’ at the end of paragraph (1), by strik- at an eligible educational institution (as de- with respect to the qualified higher edu- ing the period at the end of paragraph (2) and fined in section 529(e)(5)). cation expenses of an individual if an elec- inserting ‘‘, and’’, and by adding at the end ‘‘(B) COORDINATION WITH OTHER BENEFITS.— tion is in effect under section 25A with re- the following new paragraph: The amount of qualified higher education ex- spect to such individual for such taxable ‘‘(3) the deduction allowed by section 221 penses for any taxable year shall be reduced year. (relating to deduction for qualified higher as provided in section 25A(g)(2).’’. ‘‘(c) QUALIFIED HIGHER EDUCATION EX- education expenses).’’. (c) EFFECTIVE DATE.—The amendments PENSES.—The term ‘qualified higher edu- (c) PHASEOUT OF EXCLUSION FOR QUALIFIED made by this section shall apply to distribu- cation expenses’ means qualified higher edu- TUITION REDUCTIONS.—Subsection (d) of sec- tions after December 31, 1997, with respect to cation expenses (as defined in section 529) for tion 117 is amended by redesignating the last expenses paid after such date (in taxable the education of— paragraph as paragraph (4) and by adding at years ending after such date), for education ‘‘(1) the taxpayer, the end the following new paragraph: furnished in academic periods beginning ‘‘(2) the taxpayer’s spouse, or ‘‘(5) PHASEOUT OF EXCLUSION.— after such date. H4710 CONGRESSIONAL RECORD — HOUSE June 26, 1997

SEC. 204. EXPENSES FOR EDUCATION WHICH (c) EFFECTIVE DATE.—The amendments (as amended by subsection (f) of this section) SUPPLEMENTS ELEMENTARY AND made by this section shall apply to taxable is amended by adding at the end the follow- SECONDARY EDUCATION. years beginning after December 31, 1997. ing new paragraph: (a) IN GENERAL.—Subpart A of part IV of Subtitle B—Expanded Education Investment ‘‘(7) RESTRICTIONS RELATING TO AGE OF BEN- subchapter A of chapter 1 (relating to non- Savings Opportunities EFICIARY; COMPLETION OF EDUCATION.— refundable personal credits) is amended by SEC. 211. ELIGIBLE EDUCATIONAL INSTITUTIONS ‘‘(A) IN GENERAL.—A program shall be inserting after section 25A, as added by this PERMITTED TO MAINTAIN QUALI- treated as a qualified tuition program only title, the following new section: FIED TUITION PROGRAMS; OTHER if— ‘‘SEC. 25B. EXPENSES FOR EDUCATION WHICH MODIFICATIONS OF QUALIFIED ‘‘(i) no contribution is accepted on behalf SUPPLEMENTS ELEMENTARY AND STATE TUITION PROGRAMS. of a designated beneficiary after the date on SECONDARY EDUCATION. (a) ELIGIBLE EDUCATIONAL INSTITUTIONS which such beneficiary attains age 18, and PERMITTED TO MAINTAIN QUALIFIED TUITION ‘‘(a) ALLOWANCE OF CREDIT.—In the case of ‘‘(ii) any balance to the credit of a des- PROGRAMS.—Paragraph (1) of section 529(b) an individual, there shall be allowed a credit ignated beneficiary (if any) on the account (defining qualified State tuition program) is against the tax imposed by this chapter for termination date shall be distributed within amended by inserting ‘‘or by one or more eli- 30 days after such date to such beneficiary the taxable year an amount equal to 50 per- gible educational institutions’’ after ‘‘main- cent of the qualifying educational assistance (or in the case of death, the estate of the tained by a State or agency or instrumental- beneficiary). expenses paid by the taxpayer during the ity thereof’’. taxable year. ‘‘(B) ACCOUNT TERMINATION DATE.—For pur- (b) QUALIFIED HIGHER EDUCATION EXPENSES poses of subparagraph (A), the term ‘account ‘‘(b) LIMITATIONS.— TO INCLUDE ROOM AND BOARD.—Paragraph (3) termination date’ means whichever of the ‘‘(1) DOLLAR LIMITATION.—The amount al- of section 529(e) (defining qualified higher following dates is the earliest: lowed as a credit under subsection (a) for any education expenses) is amended to read as ‘‘(i) The date on which the designated ben- taxable year with respect to the qualified follows: eficiary completes the equivalent of 4 years educational assistance expenses of any 1 in- ‘‘(3) QUALIFIED HIGHER EDUCATION EX- of post-secondary education (whether or not dividual shall not exceed $150. PENSES.— at the same eligible educational institution). ‘‘(2) REDUCTION OF CREDIT BASED ON AD- ‘‘(A) IN GENERAL.—The term ‘qualified ‘‘(ii) The date on which the designated ben- JUSTED GROSS INCOME.— higher education expenses’ means tuition, eficiary attains age 30. ‘‘(A) IN GENERAL.—The aggregate amount fees, books, supplies, and equipment required ‘‘(iii) The date on which the designated which would (but for this paragraph) be al- for the enrollment or attendance of a des- beneficiary dies.’’. lowed by this section shall be reduced (but ignated beneficiary at an eligible education (4) ESTATE AND GIFT TAX TREATMENT.— not below zero) by $25 for each $1,000 (or frac- institution. (A) GIFT TAX TREATMENT.— tion thereof) by which the taxpayer’s modi- ‘‘(B) ROOM AND BOARD INCLUDED FOR STU- (i) Paragraph (2) of section 529(c) is amend- fied adjusted gross income exceeds the DENTS WHO ARE AT LEAST HALF-TIME.—In the ed to read as follows: threshold amount. For purposes of the pre- case of an individual who is an eligible stu- ‘‘(2) GIFT TAX TREATMENT OF CONTRIBU- ceding sentence, the term ‘modified adjusted dent (as defined in section 25A(d)(3)) for any TIONS.—For purposes of chapters 12 and 13, gross income’ means adjusted gross income academic period, such term shall also in- any contribution to a qualified tuition pro- increased by any amount excluded from clude reasonable costs for such period (as de- gram on behalf of any designated bene- gross income under section 911, 931, or 933. termined under the qualified tuition pro- ficiary— ‘‘(B) THRESHOLD AMOUNT.—For purposes of gram) incurred by the designated beneficiary ‘‘(A) shall be treated as a completed gift to subparagraph (A), the term ‘threshold for room and board while attending such in- such beneficiary which is not a future inter- amount’ means— stitution. The amount treated as qualified est in property, and ‘‘(i) $80,000 in the case of a joint return, higher education expenses by reason of the ‘‘(B) shall not be treated as a qualified ‘‘(ii) $50,000 in the case of an individual preceding sentence shall not exceed the min- transfer under section 2503(e).’’. who is not married, and imum amount (applicable to the student) in- (ii) Paragraph (5) of section 529(c) is ‘‘(iii) $40,000 in the case of a married indi- cluded for room and board for such period in amended to read as follows: vidual filing a separate return. the cost of attendance (as defined in section ‘‘(5) OTHER GIFT TAX RULES.—For purposes For purposes of this subparagraph, marital 472 of the Higher Education Act of 1965, 20 of chapters 12 and 13— status shall be determined under section U.S.C. 1087ll, as in effect on the date of the ‘‘(A) TREATMENT OF DISTRIBUTIONS.—In no 7703. enactment of this paragraph) for the eligible event shall a distribution from a qualified ‘‘(c) QUALIFIED EDUCATIONAL ASSISTANCE educational institution for such period. tuition program be treated as a taxable gift. EXPENSES.—For purposes of this section— ‘‘(C) EXCLUSION FOR GRADUATE LEVEL ‘‘(B) TREATMENT OF DESIGNATION OF NEW ‘‘(1) IN GENERAL.—The term ‘qualified edu- COURSES.—Such term shall not include ex- BENEFICIARY.—The taxes imposed by chap- cational assistance expenses’ means amounts penses for any graduate level course of a ters 12 and 13 shall apply to a transfer by paid to a qualified entity to provide supple- kind normally taken by an individual pursu- reason of a change in the designated bene- mentary education to any dependent (within ing a program leading to a law, business, ficiary under the program (or a rollover to the meaning of section 152) of the taxpayer— medical, or other advanced academic or pro- the account of a new beneficiary) only if the ‘‘(A) who is less than 18 years of age as of fessional degree. Such courses shall not be new beneficiary is a generation below the the close of the taxable year, and taken into account in determining whether generation of the old beneficiary (deter- ‘‘(B) who is enrolled as a full-time student an individual is described in subsection mined in accordance with section 2651).’’. in an elementary or secondary school. (f)(3)(A).’’. (B) ESTATE TAX TREATMENT.—Paragraph (4) ‘‘(2) SUPPLEMENTARY EDUCATION.—For pur- (c) ADDITIONAL MODIFICATIONS.— of section 529(c) is amended to read as fol- poses of paragraph (1), supplementary edu- (1) MEMBER OF FAMILY.—Paragraph (2) of lows: cation is education provided with respect to section 529(e) (relating to other definitions ‘‘(4) ESTATE TAX TREATMENT.— reading, mathematics, or any subject that and special rules) is amended to read as fol- ‘‘(A) IN GENERAL.—No amount shall be in- the dependent student is studying at the lows: cludible in the gross estate of any individual time in elementary or secondary school ‘‘(2) MEMBER OF FAMILY.—The term ‘mem- for purposes of chapter 11 by reason of an in- classes. Eligible courses of study shall not ber of the family’ means— terest in a qualified tuition program. include courses providing assistance with re- ‘‘(A) an individual who bears a relationship ‘‘(B) AMOUNTS INCLUDIBLE IN ESTATE OF spect to preparation for college entrance ex- to another individual which is a relationship DESIGNATED BENEFICIARY IN CERTAIN CASES.— aminations. described in paragraphs (1) through (8) of sec- Subparagraph (A) shall not apply to amounts ‘‘(3) QUALIFIED ENTITY.—The term ‘quali- tion 152(a), and distributed on account of the death of a ben- fied entity’ means a person that is accredited ‘‘(B) the spouse of any individual described eficiary.’’. as a supplementary education service pro- in subparagraph (A).’’. (5) LIMITATION ON CONTRIBUTIONS TO QUALI- vider by an accreditation organization that (2) ELIGIBLE EDUCATIONAL INSTITUTION.— FIED TUITION PROGRAMS NOT MAINTAINED BY A is recognized by the Secretary of Education Section 529(e) is amended by adding at the STATE.—Subsection (b) of section 529 is or by any other agency, association, or group end the following: amended by adding at the end the following that is certified by the Secretary for pur- ‘‘(5) ELIGIBLE EDUCATIONAL INSTITUTION.— new paragraph: poses of this section.’’. The term ‘eligible educational institution’ ‘‘(9) LIMITATION ON CONTRIBUTIONS TO QUALIFIED TUITION PROGRAMS NOT MAINTAINED (b) CLERICAL AMENDMENT.—The table of means an institution— sections for subpart A of part IV of sub- ‘‘(A) which is described in section 481 of the BY A STATE.—In the case of a program not chapter A of chapter 1 is amended by insert- Higher Education Act of 1965 (20 U.S.C. 1088), maintained by a State or agency or instru- ing after the item relating to section 25A the as in effect on the date of the enactment of mentality thereof, such program shall not be following new item: this paragraph, and treated as a qualified tuition program unless ‘‘(B) which is eligible to participate in a it limits the annual contribution to the pro- program under title IV of such Act.’’. gram on behalf of a designated beneficiary to ‘‘Sec. 25B. Expenses for education which sup- (3) NO CONTRIBUTIONS AFTER BENEFICIARY an amount equal to the lesser of— plements elementary and sec- ATTAINS AGE 18; DISTRIBUTIONS REQUIRED IN ‘‘(A) $5,000, or ondary education.’’. CERTAIN CASES.—Subsection (b) of section 529 ‘‘(B) the excess of— June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4711 ‘‘(i) $50,000, over for the benefit of any 1 beneficiary, the term after December 31, 1997, with respect to ex- ‘‘(ii) the aggregate amount contributed to ‘excess contributions’ means the amount by penses paid after such date (in taxable years such program on behalf of such beneficiary which the amount contributed for the tax- ending after such date), for education fur- for all prior taxable years.’’. able year to such accounts exceeds the lesser nished in academic periods beginning after (d) ADDITIONAL TAX ON AMOUNTS NOT USED of— such date. FOR HIGHER EDUCATION EXPENSES.—Section ‘‘(A) the excess of— (3) PENALTY FOR NONEDUCATION WITHDRAW- 529 is amended by adding at the end the fol- ‘‘(i) $5,000, over ALS.—The amendment made by subsection lowing new subsection: ‘‘(ii) the aggregate amount contributed to (d) shall apply to distributions after Decem- ‘‘(f) IMPOSITION OF ADDITIONAL TAX.— all qualified tuition programs (as defined in ber 31, 1997. ‘‘(1) IN GENERAL.—The tax imposed by this section 529) maintained by a State or any (4) COORDINATION WITH EDUCATION SAVINGS chapter for any taxable year on any taxpayer agency or instrumentality thereof on behalf BONDS.—The amendment made by subsection who receives a payment or distribution from of such beneficiary for such taxable year, or (e) shall apply to taxable years beginning a qualified tuition program which is includ- ‘‘(B) the excess of— after December 31, 1997. ible in gross income shall be increased by 10 ‘‘(i) $50,000, over (5) ESTATE AND GIFT TAX CHANGES.— percent of the amount which is so includible. ‘‘(ii) the sum of— (A) GIFT TAX CHANGES.—Paragraphs (2) and ‘‘(2) EXCEPTIONS.—Paragraph (1) shall not ‘‘(I) the aggregate amount contributed to (5) of section 529(c) of the Internal Revenue apply if the payment or distribution is— such accounts for all prior taxable years, and Code of 1986, as amended by this section, ‘‘(A) used for qualified higher education ex- ‘‘(II) the aggregate amount contributed to shall apply to transfers (including designa- penses of the designated beneficiary, all qualified tuition programs (as defined in tions of new beneficiaries) made after the ‘‘(B) made to a beneficiary (or to the estate section 529) maintained by a State or any date of the enactment of this Act. of the designated beneficiary) on or after the agency or instrumentality thereof on behalf (B) ESTATE TAX CHANGES.—Paragraph (4) of death of the designated beneficiary, of such beneficiary for such taxable year and such section 529(c) shall apply to estates of ‘‘(C) attributable to the designated bene- all prior taxable years. decedents dying after June 8, 1997. ficiary’s being disabled (within the meaning ‘‘(2) PRIVATE EDUCATION INVESTMENT AC- SEC. 212. EDUCATION INVESTMENT ACCOUNTS. of section 72(m)(7)), or COUNT.—For purposes of paragraph (1), the (a) IN GENERAL.—Part VIII of subchapter F ‘‘(D) made on account of a scholarship, al- term ‘private education investment account’ of chapter 1 (relating to qualified State tui- lowance, or payment described in subpara- means— tion programs) is amended by adding at the graph (A), (B), or (C) of section 135(d)(1) re- ‘‘(A) a qualified tuition program (as de- end the following new section: ceived by the account holder to the extent fined in section 529) not maintained by a the amount of the payment or distribution State or any agency or instrumentality ‘‘SEC. 530. EDUCATION INVESTMENT ACCOUNTS. does not exceed the amount of the scholar- thereof, and ‘‘(a) GENERAL RULE.—An education invest- ship, allowance, or payment. ‘‘(B) an education investment account (as ment account shall be exempt from taxation ‘‘(3) EXCESS CONTRIBUTIONS RETURNED BE- defined in section 530). under this subtitle. Notwithstanding the pre- FORE DUE DATE OF RETURN.—In the case of a ‘‘(3) SPECIAL RULES.—For purposes of para- ceding sentence, the education investment qualified tuition program not maintained by graph (1), the following contributions shall account shall be subject to the taxes imposed a State or any agency or instrumentality not be taken into account: by section 511 (relating to imposition of tax thereof, paragraph (1) shall not apply to the ‘‘(A) Any contribution which is distributed on unrelated business income of charitable distribution to a contributor of any con- out of the education investment account in a organizations). tribution made during a taxable year on be- distribution to which section 530(c)(3)(B) ap- ‘‘(b) DEFINITIONS AND SPECIAL RULES.—For half of a designated beneficiary to the extent plies. purposes of this section— that such contribution exceeds the limita- ‘‘(B) Any contribution to a qualified tui- ‘‘(1) EDUCATION INVESTMENT ACCOUNT.—The tion in section 4973(e) if— tion program (as so defined) described in sec- term ‘education investment account’ means ‘‘(A) such distribution is received on or be- tion 530(b)(2)(B) from any such account. a trust created or organized in the United fore the day prescribed by law (including ex- ‘‘(C) Any rollover contribution.’’. States exclusively for the purpose of paying tensions of time) for filing such contributor’s (g) TECHNICAL AMENDMENTS.— the qualified higher education expenses of return for such taxable year, and (1) Paragraph (2) of section 26(b) is amend- the account holder, but only if the written ‘‘(B) such distribution is accompanied by ed by redesignating subparagraphs (E) governing instrument creating the trust the amount of net income attributable to through (P) as subparagraphs (F) through meets the following requirements: such excess contribution. (Q), respectively, and by inserting after sub- ‘‘(A) No contribution will be accepted— ‘‘(i) unless it is in cash, Any net income described in subparagraph paragraph (D) the following new subpara- ‘‘(ii) after the date on which the account (B) shall be included in the gross income of graph: holder attains age 18, or the contributor for the taxable year in which ‘‘(E) section 529(f) (relating to additional ‘‘(iii) in excess of $5,000 for the taxable such excess contribution was made.’’. tax on certain distributions from qualified (e) COORDINATION WITH EDUCATION SAVINGS tuition programs),’’. year. BOND.—Section 135(c)(2) (defining qualified (2) The text of section 529 is amended by ‘‘(B) The trustee is a bank (as defined in higher education expenses) is amended by striking ‘‘qualified State tuition program’’ section 408(n)) or another person who dem- adding at the end the following: each place it appears and inserting ‘‘quali- onstrates to the satisfaction of the Secretary ‘‘(C) CONTRIBUTIONS TO QUALIFIED TUITION fied tuition program’’. that the manner in which that person will PROGRAM.—Such term shall include any con- (3) Subsection (b) of section 529 is amended administer the trust will be consistent with tribution to a qualified tuition program (as by striking paragraph (3) and by redesignat- the requirements of this section. defined in section 529) on behalf of a des- ing paragraphs (4) through (7) as paragraphs ‘‘(C) No part of the trust assets will be in- ignated beneficiary (as defined in such sec- (3) through (6), respectively. vested in life insurance contracts. tion) who is an individual described in sub- (4)(A) The section heading of section 529 is ‘‘(D) The assets of the trust shall not be paragraph (A); but there shall be no increase amended to read as follows: commingled with other property except in a in the investment in the contract for pur- ‘‘SEC. 529. QUALIFIED TUITION PROGRAMS.’’. common trust fund or common investment poses of applying section 72 by reason of the (B) The item relating to section 529 in the fund. portion of such contribution which is not in- table of sections for part VIII of subchapter ‘‘(E) Any balance in the account will be cludible in gross income by reason of this F of chapter 1 is amended by striking distributed as required under section subparagraph.’’. ‘‘State’’. 529(b)(8)(B) (as if such account were a quali- (f) TAX ON EXCESS CONTRIBUTIONS.— (5)(A) The heading for part VIII of sub- fied tuition program). (1) IN GENERAL.—Subsection (a) of section chapter F of chapter 1 is amended to read as For $50,000 limit on aggregate contributions 4973 is amended by striking ‘‘or’’ at the end follows: to accounts, see section 4973(e). of paragraph (2) and by inserting after para- ‘‘(2) QUALIFIED HIGHER EDUCATION EX- ‘‘PART VIII—HIGHER EDUCATION SAVINGS graph (3) the following new paragraphs: PENSES.— ENTITIES’’. ‘‘(4) a qualified tuition program (as defined ‘‘(A) IN GENERAL.—The term ‘qualified in section 529) not maintained by a State or (B) The table of parts for subchapter F of higher education expenses’ has the same any agency or instrumentality thereof, or chapter 1 is amended by striking the item re- meaning given such term by section 529(e)(3). ‘‘(5) an education investment account (as lating to part VIII and inserting: ‘‘(B) QUALIFIED TUITION PROGRAMS.—Such defined in section 530),’’. ‘‘Part VIII. Higher education savings enti- term shall include amounts paid or incurred (2) EXCESS CONTRIBUTIONS DEFINED.—Sec- ties.’’. to purchase tuition credits or certificates, or tion 4973 is amended by adding at the end the (h) EFFECTIVE DATES.— to make contributions to an account, under following new subsection: (1) IN GENERAL.—Except as otherwise pro- a qualified tuition program (as defined in ‘‘(e) EXCESS CONTRIBUTIONS TO PRIVATE vided in this subsection, the amendments section 529(b)) for the benefit of the account QUALFIED TUITION PROGRAM AND EDUCATION made by this section shall take effect on holder. INVESTMENT ACCOUNTS.—For purposes of this January 1, 1998. ‘‘(3) ELIGIBLE EDUCATIONAL INSTITUTION.— section— (2) EXPENSES TO INCLUDE ROOM AND BOARD, The term ‘eligible educational institution’ ‘‘(1) IN GENERAL.—In the case of private ETC.—The amendments made by subsection has the meaning given such term by section education investment accounts maintained (b) and (c)(2) shall apply to distributions 529(e)(5). H4712 CONGRESSIONAL RECORD — HOUSE June 26, 1997

‘‘(4) ACCOUNT HOLDER.—The term ‘account regulations. The reports required by this SEC. 222. INCREASE IN LIMITATION ON QUALI- holder’ means the individual for whose bene- subsection shall be filed at such time and in FIED 501(C)(3) BONDS OTHER THAN fit the education investment account is es- such manner and furnished to such individ- HOSPITAL BONDS. tablished. uals at such time and in such manner as may (a) IN GENERAL.—The text of paragraph (1) ‘‘(c) TAX TREATMENT OF DISTRIBUTIONS.— be required by those regulations.’’. of section 145(b) is amended by striking ‘‘$150,000,000.’’ and inserting ‘‘the limitation ‘‘(1) IN GENERAL.—Any amount paid or dis- (b) TAX ON PROHIBITED TRANSACTIONS.— determined in accordance with the following tributed shall be includible in gross income (1) IN GENERAL.—Paragraph (1) of section table: as required by section 529(c)(3) (determined 4975(e) (relating to prohibited transactions) as if such account were a qualified tuition is amended by striking ‘‘or’’ at the end of In the case of program). subparagraph (D), by redesignating subpara- calendar year: The limitation is: 1998 ...... $160,000,000 ‘‘(2) SPECIAL RULES FOR APPLYING ESTATE graph (E) as subparagraph (F), and by insert- AND GIFT TAXES WITH RESPECT TO ACCOUNT.— 1999 ...... 170,000,000 ing after subparagraph (D) the following new 2000 ...... 180,000,000 Rules similar to the rules of paragraphs (2), subparagraph: (4), and (5) of section 529(c) shall apply for 2001 ...... 190,000,000 ‘‘(E) an education investment account de- 2002 or thereafter ...... 200,000,000.’’. purposes of this section. scribed in section 530, or’’. (b) CONFORMING AMENDMENT.—The heading ‘‘(3) ADDITIONAL TAX FOR DISTRIBUTIONS NOT (2) SPECIAL RULE.—Subsection (c) of sec- USED FOR EDUCATIONAL EXPENSES.— for subsection (b) of section 145 is amended tion 4975 is amended by adding at the end of by striking ‘‘$150,000,000’’. ‘‘(A) IN GENERAL.—The tax imposed by sec- subsection (c) the following new paragraph: tion 529(f) shall apply to payments and dis- (c) EFFECTIVE DATE.—The amendments ‘‘(5) SPECIAL RULE FOR EDUCATION INVEST- made by this section shall take effect on tributions from an education investment ac- MENT ACCOUNTS.—An individual for whose count in the same manner as such tax ap- January 1, 1998. benefit an education investment account is SEC. 223. CONTRIBUTIONS OF COMPUTER TECH- plies to qualified tuition programs (as de- established and any contributor to such ac- fined in section 529). NOLOGY AND EQUIPMENT FOR ELE- count shall be exempt from the tax imposed MENTARY OR SECONDARY SCHOOL ‘‘(B) EXCESS CONTRIBUTIONS RETURNED BE- by this section with respect to any trans- PURPOSES. FORE DUE DATE OF RETURN.—Subparagraph action concerning such account (which (a) CONTRIBUTIONS OF COMPUTER TECH- (A) shall not apply to the distribution to a would otherwise be taxable under this sec- NOLOGY AND EQUIPMENT FOR ELEMENTARY OR contributor of any contribution paid during tion) if section 530(d) applies with respect to SECONDARY SCHOOL PURPOSES.—Subsection a taxable year to an education investment such transaction.’’. (e) of section 170 is amended by adding at the account to the extent that such contribution (c) FAILURE TO PROVIDE REPORTS ON EDU- end the following new paragraph: exceeds the limitation in section 4973(e) if CATION INVESTMENT ACCOUNTS.— ‘‘(6) SPECIAL RULE FOR CONTRIBUTIONS OF such distribution (and the net income with (1) IN GENERAL.—Paragraph (2) of section COMPUTER TECHNOLOGY AND EQUIPMENT FOR respect to such excess contribution) meet re- 6693(a) (relating to failure to provide reports ELEMENTARY OR SECONDARY SCHOOL PUR- quirements comparable to the requirements on individual retirement accounts or annu- POSES.— of section 529(f)(3). ities) is amended by striking ‘‘and’’ at the ‘‘(A) LIMIT ON REDUCTION.—In the case of a ‘‘(4) ROLLOVER CONTRIBUTIONS—Paragraph end of subparagraph (A), by striking the pe- qualified elementary or secondary edu- (1) shall not apply to any amount paid or dis- riod at the end of subparagraph (B) and in- cational contribution, the reduction under tributed from an education investment ac- serting ‘‘, and’’, and by adding at the end the paragraph (1)(A) shall be no greater than the count to the extent that the amount re- following new subparagraph: amount determined under paragraph (3)(B). ceived is paid into another education invest- ‘‘(C) section 530(g) (relating to education ‘‘(B) QUALIFIED ELEMENTARY OR SECONDARY ment account for the benefit of the account investment accounts).’’. EDUCATIONAL CONTRIBUTION.—For purposes of holder or a member of the family (within the (2) CLERICAL AMENDMENT.—The section this paragraph, the term ‘qualified elemen- meaning of section 529(e)(2)) of the account heading for section 6693 is amended by strik- tary or secondary educational contribution’ holder not later than the 60th day after the ing and insert means a charitable contribution by a cor- date of such payment or distribution. The ‘‘INDIVIDUAL RETIREMENT’’ ‘‘CERTAIN TAX-FAVORED’’. poration of any computer technology or preceding sentence shall not apply to any equipment, but only if— payment or distribution if it applied to any (d) TECHNICAL AMENDMENTS.— (1) Subparagraph (F) of section 26(b)(2), as ‘‘(i) the contribution is to— prior payment or distribution during the 12- ‘‘(I) an educational organization described month period ending on the date of the pay- added by the preceding section, is amended by inserting before the comma ‘‘and section in subsection (b)(1)(A)(ii), or ment or distribution. ‘‘(II) an entity described in section 501(c)(3) ‘‘(5) CHANGE IN ACCOUNT HOLDER.—Any 530(c)(3) (relating to additional tax on cer- tain distributions from education invest- and exempt from tax under section 501(a) change in the account holder of an education (other than an entity described in subclause investment account shall not be treated as a ment accounts)’’. (2) Subparagraph (C) of section 135(c)(2), as (I)) that is organized primarily for purposes distribution for purposes of paragraph (1) if of supporting elementary and secondary edu- the new account holder is a member of the added by the preceding section, is amended by inserting ‘‘, or to an education invest- cation, family (as so defined) of the old account ‘‘(ii) the contribution is made not later holder. ment account (as defined in section 530) on behalf of an account holder (as defined in than 2 years after the date the taxpayer ac- ‘‘(6) SPECIAL RULES FOR DEATH AND DI- quired the property (or in the case of prop- VORCE.—Rules similar to the rules of para- such section),’’ after ‘‘(as defined in such sec- tion)’’. erty constructed by the taxpayer, the date graphs (7) and (8) of section 220(f) shall apply. the construction of the property is substan- ‘‘(d) TAX TREATMENT OF ACCOUNTS.—Rules (3) The table of sections for part VIII of tially completed), similar to the rules of paragraphs (2) and (4) subchapter F of chapter 1 is amended by add- ‘‘(iii) substantially all of the use of the of section 408(e) shall apply to any education ing at the end the following new item: property by the donee is for use within the investment account. United States for educational purposes in ‘‘(e) COMMUNITY PROPERTY LAWS.—This ‘‘Sec. 530. Education investment accounts.’’. section shall be applied without regard to (4) The item relating to section 6693 in the any of the grades K–12 that are related to the any community property laws. table of sections for part I of subchapter B of purpose or function of the organization or ‘‘(f) CUSTODIAL ACCOUNTS.—For purposes of chapter 68 is amended by striking ‘‘individ- entity, this section, a custodial account shall be ual retirement’’ and inserting ‘‘certain tax- ‘‘(iv) the property is not transferred by the treated as a trust if the assets of such ac- favored’’. donee in exchange for money, other prop- erty, or services, except for shipping, instal- count are held by a bank (as defined in sec- (e) EFFECTIVE DATE.—The amendments lation and transfer costs, tion 408(n)) or another person who dem- made by this section shall apply to taxable ‘‘(v) the property will fit productively into onstrates, to the satisfaction of the Sec- years beginning after December 31, 1997. retary, that the manner in which he will ad- the entity’s education plan, and minister the account will be consistent with Subtitle C—Other Education Initiatives ‘‘(vi) the entity’s use and disposition of the property will be in accordance with the pro- the requirements of this section, and if the SEC. 221. EXTENSION OF EXCLUSION FOR EM- custodial account would, except for the fact PLOYER-PROVIDED EDUCATIONAL visions of clauses (iii) and (iv). that it is not a trust, constitute an account ASSISTANCE. ‘‘(C) CONTRIBUTION TO PRIVATE FOUNDA- described in subsection (b)(1). For purposes TION.—A contribution by a corporation of (a) IN GENERAL.—Subsection (d) of section any computer technology or equipment to a of this title, in the case of a custodial ac- 127 (relating to educational assistance pro- private foundation (as defined in section 509) count treated as a trust by reason of the pre- grams) is amended to read as follows: ceding sentence, the custodian of such ac- shall be treated as a qualified elementary or count shall be treated as the trustee thereof. ‘‘(d) TERMINATION.—This section shall not secondary educational contribution for pur- ‘‘(g) REPORTS.—The trustee of an education apply to expenses paid with respect to poses of this paragraph if— investment account shall make such reports courses of instruction beginning after De- ‘‘(i) the contribution to the private founda- regarding such account to the Secretary and cember 31, 1997.’’. tion satisfies the requirements of clauses (ii) to the account holder with respect to con- (b) EFFECTIVE DATE.—The amendment and (iv) of subparagraph (B), and tributions, distributions, and such other made by subsection (a) shall apply to taxable ‘‘(ii) within 30 days after such contribu- matters as the Secretary may require under years beginning after December 31, 1996. tion, the private foundation— June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4713

‘‘(I) contributes the property to an entity discharge of a loan made by an organization ‘‘(d) DISTRIBUTION RULES.—For purposes of described in clause (i) of subparagraph (B) described in paragraph (2)(D) (or by an orga- this title— that satisfies the requirements of clauses nization described in paragraph (2)(E) from ‘‘(1) GENERAL RULES.— (iii) through (vi) of subparagraph (B), and funds provided by an organization described ‘‘(A) EXCLUSIONS FROM GROSS INCOME.—Any ‘‘(II) notifies the donor of such contribu- in paragraph (2)(D)) if the discharge is on ac- qualified distribution from an AD IRA shall tion. count of services performed for either such not be includible in gross income. ‘‘(D) SPECIAL RULE RELATING TO CONSTRUC- organization.’’. ‘‘(B) NONQUALIFIED DISTRIBUTIONS.—In ap- TION OF PROPERTY.—For the purposes of this (c) EFFECTIVE DATE.—The amendments plying section 72 to any distribution from an paragraph, the rules of paragraph (4)(C) shall made by this section shall apply to dis- AD IRA which is not a qualified distribution, apply. charges of indebtedness after the date of the such distribution shall be treated as made ‘‘(E) DEFINITIONS.—For the purposes of this enactment of this Act. from contributions to the AD IRA to the ex- paragraph— TITLE III—SAVINGS AND INVESTMENT tent that such distribution, when added to ‘‘(i) COMPUTER TECHNOLOGY OR EQUIP- INCENTIVES all previous distributions from the AD IRA, MENT.—The term ‘computer technology or Subtitle A—Retirement Savings does not exceed the aggregate amount of equipment’ means computer software (as de- contributions to the AD IRA. For purposes of SEC. 301. ESTABLISHMENT OF AMERICAN DREAM the preceding sentence, all AD IRAs main- fined by section 197(e)(3)(B)), computer or pe- IRA. tained for the benefit of an individual shall ripheral equipment (as defined by section (a) IN GENERAL.—Subpart A of part I of 168(i)(2)(B)), and fiber optic cable related to subchapter D of chapter 1 (relating to pen- be treated as 1 account. computer use. sion, profit-sharing, stock bonus plans, etc.) ‘‘(C) EXCEPTION FROM PENALTY TAX.—Sec- ‘‘(ii) CORPORATION.—The term ‘corporation’ is amended by inserting after section 408 the tion 72(t) shall not apply to— has the meaning given to such term by para- following new section: ‘‘(i) any qualified distribution from an AD IRA, and graph (4)(D).’’. ‘‘SEC. 408A. AMERICAN DREAM IRA. ‘‘(ii) any qualified first-time homebuyer (b) EFFECTIVE DATE.—The amendment ‘‘(a) GENERAL RULE.—Except as provided in distribution (whether or not a qualified dis- made by this section shall apply to taxable this section, an American Dream IRA shall tribution) from an AD IRA. years beginning after the calendar year in be treated for purposes of this title in the ‘‘(2) QUALIFIED DISTRIBUTION.—For purposes which this Act is enacted. same manner as an individual retirement of this subsection— SEC. 224. TREATMENT OF CANCELLATION OF plan. ‘‘(A) IN GENERAL.—The term ‘qualified dis- CERTAIN STUDENT LOANS. ‘‘(b) AMERICAN DREAM IRA.—For purposes tribution’ means any payment or distribu- (a) CERTAIN DIRECT STUDENT LOANS THE of this title, the term ‘American Dream IRA’ tion— REPAYMENT OF WHICH IS INCOME CONTIN- or ‘AD IRA’ means an individual retirement ‘‘(i) made on or after the date on which the GENT.—Paragraph (1) of section 108(f) is plan (as defined in section 7701(a)(37)) which individual attains age 591⁄2, amended by striking ‘‘any student loan if’’ is designated at the time of the establish- ‘‘(ii) made to a beneficiary (or to the estate and all that follows and inserting ‘‘any stu- ment of the plan as an American Dream IRA. of the individual) on or after the death of the dent loan if— Such designation shall be made in such man- individual, ‘‘(A) such discharge was pursuant to a pro- ner as the Secretary may prescribe. ‘‘(iii) attributable to the individual’s being vision of such loan under which all or part of ‘‘(c) TREATMENT OF CONTRIBUTIONS.— disabled (within the meaning of section the indebtedness of the individual would be ‘‘(1) NO DEDUCTION ALLOWED.—No deduction 72(m)(7)), or discharged if the individual worked for a cer- shall be allowed under section 219 for a con- ‘‘(iv) which is a qualified first-time home- tain period of time in certain professions for tribution to an AD IRA. buyer distribution. any of a broad class of employers, or ‘‘(2) CONTRIBUTION LIMIT.— ‘‘(B) DISTRIBUTIONS WITHIN 5 YEARS.—No ‘‘(B) in the case of a loan made under part ‘‘(A) IN GENERAL.—The aggregate amount payment or distribution shall be treated as a of contributions for any taxable year to all D of title IV of the Higher Education Act of qualified distribution if— AD IRAs maintained for the benefit of an in- 1965 which has a repayment schedule estab- ‘‘(i) it is made within the 5-taxable year pe- lished under section 455(e)(4) of such Act (re- dividual shall not exceed $2,000. riod beginning with the 1st taxable year for lating to income contingent repayments), ‘‘(B) INFLATION ADJUSTMENT.—In the case which the individual made a contribution to such discharge is after the maximum repay- of taxable years beginning in a calendar year an AD IRA (or such individual’s spouse made ment period under such loan (as prescribed after 1998, the $2,000 amount contained in a contribution to an AD IRA) established for under such part).’’. subparagraph (A) shall be increased by an such individual, or (b) CERTAIN LOANS BY EXEMPT ORGANIZA- amount equal to— ‘‘(ii) in the case of a payment or distribu- TIONS.— ‘‘(i) such dollar amount, multiplied by tion properly allocable (as determined in the (1) IN GENERAL.—Paragraph (2) of section ‘‘(ii) the cost-of-living adjustment deter- manner prescribed by the Secretary) to a 108(f) (defining student loan) is amended by mined under section 1(f)(3) for such calendar qualified rollover contribution (or income al- striking ‘‘or’’ at the end of subparagraph (B) year by substituting ‘calendar year 1997’ for locable thereto), it is made within the 5-tax- and by striking subparagraph (D) and insert- ‘calendar year 1992’ in subparagraph (B) able year period beginning with the taxable ing the following: thereof. year in which the rollover contribution was ‘‘(D) any educational organization de- If the amount as adjusted under the preced- made. scribed in section 170(b)(1)(A)(ii) if such loan ing sentence is not a multiple of $50, such Clause (ii) shall not apply to a qualified roll- is made— amount shall be rounded to the next lowest over contribution from an AD IRA. ‘‘(i) pursuant to an agreement with any en- multiple of $50. ‘‘(3) ROLLOVERS.— tity described in subparagraph (A), (B), or (C) ‘‘(3) CONTRIBUTIONS PERMITTED AFTER AGE ‘‘(A) IN GENERAL.—Paragraph (1) shall not under which the funds from which the loan 701⁄2.—Contributions to an AD IRA may be apply to any distribution which is trans- was made were provided to such educational made even after the individual for whom the ferred in a qualified rollover contribution to organization, or account is maintained has attained age 701⁄2. an AD IRA. ‘‘(ii) pursuant to a program of such edu- ‘‘(4) MANDATORY DISTRIBUTION RULES NOT TO ‘‘(B) INCOME INCLUSION FOR ROLLOVERS cational organization which is designed to APPLY, ETC.— FROM NON-AD IRAS.— encourage its students to serve in occupa- ‘‘(A) IN GENERAL.—Except as provided in ‘‘(i) IN GENERAL.—In the case of any dis- tions with unmet needs or in areas with subparagraph (B), subsections (a)(6) and tribution to which this subparagraph ap- unmet needs and under which the services (b)(3) of section 408 (relating to required dis- plies— provided by the students (or former stu- tributions) and section 4974 (relating to ex- ‘‘(I) sections 72(t) and 408(d)(3) shall not dents) are for or under the direction of a gov- cise tax on certain accumulations in quali- apply (but section 4980A shall apply), and ernmental unit or an organization described fied retirement plans) shall not apply to any ‘‘(II) any amount required to be included in in section 501(c)(3) and exempt from tax AD IRA. gross income by reason of this paragraph under section 501(a). ‘‘(B) POST-DEATH DISTRIBUTIONS.—Rules shall be so included ratably over the 4-tax- The term ‘student loan’ includes any loan similar to the rules of section 401(a)(9) (other able year period beginning with the taxable made by an educational organization so de- than subparagraph (A) thereof) shall apply year in which the distribution is made. scribed or by an organization exempt from for purposes of this section. ‘‘(ii) DISTRIBUTIONS TO WHICH SUBPARA- tax under section 501(a) to refinance a loan ‘‘(5) RULES RELATING TO ROLLOVER CON- GRAPH APPLIES.—This subparagraph shall meeting the requirements of the preceding TRIBUTIONS.— apply to a distribution before January 1, sentence.’’. ‘‘(A) IN GENERAL.—No rollover contribution 1999, from an individual retirement plan (2) EXCEPTION FOR DISCHARGES ON ACCOUNT may be made to an AD IRA unless it is a (other than an AD IRA) maintained for the OF SERVICES PERFORMED FOR CERTAIN LEND- qualified rollover contribution. benefit of an individual to an AD IRA main- ERS.—Subsection (f) of section 108 is amend- ‘‘(B) COORDINATION WITH LIMIT.—A qualified tained for the benefit of such individual if ed by adding at the end the following new rollover contribution shall not be taken into such distribution would be a qualified roll- paragraph: account for purposes of paragraph (2). over contribution were such individual re- ‘‘(3) EXCEPTION FOR DISCHARGES ON ACCOUNT ‘‘(6) TIME WHEN CONTRIBUTIONS MADE.—For tirement plan an AD IRA. OF SERVICES PERFORMED FOR CERTAIN LEND- purposes of this section, the rule of section ‘‘(iii) CONVERSIONS.—The conversion of an ERS.—Paragraph (1) shall not apply to the 219(f)(3) shall apply. individual retirement plan (other than an H4714 CONGRESSIONAL RECORD — HOUSE June 26, 1997 AD IRA) to an AD IRA shall be treated for ‘‘(ii) such amount shall not be taken into subsection, the net capital gain for any tax- purposes of this subparagraph as a distribu- account in determining whether section able year shall be reduced (but not below tion from such plan to such AD IRA. 408(d)(3)(A)(i) applies to any other amount. zero) by the amount which the taxpayer ‘‘(C) ADDITIONAL REPORTING REQUIRE- ‘‘(e) QUALIFIED ROLLOVER CONTRIBUTION.— takes into account as investment income MENTS.—The Secretary shall require that For purposes of this section, the term ‘quali- under section 163(d)(4)(B)(iii). trustees of AD IRAs, trustees of individual fied rollover contribution’ means a rollover ‘‘(3) BASE TAX AMOUNT.—For purposes of retirement plans, or both, whichever is ap- contribution to an AD IRA from another paragraph (1), the base tax amount is the propriate, shall include such additional in- such account, but only if such rollover con- lesser of— formation in reports required under section tribution meets the requirements of section ‘‘(A) a tax computed at the rates and in the 408(i) as is necessary to ensure that amounts 408(d)(3).’’. same manner as if this subsection had not required to be included in gross income (b) REPEAL OF NONDEDUCTIBLE CONTRIBU- been enacted on taxable income reduced by under subparagraph (B) are so included. TIONS.— the adjusted net capital gain, or ‘‘(4) QUALIFIED FIRST-TIME HOMEBUYER DIS- (1) Subsection (f) of section 219 is amended ‘‘(B) the sum of— TRIBUTION.—For purposes of this section— by striking paragraph (7). ‘‘(i) a tax computed at the rates and in the ‘‘(A) IN GENERAL.—The term ‘qualified (2) Paragraph (5) of section 408(d) is amend- same manner as if this subsection had not first-time homebuyer distribution’ means ed by striking the last sentence. been enacted on the greater of— any payment or distribution received by an (3) Section 408(o) is amended by adding at ‘‘(I) taxable income reduced by the net cap- individual to the extent such payment or dis- the end the following new paragraph: ital gain, or tribution is used by the individual before the ‘‘(5) TERMINATION.—This subsection shall ‘‘(II) the amount of taxable income taxed close of the 60th day after the day on which not apply to any designated nondeductible at a rate below 28 percent, such payment or distribution is received to contribution for any taxable year beginning ‘‘(ii) a tax of 26 percent of the lesser of— pay qualified acquisition costs with respect after December 31, 1997.’’. ‘‘(I) the section 1250 gain, or to a principal residence of a first-time home- (4) Subsection (b) of section 4973 is amend- ‘‘(II) the amount of taxable income in ex- buyer who is such individual, the spouse of ed by striking the last sentence. cess of the sum of the amount on which tax such individual, or any child, grandchild, or (c) EXCESS DISTRIBUTIONS TAX NOT TO is determined under clause (i) plus the net ancestor of such individual or the individ- APPLY.— ual’s spouse. capital gain determined without regard to (1) Subparagraph (A) of section 4980A(d)(3) section 1250 gain, plus ‘‘(B) LIFETIME DOLLAR LIMITATION.—The ag- is amended by inserting ‘‘(other than AD gregate amount of payments or distributions ‘‘(iii) a tax of 28 percent of the amount of IRAs, as defined in section 4980A(b))’’ after taxable income in excess of the sum of— received by an individual which may be ‘‘individual retirement plans’’. treated as qualified first-time homebuyer ‘‘(I) the adjusted net capital gain, plus (2) Subparagraph (B) of section 4980A(e)(1) ‘‘(II) the sum of the amounts on which tax distributions for any taxable year shall not is amended by inserting ‘‘other than an AD exceed the excess (if any) of— is determined under clauses (i) and (ii). IRA (as defined in section 408A(b))’’ after ‘‘(4) ADJUSTED NET CAPITAL GAIN.—For pur- ‘‘(i) $10,000, over ‘‘retirement plan’’. ‘‘(ii) the aggregate amounts treated as poses of this subsection, the term ‘adjusted (d) EXCESS CONTRIBUTIONS.— qualified first-time homebuyer distributions net capital gain’ means net capital gain de- (1) Section 4973 is amended by adding at termined without regard to— with respect to such individual for all prior the end the following new subsection: taxable years. ‘‘(A) collectibles gain, ‘‘(f) EXCESS CONTRIBUTIONS TO AMERICAN ‘‘(C) QUALIFIED ACQUISITION COSTS.—For ‘‘(B) section 1202 gain, and DREAM IRAS.—For purposes of this section, ‘‘(C) section 1250 gain. purposes of this paragraph, the term ‘quali- in the case of American Dream IRAs, the fied acquisition costs’ means the costs of ac- ‘‘(5) COLLECTIBLES GAIN.—For purposes of term ‘excess contributions’ means the quiring, constructing, or reconstructing a paragraph (4)— amount by which the amount contributed for residence. Such term includes any usual or ‘‘(A) IN GENERAL.—The term ‘collectibles the taxable year to such IRAs exceeds the reasonable settlement, financing, or other gain’ means gain from the sale or exchange limitation in section 408A(c)(2).’’. closing costs. of a collectible (as defined in section 408(m) (2) Subsection (b) of section 4973 is amend- ‘‘(D) FIRST-TIME HOMEBUYER; OTHER DEFINI- without regard to paragraph (3) thereof) ed by adding at the end the following new TIONS.—For purposes of this paragraph— which is a capital asset held for more than 1 sentence: ‘‘For purposes of this subsection, ‘‘(i) FIRST-TIME HOMEBUYER.—The term year but only to the extent such gain is an American Dream IRA shall not be treated ‘first-time homebuyer’ means any individual taken into account in computing gross in- as an individual retirement plan.’’. if— come. (e) CLERICAL AMENDMENT.—The table of ‘‘(I) such individual (and if married, such ‘‘(B) COORDINATION WITH SECTION 1022.—Gain individual’s spouse) had no present owner- sections for subpart A of part I of subchapter from the disposition of a collectible which is ship interest in a principal residence during D of chapter 1 is amended by inserting after an indexed asset to which section 1022(a) ap- the 2-year period ending on the date of acqui- the item relating to section 408 the following plies shall be disregarded for purposes of this sition of the principal residence to which new item: subsection. A taxpayer may elect to treat this paragraph applies, and ‘‘Sec. 408A. American Dream IRA.’’. any collectible specified in such election as ‘‘(II) subsection (h) or (k) of section 1034 (as (f) EFFECTIVE DATE.—The amendments not being an indexed asset for purposes of in effect on the day before the date of the en- made by this section shall apply to taxable section 1022. Any such election, and any actment of this section) did not suspend the years beginning after December 31, 1997. specification therein, once made, shall be ir- running of any period of time specified in revocable. Subtitle B—Capital Gains section 1034 (as so in effect) with respect to ‘‘(C) PARTNERSHIPS, ETC.—For purposes of such individual on the day before the date PART I—INDIVIDUAL CAPITAL GAINS subparagraph (A), any gain from the sale of the distribution is applied pursuant to sub- SEC. 311. 20 PERCENT MAXIMUM CAPITAL GAINS an interest in a partnership, S corporation, paragraph (A). RATE FOR INDIVIDUALS. or trust which is attributable to unrealized ‘‘(ii) PRINCIPAL RESIDENCE.—The term (a) IN GENERAL.—Subsection (h) of section appreciation in the value of collectibles shall ‘principal residence’ has the same meaning 1 (relating to maximum capital gains rate) is be treated as gain from the sale or exchange as when used in section 121. amended to read as follows: of a collectible. Rules similar to the rules of ‘‘(iii) DATE OF ACQUISITION.—The term ‘date ‘‘(h) MAXIMUM CAPITAL GAINS RATE.— section 751 shall apply for purposes of the of acquisition’ means the date— ‘‘(1) IN GENERAL.—If a taxpayer has a net preceding sentence. ‘‘(I) on which a binding contract to acquire capital gain for any taxable year, the tax im- ‘‘(6) SECTION 1202 GAIN.—For purposes of the principal residence to which subpara- posed by this section for such taxable year paragraph (4), the term ‘section 1202 gain’ graph (A) applies is entered into, or shall not exceed the sum of— means gain from the sale or exchange of any ‘‘(II) on which construction or reconstruc- ‘‘(A) the base tax amount, qualified small business stock (as defined in tion of such a principal residence is com- ‘‘(B) 10 percent of so much of the tax- section 1202(c)) held more than 5 years which menced. payer’s adjusted net capital gain (or, if less, is taken into account in computing gross in- ‘‘(E) SPECIAL RULE WHERE DELAY IN ACQUISI- taxable income) as does not exceed the ex- come. TION.—If any distribution from any individ- cess (if any) of— ‘‘(7) SECTION 1250 GAIN.—For purposes of ual retirement plan fails to meet the re- ‘‘(i) the amount of taxable income which paragraph (4), the term ‘section 1250 gain’ quirements of subparagraph (A) solely by would (without regard to this paragraph) be means the excess (if any) of— reason of a delay or cancellation of the pur- taxed at a rate of 15 percent or less, over ‘‘(A) the amount which would be treated as chase or construction of the residence, the ‘‘(ii) the taxable income reduced by the ad- ordinary income under section 1245 if all sec- amount of the distribution may be contrib- justed net capital gain, plus tion 1250 property disposed of by the tax- uted to an individual retirement plan as pro- ‘‘(C) 20 percent of the taxpayer’s adjusted payer were section 1245 property, over vided in section 408(d)(3)(A)(i) (determined by net capital gain (or, if less, taxable income) ‘‘(B) the amount treated as ordinary in- substituting ‘120 days’ for ‘60 days’ in such in excess of the amount on which a tax is de- come under section 1250. section), except that— termined under subparagraph (B). In the case of a taxable year which includes ‘‘(i) section 408(d)(3)(B) shall not be applied ‘‘(2) NET CAPITAL GAIN TAKEN INTO ACCOUNT May 7, 1997, section 1250 gain shall be deter- to such contribution, and AS INVESTMENT INCOME.—For purposes of this mined by taking into account only the gain June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4715

properly taken into account for the portion (1) IN GENERAL.—Except as provided in ‘‘(A) the adjusted basis of the asset, in- of the taxable year after May 6, 1997. paragraph (2), the amendments made by this creased by ‘‘(8) PRE-EFFECTIVE DATE GAIN.— section shall apply to taxable years ending ‘‘(B) the applicable inflation adjustment. ‘‘(A) IN GENERAL.—In the case of a taxable after May 6, 1997. ‘‘(2) APPLICABLE INFLATION ADJUSTMENT.— year which includes May 7, 1997, adjusted net (2) WITHHOLDING.—The amendment made The applicable inflation adjustment for any capital gain shall be determined without re- by subsection (c)(2) shall apply only to asset is an amount equal to— gard to pre-May 7, 1997, gain. amounts paid after the date of the enact- ‘‘(A) the adjusted basis of the asset, multi- ‘‘(B) PRE-MAY 7, 1997, GAIN.—The term ‘pre- ment of this Act. plied by May 7, 1997, gain’ means the amount which (3) APPLICATION OF ESTIMATED TAX RULES.— ‘‘(B) the percentage (if any) by which— would be adjusted net capital gain for the Clause (i) of section 6654(d)(1)(C) of the Inter- ‘‘(i) the chain-type price index for GDP for taxable year if adjusted net capital gain were nal Revenue Code of 1986 shall be applied by the last calendar quarter ending before the determined by taking into account only the substituting ‘‘109 percent’’ for ‘‘110 percent’’ asset is disposed of, exceeds gain or loss properly taken into account for where the preceding taxable year referred to ‘‘(ii) the chain-type price index for GDP for the portion of the taxable year before May 7, in such clause is a taxable year beginning in the last calendar quarter ending before the 1997. calendar year 1996. asset was acquired by the taxpayer. ‘‘(C) SPECIAL RULES FOR PASS-THRU ENTI- (4) APPLICATION OF ESTIMATED TAX RULES The percentage under subparagraph (B) shall TIES.—In applying subparagraph (A) with re- FOR 1998.—Clause (i) of section 6654(d)(1)(C) of be rounded to the nearest 1⁄10 of 1 percentage spect to any pass-thru entity, the determina- the Internal Revenue Code of 1986 shall be point. tion of when gains and loss are properly applied by substituting ‘‘105 percent’’ for ‘‘(3) CHAIN-TYPE PRICE INDEX FOR GDP.— taken into account shall be made at the en- ‘‘110 percent’’ where the preceding taxable The chain-type price index for GDP for any tity level. year referred to in such clause is a taxable calendar quarter is such index for such quar- ‘‘(D) PASS-THRU ENTITY DEFINED.—For pur- year beginning in calendar year 1997. ter (as shown in the last revision thereof re- poses of subparagraph (C), the term ‘pass- SEC. 312. INDEXING OF CERTAIN ASSETS AC- leased by the Secretary of Commerce before thru entity’ means— QUIRED AFTER DECEMBER 31, 2000, the close of the following calendar quarter). ‘‘(i) a regulated investment company, FOR PURPOSES OF DETERMINING ‘‘(d) SUSPENSION OF HOLDING PERIOD WHERE GAIN. ‘‘(ii) a real estate investment trust, DIMINISHED RISK OF LOSS; TREATMENT OF (a) IN GENERAL.—Part II of subchapter O of ‘‘(iii) an S corporation, SHORT SALES.— chapter 1 (relating to basis rules of general ‘‘(iv) a partnership, ‘‘(1) IN GENERAL.—If the taxpayer (or a re- application) is amended by inserting after ‘‘(v) an estate or trust, and lated person) enters into any transaction section 1021 the following new section: ‘‘(vi) a common trust fund.’’. which substantially reduces the risk of loss (b) MINIMUM TAX.— ‘‘SEC. 1022. INDEXING OF CERTAIN ASSETS AC- from holding any asset, such asset shall not QUIRED AFTER DECEMBER 31, 2000, (1) IN GENERAL.—Subsection (b) of section be treated as an indexed asset for the period 55 is amended by adding at the end the fol- FOR PURPOSES OF DETERMINING GAIN. of such reduced risk. lowing new paragraph: ‘‘(a) GENERAL RULE.— ‘‘(2) SHORT SALES.— ‘‘(3) MAXIMUM RATE OF TAX ON NET CAPITAL ‘‘(1) INDEXED BASIS SUBSTITUTED FOR AD- ‘‘(A) IN GENERAL.—In the case of a short GAIN OF NONCORPORATE TAXPAYERS.—The JUSTED BASIS.—Solely for purposes of deter- sale of an indexed asset with a short sale pe- amount determined under the first sentence mining gain on the sale or other disposition riod in excess of 3 years, for purposes of this of paragraph (1)(A)(i) shall not exceed the by a taxpayer (other than a corporation) of title, the amount realized shall be an sum of— an indexed asset which has been held for amount equal to the amount realized (deter- ‘‘(A) the lesser of— more than 3 years, the indexed basis of the mined without regard to this paragraph) in- ‘‘(i) the amount determined under such asset shall be substituted for its adjusted creased by the applicable inflation adjust- first sentence computed at the rates and in basis. ment. In applying subsection (c)(2) for pur- the same manner as if this paragraph had ‘‘(2) EXCEPTION FOR DEPRECIATION, ETC.— poses of the preceding sentence, the date on not been enacted on the taxable excess re- The deductions for depreciation, depletion, which the property is sold short shall be duced by the adjusted net capital gain (as de- and amortization shall be determined with- treated as the date of acquisition and the fined in section 1(h)(4)), or out regard to the application of paragraph (1) closing date for the sale shall be treated as ‘‘(ii) the sum of— to the taxpayer or any other person. the date of disposition. ‘‘(I) the amount determined under such ‘‘(3) EXCEPTION FOR PRINCIPAL RESI- ‘‘(B) SHORT SALE PERIOD.—For purposes of first sentence computed at the rates and in DENCES.—Paragraph (1) shall not apply to subparagraph (A), the short sale period be- the same manner as if this paragraph had any disposition of the principal residence gins on the day that the property is sold and not been enacted on the taxable excess re- (within the meaning of section 121) of the ends on the closing date for the sale. duced by the sum of the adjusted net capital taxpayer . ‘‘(e) TREATMENT OF REGULATED INVESTMENT gain (as so defined) and the section 1250 gain ‘‘(b) INDEXED ASSET.— COMPANIES AND REAL ESTATE INVESTMENT (as defined in section 1(h)(7)), plus ‘‘(1) IN GENERAL.—For purposes of this sec- TRUSTS.— ‘‘(II) 26 percent of the lesser of the section tion, the term ‘indexed asset’ means— ‘‘(1) ADJUSTMENTS AT ENTITY LEVEL.— 1250 gain (as so defined) or the taxable excess ‘‘(A) common stock in a C corporation ‘‘(A) IN GENERAL.—Except as otherwise pro- reduced by the adjusted net capital gain (as (other than a foreign corporation), and vided in this paragraph, the adjustment so defined), ‘‘(B) tangible property, under subsection (a) shall be allowed to any ‘‘(B) a tax of 10 percent of so much of the which is a capital asset or property used in qualified investment entity (including for taxpayer’s adjusted net capital gain (or, if the trade or business (as defined in section purposes of determining the earnings and less, taxable excess) as does not exceed the 1231(b)). profits of such entity). amount on which a tax is determined under ‘‘(2) STOCK IN CERTAIN FOREIGN CORPORA- ‘‘(B) EXCEPTION FOR CORPORATE SHAREHOLD- section 1(h)(1)(B), plus TIONS INCLUDED.—For purposes of this sec- ERS.—Under regulations— ‘‘(C) a tax of 20 percent of the taxpayer’s tion— ‘‘(i) in the case of a distribution by a quali- adjusted net capital gain (or, if less, taxable ‘‘(A) IN GENERAL.—The term ‘indexed asset’ fied investment entity (directly or indi- excess) in excess of the amount on which tax includes common stock in a foreign corpora- rectly) to a corporation— is determined under subparagraph (B).’’. tion which is regularly traded on an estab- ‘‘(I) the determination of whether such dis- (2) CONFORMING AMENDMENT.—Clause (ii) of lished securities market. tribution is a dividend shall be made without section 55(b)(1)(A) is amended by striking ‘‘(B) EXCEPTION.—Subparagraph (A) shall regard to this section, and ‘‘clause (i)’’ and inserting ‘‘this subsection’’. not apply to— ‘‘(II) the amount treated as gain by reason (c) OTHER CONFORMING AMENDMENTS.— ‘‘(i) stock of a foreign investment company of the receipt of any capital gain dividend (1) Subsection (d) of section 291 is amended (within the meaning of section 1246(b)), shall be increased by the percentage by by inserting at the end the following new ‘‘(ii) stock in a passive foreign investment which the entity’s net capital gain for the sentence: ‘‘Any capital gain dividend treated company (as defined in section 1296), taxable year (determined without regard to as having been paid out of such difference to ‘‘(iii) stock in a foreign corporation held by this section) exceeds the entity’s net capital a shareholder which is not a corporation re- a United States person who meets the re- gain for such year determined with regard to tains its characters as section 1250 gain for quirements of section 1248(a)(2), and this section, and purposes of applying section 1(h) to such ‘‘(iv) stock in a foreign personal holding ‘‘(ii) there shall be other appropriate ad- shareholder.’’. company (as defined in section 552). justments (including deemed distributions) (2) Paragraph (1) of section 1445(e) is ‘‘(C) TREATMENT OF AMERICAN DEPOSITORY so as to ensure that the benefits of this sec- amended by striking ‘‘28 percent’’ and insert- RECEIPTS.—An American depository receipt tion are not allowed (directly or indirectly) ing ‘‘20 percent’’. for common stock in a foreign corporation to corporate shareholders of qualified invest- (3) The second sentence of section shall be treated as common stock in such ment entities. 7518(g)(6)(A), and the second sentence of sec- corporation. For purposes of the preceding sentence, any tion 607(h)(6)(A) of the Merchant Marine Act, ‘‘(c) INDEXED BASIS.—For purposes of this amount includible in gross income under sec- 1936, are each amended by striking ‘‘28 per- section— tion 852(b)(3)(D) shall be treated as a capital cent’’ and inserting ‘‘20 percent’’. ‘‘(1) GENERAL RULE.—The indexed basis for gain dividend and an S corporation shall not (d) EFFECTIVE DATES.— any asset is— be treated as a corporation. H4716 CONGRESSIONAL RECORD — HOUSE June 26, 1997

‘‘(C) EXCEPTION FOR QUALIFICATION PUR- ‘‘(A) IN GENERAL.—In the case of a partner- priately reduced for periods during which the POSES.—This section shall not apply for pur- ship, the adjustment made under subsection asset was not an indexed asset. poses of sections 851(b) and 856(c). (a) at the partnership level shall be passed ‘‘(3) TREATMENT OF CERTAIN DISTRIBU- ‘‘(D) EXCEPTION FOR CERTAIN TAXES IM- through to the partners. TIONS.—A distribution with respect to stock POSED AT ENTITY LEVEL.— ‘‘(B) SPECIAL RULE IN THE CASE OF SECTION in a corporation which is not a dividend shall ‘‘(i) TAX ON FAILURE TO DISTRIBUTE ENTIRE 754 ELECTIONS.—In the case of a transfer of an be treated as a disposition. GAIN.—If any amount is subject to tax under interest in a partnership with respect to ‘‘(4) ACQUISITION DATE WHERE THERE HAS section 852(b)(3)(A) for any taxable year, the which the election provided in section 754 is BEEN PRIOR APPLICATION OF SUBSECTION (a)(1) amount on which tax is imposed under such in effect— WITH RESPECT TO THE TAXPAYER.—If there has section shall be increased by the percentage ‘‘(i) the adjustment under section 743(b)(1) been a prior application of subsection (a)(1) determined under subparagraph (B)(i)(II). A shall, with respect to the transferor partner, to an asset while such asset was held by the similar rule shall apply in the case of any be treated as a sale of the partnership assets taxpayer, the date of acquisition of such amount subject to tax under paragraph (2) or for purposes of applying this section, and asset by the taxpayer shall be treated as not (3) of section 857(b) to the extent attrib- ‘‘(ii) with respect to the transferee partner, earlier than the date of the most recent such utable to the excess of the net capital gain the partnership’s holding period for purposes prior application. over the deduction for dividends paid deter- of this section in such assets shall be treated ‘‘(5) COLLAPSIBLE CORPORATIONS.—The ap- mined with reference to capital gain divi- as beginning on the date of such adjustment. plication of section 341(a) (relating to col- dends only. The first sentence of this clause ‘‘(2) S CORPORATIONS.—In the case of an S lapsible corporations) shall be determined shall not apply to so much of the amount corporation, the adjustment made under sub- without regard to this section. subject to tax under section 852(b)(3)(A) as is section (a) at the corporate level shall be ‘‘(j) REGULATIONS.—The Secretary shall designated by the company under section passed through to the shareholders. This sec- prescribe such regulations as may be nec- 852(b)(3)(D). tion shall not apply for purposes of deter- essary or appropriate to carry out the pur- ‘‘(ii) OTHER TAXES.—This section shall not mining the amount of any tax imposed by poses of this section.’’. apply for purposes of determining the section 1374 or 1375. (b) CLERICAL AMENDMENT.—The table of amount of any tax imposed by paragraph (4), ‘‘(3) COMMON TRUST FUNDS.—In the case of a sections for part II of subchapter O of chap- (5), or (6) of section 857(b). common trust fund, the adjustment made ter 1 is amended by inserting after the item ‘‘(2) ADJUSTMENTS TO INTERESTS HELD IN under subsection (a) at the trust level shall relating to section 1021 the following new ENTITY.— be passed through to the participants. item: ‘‘(A) REGULATED INVESTMENT COMPANIES.— ‘‘(4) INDEXING ADJUSTMENT DISREGARDED IN Stock in a regulated investment company DETERMINING LOSS ON SALE OF INTEREST IN EN- ‘‘Sec. 1022. Indexing of certain assets ac- (within the meaning of section 851) shall be TITY.—Notwithstanding the preceding provi- quired after December 31, 2000, an indexed asset for any calendar quarter in sions of this subsection, for purposes of de- for purposes of determining the same ratio as— termining the amount of any loss on a sale gain.’’. ‘‘(i) the average of the fair market values or exchange of an interest in a partnership, of the indexed assets held by such company S corporation, or common trust fund, the ad- (c) EFFECTIVE DATES.— at the close of each month during such quar- justment made under subsection (a) shall not (1) IN GENERAL.—The amendments made by ter, bears to be taken into account in determining the ad- this section shall apply to the disposition of ‘‘(ii) the average of the fair market values justed basis of such interest. any property the holding period of which be- of all assets held by such company at the ‘‘(g) DISPOSITIONS BETWEEN RELATED PER- gins after December 31, 2000. close of each such month. SONS.— (2) CERTAIN TRANSACTIONS BETWEEN RELAT- ‘‘(B) REAL ESTATE INVESTMENT TRUSTS.— ‘‘(1) IN GENERAL.—This section shall not ED PERSONS.—The amendments made by this Stock in a real estate investment trust apply to any sale or other disposition of section shall not apply to the disposition of (within the meaning of section 856) shall be property between related persons except to any property acquired after December 31, an indexed asset for any calendar quarter in the extent that the basis of such property in 2000, from a related person (as defined in sec- the same ratio as— the hands of the transferee is a substituted tion 1022(g)(2) of the Internal Revenue Code ‘‘(i) the fair market value of the indexed basis. of 1986, as added by this section) if— assets held by such trust at the close of such ‘‘(2) RELATED PERSONS DEFINED.—For pur- (A) such property was so acquired for a quarter, bears to poses of this section, the term ‘related per- price less than the property’s fair market ‘‘(ii) the fair market value of all assets sons’ means— value, and held by such trust at the close of such quar- ‘‘(A) persons bearing a relationship set (B) the amendments made by this section ter. forth in section 267(b), and did not apply to such property in the hands ‘‘(C) RATIO OF 80 PERCENT OR MORE.—If the ‘‘(B) persons treated as single employer of such related person. ratio for any calendar quarter determined under subsection (b) or (c) of section 414. (d) ELECTION TO RECOGNIZE GAIN ON ASSETS under subparagraph (A) or (B) would (but for ‘‘(h) TRANSFERS TO INCREASE INDEXING AD- HELD ON JANUARY 1, 2001.—For purposes of this subparagraph) be 80 percent or more, JUSTMENT.—If any person transfers cash, the Internal Revenue Code of 1986— such ratio for such quarter shall be 100 per- debt, or any other property to another per- (1) IN GENERAL.—A taxpayer other than a cent. son and the principal purpose of such trans- corporation may elect to treat— ‘‘(D) RATIO OF 20 PERCENT OR LESS.—If the fer is to secure or increase an adjustment (A) any readily tradable stock (which is an ratio for any calendar quarter determined under subsection (a), the Secretary may dis- indexed asset) held by such taxpayer on Jan- under subparagraph (A) or (B) would (but for allow part or all of such adjustment or in- uary 1, 2001, and not sold before the next this subparagraph) be 20 percent or less, such crease. business day after such date, as having been ratio for such quarter shall be zero. ‘‘(i) SPECIAL RULES.—For purposes of this sold on such next business day for an amount ‘‘(E) LOOK-THRU OF PARTNERSHIPS.—For section— equal to its closing market price on such purposes of this paragraph, a qualified in- ‘‘(1) TREATMENT OF IMPROVEMENTS, ETC.—If next business day (and as having been reac- vestment entity which holds a partnership there is an addition to the adjusted basis of quired on such next business day for an interest shall be treated (in lieu of holding a any tangible property or of any stock in a amount equal to such closing market price), partnership interest) as holding its propor- corporation during the taxable year by rea- and tionate share of the assets held by the part- son of an improvement to such property or a (B) any other indexed asset held by the nership. contribution to capital of such corporation— taxpayer on January 1, 2001, as having been ‘‘(3) TREATMENT OF RETURN OF CAPITAL DIS- ‘‘(A) such addition shall never be taken sold on such date for an amount equal to its TRIBUTIONS.—Except as otherwise provided into account under subsection (c)(1)(A) if the fair market value on such date (and as hav- by the Secretary, a distribution with respect aggregate amount thereof during the taxable ing been reacquired on such date for an to stock in a qualified investment entity year with respect to such property or stock amount equal to such fair market value). which is not a dividend and which results in is less than $1,000, and (2) TREATMENT OF GAIN OR LOSS.— a reduction in the adjusted basis of such ‘‘(B) such addition shall be treated as a (A) Any gain resulting from an election stock shall be treated as allocable to stock separate asset acquired at the close of such under paragraph (1) shall be treated as re- acquired by the taxpayer in the order in taxable year if the aggregate amount thereof ceived or accrued on the date the asset is which such stock was acquired. during the taxable year with respect to such treated as sold under paragraph (1) and shall ‘‘(4) QUALIFIED INVESTMENT ENTITY.—For property or stock is $1,000 or more. be recognized notwithstanding any provision purposes of this subsection, the term ‘quali- A rule similar to the rule of the preceding of the Internal Revenue Code of 1986. fied investment entity’ means— sentence shall apply to any other portion of (B) Any loss resulting from an election ‘‘(A) a regulated investment company an asset to the extent that separate treat- under paragraph (1) shall not be allowed for (within the meaning of section 851), and ment of such portion is appropriate to carry any taxable year. ‘‘(B) a real estate investment trust (within out the purposes of this section. (3) ELECTION.—An election under paragraph the meaning of section 856). ‘‘(2) ASSETS WHICH ARE NOT INDEXED ASSETS (1) shall be made in such manner as the Sec- ‘‘(f) OTHER PASS-THRU ENTITIES.— THROUGHOUT HOLDING PERIOD.—The applica- retary of the Treasury or his delegate may ‘‘(1) PARTNERSHIPS.— ble inflation adjustment shall be appro- prescribe and shall specify the assets for June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4717 which such election is made. Such an elec- ‘‘(i) a failure to meet the ownership and the 5-year period described in subsection (a) tion, once made with respect to any asset, use requirements of subsection (a), or for periods aggregating at least 1 year, shall be irrevocable. ‘‘(ii) subsection (b)(2), and then the taxpayer shall be treated as using (4) READILY TRADABLE STOCK.—For pur- ‘‘(B) such sale or exchange is by reason of such property as the taxpayer’s principal poses of this subsection, the term ‘‘readily a change in place of employment, health, or, residence during any time during such 5-year tradable stock’’ means any stock which, as to the extent provided in regulations, other period in which the taxpayer owns the prop- of January 1, 2001, is readily tradable on an unforeseen circumstances. erty and resides in any facility (including a established securities market or otherwise. ‘‘(d) SPECIAL RULES.— nursing home) licensed by a State or politi- SEC. 313. EXEMPTION FROM TAX FOR GAIN ON ‘‘(1) JOINT RETURNS.—For purposes of this cal subdivision to care for an individual in SALE OF PRINCIPAL RESIDENCE. section, if a husband and wife make a joint the taxpayer’s condition. (a) IN GENERAL.—Section 121 (relating to return for the taxable year of the sale or ex- ‘‘(8) DETERMINATION OF MARITAL STATUS.— one-time exclusion of gain from sale of prin- change of the property, subsection (a) shall, In the case of any sale or exchange, for pur- cipal residence by individual who has at- subject to the provisions of subsection (b), poses of this section— tained age 55) is amended to read as follows: apply if either spouse meets the ownership ‘‘(A) the determination of whether an indi- ‘‘SEC. 121. EXCLUSION OF GAIN FROM SALE OF and use requirements of subsection (a) with vidual is married shall be made as of the PRINCIPAL RESIDENCE. respect to such property. date of the sale or exchange, and ‘‘(a) EXCLUSION.—Gross income shall not ‘‘(2) PROPERTY OF DECEASED SPOUSE.—For ‘‘(B) an individual legally separated from include gain from the sale or exchange of purposes of this section, in the case of an un- his spouse under a decree of divorce or of property if, during the 5-year period ending married individual whose spouse is deceased separate maintenance shall not be consid- on the date of the sale or exchange, such on the date of the sale or exchange of prop- ered as married. property has been owned and used by the erty, the period such unmarried individual ‘‘(9) SALES OF LIFE ESTATES AND REMAINDER taxpayer as the taxpayer’s principal resi- owned such property shall include the period INTERESTS.—For purposes of this section— dence for periods aggregating 2 years or such deceased spouse held such property be- ‘‘(A) IN GENERAL.—This section shall not more. fore death. fail to apply to the sale or exchange of an in- ‘‘(b) LIMITATIONS.— ‘‘(3) PROPERTY OF DIVORCED SPOUSE.—For terest in a principal residence by reason of ‘‘(1) DOLLAR LIMITATION.—The amount of purposes of this section, in the case of an in- such interest being a life estate or a remain- gain excluded from gross income under sub- dividual holding property transferred to such der interest in such residence, but this sec- section (a) with respect to any sale or ex- individual incident to divorce (within the tion shall apply only to one such interest in change shall not exceed $250,000 ($500,000 in meaning of section 1041(c))— such residence which is sold or exchanged the case of a joint return where both spouses ‘‘(A) the period such individual owns such separately. meet the use requirement of subsection (a)). property shall include the period the former ‘‘(B) EXCEPTION FOR SALES TO RELATED PAR- ‘‘(2) APPLICATION TO ONLY 1 SALE OR EX- spouse owned the property, and TIES.—Subparagraph (A) shall not apply to CHANGE EVERY 2 YEARS.— ‘‘(B) the dollar limitation applicable under any sale to, or exchange with, any person ‘‘(A) IN GENERAL.—Subsection (a) shall not paragraph (1) shall not be less than the who bears a relationship to the taxpayer apply to any sale or exchange by the tax- amount such limitation would have been had which is described in section 267(b) or 707(b). payer if, during the 2-year period ending on the sale or exchange occurred on the date ‘‘(e) DENIAL OF EXCLUSION FOR EXPATRI- the date of such sale or exchange, there was the divorce became final. ATES.—This section shall not apply to any any other sale or exchange by the taxpayer ‘‘(4) TENANT-STOCKHOLDER IN COOPERATIVE sale or exchange by an individual if the or his spouse to which subsection (a) applied. HOUSING CORPORATION.—For purposes of this treatment provided by section 877(a)(1) ap- ‘‘(B) PREMARRIAGE SALES BY SPOUSE NOT section, if the taxpayer holds stock as a ten- plies to such individual. TAKEN INTO ACCOUNT.—If, but for this sub- ant-stockholder (as defined in section 216) in ‘‘(f) ELECTION TO HAVE SECTION NOT paragraph, subsection (a) would not apply to a cooperative housing corporation (as de- APPLY.—This section shall not apply to any a sale or exchange by a married individual fined in such section), then— sale or exchange with respect to which the by reason of a sale or exchange by such indi- ‘‘(A) the holding requirements of sub- taxpayer elects not to have this section vidual’s spouse before their marriage— section (a) shall be applied to the holding of apply. ‘‘(g) RESIDENCES ACQUIRED IN ROLLOVERS ‘‘(i) subparagraph (A) shall be applied with- such stock, and UNDER SECTION 1034.—For purposes of this out regard to the sale or exchange by such ‘‘(B) the use requirements of subsection (a) section, in the case of property the acquisi- individual’s spouse, but shall be applied to the house or apartment tion of which by the taxpayer resulted under ‘‘(ii) the amount of gain excluded from which the taxpayer was entitled to occupy as section 1034 (as in effect on the day before gross income under subsection (a) with re- such stockholder. the date of the enactment of this sentence) spect to the sale or exchange by such indi- ‘‘(5) INVOLUNTARY CONVERSIONS.— in the nonrecognition of any part of the gain vidual shall not exceed $250,000. ‘‘(A) IN GENERAL.—For purposes of this sec- realized on the sale or exchange of another ‘‘(C) PRE-MAY 7, 1997, SALES NOT TAKEN INTO tion, the destruction, theft, seizure, requisi- residence, in determining the period for ACCOUNT.—Subparagraph (A) shall be applied tion, or condemnation of property shall be which the taxpayer has owned and used such without regard to any sale or exchange be- treated as the sale of such property. property as the taxpayer’s principal resi- fore May 7, 1997. ‘‘(B) APPLICATION OF SECTION 1033.—In ap- dence, there shall be included the aggregate ‘‘(c) EXCLUSION FOR TAXPAYERS FAILING TO plying section 1033 (relating to involuntary periods for which such other residence (and MEET CERTAIN REQUIREMENTS.— conversions), the amount realized from the each prior residence taken into account ‘‘(1) IN GENERAL.—In the case of a sale or sale or exchange of property shall be treated under section 1223(7) in determining the exchange to which this subsection applies, as being the amount determined without re- holding period of such property) had been so the ownership and use requirements of sub- gard to this section, reduced by the amount owned and used.’’. section (a) shall not apply and subsection of gain not included in gross income pursu- (b) REPEAL OF NONRECOGNITION OF GAIN ON (b)(2) shall not apply; but the amount of gain ant to this section. ROLLOVER OF PRINCIPAL RESIDENCE.—Section excluded from gross income under subsection ‘‘(C) PROPERTY ACQUIRED AFTER INVOLUN- 1034 (relating to rollover of gain on sale of (a) with respect to such sale of exchange TARY CONVERSION.—If the basis of the prop- principal residence) is hereby repealed. shall not exceed— erty sold or exchanged is determined (in (c) CONFORMING AMENDMENTS.— ‘‘(A) the amount which bears the same whole or in part) under section 1033(b) (relat- (1) The following provisions of the Internal ratio to the amount which would be so ex- ing to basis of property acquired through in- Revenue Code of 1986 are each amended by cluded if such requirements had been met, as voluntary conversion), then the holding and striking ‘‘section 1034’’ and inserting ‘‘sec- ‘‘(B) the shorter of— use by the taxpayer of the converted prop- tion 121’’: sections 25(e)(7), 56(e)(1)(A), ‘‘(i) the aggregate periods, during the 5- erty shall be treated as holding and use by 56(e)(3)(B)(i), 143(i)(1)(C)(i)(I), year period ending on the date of such sale the taxpayer of the property sold or ex- 163(h)(4)(A)(i)(I), 280A(d)(4)(A), 464(f)(3)(B)(i), or exchange, such property has been owned changed. 1033(h)(4), 1274(c)(3)(B), 6334(a)(13), and and used by the taxpayer as the taxpayer’s ‘‘(6) RECOGNITION OF GAIN ATTRIBUTABLE TO 7872(f)(11)(A). principal residence, or DEPRECIATION.—Subsection (a) shall not (2) Paragraph (4) of section 32(c) is amend- ‘‘(ii) the period after the date of the most apply to so much of the gain from the sale of ed by striking ‘‘(as defined in section recent prior sale or exchange by the tax- any property as does not exceed the portion 1034(h)(3))’’ and by adding at the end the fol- payer or his spouse to which subsection (a) of the depreciation adjustments (as defined lowing new sentence: ‘‘For purposes of the applied and before the date of such sale or in section 1250(b)(3)) attributable to periods preceding sentence, the term ‘extended ac- exchange, after May 6, 1997, in respect of such property. tive duty’ means any period of active duty bears to 2 years. ‘‘(7) DETERMINATION OF USE DURING PERIODS pursuant to a call or order to such duty for ‘‘(2) SALES AND EXCHANGES TO WHICH SUB- OF OUT-OF-RESIDENCE CARE.—In the case of a a period in excess of 90 days or for an indefi- SECTION APPLIES.—This subsection shall taxpayer who— nite period.’’. apply to any sale or exchange if— ‘‘(A) becomes physically or mentally in- (3) Subparagraph (A) of 143(m)(6) is amend- ‘‘(A) subsection (a) would not (but for this capable of self-care, and ed by inserting ‘‘(as in effect on the day be- subsection) apply to such sale or exchange ‘‘(B) owns property and uses such property fore the date of the enactment of the Tax- by reason of— as the taxpayer’s principal residence during payer Relief Act of 1997)’’ after ‘‘1034(e)’’. H4718 CONGRESSIONAL RECORD — HOUSE June 26, 1997 (4) Subsection (e) of section 216 is amended after the date of the enactment of this Act, ‘‘(2) net capital gain. by striking ‘‘such exchange qualifies for non- if— The determination under the preceding sen- recognition of gain under section 1034(f)’’ and (A) such sale or exchange is pursuant to a tence shall be made without regard to col- inserting ‘‘such dwelling unit is used as his contract which was binding on such date, or lectibles gain (as defined in section 1(h)(5)) principal residence (within the meaning of (B) without regard to such amendments, or section 1250 gain (as defined in section section 121)’’. gain would not be recognized under section 1(h)(7)). (5) Section 512(a)(3)(D) is amended by in- 1034 of the Internal Revenue Code of 1986 (as ‘‘(d) CROSS REFERENCES.— serting ‘‘(as in effect on the day before the in effect on the day before the date of the en- ‘‘For computation of the alternative tax— date of the enactment of the Taxpayer Relief actment of this Act) on such sale or ex- ‘‘(1) in the case of life insurance companies, Act of 1997)’’ after ‘‘1034’’. change by reason of a new residence acquired see section 801(a)(2), (6) Paragraph (7) of section 1016(a) is on or before such date or with respect to the ‘‘(2) in the case of regulated investment amended by inserting ‘‘(as in effect on the acquisition of which by the taxpayer a bind- companies and their shareholders, see sec- day before the date of the enactment of the ing contract was in effect on such date. tion 852(b)(3)(A) and (D), and Taxpayer Relief Act of 1997)’’ after ‘‘1034’’ This paragraph shall not apply to any sale or ‘‘(3) in the case of real estate investment and by inserting ‘‘(as so in effect)’’ after exchange by an individual if the treatment trusts, see section 857(b)(3)(A).’’. ‘‘1034(e)’’. provided by section 877(a)(1) of the Internal (b) TECHNICAL AMENDMENTS.— (7) Paragraph (3) of section 1033(k) is Revenue Code of 1986 applies to such individ- (1) Subsection (d) of section 291 is amended amended to read as follows: ual. by striking ‘‘subsection (a)(1) to such share- ‘‘(3) For exclusion from gross income of PART II—CORPORATE CAPITAL GAINS holder’’ and inserting ‘‘subsection (a)(1) and gain from involuntary conversion of prin- section 1201 to such shareholder’’. cipal residence, see section 121.’’. SEC. 321. REDUCTION OF ALTERNATIVE CAPITAL GAIN TAX FOR CORPORATIONS. (2) Clause (iii) of section 852(b)(3)(D) is (8) Subsection (e) of section 1038 is amend- (a) IN GENERAL.—Section 1201 is amended amended by striking ‘‘65 percent’’ and insert- ed to read as follows: to read as follows: ing ‘‘the applicable percentage’’ and by in- ‘‘(e) PRINCIPAL RESIDENCES.—If— ‘‘SEC. 1201. ALTERNATIVE TAX FOR CORPORA- serting at the end the following new sen- ‘‘(1) subsection (a) applies to a reacquisi- TIONS. tence: ‘‘For purposes of the preceding sen- tion of real property with respect to the sale ‘‘(a) GENERAL RULE.—If for any taxable tence, the term ‘applicable percentage’ of which gain was not recognized under sec- year a corporation has 8-year gain, then, in means the percentage equal to the excess of tion 121 (relating to gain on sale of principal lieu of the tax imposed by sections 11, 511, 100 percent over the percentage applicable residence); and and 831 (a) and (b) (whichever is applicable), under section 1201(a).’’. ‘‘(2) within 1 year after the date of the re- there is hereby imposed a tax (if such tax is (3)(A) Subparagraph (B) of section 852(b)(3) acquisition of such property by the seller, less than the tax imposed by such sections) is amended to read as follows: such property is resold by him, which shall consist of the sum of— ‘‘(B) TREATMENT OF CAPITAL GAIN DIVIDENDS then, under regulations prescribed by the ‘‘(1) a tax computed on the taxable income BY SHAREHOLDERS.— Secretary, subsections (b), (c), and (d) of this reduced by the amount of the 8-year gain, at ‘‘(i) IN GENERAL.—Except as provided in section shall not apply to the reacquisition the rates and in the manner as if this sub- clause (ii), a capital gain dividend shall be of such property and, for purposes of apply- section had not been enacted, plus treated by the shareholders as gain from the ing section 121, the resale of such property ‘‘(2) a tax of the applicable percentage of sale or exchange of a capital asset held for shall be treated as a part of the transaction the amount of the 8-year gain (or, if less, more than 1 year. constituting the original sale of such prop- taxable income). ‘‘(ii) COORDINATION WITH 8-YEAR HOLDING PE- erty.’’. ‘‘(b) APPLICABLE PERCENTAGE.—For pur- RIOD FOR CORPORATE NET CAPITAL GAIN.—The (9) Paragraph (7) of section 1223 is amended poses of subsection (a)— portion of any capital gain dividend des- by inserting ‘‘(as in effect on the day before ‘‘(1) IN GENERAL.—The term ‘applicable per- ignated by the company as allocable to gain the date of the enactment of the Taxpayer centage’ means— from the sale or exchange of property held Reief Act of 1997)’’ after ‘‘1034’’. ‘‘(A) 32 percent for the portion of any tax- by the company for more than 8 years shall (10) Paragraph (7) of section 1250(d) is able year within 1998, be treated as gain from the sale or exchange amended to read as follows: ‘‘(B) 31 percent for the portion of any tax- of a capital asset held for more than 8 years. ‘‘(7) DISPOSITION OF PRINCIPAL RESIDENCE.— able year within 1999, and Rules similar to the rules of subparagraph Subsection (a) shall not apply to a disposi- ‘‘(C) 30 percent for the portion of any tax- (C) shall apply to any designation under the tion of property to the extent used by the able year after 1999. preceding sentence.’’. taxpayer as his principal residence (within ‘‘(2) FISCAL YEAR TAXPAYERS.— (B) Clause (i) of section 851(b)(3)(D) is the meaning of section 121, relating to gain ‘‘(A) TAXABLE YEARS BEGINNING IN 1997.—In amended by adding at the end thereof the on sale of principal residence).’’. applying this section to taxable years begin- following new sentence: ‘‘Rules similar to (11) Subsection (c) of section 6012 is amend- ning in 1997, 8-year gain shall not exceed the the rules of subparagraph (B) shall apply in ed by striking ‘‘(relating to one-time exclu- 8-year gain determined by taking into ac- determining character of the amount to be sion of gain from sale of principal residence count only gains and losses properly taken so included by any such shareholder which is by individual who has attained age 55)’’ and into account for the portion of the taxable a corporation.’’. inserting ‘‘(relating to gain from sale of prin- year after December 31, 1997. (4) Subparagraph (B) of section 857(b)(3) is cipal residence)’’. ‘‘(B) TAXABLE YEARS BEGINNING IN 1998 OR amended to read as follows: (12) Paragraph (2) of section 6212(c) is 1999.—In the case of a taxable year beginning ‘‘(B) TREATMENT OF CAPITAL GAIN DIVIDENDS amended by striking subparagraph (C) and in 1998 or 1999 which includes portions of 2 BY SHAREHOLDERS.— by redesignating the succeeding subpara- calendar years, the applicable percentage ‘‘(i) IN GENERAL.—Except as provided in graphs accordingly. shall be applied separately to such portions clause (ii), a capital gain dividend shall be (13) Section 6504 is amended by striking by taking into account— treated by the shareholders or holders of paragraph (4) and by redesignating the suc- ‘‘(i) in the case of the first such portion, beneficial interests as gain from the sale or ceeding paragraphs accordingly. the lesser of— exchange of a capital asset held for more (14) The item relating to section 121 in the ‘‘(I) the 8-year gain determined by taking than 1 year. table of sections for part III of subchapter B into account only gains and losses properly ‘‘(ii) COORDINATION WITH 8-YEAR HOLDING PE- of chapter 1 is amended to read as follows: taken into account for such portion, or RIOD FOR CORPORATE NET CAPITAL GAIN.—The ‘‘(II) the 8-year gain determined for the en- portion of any capital gain dividend des- ‘‘Sec. 121. Exclusion of gain from sale of prin- tire taxable year, and ignated by the company as allocable to gain cipal residence.’’. ‘‘(ii) in the case of the second such portion, from the sale or exchange of property held (15) The table of sections for part III of the 8-year gain (and the taxable income) de- by the company for more than 8 years shall subchapter O of chapter 1 of such Code is termined for the entire taxable year reduced be treated as gain from the sale or exchange amended by striking the item relating to by the amount on which tax is determined of a capital asset held for more than 8 years. section 1034. under subsection (a)(2) for the first such por- Rules similar to the rules of subparagraph (d) EFFECTIVE DATE.— tion determined under clause (i). (C) shall apply to any designation under the (1) IN GENERAL.—The amendments made by ‘‘(C) SPECIAL RULE FOR PASS-THRU ENTI- preceding sentence.’’. this section shall apply to sales and ex- TIES.—Section 1(h)(8)(C) shall apply for pur- (5) Subsection (c) of section 584 is amend- changes after May 6, 1997. poses of this paragraph. ed— (2) SALES BEFORE DATE OF ENACTMENT.—At ‘‘(c) 8-YEAR GAIN.—For purposes of this (A) by inserting ‘‘but not more than 8 the election of the taxpayer, the amend- section, the term ‘8-year gain’ means the years’’ after ‘‘1 year’’ each place it appears ments made by this section shall not apply lesser of— in paragraph (2), to any sale or exchange before the date of ‘‘(1) the amount of long-term capital gain (B) by striking ‘‘and’’ at the end of para- the enactment of this Act. which would be computed for the taxable graph (2), and (3) BINDING CONTRACTS.—At the election of year if only gain from the sale or exchange (C) by redesignating paragraph (3) as para- the taxpayer, the amendments made by this of property held by the taxpayer for more graph (4) and inserting after paragraph (2) section shall not apply to a sale or exchange than 8 years were taken into account, or the following new paragraph: June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4719

‘‘(3) as part of its gains and losses from SEC. 402. EXEMPTION FROM ALTERNATIVE MINI- (b) EFFECTIVE DATES.— sales or exchanges of capital assets held for MUM TAX FOR SMALL CORPORA- (1) IN GENERAL.—The amendment made by more than 8 years, its proportionate share of TIONS. this section shall apply to dispositions in the gains and losses of the common trust (a) IN GENERAL.—Section 55 (relating to al- taxable years beginning after December 31, fund from sales or exchanges of capital as- ternative minimum tax imposed) is amended 1987. by adding at the end the following new sub- sets held for more than 8 years, and’’. (2) SPECIAL RULE FOR 1987.—In the case of (6) Subparagraph (E) of section 904(b)(3) is section: taxable years beginning in 1987, the last sen- ‘‘(e) EXEMPTION FOR SMALL CORPORA- amended by adding at the end the following tence of section 56(a)(6) of the Internal Reve- TIONS.— new clause: nue Code of 1986 (as in effect for such taxable ‘‘(1) IN GENERAL.—The tentative minimum ‘‘(iv) REGULATIONS.—The Secretary shall years) shall be applied by inserting ‘‘or in tax of a corporation shall be zero for any prescribe regulations that adjust the limita- the case of a taxpayer using the cash re- taxable year if— tion under subsection (a) to reflect the rate ceipts and disbursements method of account- ‘‘(A) such corporation met the $5,000,000 differential for 8-year gain (as defined in sec- ing, any disposition described in section gross receipts test of section 448(c) for any tion 1201(c)) between the highest rate of tax 453C(e)(1)(B)(ii)’’ after ‘‘section 453C(e)(4)’’. prior taxable year beginning after December specified in section 11(b) and the alternate 31, 1996, and TITLE V—ESTATE, GIFT, AND rate of tax under section 1201(a) and the limi- ‘‘(B) such corporation would meet such GENERATION-SKIPPING TAX PROVISIONS tation on the deduction for capital losses test for the taxable year and all prior tax- under section 1211.’’. Subtitle A—Estate and Gift Tax Provisions able years beginning after December 31, 1997, SEC. 501. COST-OF-LIVING ADJUSTMENTS RELAT- (c) EFFECTIVE DATES.—The amendments if such test were applied by substituting ING TO ESTATE AND GIFT TAX PRO- made by this section shall apply to taxable ‘$7,500,000’ for ‘$5,000,000’ VISIONS. years ending after December 31, 1997. ‘‘(2) PROSPECTIVE APPLICATION OF MINIMUM (a) INCREASE IN UNIFIED ESTATE AND GIFT TAX IF SMALL CORPORATION CEASES TO BE TAX CREDIT.— TITLE IV—ALTERNATIVE MINIMUM TAX SMALL.—In the case of a corporation whose (1) ESTATE TAX CREDIT.— REFORM tentative minimum tax is zero for any prior (A) IN GENERAL.—Subsection (a) of section SEC. 401. ADJUSTMENT OF EXEMPTION AMOUNTS taxable year by reason of paragraph (1), the 2010 (relating to unified credit against estate FOR TAXPAYERS OTHER THAN COR- application of this part for taxable years be- tax) is amended by striking ‘‘$192,800’’ and PORATIONS. ginning with the first taxable year such cor- inserting ‘‘the applicable credit amount’’. poration ceases to be described in paragraph (a) IN GENERAL.—Subsection (d) of section (B) APPLICABLE CREDIT AMOUNT.—Section (1) shall be determined without regard to 2010 is amended by redesignating subsection 55 is amended by adding at the end the fol- transactions entered into or other items lowing new paragraph: (c) as subsection (d) and by inserting after arising in taxable years prior to such first subsection (b) the following new subsection: ‘‘(4) ADJUSTMENT OF EXEMPTION AMOUNTS taxable year. ‘‘(c) APPLICABLE CREDIT AMOUNT.—For pur- FOR TAXPAYERS OTHER THAN CORPORATIONS.— ‘‘(3) LIMITATION ON USE OF CREDIT FOR PRIOR poses of this section— ‘‘(A) TAXABLE YEARS BEGINNING BEFORE YEAR MINIMUM TAX LIABILITY.—In the case of ‘‘(1) IN GENERAL.—For purposes of this sec- JANUARY 1, 2008.—In the case of any taxable a taxpayer whose tentative minimum tax for tion, the applicable credit amount is the year beginning in a calendar year after 1998 any taxable year is zero by reason of para- and before 2008— amount of the tentative tax which would be graph (1), the amount described in paragraph determined under the rate schedule set forth ‘‘(i) IN GENERAL.—The dollar amount appli- (2) of section 53(b) shall not be less than the in section 2001(c) if the amount with respect cable under paragraph (1)(A) for any odd- greater of— numbered calendar year— to which such tentative tax is to be com- ‘‘(A) the tentative minimum tax for the puted were the applicable exclusion amount ‘‘(I) shall be $1,000 greater than the dollar taxable year, or amount applicable under paragraph (1)(A) for determined in accordance with the following ‘‘(B) 25 percent of so much of the regular table: the prior odd-numbered calendar year, and tax liability (reduced by the credit allowed ‘‘In the case of es- The applicable ‘‘(II) shall apply to taxable years beginning by section 27) as exceeds $25,000. in such odd-numbered calendar year and the tates of decedents exclusion amount succeeding calendar year. Rules similar to the rules of section dying, and gifts is: ‘‘(B) TAXABLE YEARS BEGINNING AFTER DE- 38(c)(3)(B) shall apply for purposes of the pre- made during: CEMBER 31, 2007.—In the case of any taxable ceding sentence.’’. 1998 ...... $650,000 (b) EFFECTIVE DATE.—The amendment year beginning in a calendar year after 2007, 1999 ...... $750,000 made by this section shall apply to taxable the dollar amount applicable under para- 2000 ...... $765,000 years beginning after December 31, 1997. graph (1)(A) for taxable years beginning in 2001 through 2004 ...... $775,000 2007 shall be increased by an amount equal to SEC. 403. REPEAL OF ADJUSTMENT FOR DEPRE- 2005 ...... $800,000 CIATION. the product of— 2006 ...... $825,000 (a) IN GENERAL.—Clause (i) of section 2007 or thereafter ...... $1,000,000. ‘‘(i) such dollar amount, and 56(a)(1)(A) is amended by inserting ‘‘and be- ‘‘(2) COST-OF-LIVING ADJUSTMENT.—In the ‘‘(ii) the cost-of-living adjustment deter- fore January 1, 1999,’’ after ‘‘December 31, case of any decedent dying, and gift made, in mined under section 1(f)(3) for the calendar 1986,’’. a calendar year after 2007, the $1,000,000 year in which the taxable year begins, deter- (b) STUDY.— amount set forth in paragraph (1) shall be in- mined by substituting ‘calendar year 2006’ (1) IN GENERAL.—Because it is the intent of for ‘calendar year 1992’ in subparagraph (B) Congress that the amendment made by sub- creased by an amount equal to— thereof. section (a) not have the result of permitting ‘‘(A) $1,000,000, multiplied by If any increase determined under the preced- any corporation with taxable income from ‘‘(B) the cost-of-living adjustment deter- ing sentence is not a multiple of $100, such current year operations to pay no Federal in- mined under section 1(f)(3) for such calendar increase shall be rounded to the next lowest come tax, the Secretary of the Treasury or year by substituting ‘calendar year 2006’ for multiple of $100. his delegate shall conduct a study to deter- ‘calendar year 1992’ in subparagraph (B) ‘‘(C) OTHER AMOUNTS.— mine whether such amendment has that re- thereof. ‘‘(i) The dollar amount applicable under sult and, if so, the policy implications of If any amount as adjusted under the preced- paragraph (1)(B) for any taxable year shall be that result. ing sentence is not a multiple of $10,000, such an amount equal to 75 percent of the dollar (2) REPORT.—The report of such study shall amount shall be rounded to the next lowest amount applicable under paragraph (1)(A) for be submitted to the Committee on Ways and multiple of $10,000.’’. such year. Means of the House of Representatives and (C) ESTATE TAX RETURNS.—Paragraph (1) of ‘‘(ii) The dollar amount applicable under the Committee on Finance of the Senate not section 6018(a) is amended by striking paragraph (1)(C) for any taxable year shall be later than January 1, 2001. ‘‘$600,000’’ and inserting ‘‘the applicable ex- an amount equal to 50 percent of the dollar SEC. 404. MINIMUM TAX NOT TO APPLY TO FARM- clusion amount in effect under section amount applicable under paragraph (1)(A) for ERS’ INSTALLMENT SALES. 2010(c) for the calendar year which includes such year.’’. (a) IN GENERAL.—The last sentence of para- the date of death’’. graph (6) of section 56(a) (relating to treat- (D) PHASEOUT OF GRADUATED RATES AND (b) CONFORMING AMENDMENT.—The last sen- ment of installment sales in computing al- UNIFIED CREDIT.—Paragraph (2) of section tence of section 55(d)(3) is amended by strik- ternative minimum taxable income) is 2001(c) is amended by striking ‘‘$21,040,000’’ ing ‘‘$165,000 or (ii) $22,500’’ and inserting amended to read as follows: ‘‘This paragraph and inserting ‘‘the amount at which the av- ‘‘the minimum amount of such income (as so shall not apply to any disposition— erage tax rate under this section is 55 per- determined) for which the exemption ‘‘(A) in the case of a taxpayer using the cent’’. amount under paragraph (1)(C) is zero, or (ii) cash receipts and disbursements method of (E) ESTATES OF NONRESIDENTS NOT CITI- such exemption amount (determined without accounting, described in section 453(l)(2)(A) ZENS.—Subparagraph (A) of section 2102(c)(3) regard to this paragraph)’’. (relating to farm property), or is amended by striking ‘‘$192,800’’ and insert- (c) EFFECTIVE DATE.—The amendments ‘‘(B) with respect to which an election is in ing ‘‘the applicable credit amount in effect made by this section shall apply to taxable effect under section 453(l)(2)(B) (relating to under section 2010(c) for the calendar year years beginning after December 31, 1998. timeshares and residential lots).’’. which includes the date of death’’. H4720 CONGRESSIONAL RECORD — HOUSE June 26, 1997

(2) UNIFIED GIFT TAX CREDIT.—Paragraph (1) amount shall be rounded to the next lowest (1) ESTATE TAX.—Paragraph (1) of section of section 2505(a) is amended by striking multiple of $10,000.’’. 2053(c) is amended by adding at the end the ‘‘$192,800’’ and inserting ‘‘the applicable cred- (f) EFFECTIVE DATE.—The amendments following new subparagraph: it amount in effect under section 2010(c) for made by this section shall apply to the es- ‘‘(D) SECTION 6166 INTEREST.—No deduction such calendar year’’. tates of decedents dying, and gifts made, shall be allowed under this section for any (b) ALTERNATE VALUATION OF CERTAIN after December 31, 1997. interest payable under section 6601 on any FARM, ETC., REAL PROPERTY.—Subsection (a) SEC. 502. 20-YEAR INSTALLMENT PAYMENT unpaid portion of the tax imposed by section of section 2032A is amended by adding at the WHERE ESTATE CONSISTS LARGELY 2001 for the period during which an extension end the following new paragraph: OF INTEREST IN CLOSELY HELD of time for payment of such tax is in effect ‘‘(3) INFLATION ADJUSTMENT.—In the case of BUSINESS. under section 6166.’’. estates of decedents dying in a calendar year (a) IN GENERAL.—Section 6166(a) (relating (2) INCOME TAX.—Subparagraph (E) of sec- after 1998, the $750,000 amount contained in to extension of time for payment of estate tion 163(h)(2) is amended by striking ‘‘or paragraph (2) shall be increased by an tax where estate consists largely of interest 6166’’. amount equal to— in closely held business) is amended by strik- (c) EFFECTIVE DATE.—The amendments ‘‘(A) $750,000, multiplied by ing ‘‘10’’ in paragraph (1) and the heading made by this section shall apply to estates of ‘‘(B) the cost-of-living adjustment deter- thereof and inserting ‘‘20’’. decedents dying after December 31, 1997. mined under section 1(f)(3) for such calendar (b) EFFECTIVE DATE.—The amendments SEC. 504. EXTENSION OF TREATMENT OF CER- year by substituting ‘calendar year 1997’ for TAIN RENTS UNDER SECTION 2032A made by this section shall apply to estates of ‘calendar year 1992’ in subparagraph (B) TO LINEAL DESCENDANTS. decedents dying after December 31, 1997. thereof. (a) GENERAL RULE.—Paragraph (7) of sec- SEC. 503. NO INTEREST ON CERTAIN PORTION OF tion 2032A(c) (relating to special rules for tax If any amount as adjusted under the preced- ESTATE TAX EXTENDED UNDER SEC- ing sentence is not a multiple of $10,000, such treatment of dispositions and failures to use TION 6166, REDUCED INTEREST ON for qualified use) is amended by adding at amount shall be rounded to the next lowest REMAINING PORTION, AND NO DE- multiple of $10,000.’’. DUCTION FOR SUCH REDUCED IN- the end the following new subparagraph: (c) ANNUAL GIFT TAX EXCLUSION.—Sub- TEREST. ‘‘(E) CERTAIN RENTS TREATED AS QUALIFIED USE.—For purposes of this subsection, a sur- section (b) of section 2503 is amended— (a) NO INTEREST AND REDUCED INTEREST.— viving spouse or lineal descendant of the de- (1) by striking the subsection heading and (1) IN GENERAL.—Paragraphs (1) and (2) of inserting the following: section 6601(j) (relating to 4-percent rate on cedent shall not be treated as failing to use ‘‘(b) EXCLUSIONS FROM GIFTS.— certain portion of estate tax extended under qualified real property in a qualified use ‘‘(1) IN GENERAL.—’’, section 6166), as amended by section 501(e), solely because such spouse or descendant (2) by moving the text 2 ems to the right, are amended to read as follows: rents such property to a member of the fam- ily of such spouse or descendant on a net and ‘‘(1) IN GENERAL.—If the time for payment (3) by adding at the end the following new of an amount of tax imposed by chapter 11 is cash basis. For purposes of the preceding paragraph: extended as provided in section 6166, then in sentence, a legally adopted child of an indi- ‘‘(2) INFLATION ADJUSTMENT.—In the case of lieu of the annual rate provided by sub- vidual shall be treated as the child of such gifts made in a calendar year after 1998, the section (a)— individual by blood.’’. (b) CONFORMING AMENDMENT.—Section $10,000 amount contained in paragraph (1) ‘‘(A) no interest shall be paid on the no-in- 2032A(b)(5)(A) is amended by striking the last shall be increased by an amount equal to— terest portion of such amount, and sentence. ‘‘(A) $10,000, multiplied by ‘‘(B) interest on so much of such amount as ‘‘(B) the cost-of-living adjustment deter- (c) EFFECTIVE DATE.—The amendments exceeds such no-interest portion shall be made by this section shall apply with respect mined under section 1(f)(3) for such calendar paid at a rate equal to 45 percent of the an- year by substituting ‘calendar year 1997’ for to leases entered into after December 31, nual rate provided by subsection (a). 1976. ‘calendar year 1992’ in subparagraph (B) For purposes of this subsection, the amount thereof. SEC. 505. CLARIFICATION OF JUDICIAL REVIEW of any deficiency which is prorated to in- OF ELIGIBILITY FOR EXTENSION OF If any amount as adjusted under the preced- stallments payable under section 6166 shall TIME FOR PAYMENT OF ESTATE TAX. ing sentence is not a multiple of $1,000, such be treated as an amount of tax payable in in- (a) IN GENERAL.—Part IV of subchapter C amount shall be rounded to the next lowest stallments under such section. of chapter 76 of the Internal Revenue Code of multiple of $1,000.’’. ‘‘(2) NO-INTEREST PORTION.—For purposes of 1986 (relating to declaratory judgments) is (d) EXEMPTION FROM GENERATION-SKIPPING this section, the term ‘no-interest portion’ amended by adding at the end the following TAX.—Section 2631 (relating to GST exemp- means the lesser of— new section: tion) is amended by adding at the end the ‘‘(A)(i) the amount of the tentative tax ‘‘SEC. 7479. DECLARATORY JUDGMENTS RELAT- following new subsection: which would be determined under the rate ING TO ELIGIBILITY OF ESTATE ‘‘(c) INFLATION ADJUSTMENT.—In the case schedule set forth in section 2001(c) if the WITH RESPECT TO INSTALLMENT of an individual who dies in any calendar amount with respect to which such tentative PAYMENTS UNDER SECTION 6166. year after 1998, the $1,000,000 amount con- tax is to be computed were the sum of ‘‘(a) CREATION OF REMEDY.—In a case of ac- tained in subsection (a) shall be increased by $1,000,000 and the applicable exclusion tual controversy involving a determination an amount equal to— amount in effect under section 2010(c), re- by the Secretary of (or a failure by the Sec- ‘‘(1) $1,000,000, multiplied by duced by retary to make a determination with respect ‘‘(2) the cost-of-living adjustment deter- ‘‘(ii) the applicable credit amount in effect to)— mined under section 1(f)(3) for such calendar under section 2010(c), or ‘‘(1) whether an election may be made year by substituting ‘calendar year 1997’ for ‘‘(B) the amount of the tax imposed by under section 6166 (relating to extension of ‘calendar year 1992’ in subparagraph (B) chapter 11 which is extended as provided in time for payment of estate tax where estate thereof. section 6166.’’. consists largely of interest in closely held If any amount as adjusted under the preced- (2) CONFORMING AMENDMENTS.— business) with respect to an estate, or ing sentence is not a multiple of $10,000, such (A) Section 6601(j), as amended by section ‘‘(2) whether the extension of time for pay- amount shall be rounded to the next lowest 501, is amended— ment of tax provided in section 6166(a) has multiple of $10,000.’’. (i) by striking ‘‘4-percent’’ each place it ap- ceased to apply with respect to an estate, (e) AMOUNT SUBJECT TO REDUCED RATE pears in paragraph (3) and inserting ‘‘no-in- upon the filing of an appropriate pleading, WHERE EXTENSION OF TIME FOR PAYMENT OF terest’’, and the Tax Court may make a declaration with ESTATE TAX ON CLOSELY HELD BUSINESS.— (ii) by striking ‘‘4-PERCENT RATE ON CER- respect to whether such election may be Subsection (j) of section 6601 is amended by TAIN PORTION OF’’ in the heading and insert- made, whether such extension has ceased to redesignating paragraph (3) as paragraph (4) ing ‘‘RATE ON’’. apply, or the amount of such installment and by inserting after paragraph (2) the fol- (B) Section 6166(b)(7)(A)(iii) is amended to payments. Any such declaration shall have lowing new paragraph: read as follows: the force and effect of a decision of the Tax ‘‘(3) INFLATION ADJUSTMENT.—In the case of ‘‘(iii) for purposes of applying section Court and shall be reviewable as such. estates of decedents dying in a calendar year 6601(j) (relating to rate on estate tax ex- ‘‘(b) LIMITATIONS.— after 1998, the $1,000,000 amount contained in tended under section 6166), the no-interest ‘‘(1) PETITIONER.—A pleading may be filed paragraph (2)(A) shall be increased by an portion shall be zero.’’. under this section, with respect to any es- amount equal to— (C) Section 6166(b)(8)(A)(iii) is amended to tate, only— ‘‘(A) $1,000,000, multiplied by read as follows: ‘‘(A) by the executor of such estate, or ‘‘(B) the cost-of-living adjustment deter- ‘‘(iii) NO-INTEREST PORTION NOT TO APPLY.— ‘‘(B) by any person who has assumed an ob- mined under section 1(f)(3) for such calendar For purposes of applying section 6601(j) (re- ligation to make payments under section year by substituting ‘calendar year 1997’ for lating to rate on estate tax extended under 6166 with respect to such estate (but only if ‘calendar year 1992’ in subparagraph (B) section 6166), the no-interest portion shall be each other such person is joined as a party). thereof. zero.’’. ‘‘(2) EXHAUSTION OF ADMINISTRATIVE REM- If any amount as adjusted under the preced- (b) DISALLOWANCE OF INTEREST DEDUC- EDIES.—The court shall not issue a declara- ing sentence is not a multiple of $10,000, such TION.— tory judgment or decree under this section June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4721 in any proceeding unless it determines that tion by the Secretary of the value of any gift SEC. 508. UNIFIED CREDIT OF DECEDENT IN- the petitioner has exhausted all available ad- shown on the return of tax imposed by chap- CREASED BY UNIFIED CREDIT OF ministrative remedies within the Internal ter 12 or disclosed on such return or in any SPOUSE USED ON SPLIT GIFT IN- Revenue Service. A petitioner shall be statement attached to such return, upon the CLUDED IN DECEDENT’S GROSS ES- TATE. deemed to have exhausted its administrative filing of an appropriate pleading, the Tax (a) IN GENERAL.—Section 2010 (relating to remedies with respect to a failure of the Sec- Court may make a declaration of the value unified credit against estate tax) is amended retary to make a determination at the expi- of such gift. Any such declaration shall have by adding at the end the following new sub- ration of 180 days after the date on which the the force and effect of a decision of the Tax section: request for such determination was made if Court and shall be reviewable as such. ‘‘(d) TREATMENT OF UNIFIED CREDIT USED the petitioner has taken, in a timely man- ‘‘(b) LIMITATIONS.— BY SPOUSE ON SPLIT-GIFT INCLUDED IN DECE- ner, all reasonable steps to secure such de- ‘‘(1) PETITIONER.—A pleading may be filed DENT’S GROSS ESTATE.—If— termination. under this section only by the donor. ‘‘(1) the decedent was the donor of any gift ‘‘(3) TIME FOR BRINGING ACTION.—If the Sec- ‘‘(2) EXHAUSTION OF ADMINISTRATIVE REM- one-half of which was considered under sec- retary sends by certified or registered mail EDIES.—The court shall not issue a declara- tion 2513 as made by the decedent’s spouse, notice of his determination as described in tory judgment or decree under this section and subsection (a) to the petitioner, no proceed- in any proceeding unless it determines that ‘‘(2) the amount of such gift is includible in ing may be initiated under this section un- the petitioner has exhausted all available ad- the gross estate of the decedent by reason of less the pleading is filed before the 91st day ministrative remedies within the Internal section 2035, 2036, 2037, or 2038, after the date of such mailing.’’. Revenue Service. the amount of the credit allowable by sub- (b) CLERICAL AMENDMENT.—The table of ‘‘(3) TIME FOR BRINGING ACTION.—If the Sec- section (a) to the estate of the decedent shall sections for part IV of subchapter C of chap- retary sends by certified or registered mail be increased by the amount of the unified ter 76 of such Code is amended by adding at notice of his determination as described in credit allowed against the tax imposed by the end the following new item: subsection (a) to the petitioner, no proceed- section 2501 on the amount of such gift con- ‘‘Sec. 7479. Declaratory judgments relating ing may be initiated under this section un- sidered under section 2513 as made by such to eligibility of estate with re- less the pleading is filed before the 91st day spouse.’’. spect to installment payments after the date of such mailing.’’. (b) EFFECTIVE DATE.—The amendment under section 6166.’’. (2) CLERICAL AMENDMENT.—The table of made by subsection (a) shall apply to gifts sections for such part IV is amended by in- made after the date of the enactment of this (c) EFFECTIVE DATE.—The amendments serting after the item relating to section 7476 Act. made by this section shall apply to the es- the following new item: SEC. 509. REFORMATION OF DEFECTIVE BE- tates of decedents dying after the date of the QUESTS, ETC., TO SPOUSE OF DECE- enactment of this Act. ‘‘Sec. 7477. Declaratory judgments relating DENT. SEC. 506. GIFTS MAY NOT BE REVALUED FOR ES- to value of certain gifts.’’. (a) IN GENERAL.—Subsection (b) of section TATE TAX PURPOSES AFTER EXPIRA- 2056 (relating to bequests, etc., to surviving TION OF STATUTE OF LIMITATIONS. (d) CONFORMING AMENDMENT.—Subsection spouse) is amended by adding at the end the (a) IN GENERAL.—Section 2001 (relating to (c) of section 2504 is amended by striking ‘‘, following new paragraph: and if a tax under this chapter or under cor- imposition and rate of estate tax) is amended ‘‘(11) REFORMATIONS PERMITTED.— responding provisions of prior laws has been by adding at the end the following new sub- ‘‘(A) IN GENERAL.—In the case of any inter- section: assessed or paid for such preceding calendar est in property with respect to which a de- ‘‘(f) VALUATION OF GIFTS.—If— period’’. duction would be allowable under subsection ‘‘(1) the time has expired within which a (e) EFFECTIVE DATES.— (a) but for a provision of this subsection, if— tax may be assessed under chapter 12 (or (1) IN GENERAL.—The amendments made by ‘‘(i) the surviving spouse is entitled to all under corresponding provisions of prior laws) subsections (a) and (c) shall apply to gifts of the income from the property for life, on the transfer of property by gift made dur- made after the date of the enactment of this ‘‘(ii) no person other than such spouse is ing a preceding calendar period (as defined in Act. entitled to any distribution of such property section 2502(b)), and (2) SUBSECTION (b)—The amendment made during such spouse’s life, and ‘‘(2) the value of such gift is shown on the by subsection (b) shall apply to gifts made in ‘‘(iii) there is a change of a governing in- return for such preceding calendar period or calendar years ending after the date of the strument (by reformation, amendment, con- is disclosed in such return, or in a statement enactment of this Act. struction, or otherwise) as of the applicable attached to the return, in a manner adequate SEC. 507. TERMINATION OF THROWBACK RULES date which results in the satisfaction of the to apprise the Secretary of the nature of FOR DOMESTIC TRUSTS. requirements of such provision as of the date such gift, of the decedent’s death, (a) ACCUMULATION DISTRIBUTIONS.— the value of such gift shall, for purposes of (1) IN GENERAL.—Section 665 is amended by the determination of whether such deduction computing the tax under this chapter, be the adding at the end the following new sub- is allowable shall be made as of the applica- value of such gift as finally determined for section: ble date. purposes of chapter 12.’’. ‘‘(B) SPECIAL RULE WHERE TIMELY COM- ‘‘(f) SPECIAL RULE FOR UNITED STATES (b) MODIFICATION OF APPLICATION OF STAT- MENCEMENT OF REFORMATION.—Clauses (i) and TRUSTS.—For purposes of this subpart, in the UTE OF LIMITATIONS.—Paragraph (9) of sec- (ii) of subparagraph (A) shall not apply to case of a trust other than a foreign trust, tion 6501(c) is amended to read as follows: any interest if, not later than the date de- any distribution in any taxable year begin- ‘‘(9) GIFT TAX ON CERTAIN GIFTS NOT SHOWN scribed in subparagraph (C)(i), a judicial pro- ning after the date of the enactment of this ON RETURN.—If any gift of property the value ceeding is commenced to change such inter- subsection shall be computed without regard of which (or any increase in taxable gifts re- est into an interest which satisfies the re- to any undistributed net income.’’. quired under section 2701(d) which) is re- quirements of the provision by reason of (2) CONFORMING AMENDMENT.—Subsection quired to be shown on a return of tax im- which (but for this paragraph) a deduction (b) of section 665 is amended by inserting posed by chapter 12 (without regard to sec- would not be allowable under subsection (a) ‘‘except as provided in subsection (f),’’ after tion 2503(b)), and is not shown on such re- for such interest. ‘‘subpart,’’. turn, any tax imposed by chapter 12 on such ‘‘(C) APPLICABLE DATE.—For purposes of gift may be assessed, or a proceeding in (b) PROPERTY TRANSFERRED TO TRUSTS.— subparagraph (A), the term ‘applicable date’ court for the collection of such tax may be Subsection (e) of section 644 is amended by means— begun without assessment, at any time. The striking ‘‘or’’ at the end of paragraph (3), by ‘‘(i) the last date (including extensions) for preceding sentence shall not apply to any striking the period at the end of paragraph filing the return of tax imposed by this chap- item which is disclosed in such return, or in (4) and inserting ‘‘, or ’’, and by adding at the ter, or a statement attached to the return, in a end the following new paragraph: ‘‘(ii) if a judicial proceeding is commenced manner adequate to apprise the Secretary of ‘‘(5) in the case of a trust other than a for- to comply with such provision, the time the nature of such item. The value of any eign trust, any sale or exchange of property when the changes pursuant to such proceed- item which is so disclosed may not be rede- after the date of the enactment of this para- ing are made. termined by the Secretary after the expira- graph.’’. ‘‘(D) SPECIAL RULE.—If the change referred tion of the period under subsection (a).’’. (c) EFFECTIVE DATES.— to in subparagraph (A)(iii) is to qualify the (c) DECLARATORY JUDGMENT PROCEDURE (1) IN GENERAL.—Except as provided in passage of the interest under paragraph (7), FOR DETERMINING VALUE OF GIFT.— paragraph (2), the amendments made by this subparagraph (A) shall apply only if the elec- (1) IN GENERAL.—Part IV of subchapter C of section shall apply to distributions in tax- tion under paragraph (7)(B) is made. chapter 76 is amended by inserting after sec- able years beginning after the date of the en- ‘‘(E) STATUTE OF LIMITATIONS.—If a judicial tion 7476 the following new section: actment of this Act. proceeding described in subparagraph (C)(ii) ‘‘SEC. 7477. DECLARATORY JUDGMENTS RELAT- (2) TRANSFERRED PROPERTY.—The amend- is commenced with respect to any interest, ING TO VALUE OF CERTAIN GIFTS. ments made by subsection (b) shall apply to the period for assessing any deficiency of tax ‘‘(a) CREATION OF REMEDY.—In a case of an sales or exchanges after the date of the en- attributable to such interest shall not expire actual controversy involving a determina- actment of this Act. before the date 1 year after the date on H4722 CONGRESSIONAL RECORD — HOUSE June 26, 1997 which the Secretary is notified that such the parent of the transferor (or the transfer- ‘‘(ii) in applying paragraph (1) to the cred- provision has been complied with or that or’s spouse or former spouse), and the gen- it— such proceeding has been terminated.’’. eration assignment of any descendant of ‘‘(I) subparagraph (A) shall not apply, and (b) COMPARABLE RULE FOR GIFT TAX.—Sec- such individual shall be adjusted accord- ‘‘(II) the limitation under paragraph (1) (as tion 2523 (relating to gift to spouse) is ingly. modified by subclause (I)) shall be reduced amended by adding at the end the following ‘‘(2) LIMITED APPLICATION OF SUBSECTION TO by the credit allowed under subsection (a) for new subsection: COLLATERAL HEIRS.—This subsection shall the taxable year (other than the work oppor- ‘‘(j) REFORMATIONS PERMITTED.—Rules not apply with respect to a transfer to any tunity credit). similar to the rules of section 2056(b)(11) individual who is not a lineal descendant of ‘‘(B) WORK OPPORTUNITY CREDIT.—For pur- shall apply for purposes of this section.’’. the transferor (or the transferor’s spouse or poses of this subsection, the term ‘work op- (c) EFFECTIVE DATE.—The amendments former spouse) if, at the time of the transfer, portunity credit’ means the credit allowable made by this section shall apply to estates of such transferor has any living lineal de- under subsection (a) by reason of section decedents dying, and gifts made, after the scendant.’’. 51(a).’’. date of the enactment of this Act. (b) CONFORMING AMENDMENTS.— (2) CONFORMING AMENDMENT.—Subclause (1) Section 2612(c) (defining direct skip) is Subtitle B—Generation-Skipping Tax (II) of section 38(c)(2)(A)(ii) is amended by in- amended by striking paragraph (2) and by re- Provisions serting ‘‘or the work opportunity credit’’ designating paragraph (3) as paragraph (2). after ‘‘employment credit’’. SEC. 511. SEVERING OF TRUSTS HOLDING PROP- (2) Section 2612(c)(2) (as so redesignated) is (3) EFFECTIVE DATE.—The amendments ERTY HAVING AN INCLUSION RATIO amended by striking ‘‘section 2651(e)(2)’’ and OF GREATER THAN ZERO. made by this subsection shall apply to tax- inserting ‘‘section 2651(f)(2)’’. able years beginning after December 31, 1997. (a) IN GENERAL.—Subsection (a) of section (c) EFFECTIVE DATE.—The amendments (c) PERCENTAGE OF WAGES ALLOWED AS 2642 (relating to inclusion ratio) is amended made by this section shall apply to termi- CREDIT.— by adding at the end the following new para- nations, distributions, and transfers occur- (1) IN GENERAL.—Subsection (a) of section graph: ring after December 31, 1997. 51 (relating to determination of amount) is ‘‘(3) SEVERING OF TRUSTS HOLDING PROPERTY TITLE VI—EXTENSIONS HAVING AN INCLUSION RATIO OF GREATER THAN amended by striking ‘‘35 percent’’ and insert- SEC. 601. RESEARCH TAX CREDIT. ZERO.— ing ‘‘40 percent’’. (a) IN GENERAL.—Paragraph (1) of section ‘‘(A) IN GENERAL.—If a trust holding prop- (2) APPLICATION OF CREDIT FOR INDIVIDUALS 41(h) (relating to termination) is amended— erty having an inclusion ratio of greater PERFORMING FEWER THAN 400 HOURS OF SERV- (1) by striking ‘‘May 31, 1997’’ and inserting than zero is severed in a qualified severance, ICES.—Paragraph (3) of section 51(i) is ‘‘December 31, 1998’’, and at the election of the trustee of such trust, amended to read as follows: (2) by striking in the last sentence ‘‘during the trusts resulting from such severance ‘‘(3) INDIVIDUALS NOT MEETING MINIMUM EM- the first 11 months of such taxable year.’’ shall be treated as separate trusts for pur- PLOYMENT PERIODS.— and inserting ‘‘during the 30-month period poses of this chapter and 1 such trust shall ‘‘(A) REDUCTION OF CREDIT FOR INDIVIDUALS beginning with the first month of such year. have an inclusion ratio of 1 and the other PERFORMING FEWER THAN 400 HOURS OF SERV- The 30 months referred to in the preceding such trust shall have an inclusion ratio of ICES.—In the case of an individual who has sentence shall be reduced by the number of zero. completed at least 120 hours, but less than full months after June 1996 (and before the ‘‘(B) QUALIFIED SEVERANCE.—For purposes 400 hours, of services performed for the em- first month of such first taxable year) during of subparagraph (A), the term ‘qualified sev- ployer, subsection (a) shall be applied by sub- which the taxpayer paid or incurred any erance’ means the creation of 2 trusts from a stituting ‘25 percent’ for ‘40 percent’. amount which is taken into account in de- single trust if each property held by the sin- ‘‘(B) DENIAL OF CREDIT FOR INDIVIDUALS termining the credit under this section.’’. gle trust was divided between the 2 created PERFORMING FEWER THAN 120 HOURS OF SERV- (b) TECHNICAL AMENDMENTS.— trusts such that one trust received an inter- ICES.—No wages shall be taken into account (1) Subparagraph (B) of section 41(c)(4) is under subsection (a) with respect to any in- est in each such property equal to the appli- amended to read as follows: cable fraction of the single trust. Such term dividual unless such individual has com- ‘‘(B) ELECTION.—An election under this includes any other severance permitted pleted at least 120 hours of services per- paragraph shall apply to the taxable year for formed for the employer.’’. under regulations prescribed by the Sec- which made and all succeeding taxable years retary. (3) EFFECTIVE DATE.—The amendments unless revoked with the consent of the Sec- made by this subsection shall apply to indi- ‘‘(C) ELECTION.—The election under this retary.’’. paragraph shall be made at the time pre- viduals who begin work for the employer (2) Paragraph (1) of section 45C(b) is after September 30, 1997. scribed by the Secretary. Such an election, amended by striking ‘‘May 31, 1997’’ and in- once made, shall be irrevocable.’’. (d) MODIFICATION OF ELIGIBILITY REQUIRE- serting ‘‘December 31, 1998’’. MENT BASED ON PERIOD ON WELFARE.— (b) EFFECTIVE DATE.—The amendment (c) EFFECTIVE DATE.—The amendments made by subsection (a) shall apply to (1) IN GENERAL.—Subparagraph (A) of sec- made by this section shall apply to amounts tion 51(d)(2) (defining qualified IV–A recipi- severances after the date of the enactment of paid or incurred after May 31, 1997. this Act. ent) is amended by striking all that follows SEC. 602. CONTRIBUTIONS OF STOCK TO PRIVATE ‘‘a IV–A program’’ and inserting ‘‘for any 9 SEC. 512. EXPANSION OF EXCEPTION FROM GEN- FOUNDATIONS. months during the 18-month period ending ERATION-SKIPPING TRANSFER TAX (a) IN GENERAL.—Clause (ii) of section on the hiring date.’’. FOR TRANSFERS TO INDIVIDUALS 170(e)(5)(D) (relating to termination) is (2) CONFORMING AMENDMENT.—Subpara- WITH DECEASED PARENTS. amended by striking ‘‘May 31, 1997’’ and in- (a) IN GENERAL.—Section 2651 (relating to serting ‘‘December 31, 1998’’. graph (A) of section 51(d)(3) is amended to generation assignment) is amended by redes- (b) EFFECTIVE DATE.—The amendment read as follows: ignating subsection (e) as subsection (f), and made by subsection (a) shall apply to con- ‘‘(A) IN GENERAL.—The term ‘qualified vet- by inserting after subsection (d) the follow- tributions made after May 31, 1997. eran’ means any veteran who is certified by ing new subsection: SEC. 603. WORK OPPORTUNITY TAX CREDIT. the designated local agency as being a mem- ‘‘(e) SPECIAL RULE FOR PERSONS WITH A DE- (a) EXTENSION.— ber of a family receiving assistance under a CEASED PARENT.— (1) IN GENERAL.—Subparagraph (B) of sec- food stamp program under the Food Stamp ‘‘(1) IN GENERAL.—For purposes of deter- tion 51(c)(4) (relating to termination) is Act of 1977 for at least a 3-month period end- mining whether any transfer is a generation- amended by striking ‘‘September 30, 1997’’ ing during the 12-month period ending on the skipping transfer, if— and inserting ‘‘September 30, 1998’’. hiring date.’’. ‘‘(A) an individual is a descendant of a par- (2) EFFECTIVE DATE.—The amendment (3) EFFECTIVE DATE.—The amendments ent of the transferor (or the transferor’s made by paragraph (1) shall apply to individ- made by this subsection shall apply to indi- spouse or former spouse), and uals who begin work for the employer after viduals who begin work for the employer ‘‘(B) such individual’s parent who is a lin- September 30, 1997. after September 30, 1997. eal descendant of the parent of the trans- (b) WORK OPPORTUNITY CREDIT ALLOWED SEC. 604. ORPHAN DRUG TAX CREDIT. feror (or the transferor’s spouse or former AGAINST MINIMUM TAX.— (a) IN GENERAL.—Section 45C (relating to spouse) is dead at the time the transfer (from (1) IN GENERAL.—Subsection (c) of section clinical testing expenses for certain drugs which an interest of such individual is estab- 38 (relating to limitation based on amount of for rare diseases or conditions) is amended lished or derived) is subject to a tax imposed tax) is amended by redesignating paragraph by striking subsection (e). by chapter 11 or 12 upon the transferor (and (3) as paragraph (4) and by inserting after (b) EFFECTIVE DATE.—The amendment if there shall be more than 1 such time, then paragraph (2) the following new paragraph: made by subsection (a) shall apply to at the earliest such time), ‘‘(3) SPECIAL RULES FOR WORK OPPORTUNITY amounts paid or incurred after May 31, 1997. such individual shall be treated as if such in- CREDIT.— SEC. 605. BUDGETARY TREATMENT OF EXPIRING dividual were a member of the generation ‘‘(A) IN GENERAL.—In the case of the work PREFERENTIAL EXCISE TAX RATES which is 1 generation below the lower of the opportunity credit— WHICH ARE DEDICATED TO TRUST transferor’s generation or the generation as- ‘‘(i) this section and section 39 shall be ap- FUNDS. signment of the youngest living ancestor of plied separately with respect to the credit, (a) IN GENERAL.—Subparagraph (C) of sec- such individual who is also a descendant of and tion 257(b)(2) of the Balanced Budget and June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4723

Emergency Deficit Control Act of 1985 (relat- ‘‘(1) IN GENERAL.—The designation made by ‘‘(A) IN GENERAL.—Except as provided in ing to the baseline) is amended by inserting subsection (a) shall apply for the period be- subparagraph (B), the term ‘District business before the period ‘‘; except that any expiring ginning on January 1, 1998, and ending on De- stock’ means any stock in a domestic cor- preferential rate (and any credit or refund cember 31, 2002. poration if— related thereto) shall be assumed not to be ‘‘(2) COORDINATION WITH DC ENTERPRISE ‘‘(i) such stock is acquired by the taxpayer extended’’. COMMUNITY DESIGNATED UNDER SUBCHAPTER at its original issue (directly or through an (b) ESTIMATE OF REVENUE GAIN FROM COR- U.—The designation as an enterprise commu- underwriter) solely in exchange for cash, and RECTING BASELINE.—For purposes of estimat- nity, under subchapter U, of the census ‘‘(ii) as of the time such stock was issued, ing revenues under budget reconciliation, tracts referred to in subsection (b)(1) shall such corporation was engaged in a trade or the impact of the amendment made by sub- terminate on December 31, 2002. business in the District of Columbia (or, in section (a) on the calculation of the baseline ‘‘SEC. 1400A. TAX-EXEMPT ECONOMIC DEVELOP- the case of a new corporation, such corpora- shall be determined in the same manner as if MENT BONDS. tion was being organized for purposes of en- such amendment were an amendment to the ‘‘(a) IN GENERAL.—In the case of the Dis- gaging in such a trade or business). Internal Revenue Code of 1986. trict of Columbia Enterprise Zone— ‘‘(B) REDEMPTIONS.—A rule similar to the (c) BUDGET ACT POINT OF ORDER.—For pur- ‘‘(1) subsection (a) of section 1394 (relating rule of section 1202(c)(3) shall apply for pur- poses of section 311(a) of the Congressional to tax-exempt facility bonds for poses of this paragraph. Budget Act of 1974, the appropriate level of empowerment zones and enterprise commu- ‘‘(4) QUALIFIED DISTRICT PARTNERSHIP IN- revenues shall be determined on the assump- nities) applies only with respect to bonds is- TEREST.—For purposes of this subsection, the tion that any expiring preferential rate (and sued by the Economic Development Corpora- term ‘qualified District partnership interest’ any credit or refund related thereto) of any tion, and means any interest in a partnership if— excise tax dedicated to a trust fund shall ex- ‘‘(2) subparagraph (A) of section 1394(c)(1) ‘‘(A) such interest is acquired by the tax- pire according to current law. (relating to limitation on amount of bonds) payer from the partnership solely in ex- (d) EFFECTIVE DATE.—The amendment shall be applied by substituting ‘$15,000,000’ change for cash, and made by subsection (a) shall apply to budget for ‘$3,000,000’. ‘‘(B) as of the time such interest was ac- ‘‘(b) ECONOMIC DEVELOPMENT CORPORA- years beginning after the date of the enact- quired, such partnership was engaging in a TION.—For purposes of this section, the term ment of this Act. trade or business in the District of Columbia ‘Economic Development Corporation’ means (or, in the case of a new partnership, such TITLE VII—INCENTIVES FOR REVITALIZA- an entity which is created by Federal law in partnership was being organized for purposes TION OF THE DISTRICT OF COLUMBIA 1997 as part of the District of Columbia gov- SEC. 701. TAX INCENTIVES FOR REVITALIZATION ernment. of engaging in such a trade or business). OF THE DISTRICT OF COLUMBIA. ‘‘(c) PERIOD OF APPLICABILITY.—This sec- A rule similar to the rule of paragraph (3)(B) (a) IN GENERAL.—Chapter 1 is amended by tion shall apply to bonds issued during the shall apply for purposes of this paragraph. adding at the end the following new sub- period beginning on January 1, 1998, and end- ‘‘(5) RECAPTURE OF CREDIT UPON CERTAIN chapter: ing on December 31, 2002. DISPOSITIONS OF DISTRICT BUSINESS INVEST- ‘‘Subchapter W—District of Columbia ‘‘SEC. 1400B. CREDIT FOR EQUITY INVESTMENTS MENTS.— Enterprise Zone IN AND LOANS TO DISTRICT OF CO- ‘‘(A) IN GENERAL.—If a taxpayer disposes of any District business investment (or any ‘‘Sec. 1400. Establishment of DC Zone. LUMBIA BUSINESSES. ‘‘(a) GENERAL RULE.—For purposes of sec- other property the basis of which is deter- ‘‘Sec. 1400A. Tax-exempt economic develop- tion 38, the DC Zone investment credit deter- mined in whole or in part by reference to the ment bonds. mined under this section for any taxable adjusted basis of such investment) before the ‘‘Sec. 1400B. Credit for equity investments year is— end of the 5-year period beginning on the in and loans to District of Co- ‘‘(1) the qualified lender credit for such date such investment was acquired by the lumbia businesses. year, and taxpayer, the taxpayer’s tax imposed by this ‘‘Sec. 1400C. Zero percent capital gains rate. ‘‘(2) the qualified equity investment credit chapter for the taxable year in which such ‘‘Sec. 1400D. Credit to provide equivalent of for such year. distribution occurs shall be increased by the ‘‘(b) QUALIFIED LENDER CREDIT.—For pur- 10 percent rate bracket in lieu aggregate decrease in the credits allowed poses of this section— of 15 percent bracket. under section 38 for all prior taxable years ‘‘(1) IN GENERAL.—The qualified lender which would have resulted solely from reduc- ‘‘SEC. 1400. ESTABLISHMENT OF DC ZONE. credit for any taxable year is the amount of ing to zero any credit determined under this ‘‘(a) IN GENERAL.—The applicable DC area credit specified for such year by the Eco- section with respect to such investment. is hereby designated as the District of Co- nomic Development Corporation with re- ‘‘(B) EXCEPTIONS.—Subparagraph (A) shall lumbia Enterprise Zone. For purposes of this spect to qualified District loans made by the not apply to any gift, transfer, or trans- title (except as otherwise provided in this taxpayer. action described in paragraph (1), (2), or (3) of subchapter), the District of Columbia Enter- ‘‘(2) LIMITATION.—In no event may the section 1245(b). prise Zone shall be treated as an qualified lender credit with respect to any ‘‘(C) SPECIAL RULE.—Any increase in tax empowerment zone designated under sub- loan exceed 25 percent of the cost of the under subparagraph (A) shall not be treated chapter U. property purchased with the proceeds of the as a tax imposed by this chapter for purposes ‘‘(b) APPLICABLE DC AREA.—For purposes loan. of— of subsection (a), the term ‘applicable DC ‘‘(3) QUALIFIED DISTRICT LOAN.—For pur- area’ means the area consisting of— ‘‘(i) determining the amount of any credit poses of paragraph (1), the term ‘qualified allowable under this chapter, and ‘‘(1) the census tracts located in the Dis- district loan’ means any loan for the pur- trict of Columbia which are part of an enter- ‘‘(ii) determining the amount of the tax chase (as defined in section 179(d)(2)) of prop- imposed by section 55. prise community designated under sub- erty to which section 168 applies (or would ‘‘(6) BASIS REDUCTION.—For purposes of this chapter U before the date of the enactment apply but for section 179) (or land which is title, the basis of any District business in- of this subchapter, and functionally related and subordinate to such vestment shall be reduced by the amount of ‘‘(2) all other census tracts— property) and substantially all of the use of the credit determined under this section ‘‘(A) which are located in the District of which is in the District of Columbia and is in with respect to such investment. Columbia, and the active conduct of a trade or business in ‘‘(B) for which the poverty rate is not less the District of Columbia. A rule similar to ‘‘(d) LIMITATION ON AMOUNT OF CREDIT.— than 35 percent. the rule of section 1397C(a)(2) shall apply for ‘‘(1) IN GENERAL.—The amount of the DC ‘‘(c) DISTRICT OF COLUMBIA ENTERPRISE purposes of the preceding sentence. Zone investment credit determined under ZONE.—For purposes of this subchapter, the ‘‘(c) QUALIFIED EQUITY INVESTMENT CRED- this section with respect to any taxpayer for terms ‘District of Columbia Enterprise Zone’ IT.— any taxable year shall not exceed the credit and ‘DC Zone’ mean the District of Columbia ‘‘(1) IN GENERAL.—For purposes of this sec- amount allocated to such taxpayer for such Enterprise Zone designated by subsection tion, the qualified equity investment credit taxable year by the Economic Development (a). determined under this section for any tax- Corporation. ‘‘(d) SPECIAL RULE FOR APPLICATION OF EM- able year is an amount equal to the percent- ‘‘(2) OVERALL LIMITATION.—The aggregate PLOYMENT CREDIT.—In the case of the DC age specified by the Economic Development credit amount which may be allocated by the Zone, section 1396 (relating to empowerment Corporation (but not greater than 25 percent) Economic Development Corporation under zone employment credit) shall be applied by of the aggregate amount paid in cash by the this section shall not exceed $75,000,000. substituting ‘‘20’’ for ‘‘15’’ in the table con- taxpayer during the taxable year for the pur- ‘‘(3) CRITERIA FOR ALLOCATING CREDIT tained in section 1396(b). The preceding sen- chase of District business investments. AMOUNTS.—The allocation of credit amounts tence shall apply only with respect to quali- ‘‘(2) DISTRICT BUSINESS INVESTMENT.—For under this section shall be made in accord- fied zone employees, as defined in section purposes of this subsection, the term ‘Dis- ance with criteria established by the Eco- 1396(d), determined by treating no area other trict business investment’ means— nomic Development Corporation. In estab- than the DC Zone as an empowerment zone ‘‘(A) any District business stock, and lishing such criteria, such Corporation shall or enterprise community. ‘‘(B) any District partnership interest. take into account— ‘‘(e) TIME FOR WHICH DESIGNATION APPLICA- ‘‘(3) DISTRICT BUSINESS STOCK.—For pur- ‘‘(A) the degree to which the business re- BLE.— poses of this subsection— ceiving the loan or investment will provide H4724 CONGRESSIONAL RECORD — HOUSE June 26, 1997 job opportunities for low and moderate in- ‘‘(I) property which is substantially im- all of the period the taxpayer held such in- come residents of the DC Zone, and proved by the taxpayer before January 1, terest or stock, the amount of qualified cap- ‘‘(B) whether such business is within the 2003, and ital gain shall be determined without regard DC Zone. ‘‘(II) any land on which such property is lo- to— ‘‘(e) ECONOMIC DEVELOPMENT CORPORA- cated. ‘‘(1) any gain which is attributable to real TION.—For purposes of this section, the term ‘‘(ii) SUBSTANTIAL IMPROVEMENT.—For pur- property, or an intangible asset, which is not ‘Economic Development Corporation’ has poses of clause (i), property shall be treated an integral part of a DC Zone business, and the meaning given such term by section as substantially improved by the taxpayer ‘‘(2) any gain attributable to periods before 1400A(b). only if, during any 24-month period begin- January 1, 1998, or after December 31, 2007. ning after December 31, 1997, additions to ‘‘SEC. 1400D. CREDIT TO PROVIDE EQUIVALENT ‘‘(f) REGULATIONS.—The Secretary shall basis with respect to such property in the OF 10 PERCENT RATE BRACKET IN prescribe such regulations as may be appro- LIEU OF 15 PERCENT BRACKET. priate to carry out this section. hands of the taxpayer exceed the greater of— ‘‘(I) an amount equal to the adjusted basis ‘‘(a) IN GENERAL.—In the case of a DC Zone ‘‘(g) APPLICATION OF SECTION.—This section of such property at the beginning of such 24- individual, there shall be allowed as a credit shall apply to any credit amount allocated month period in the hands of the taxpayer, against the tax imposed by this chapter for for taxable years beginning after December or the taxable year an amount equal to 5 per- 31, 1997, and before January 1, 2003. ‘‘(II) $5,000. cent of so much of the taxpayer’s taxable in- come for the year as does not exceed the ‘‘SEC. 1400C. ZERO PERCENT CAPITAL GAINS ‘‘(6) TREATMENT OF SUBSEQUENT PUR- highest amount of such income which is sub- RATE. CHASERS, ETC.—The term ‘DC Zone asset’ in- ject to the 15 percent rate under section 1. ‘‘(a) EXCLUSION.—Gross income shall not cludes any property which would be a DC ‘‘(b) DC ZONE INDIVIDUAL.—For purposes of include qualified capital gain from the sale Zone asset but for paragraph (2)(A)(i), (3)(A), this section, the term ‘DC Zone individual’ or exchange of any DC Zone asset held for or (4)(A)(ii) in the hands of the taxpayer if means an individual who has a principal more than 5 years. such property was a DC Zone asset in the place of abode in the District of Columbia ‘‘(b) DC ZONE ASSET.—For purposes of this hands of a prior holder. Enterprise Zone for not less than 183 days of section— ‘‘(7) 5-YEAR SAFE HARBOR.—If any property the taxable year. ‘‘(1) IN GENERAL.—The term ‘DC Zone asset’ ceases to be a DC Zone asset by reason of ‘‘(c) CREDIT NOT TO APPLY TO ESTATE OR means— paragraph (2)(A)(iii), (3)(C), or (4)(A)(iii) after TRUST.—This section shall not apply to an ‘‘(A) any DC Zone business stock, the 5-year period beginning on the date the estate or trust. ‘‘(B) any DC Zone partnership interest, and taxpayer acquired such property, such prop- ‘‘(d) COORDINATION WITH OTHER CREDITS.— ‘‘(C) any DC Zone business property. erty shall continue to be treated as meeting For purposes of this chapter, the credit ‘‘(2) DC ZONE BUSINESS STOCK.— the requirements of such paragraph; except under this section shall be treated as a credit ‘‘(A) IN GENERAL.—The term ‘DC Zone busi- that the amount of gain to which subsection under subpart A of part IV of subchapter A. ness stock’ means any stock in a domestic (a) applies on any sale or exchange of such ‘‘(e) TERMINATION.—This section shall not corporation which is originally issued after property shall not exceed the amount which apply to any taxable year beginning after December 31, 1997, if— would be qualified capital gain had such December 31, 2007.’’. ‘‘(i) such stock is acquired by the taxpayer, property been sold on the date of such ces- (b) CREDITS MADE PART OF GENERAL BUSI- NESS CREDIT.— before January 1, 2003, at its original issue sation. (1) Subsection (b) of section 38 is amended (directly or through an underwriter) solely ‘‘(c) DC ZONE BUSINESS.—For purposes of by striking ‘‘plus’’ at the end of paragraph in exchange for cash, this section, the term ‘DC Zone business’ (11), by striking the period at the end of ‘‘(ii) as of the time such stock was issued, means any entity which is an enterprise zone paragraph (12) and inserting ‘‘, plus’’, and by such corporation was a DC Zone business (or, business (as defined in section 1397B), deter- mined by treating no area other than the DC adding at the end the following new para- in the case of a new corporation, such cor- Zone as an empowerment zone or enterprise graph: poration was being organized for purposes of community. ‘‘(13) the DC Zone investment credit deter- being a DC Zone business), and ‘‘(d) OTHER DEFINITIONS AND SPECIAL mined under section 1400B(a).’’. ‘‘(iii) during substantially all of the tax- RULES.—For purposes of this section— (2) Subsection (d) of section 39 is amended payer’s holding period for such stock, such ‘‘(1) QUALIFIED CAPITAL GAIN.—Except as by adding at the end the following new para- corporation qualified as a DC Zone business. otherwise provided in this subsection, the graph: ‘‘(B) REDEMPTIONS.—A rule similar to the term ‘qualified capital gain’ means any gain O CARRYBACK OF DC ZONE CREDITS BE- rule of section 1202(c)(3) shall apply for pur- ‘‘(8) N recognized on the sale or exchange of— FORE EFFECTIVE DATE.—No portion of the un- poses of this paragraph. ‘‘(A) a capital asset, or used business credit for any taxable year ‘‘(3) DC ZONE PARTNERSHIP INTEREST.—The ‘‘(B) property used in the trade or business which is attributable to the credit under sec- term ‘DC Zone partnership interest’ means (as defined in section 1231(b)). tion 1400B, or to the credits under subchapter any capital or profits interest in a domestic ‘‘(2) GAIN BEFORE 1998 OR AFTER 2007 NOT U by reason of section 1400, may be carried partnership which is originally issued after QUALIFIED.—The term ‘qualified capital gain’ back to a taxable year ending before the date December 31, 1997, if— shall not include any gain attributable to pe- of the enactment of sections 1400B and 1400.’’. ‘‘(A) such interest is acquired by the tax- riods before January 1, 1998, or after Decem- (3) Subsection (c) of section 196 is amended payer, before January 1, 2003, from the part- ber 31, 2007. by striking ‘‘and’’ at the end of paragraph nership solely in exchange for cash, ‘‘(3) CERTAIN GAIN ON REAL PROPERTY NOT (6), by striking the period at the end of para- ‘‘(B) as of the time such interest was ac- QUALIFIED.—The term ‘qualified capital gain’ graph (7) and inserting ‘‘, and’’, and by add- quired, such partnership was a DC Zone busi- shall not include any gain which would be ing at the end the following new paragraph: ness (or, in the case of a new partnership, treated as ordinary income under section ‘‘(8) the DC Zone investment credit deter- such partnership was being organized for 1250 if section 1250 applied to all depreciation mined under section 1400B(a).’’. purposes of being a DC Zone business), and rather than the additional depreciation. (c) CLERICAL AMENDMENT.—The table of ‘‘(C) during substantially all of the tax- ‘‘(4) INTANGIBLES AND LAND NOT INTEGRAL subchapters for chapter 1 is amended by add- payer’s holding period for such interest, such PART OF DC ZONE BUSINESS.—The term ‘quali- ing at the end the following new item: partnership qualified as a DC Zone business. fied capital gain’ shall not include any gain ‘‘Subchapter W. District of Columbia Enter- A rule similar to the rule of paragraph (2)(B) which is attributable to real property, or an prise Zone.’’. shall apply for purposes of this paragraph. intangible asset, which is not an integral ‘‘(4) DC ZONE BUSINESS PROPERTY.— part of a DC Zone business. (d) EFFECTIVE DATE.—This section shall ‘‘(A) IN GENERAL.—The term ‘DC Zone busi- ‘‘(5) RELATED PARTY TRANSACTIONS.—The take effect on the date of the enactment of ness property’ means tangible property if— term ‘qualified capital gain’ shall not in- this Act. ‘‘(i) such property was acquired by the tax- clude any gain attributable, directly or indi- SEC. 702. INCENTIVES CONDITIONED ON OTHER payer by purchase (as defined in section rectly, in whole or in part, to a transaction DC REFORM. 179(d)(2)) after December 31, 1997, and before with a related person. For purposes of this The amendments made by section 701 shall January 1, 2003, paragraph, persons are related to each other not take effect unless an entity known as ‘‘(ii) the original use of such property in if such persons are described in section 267(b) the Economic Development Corporation is the DC Zone commences with the taxpayer, or 707(b)(1). created by Federal law in 1997 as part of the and ‘‘(e) CERTAIN OTHER RULES TO APPLY.— District of Columbia government. ‘‘(iii) during substantially all of the tax- Rules similar to the rules of subsections (g), TITLE VIII—WELFARE-TO-WORK payer’s holding period for such property, (h), (i)(2), and (j) of section 1202 shall apply INCENTIVES substantially all of the use of such property for purposes of this section. SEC. 801. INCENTIVES FOR EMPLOYING LONG- was in a DC Zone business of the taxpayer. ‘‘(f) SALES AND EXCHANGES OF INTERESTS IN TERM FAMILY ASSISTANCE RECIPI- ‘‘(B) SPECIAL RULE FOR BUILDINGS WHICH PARTNERSHIPS AND S CORPORATIONS WHICH ENTS. ARE SUBSTANTIALLY IMPROVED.— ARE DC ZONE BUSINESSES.—In the case of the (a) IN GENERAL.—Subpart F of part IV of ‘‘(i) IN GENERAL.—The requirements of sale or exchange of an interest in a partner- subchapter A of chapter 1 is amended by in- clauses (i) and (ii) of subparagraph (A) shall ship, or of stock in an S corporation, which serting after section 51 the following new be treated as met with respect to— was a DC Zone business during substantially section: June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4725 ‘‘SEC. 51A. TEMPORARY INCENTIVES FOR EM- ning after the date of the enactment of this SEC. 903. UNIFORM RATE OF TAX ON VACCINES. PLOYING LONG-TERM FAMILY AS- section, and (a) IN GENERAL.—Subsection (b) of section SISTANCE RECIPIENTS. ‘‘(ii) as having a hiring date which is not 4131 is amended to read as follows: ‘‘(a) DETERMINATION OF AMOUNT.—For pur- more than 2 years after the end of the earli- ‘‘(b) AMOUNT OF TAX.— poses of section 38, the amount of the wel- est such 18-month period, or ‘‘(1) IN GENERAL.—The amount of the tax fare-to-work credit determined under this ‘‘(C)(i) as being a member of a family imposed by subsection (a) shall be 84 cents section for the taxable year shall be equal which ceased to be eligible after the date of per dose of any taxable vaccine. to— the enactment of this section for such assist- ‘‘(2) COMBINATIONS OF VACCINES.—If any ‘‘(1) 35 percent of the qualified first-year ance by reason of any limitation imposed by taxable vaccine is described in more than 1 wages for such year, and Federal or State law on the maximum period subparagraph of section 4132(a)(1), the ‘‘(2) 50 percent of the qualified second-year such assistance is payable to a family, and amount of the tax imposed by subsection (a) wages for such year. ‘‘(ii) as having a hiring date which is not on such vaccine shall be the sum of the ‘‘(b) QUALIFIED WAGES DEFINED.—For pur- more than 2 years after the date of such ces- amounts for the vaccines which are so in- poses of this section— sation. cluded.’’. ‘‘(1) IN GENERAL.—The term ‘qualified ‘‘(2) HIRING DATE.—The term ‘hiring date’ (b) TAXABLE VACCINES.—Paragraph (1) of wages’ means the wages paid or incurred by has the meaning given such term by section section 4132(a) is amended to read as follows: the employer during the taxable year to indi- 51(d). ‘‘(1) TAXABLE VACCINE.—The term ‘taxable viduals who are long-term family assistance ‘‘(d) CERTAIN RULES TO APPLY.— vaccine’ means any of the following vaccines recipients. ‘‘(1) IN GENERAL.—Rules similar to the which are manufactured or produced in the ‘‘(2) QUALIFIED FIRST-YEAR WAGES.—The rules of section 52, and subsections (d)(11), term ‘qualified first-year wages’ means, with United States or entered into the United (f), (g), (i) (as in effect on the day before the States for consumption, use, or warehousing: respect to any individual, qualified wages at- date of the enactment of the Taxpayer Reief tributable to service rendered during the 1- ‘‘(A) Any vaccine containing diphtheria Act of 1997), (j), and (k) of section 51, shall toxoid. year period beginning with the day the indi- apply for purposes of this section. vidual begins work for the employer. ‘‘(B) Any vaccine containing tetanus tox- ‘‘(2) CREDIT TO BE PART OF GENERAL BUSI- ‘‘(3) QUALIFIED SECOND-YEAR WAGES.—The oid. NESS CREDIT, ETC.—References to section 51 term ‘qualified second-year wages’ means, ‘‘(C) Any vaccine containing pertussis bac- in section 38(b), 280C(a), and 1396(c)(3) shall teria, extracted or partial cell bacteria, or with respect to any individual, qualified be treated as including references to this sec- wages attributable to service rendered dur- specific pertussis antigens. tion. ‘‘(D) Any vaccine against measles. ing the 1-year period beginning on the day ‘‘(e) COORDINATION WITH WORK OPPOR- after the last day of the 1-year period with ‘‘(E) Any vaccine against mumps. TUNITY CREDIT.—If a credit is allowed under ‘‘(F) Any vaccine against rubella. respect to such individual determined under this section to an employer with respect to ‘‘(G) Any vaccine containing polio virus. paragraph (2). an individual for any taxable year, then for ‘‘(H) Any HIB vaccine. ‘‘(4) ONLY FIRST $10,000 OF WAGES PER YEAR purposes of applying section 51 to such em- ‘‘(I) Any vaccine against hepatitis B. TAKEN INTO ACCOUNT.—The amount of the ployer, such individual shall not be treated ‘‘(J) Any vaccine against chicken pox.’’. qualified first-year wages, and the amount of as a member of a targeted group for such (c) CONFORMING AMENDMENT.—Subsection qualified second-year wages, which may be taxable year. (a) of section 4132 is amended by striking taken into account with respect to any indi- ‘‘(f) TERMINATION.—This section shall not vidual shall not exceed $10,000 per year. apply to individuals who begin work for the paragraphs (2), (3), and (4) and by redesignat- ‘‘(5) WAGES.— employer after April 30, 1999.’’. ing paragraphs (5) through (8) as paragraphs ‘‘(A) IN GENERAL.—The term ‘wages’ has (b) CLERICAL AMENDMENT.—The table of (2) through (5), respectively. the meaning given such term by section sections for subpart F of part IV of sub- (d) EFFECTIVE DATE.—The amendments 51(c), without regard to paragraph (4) there- chapter A of chapter 1 is amended by insert- made by this section shall take effect on Oc- of. ing after the item relating to section 51 the tober 1, 1997. ‘‘(B) CERTAIN AMOUNTS TREATED AS following new item: SEC. 904. OPERATORS OF MULTIPLE GASOLINE RETAIL OUTLETS TREATED AS WAGES.—The term ‘wages’ includes amounts ‘‘Sec. 51A. Temporary incentives for employ- WHOLESALE DISTRIBUTOR FOR RE- paid or incurred by the employer which are ing long-term family assistance FUND PURPOSES. excludable from such recipient’s gross in- recipients.’’. (a) IN GENERAL.—Subparagraph (B) of sec- come under— (c) EFFECTIVE DATE.—The amendments tion 6416(a)(4) (defining whole distributor) is ‘‘(i) section 105 (relating to amounts re- made by this section shall apply to individ- amended by adding at the end the following ceived under accident and health plans), uals who begin work for the employer after new sentence: ‘‘Such term includes any per- ‘‘(ii) section 106 (relating to contributions December 31, 1997. son who makes retail sales of gasoline at 10 by employer to accident and health plans), TITLE IX—MISCELLANEOUS PROVISIONS or more retail motor fuel outlets.’’. ‘‘(iii) section 127 (relating to educational (b) EFFECTIVE DATE.—The amendment assistance programs) or would be so exclud- Subtitle A—Provisions Relating to Excise Taxes made by subsection (a) shall take effect on able but for section 127(d), but only to the the date of the enactment of this Act. extent paid or incurred to a person not relat- SEC. 901. REPEAL OF TAX ON DIESEL FUEL USED IN RECREATIONAL BOATS. SEC. 905. EXEMPTION OF ELECTRIC AND OTHER ed to the employer, or CLEAN-FUEL MOTOR VEHICLES (a) IN GENERAL.—Subparagraph (B) of sec- ‘‘(iv) section 129 (relating to dependent FROM LUXURY AUTOMOBILE CLAS- care assistance programs). tion 6421(e)(2) (defining off-highway business SIFICATION. use) is amended by striking clauses (iii) and (a) IN GENERAL.—Subsection (a) of section The amount treated as wages by clause (i) or (iv). 4001 (relating to imposition of tax) is amend- (ii) for any period shall be based on the rea- (b) CONFORMING AMENDMENTS.— sonable cost of coverage for the period, but (1) Subparagraph (A) of section 4041(a)(1) is ed to read as follows: ‘‘(a) IMPOSITION OF TAX.— shall not exceed the applicable premium for amended— ‘‘(1) IN GENERAL.—There is hereby imposed the period under section 4980B(f)(4). (A) by striking ‘‘, a diesel-powered train, or on the 1st retail sale of any passenger vehi- ‘‘(C) SPECIAL RULES FOR AGRICULTURAL AND a diesel-powered boat’’ each place it appears cle a tax equal to 10 percent of the price for RAILWAY LABOR.—If such recipient is an em- and inserting ‘‘or a diesel-powered train’’, which so sold to the extent such price ex- ployee to whom subparagraph (A) or (B) of and ceeds the applicable amount. section 51(h)(1) applies, rules similar to the (B) by striking ‘‘vehicle, train, or boat’’ ‘‘(2) APPLICABLE AMOUNT.— rules of such subparagraphs shall apply ex- and inserting ‘‘vehicle or train’’. ‘‘(A) IN GENERAL.—Except as provided in cept that— (2) Paragraph (1) of section 4041(a) is subparagraphs (B) and (C), the applicable ‘‘(i) such subparagraph (A) shall be applied amended by striking subparagraph (D). amount is $30,000. by substituting ‘$10,000’ for ‘$6,000’, and (3) Paragraph (2) of section 9503(f) is ‘‘(B) QUALIFIED CLEAN-FUEL VEHICLE PROP- ‘‘(ii) such subparagraph (B) shall be applied amended by striking subparagraph (C) and ERTY.—In the case of a passenger vehicle by substituting ‘$833.33’ for ‘$500’. by redesignating subparagraphs (D) and (E) which is propelled by a fuel which is not a ‘‘(c) LONG-TERM FAMILY ASSISTANCE RE- as subparagraphs (C) and (D), respectively. CIPIENTS.—For purposes of this section— (c) EFFECTIVE DATE.—The amendments clean-burning fuel to which is installed ‘‘(1) IN GENERAL.—The term ‘long-term made by this section shall take effect on qualified clean-fuel vehicle property (as de- family assistance recipient’ means any indi- January 1, 1998. fined in section 179A(c)(1)(A)) for purposes of vidual who is certified by the designated SEC. 902. CONTINUED APPLICATION OF TAX ON permitting such vehicle to be propelled by a local agency (as defined in section IMPORTED RECYCLED HALON-1211. clean-burning fuel, the applicable amount is 51(d)(10))— (a) IN GENERAL.—Paragraph (1) of section equal to the sum of— ‘‘(A) as being a member of a family receiv- 4682(d) is amended by striking ‘‘recycled ‘‘(i) $30,000, plus ing assistance under a IV-A program (as de- halon’’ and inserting ‘‘recycled Halon-1301 or ‘‘(ii) the increase in the price for which the fined in section 51(d)(2)(B)) for at least the recycled Halon-2402’’. passenger vehicle was sold (within the mean- 18-month period ending on the hiring date. (b) EFFECTIVE DATE.—The amendment ing of section 4002) due to the installation of ‘‘(B)(i) as being a member of a family re- made by subsection (a) shall take effect on such property. ceiving such assistance for 18 months begin- the date of the enactment of this Act. ‘‘(C) PURPOSE BUILT PASSENGER VEHICLE.— H4726 CONGRESSIONAL RECORD — HOUSE June 26, 1997

‘‘(i) IN GENERAL.—In the case of a purpose governmental plan (within the meaning of lowed or made if claim therefore is filed be- built passenger vehicle, the applicable section 414(d)).’’. fore the date 1 year after such date of enact- amount is equal to 150 percent of $30,000. (3) MINIMUM PARTICIPATION STANDARDS.— ment. ‘‘(ii) PURPOSE BUILT PASSENGER VEHICLE.— Section 410(c)(2) (relating to application of SEC. 914. PORTABILITY OF PERMISSIVE SERVICE For purposes of clause (i), the term ‘purpose participation standards to certain plans) is CREDIT UNDER GOVERNMENTAL built passenger vehicle’ means a passenger amended to read as follows: PENSION PLANS. vehicle produced by an original equipment ‘‘(2) A plan described in paragraph (1) shall (a) IN GENERAL.—Section 415(b)(2) (relating manufacturer and designed so that the vehi- be treated as meeting the requirements of to the limitation for defined benefit plans) is cle may be propelled primarily by elec- this section for purposes of section 401(a), ex- amended by adding at the end the following tricity.’’. cept that in the case of a plan described in new subparagraph: (b) CONFORMING AMENDMENTS.— subparagraph (B), (C), or (D) of paragraph (1), ‘‘(J) PURCHASE OF PERMISSIVE SERVICE (1) Subsection (e) of section 4001 (relating this paragraph shall only apply if such plan CREDIT.— to inflation adjustment) is amended to read meets the requirements of section 401(a)(3) ‘‘(i) BENEFITS TREATED AS DERIVED FROM as follows: (as in effect on September 1, 1974).’’. EMPLOYER CONTRIBUTIONS.—For purposes of ‘‘(e) INFLATION ADJUSTMENT.— (b) PARTICIPATION STANDARDS FOR QUALI- this section, the term ‘annual benefit’ shall ‘‘(1) IN GENERAL.—The $30,000 amount in FIED CASH OR DEFERRED ARRANGEMENTS.— include the accrued benefit derived from con- subparagraphs (A), (B)(i), and (C)(i) of sub- Section 401(k)(3) (relating to application of tributions to a governmental plan (within section (a)(2) shall be increased by an participation and discrimination standards) the meaning of section 414(d)) to purchase amount equal to— is amended by adding at the end the follow- permissive service credit. ‘‘(A) $30,000, multiplied by ing: ‘‘(ii) DEFINITION OF PERMISSIVE SERVICE ‘‘(B) the cost-of-living adjustment under ‘‘(G)(i) The requirements of subparagraph CREDIT.—For purposes of this subparagraph, section 1(f)(3) for the calendar year in which (A)(i) and (C) shall not apply to a govern- the term ‘permissive service credit’ means the vehicle is sold, determined by substitut- mental plan (within the meaning of section credit— ing ‘calendar year 1990’ for ‘calendar year 414(d)). ‘‘(I) for a period of service recognized by a 1992’ in subparagraph (B) thereof. ‘‘(ii) The requirements of subsection (m)(2) governmental plan for purposes of calculat- ‘‘(2) ROUNDING.—If any amount as adjusted (without regard to subsection (a)(4)) shall ing an employee’s accrued benefit under such under paragraph (1) is not a multiple of apply to any matching contribution of a gov- plan, $2,000, such amount shall be rounded to the ernmental plan (as so defined).’’. ‘‘(II) which such employee has not received next lowest multiple of $2,000.’’. (c) NONDISCRIMINATION RULES FOR SECTION (or has forfeited), and (2) Subsection (f) of section 4001 (relating 403(b) PLANS.—Section 403(b)(12) (relating to ‘‘(III) which such employee may receive to phasedown) is amended by striking ‘‘sub- nondiscrimination requirements) is amended only by making a contribution, as deter- section (a)’’ and inserting ‘‘subsection by adding at the end the following: mined under the governmental plan, which (a)(1)’’. ‘‘(C) GOVERNMENTAL PLANS.—For purposes does not exceed the amount (actuarially de- (3) Subparagraph (B) of section 4003(a)(2) is of paragraph (1)(D), the requirements of sub- termined under the terms of such govern- amended to read as follows: paragraph (A)(i) shall not apply to a govern- mental plan) necessary to fund the accrued ‘‘(B) the appropriate applicable amount as mental plan (within the meaning of section benefit attributable to such period of serv- determined under section 4001(a)(2).’’. 414(d)).’’. ice. (c) EFFECTIVE DATE.—The amendments (d) EFFECTIVE DATE.— ‘‘(iii) NO EFFECT ON EMPLOYER ‘PICK-UP’ made by this section shall apply to sales and (1) IN GENERAL.—The amendments made by CONTRIBUTIONS.—Nothing in this subpara- installations occurring on or after the date this section apply to taxable years beginning graph shall be construed as preventing the of the enactment of this Act. on or after the date of enactment of this Act. application of section 414(h) to contributions (2) TREATMENT FOR YEARS BEGINNING BE- Subtitle B—Provisions Relating to Pensions to purchase permissive service credit.’’. FORE DATE OF ENACTMENT.—A governmental and Fringe Benefits (b) CONFORMING AMENDMENT.—Section plan (within the meaning of section 414(d) of 415(c)(2) is amended by adding at the end the SEC. 911. SECTION 401(K) PLANS FOR CERTAIN IR- the Internal Revenue Code of 1986) shall be following new sentence: ‘‘The term ‘annual RIGATION AND DRAINAGE ENTITIES. treated as satisfying the requirements of sec- (a) IN GENERAL.—Subparagraph (B) of sec- addition’ shall not include contributions to tions 401(a)(3), 401(a)(4), 401(a)(26), 401(k), purchase permissive service credit (within tion 401(k)(7) (relating to rural cooperative 401(m), 403 (b)(1)(D) and (b)(12), and 410 of plan) is amended— the meaning of subsection (b)(2)(J)).’’. such Code for all taxable years beginning be- (c) EFFECTIVE DATE.—The amendments (1) by striking ‘‘and’’ at the end of clause fore the date of enactment of this Act. (iii), by redesignating clause (iv) as clause made by this section shall apply to years be- SEC. 913. TREATMENT OF CERTAIN DISABILITY ginning after December 31, 1997. (v), and by inserting after clause (iii) the fol- BENEFITS RECEIVED BY FORMER lowing new clause: POLICE OFFICERS OR FIRE- SEC. 915. GRATUITOUS TRANSFERS FOR THE ‘‘(iv) any organization which— FIGHTERS. BENEFIT OF EMPLOYEES. ‘‘(I) is a mutual irrigation or ditch com- (a) GENERAL RULE.—For purposes of deter- (a) IN GENERAL.—Subparagraph (C) of sec- pany described in section 501(c)(12) (without mining whether any amount to which this tion 664(d)(1) and subparagraph (C) of section regard to the 85 percent requirement there- section applies is excludable from gross in- 664(d)(2) are each amended by striking the of), or come under section 104(a)(1) of the Internal period at the end thereof and inserting ‘‘or, ‘‘(II) is a district organized under the laws Revenue Code of 1986, the following condi- to the extent the remainder interest is in of a State as a municipal corporation for the tions shall be treated as personal injuries or qualified employer securities (as defined in purpose of irrigation, water conservation, or sickness in the course of employment: paragraph (3)(C)), is to be transferred to an drainage, and’’, and (1) Heart disease. employee stock ownership plan (as defined in (2) in clause (v), as so redesignated, by (2) Hypertension. section 4975(e)(7)) in a qualified gratuitous striking ‘‘or (iii)’’ and inserting ‘‘, (iii), or (b) AMOUNTS TO WHICH SECTION APPLIES.— transfer (as defined by subsection (g)).’’. (iv)’’. This section shall apply to any amount— (b) QUALIFIED GRATUITOUS TRANSFER DE- (b) EFFECTIVE DATE.—The amendments (1) which is payable— FINED.—Section 664 is amended by adding at made by subsection (a) shall apply to years (A) to an individual (or to the survivors of the end the following new subsection: beginning after December 31, 1997. an individual) who was a full-time employee ‘‘(g) QUALIFIED GRATUITOUS TRANSFER OF SEC. 912. EXTENSION OF MORATORIUM ON AP- of any police department or fire department QUALIFIED EMPLOYER SECURITIES.— PLICATION OF CERTAIN NON- which is organized and operated by a State, ‘‘(1) IN GENERAL.—For purposes of this sec- DISCRIMINATION RULES TO STATE by any political subdivision thereof, or by tion, the term ‘qualified gratuitous transfer’ AND LOCAL GOVERNMENTS. any agency or instrumentality of a State or means a transfer of qualified employer secu- (a) GENERAL NONDISCRIMINATION AND PAR- political subdivision thereof, and rities to an employee stock ownership plan TICIPATION RULES.— (B) under a State law (as amended on May (as defined in section 4975(e)(7)) but only to (1) NONDISCRIMINATION REQUIREMENTS.— 19, 1992) which irrebuttably presumed that the extent that— Section 401(a)(5) (relating to qualified pen- heart disease and hypertension are work-re- ‘‘(A) the securities transferred previously sion, profit-sharing, and stock bonus plans) lated illnesses but only for employees sepa- passed from a decedent dying before January is amended by adding at the end the follow- rating from service before July 1, 1992; and 1, 1999, to a trust described in paragraph (1) ing: (2) which was received in calendar year or (2) of subsection (d), ‘‘(G) GOVERNMENTAL PLANS.—Paragraphs 1989, 1990, or 1991. ‘‘(B) no deduction under section 404 is al- (3) and (4) shall not apply to a governmental (c) WAIVER OF STATUTE OF LIMITATIONS.— lowable with respect to such transfer, plan (within the meaning of section 414(d)).’’. If, on the date of the enactment of this Act ‘‘(C) such plan contains the provisions re- (2) ADDITIONAL PARTICIPATION REQUIRE- (or at any time within the 1-year period be- quired by paragraph (3), MENTS.—Section 401(a)(26)(H) (relating to ad- ginning on such date of enactment) credit or ‘‘(D) such plan treats such securities as ditional participation requirements) is refund of any overpayment of tax resulting being attributable to employer contributions amended to read as follows: from the provisions of this section is barred but without regard to the limitations other- ‘‘(H) EXCEPTION FOR GOVERNMENTAL by any law or rule of law, credit or refund of wise applicable to such contributions under PLANS.—This paragraph shall not apply to a such overpayment shall, nevertheless, be al- section 404, and June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4727 ‘‘(E) the employer whose employees are person or shareholder the amount so allo- (iii) by inserting after paragraph (4) the covered by the plan described in this para- cated. following new paragraph: graph files with the Secretary a verified ‘‘(B) 5-PERCENT SHAREHOLDER.—For pur- ‘‘(5) to an employee stock ownership plan if written statement consenting to the applica- poses of subparagraph (A), the term ‘5-per- such transfer qualifies as a qualified gratu- tion of sections 4978 and 4979A with respect cent shareholder’ means any person who itous transfer of qualified employer securi- to such employer. owns (directly or through the application of ties within the meaning of section 664(g).’’. ‘‘(2) EXCEPTION.—The term ‘qualified gra- section 318(a)) more than 5 percent of the (8) Paragraph (8) of section 2056(b) is tuitous transfer’ shall not include a transfer outstanding stock of the corporation which amended to read as follows: of qualified employer securities to an em- issued such qualified employer securities or ‘‘(8) SPECIAL RULE FOR CHARITABLE REMAIN- ployee stock ownership plan unless— of any corporation which is a member of the DER TRUSTS.— ‘‘(A) such plan was in existence on August same controlled group of corporations (with- ‘‘(A) IN GENERAL.—If the surviving spouse 1, 1996, in the meaning of section 409(l)(4)) as such of the decedent is the only beneficiary of a ‘‘(B) at the time of the transfer, the dece- corporation. For purposes of the preceding qualified charitable remainder trust who is dent and members of the decedent’s family sentence, section 318(a) shall be applied with- not a charitable beneficiary nor an ESOP (within the meaning of section 267(c)(4)) own out regard to the exception in paragraph beneficiary, paragraph (1) shall not apply to (directly or through the application of sec- (2)(B)(i) thereof. any interest in such trust which passes or tion 318(a)) no more than 10 percent of the ‘‘(C) CROSS REFERENCE.— has passed from the decedent to such surviv- value of the stock of the corporation referred ‘‘For excise tax on allocations described in ing spouse. to in paragraph (4), and subparagraph (A), see section 4979A. ‘‘(B) DEFINITIONS.—For purposes of sub- ‘‘(C) immediately after the transfer, such paragraph (A)— ‘‘(6) TAX ON FAILURE TO TRANSFER plan owns (after the application of section ‘‘(i) CHARITABLE BENEFICIARY.—The term 318(a)(4)) at least 60 percent of the value of UNALLOCATED SECURITIES TO CHARITY ON TER- ‘charitable beneficiary’ means any bene- the outstanding stock of the corporation. MINATION OF PLAN.—If the requirements of ficiary which is an organization described in ‘‘(3) PLAN REQUIREMENTS.—A plan contains paragraph (3)(F) are not met with respect to section 170(c). the provisions required by this paragraph if any securities, there is hereby imposed a tax ‘‘(ii) ESOP BENEFICIARY.—The term ‘ESOP such plan provides that— on the employer maintaining the plan in an beneficiary’ means any beneficiary which is ‘‘(A) the qualified employer securities so amount equal to the sum of— an employee stock ownership plan (as de- transferred are allocated to plan participants ‘‘(A) the amount of the increase in the tax fined in section 4975(e)(7)) that holds a re- in a manner consistent with section 401(a)(4), which would be imposed by chapter 11 if such mainder interest in qualified employer secu- ‘‘(B) plan participants are entitled to di- securities were not transferred as described rities (as defined in section 664(g)(4)) to be rect the plan as to the manner in which such in paragraph (1), and transferred to such plan in a qualified gratu- securities which are entitled to vote and are ‘‘(B) interest on such amount at the under- itous transfer (as defined in section 664(g)(1)). allocated to the account of such participant payment rate under section 6621 (and ‘‘(iii) QUALIFIED CHARITABLE REMAINDER are to be voted, compounded daily) from the due date for fil- TRUST.—The term ‘qualified charitable re- ‘‘(C) an independent trustee votes the secu- ing the return of the tax imposed by chapter mainder trust’ means a charitable remainder rities so transferred which are not allocated 11.’’. annuity trust or a charitable remainder to plan participants, (c) CONFORMING AMENDMENTS.— unitrust (described in section 664).’’. ‘‘(D) each participant who is entitled to a (1) Section 401(a)(1) is amended by insert- (9) Section 4947(b) is amended by inserting distribution from the plan has the rights de- ing ‘‘or by a charitable remainder trust pur- after paragraph (3) the following new para- scribed in subparagraphs (A) and (B) of sec- suant to a qualified gratuitous transfer (as graph: tion 409(h)(1), defined in section 664(g)(1)),’’ after ‘‘stock ‘‘(4) SECTION 507.—The provisions of section ‘‘(E) such securities are held in a suspense bonus plans),’’. 507(a) shall not apply to a trust which is de- account under the plan to be allocated each (2) Section 404(a)(9) is amended by insert- scribed in subsection (a)(2) by reason of a dis- year, up to the limitations under section ing after subparagraph (B) the following new tribution of qualified employer securities (as 415(c), after first allocating all other annual subparagraph: defined in section 664(g)(4)) to an employee additions for the limitation year, up to the ‘‘(C) A qualified gratuitous transfer (as de- stock ownership plan (as defined in section limitations under sections 415 (c) and (e), and fined in section 664(g)(1)) shall have no effect 4975(e)(7)) in a qualified gratuitous transfer ‘‘(F) on termination of the plan, all securi- on the amount or amounts otherwise deduct- (as defined by section 664(g)).’’. ties so transferred which are not allocated to ible under paragraph (3) or (7) or under this (10) The last sentence of section 4975(e)(7) plan participants as of such termination are paragraph.’’. is amended by inserting ‘‘and section 664(g)’’ to be transferred to, or for the use of, an or- (3) Section 415(c)(6) is amended by adding after ‘‘section 409(n)’’ ganization described in section 170(c). at the end thereof the following new sen- (11) Subsection (a) of section 4978 is amend- For purposes of the preceding sentence, the tence: ed— term ‘independent trustee’ means any trust- ‘‘The amount of any qualified gratuitous (A) by inserting ‘‘or acquired any qualified ee who is not a member of the family (within transfer (as defined in section 664(g)(1)) allo- employer securities in a qualified gratuitous the meaning of section 267(c)(4)) of the dece- cated to a participant for any limitation transfer to which section 664(g) applied’’ dent or a 5-percent shareholder. A plan shall year shall not exceed the limitations im- after ‘‘section 1042 applied’’, and not fail to be treated as meeting the require- posed by this section, but such amount shall (B) by inserting before the period at the ments of section 401(a) by reason of meeting not be taken into account in determining end of subparagraph (B) ‘‘60 percent of the the requirements of this subsection. whether any other amount exceeds the limi- total value of all employer securities as of ‘‘(4) QUALIFIED EMPLOYER SECURITIES.—For tations imposed by this section.’’. such disposition in the case of any qualified purposes of this section, the term ‘qualified (4) Section 415(e) is amended— employer securities in a qualified gratuitous employer securities’ means employer securi- (A) by redesignating paragraph (6) as para- transfer to which section 664(g) applied)’’. ties (as defined in section 409(l)) which are is- graph (7), and (12) Paragraph (2) of section 4978(b) is sued by a domestic corporation— (B) by inserting after paragraph (5) the fol- amended— ‘‘(A) which has no outstanding stock which lowing new paragraph: (A) by inserting ‘‘or acquired in the quali- is readily tradable on an established securi- ‘‘(6) SPECIAL RULE FOR QUALIFIED GRATU- fied gratuitous transfer to which section ties market, and ITOUS TRANSFERS.—Any qualified gratuitous 664(g) applied’’ after ‘‘section 1042 applied’’, ‘‘(B) which has only 1 class of stock. transfer of qualified employer securities (as and ‘‘(5) TREATMENT OF SECURITIES ALLOCATED defined by section 664(g)) shall not be taken (B) by inserting ‘‘or to which section 664(g) BY EMPLOYEE STOCK OWNERSHIP PLAN TO PER- into account in calculating, and shall not be applied’’ after ‘‘section 1042 applied’’ in sub- SONS RELATED TO DECEDENT OR 5-PERCENT subject to, the limitations provided in this paragraph (C) thereof. SHAREHOLDERS.— subsection.’’. (13) Subsection (c) of section 4978 is amend- ‘‘(A) IN GENERAL.—If any portion of the as- (5) Subparagraph (B) of section 664(d)(1) ed by striking ‘‘written statement’’ and all sets of the plan attributable to securities ac- and subparagraph (B) of section 664(d)(2) are that follows and inserting ‘‘written state- quired by the plan in a qualified gratuitous each amended by inserting ‘‘and other than ment described in section 664(g)(1)(E) or in transfer are allocated to the account of— qualified gratuitous transfers described in section 1042(b)(3) (as the case may be).’’. ‘‘(i) any person who is related to the dece- subparagraph (C)’’ after ‘‘subparagraph (A)’’. (14) Paragraph (2) of section 4978(e) is dent (within the meaning of section 267(b)), (6) Paragraph (4) of section 674(b) is amend- amended by striking the period and inserting or ed by inserting before the period ‘‘or to an ‘‘; except that such section shall be applied ‘‘(ii) any person who, at the time of such employee stock ownership plan (as defined in without regard to subparagraph (B) thereof allocation or at any time during the 1-year section 4975(e)(7)) in a qualified gratuitous for purposes of applying this section and sec- period ending on the date of the acquisition transfer (as defined in section 664(g)(1))’’. tion 4979A with respect to securities acquired of qualified employer securities by the plan, (7) Section 2055(a) is amended— in a qualified gratuitous transfer (as defined is a 5-percent shareholder of the employer (i) by striking ‘‘or’’ at the end of paragraph in section 664(g)(1)).’’. maintaining the plan, (3), (15) Subsection (a) of section 4979A is the plan shall be treated as having distrib- (ii) by striking the period at the end of amended to read as follows: uted (at the time of such allocation) to such paragraph (4) and inserting ‘‘; or’’, and ‘‘(a) IMPOSITION OF TAX.—If— H4728 CONGRESSIONAL RECORD — HOUSE June 26, 1997

‘‘(1) there is a prohibited allocation of (b) APPLICABLE LIMIT.—Paragraph (11) of fined by section 1033(h)(3)), the Secretary qualified securities by any employee stock section 411(a) is amended by adding at the may prescribe regulations under which a pe- ownership plan or eligible worker-owned co- end the following new subparagraph: riod of up to 90 days may be disregarded in operative, or ‘‘(D) APPLICABLE LIMIT.— determining, under the internal revenue ‘‘(2) there is an allocation described in sec- ‘‘(i) IN GENERAL.—For purposes of subpara- laws, in respect of any tax liability (includ- tion 664(g)(5)(A), graph (A), the applicable limit is $5,000. ing any penalty, additional amount, or addi- there is hereby imposed a tax on such alloca- ‘‘(ii) INFLATION ADJUSTMENT.—In the case tion to the tax) of such taxpayer— tion equal to 50 percent of the amount in- of plan years beginning in a calendar year ‘‘(1) whether any of the acts by the tax- volved.’’. after 1998, the dollar amount contained in payer described in paragraph (1) of section (16) Subsection (c) of section 4979A is clause (i) shall be increased by an amount 7508(a) were performed within the time pre- amended to read as follows: equal to— scribed therefor, and ‘‘(c) LIABILITY FOR TAX.—The tax imposed ‘‘(I) such dollar amount, multiplied by ‘‘(2) the amount of any credit or refund. by this section shall be paid by— ‘‘(II) the cost-of-living adjustment deter- ‘‘(b) INTEREST ON OVERPAYMENTS AND UN- ‘‘(1) the employer sponsoring such plan, or mined under section 1(f)(3) for such calendar DERPAYMENTS.—Subsection (a) shall not ‘‘(2) the eligible worker-owned cooperative, year by substituting ‘calendar year 1997’ for apply for the purpose of determining interest which made the written statement described ‘calendar year 1992’ in subparagraph (B) on any overpayment or underpayment.’’. in section 664(g)(1)(E) or in section thereof. (b) CLERICAL AMENDMENT.—The table of 1042(b)(3)(B) (as the case may be).’’. If any amount as adjusted under the preced- sections for chapter 77 is amended by insert- (17) Section 4979A is amended by redesig- ing sentence is not a multiple of $50, such ing after the item relating to section 7508 the nating subsection (d) as subsection (e) and by amount shall be rounded to the next lowest following new item: inserting after subsection (c) the following multiple of $50.’’. ‘‘Sec. 7508A. Authority to postpone certain new subsection: (c) CONFORMING AMENDMENTS.— tax-related deadlines by reason ‘‘(d) SPECIAL STATUTE OF LIMITATIONS FOR (1) Section 411(a)(7)(B), paragraphs (1) and of presidentially declared disas- TAX ATTRIBUTABLE TO CERTAIN ALLOCA- (2) of section 417(e), and section 457(e)(9) are ter.’’. TIONS.—The statutory period for the assess- each amended by striking ‘‘$3,500’’ each place (c) EFFECTIVE DATE.—The amendments ment of any tax imposed by this section on in appears (other than the headings) and in- an allocation described in subsection (a)(2) of made by this section shall apply with respect serting ‘‘the applicable limit under section to any period for performing an act that has qualified employer securities shall not expire 411(a)(11)(D)’’. before the date which is 3 years from the not expired before the date of the enactment (2) The headings for paragraphs (1) and (2) of this Act. later of— of section 417(e) and subparagraph (A) of sec- ‘‘(1) the 1st allocation of such securities in tion 457(e)(9) are each amended by striking SEC. 922. USE OF CERTAIN APPRAISALS TO ES- TABLISH AMOUNT OF DISASTER connection with a qualified gratuitous trans- ‘‘$3,500’’ and inserting ‘‘APPLICABLE LIMIT’’. fer (as defined in section 664(g)(1)), or LOSS. (d) EFFECTIVE DATE.—The amendments (a) IN GENERAL.—Subsection (i) of section ‘‘(2) the date on which the Secretary is no- made by this section shall apply to plan tified of the allocation described in sub- 165 is amended by adding at the end the fol- years beginning after the date of the enact- lowing new paragraph: section (a)(2).’’. ment of this Act. (d) EFFECTIVE DATE.—The amendments ‘‘(4) USE OF DISASTER LOAN APPRAISALS TO SEC. 918. CLARIFICATION OF CERTAIN RULES RE- ESTABLISH AMOUNT OF LOSS.—Nothing in this made by this section shall apply to transfers LATING TO EMPLOYEE STOCK OWN- made by trusts to, or for the use of, an em- title shall be construed to prohibit the Sec- ERSHIP PLANS OF S CORPORATIONS. retary from prescribing regulations or other ployee stock ownership plan after the date of (a) CERTAIN CASH DISTRIBUTIONS PER- the enactment of this Act. guidance under which an appraisal for the MITTED.— purpose of obtaining a loan of Federal funds SEC. 916. TREATMENT OF CERTAIN TRANSPOR- (1) Paragraph (2) of section 409(h) is amend- TATION ON NON-COMMERCIALLY or a loan guarantee from the Federal Gov- ed by adding at the end the following new ernment as a result of a Presidentially de- OPERATED AIRCRAFT AS A FRINGE subparagraph: BENEFIT EXCLUDABLE FROM GROSS clared disaster (as defined by section INCOME. ‘‘(B) PLAN MAINTAINED BY S CORPORATION.— 1033(h)(3)) may be used to establish the (a) IN GENERAL.—Subsection (b) of section In the case of a plan established and main- amount of any loss described in paragraph (1) 132 (relating to no-additional-cost service de- tained by an S corporation which otherwise or (2).’’. fined) is amended to read as follows: meets the requirements of this subsection or (b) EFFECTIVE DATE.—The amendment ‘‘(b) NO-ADDITIONAL-COST SERVICE DE- section 4975(e)(7), such plan shall not be made by subsection (a) shall take effect on FINED.—For purposes of this section, the treated as failing to meet the requirements the date of the enactment of this Act. of this subsection or section 401(a) merely term ‘no-additional-cost service’ means any SEC. 923. TREATMENT OF LIVESTOCK SOLD ON service provided by an employer to an em- because it does not permit a participant to ACCOUNT OF WEATHER-RELATED ployee for use by such employee if— exercise the right described in paragraph CONDITIONS. ‘‘(1) such service— (1)(A) if such plan provides that the partici- (a) DEFERRAL OF INCOME INCLUSION.—Sub- ‘‘(A) is offered for sale to customers in the pant entitled to a distribution has a right to section (e) of section 451 (relating to special ordinary course of the line of business of the receive the distribution in cash.’’. rules for proceeds from livestock sold on ac- employer in which the employee is perform- (2) Paragraph (2) of section 409(h) is amend- count of drought) is amended— ing services, or ed— (1) by striking ‘‘drought conditions, and ‘‘(B) consists of transportation on an air- (A) by striking ‘‘a plan which’’ in the first that these drought conditions’’ in paragraph craft, if— sentence and inserting the following: (1) and inserting ‘‘drought, flood, or other ‘‘(i) transportation on such aircraft is not ‘‘(A) IN GENERAL.—A plan which’’, and weather-related conditions, and that such offered for sale to customers, (B) by moving the text before subpara- conditions’’; and ‘‘(ii) such transportation for use by such graph (B) 2 ems to the right. (2) by inserting ‘‘, FLOOD, OR OTHER WEATH- employee is provided on a flight made in the (b) SHAREHOLDER-EMPLOYEES NOT TREATED ER-RELATED CONDITIONS’’ after ‘‘DROUGHT’’ in ordinary course of the trade or business of an AS OWNER-EMPLOYEES UNDER TAX ON PROHIB- the subsection heading. employer which owns or leases such aircraft ITED TRANSACTIONS.—The last sentence of (b) INVOLUNTARY CONVERSIONS.—Subsection for use in such trade or business, and section 4975(d) is amended by striking all (e) of section 1033 (relating to livestock sold ‘‘(iii) the flight on which the transpor- that follows ‘‘preceding sentence,’’ through on account of drought) is amended— tation is provided would have been made ‘‘Revision Act of 1982,’’. (1) by inserting ‘‘, flood, or other weather- whether or not such employee was trans- (c) EFFECTIVE DATE.—The amendments related conditions’’ before the period at the ported on the flight, and made by this section shall apply to taxable end thereof; and ‘‘(2) the employer incurs no substantial ad- years beginning after December 31, 1997. (2) by inserting ‘‘, FLOOD, OR OTHER WEATH- ditional cost (including forgone revenue) in Subtitle C—Revisions Relating to Disasters ER-RELATED CONDITIONS’’ after ‘‘DROUGHT’’ in providing such service to the employee (de- SEC. 921. AUTHORITY TO POSTPONE CERTAIN the subsection heading. termined without regard to any amount paid TAX-RELATED DEADLINES BY REA- (c) EFFECTIVE DATE.—The amendments by the employee for such service).’’. SON OF PRESIDENTIALLY DE- made by this section shall apply to sales and (b) EFFECTIVE DATE.—The amendment CLARED DISASTER. exchanges after December 31, 1996. made by subsection (a) shall apply to serv- (a) IN GENERAL.—Chapter 77 is amended by SEC. 924. MORTGAGE FINANCING FOR RESI- ices provided after December 31, 1997. inserting after section 7508 the following new DENCES LOCATED IN DISASTER SEC. 917. MINIMUM PENSION ACCRUED BENEFIT section: AREAS. DISTRIBUTABLE WITHOUT CONSENT ‘‘SEC. 7508A. AUTHORITY TO POSTPONE CERTAIN Subsection (k) of section 143 (relating to INCREASED TO $5,000. TAX-RELATED DEADLINES BY REA- mortgage revenue bonds; qualified mortgage (a) IN GENERAL.—Subparagraph (A) of sec- SON OF PRESIDENTIALLY DE- bond and qualified veteran’s mortgage bond) tion 411(a)(11) (relating to restrictions on CLARED DISASTER. is amended by adding at the end the follow- certain mandatory distributions) is amended ‘‘(a) IN GENERAL.—In the case of a taxpayer ing new paragraph: by striking ‘‘$3,500’’ and inserting ‘‘the appli- determined by the Secretary to be affected ‘‘(11) SPECIAL RULES FOR RESIDENCES LO- cable limit’’. by a Presidentially declared disaster (as de- CATED IN DISASTER AREAS.—In the case of a June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4729 residence located in an area determined by ‘‘(B) does not depend to any extent on ‘‘(2) the service provider— the President to warrant assistance from the length of service or overall earnings from ‘‘(A) is not required to perform service ex- Federal Government under the Disaster Re- services performed for such company.’’. clusively for the service recipient, and lief and Emergency Assistance Act (as in ef- (b) SOCIAL SECURITY ACT.—Section 211 of ‘‘(B) in the year involved, or in the preced- fect on the date of the enactment of the Tax- the Social Security Act is amended by add- ing or subsequent year— payer Relief Act of 1997), this section shall be ing at the end the following new subsection: ‘‘(i) has performed a significant amount of applied with the following modifications to ‘‘Codification of Treatment of Certain Ter- service for other persons, financing provided with respect to such resi- mination Payments Received by Former ‘‘(ii) has offered to perform service for dence within 1 year after the date of the dis- Insurance Salesmen other persons through— aster declaration: ‘‘(j) Nothing in subsection (a) shall be con- ‘‘(I) advertising, ‘‘(A) Subsection (d) (relating to 3-year re- strued as including in the net earnings from ‘‘(II) individual written or oral solicita- quirement) shall not apply. self-employment of an individual any tions, ‘‘(B) Subsections (e) and (f) (relating to amount received during the taxable year ‘‘(III) listing with registries, agencies, bro- purchase price requirement and income re- from an insurance company on account of kers, and other persons in the business of quirement) shall be applied as if such resi- services performed by such individual as an providing referrals to other service recipi- dence were a targeted area residence. insurance salesman for such company if— ents, or The preceding sentence shall apply only with ‘‘(1) such amount is received after termi- ‘‘(IV) other similar activities, or respect to bonds issued after December 31, nation of such individual’s agreement to per- ‘‘(iii) provides service under a business 1996, and before January 1, 2000.’’. form such services for such company, name which is registered with (or for which Subtitle D—Provisions Relating to ‘‘(2) such individual performs no services a license has been obtained from) a State, a Employment Taxes for such company after such termination and political subdivision of a State, or any agen- before the close of such taxable year, cy or instrumentality of 1 or more States or SEC. 931. CLARIFICATION OF EMPLOYMENT TAX political subdivisions. STATUS OF INDIVIDUALS DISTRIB- ‘‘(3) such individual enters into a covenant UTING BAKERY PRODUCTS. not to compete against such company which ‘‘(d) WRITTEN DOCUMENT REQUIREMENTS.— For purposes of subsection (a), the require- (a) INTERNAL REVENUE CODE.—Subpara- applies to at least the 1-year period begin- graph (A) of section 3121(d)(3) is amended by ning on the date of such termination, and ments of this subsection are met if the serv- striking ‘‘bakery products,’’. ‘‘(4) the amount of such payment— ices performed by the individual are per- ‘‘(A) depends solely on policies sold by such formed pursuant to a written contract be- (b) SOCIAL SECURITY ACT.—Subparagraph (A) of section 210(j)(3) of the Social Security individual during the last year of such agree- tween such individual and the person for Act is amended by striking ‘‘bakery prod- ment and the extent to which such policies whom the services are performed, or the ucts,’’. remain in force for some period after such payor, and such contract provides that the termination, and individual will not be treated as an employee (c) EFFECTIVE DATE.—The amendments made by this section shall apply to services ‘‘(B) does not depend to any extent on with respect to such services for purposes of performed after December 31, 1997. length of service or overall earnings from this subtitle or subtitle A. services performed for such company.’’. ‘‘(e) SPECIAL RULES.—For purposes of this SEC. 932. CLARIFICATION OF STANDARD TO BE (c) EFFECTIVE DATE.—The amendments section— USED IN DETERMINING EMPLOY- made by this section shall apply to payments MENT TAX STATUS OF SECURITIES ‘‘(1) If for any taxable year any service re- BROKERS. after December 31, 1997. cipient or payor fails to meet the applicable SEC. 934. STANDARDS FOR DETERMINING (a) IN GENERAL.—In determining for pur- reporting requirements of sections 6041(a), WHETHER INDIVIDUALS ARE NOT poses of the Internal Revenue Code of 1986 6041A(a), or 6051 with respect to a service EMPLOYEES. provider, then, unless such failure is due to whether a registered representative of a se- (a) IN GENERAL.—Chapter 25 (general provi- curities broker-dealer is an employee (as de- reasonable cause and not willful neglect, this sions relating to employment taxes) is section shall not apply in determining fined in section 3121(d) of the Internal Reve- amended by adding after section 3510 the fol- nue Code of 1986), no weight shall be given to whether such service provider shall not be lowing new section: treated as an employee of such service recip- instructions from the service recipient which ‘‘SEC. 3511. STANDARDS FOR DETERMINING are imposed only in compliance with inves- ient or payor for such year. WHETHER INDIVIDUALS ARE NOT ‘‘(2) If the service provider is performing tor protection standards imposed by the Fed- EMPLOYEES. services through an entity owned in whole or eral Government, any State government, or ‘‘(a) GENERAL RULE.—For purposes of this a governing body pursuant to a delegation by title, and notwithstanding any provision of in part by such service provider, then the a Federal or State agency. this title to the contrary, if the require- references to ‘service provider’ in sub- (b) EFFECTIVE DATE.—Subsection (a) shall ments of subsections (b), (c), and (d) are met sections (b) through (d) may include such en- apply to services performed after December with respect to any service performed by any tity, provided that the written contract re- 31, 1997. individual, then with respect to such serv- ferred to in paragraph (1) of subsection (d) may be with either the service provider or SEC. 933. CLARIFICATION OF EXEMPTION FROM ice— SELF-EMPLOYMENT TAX FOR CER- ‘‘(1) the service provider shall not be treat- such entity and need not be with both. TAIN TERMINATION PAYMENTS RE- ed as an employee, ‘‘(f) DEFINITIONS.—For the purposes of this CEIVED BY FORMER INSURANCE ‘‘(2) the service recipient shall not be section— SALESMEN. treated as an employer, and ‘‘(1) SERVICE PROVIDER.—The term ‘service (a) INTERNAL REVENUE CODE.—Section 1402 ‘‘(3) the payor shall not be treated as an provider’ means any individual who performs (relating to definitions) is amended by add- employer. service for another person. ing at the end the following new subsection: ‘‘(b) SERVICE PROVIDER REQUIREMENTS ‘‘(2) SERVICE RECIPIENT.—Except as pro- ‘‘(k) CODIFICATION OF TREATMENT OF CER- WITH REGARD TO SERVICE RECIPIENT.—For vided in paragraph (5), the term ‘service re- TAIN TERMINATION PAYMENTS RECEIVED BY the purposes of subsection (a), the require- cipient’ means the person for whom the serv- FORMER INSURANCE SALESMEN.—Nothing in ments of this subsection are met if the serv- ice provider performs such service. subsection (a) shall be construed as including ice provider, in connection with performing ‘‘(3) PAYOR.—Except as provided in para- in the net earnings from self-employment of the service— graph (5), the term ‘payor’ means the person an individual any amount received during ‘‘(1) has a significant investment in assets who pays the service provider for the per- the taxable year from an insurance company and/or training, formance of such service in the event that on account of services performed by such in- ‘‘(2) incurs significant unreimbursed ex- the service recipients do not pay the service dividual as an insurance salesman for such penses, provider. company if— ‘‘(3) agrees to perform the service for a par- ‘‘(4) IN CONNECTION WITH PERFORMING THE ‘‘(1) such amount is received after termi- ticular amount of time or to complete a spe- SERVICE.—The term ‘in connection with per- nation of such individual’s agreement to per- cific result and is liable for damages for forming the service’ means in connection or form such services for such company, early termination without cause, related to— ‘‘(2) such individual performs no services ‘‘(4) is paid primarily on a commissioned ‘‘(A) the actual service performed by the for such company after such termination and basis, or service provider for the service recipients or before the close of such taxable year, ‘‘(5) purchases products for resale. for other persons for whom the service pro- ‘‘(3) such individual enters into a covenant ‘‘(c) ADDITIONAL SERVICE PROVIDER RE- vider has performed similar service, or not to compete against such company which QUIREMENTS WITH REGARD TO OTHERS.—For ‘‘(B) the operation of the service provider’s applies to at least the 1-year period begin- the purposes of subsection (a), the require- trade or business. ning on the date of such termination, and ments of this subsection are met if— ‘‘(5) EXCEPTIONS.—The terms ‘service recip- ‘‘(4) the amount of such payment— ‘‘(1) the service provider— ient’ and ‘payor’ do not include any entity ‘‘(A) depends solely on policies sold by such ‘‘(A) has a principal place of business, which is owned in whole or in part by the individual during the last year of such agree- ‘‘(B) does not primarily provide the service service provider.’’. ment and the extent to which such policies in the service recipient’s place of business, or (b) CLERICAL AMENDMENT.—The table of remain in force for some period after such ‘‘(C) pays a fair market rent for use of the sections for chapter 25 is amended by adding termination, and service recipient’s place of business; or at the end the following new item: H4730 CONGRESSIONAL RECORD — HOUSE June 26, 1997

‘‘Sec. 3511. Standards for determining wheth- (1) by inserting ‘‘, or as compensation ‘‘(A) IMPOSITION OF TAX.—There is hereby er individuals are not employ- under any workmen’s compensation act,’’ imposed for each taxable year on the income ees.’’. after ‘‘(whether by suit or agreement)’’ in of every electing publicly traded partnership (c) EFFECTIVE DATE.—The amendments the material preceding paragraph (1), a tax equal to 15 percent of the gross income made by this section shall apply to services (2) by inserting ‘‘or the workmen’s com- for such taxable year from the active con- performed after December 31, 1997. pensation claim,’’ after ‘‘agreement,’’ in duct of trades and businesses by the partner- paragraph (1), and ship. Subtitle E—Provisions Relating to Small (3) by striking ‘‘section 104(a)(2)’’ in para- ‘‘(B) ELECTING PUBLICLY TRADED PARTNER- Businesses graph (2)(D) and inserting ‘‘paragraph (1) or SHIP.—For purposes of this paragraph, the SEC. 941. WAIVER OF PENALTY THROUGH 1998 ON (2) of section 104(a)’’. term ‘electing publicly traded partnership’ SMALL BUSINESSES FAILING TO (b) EFFECTIVE DATE.—The amendments means any partnership for which the consent MAKE ELECTRONIC FUND TRANS- FERS OF TAXES. made by subsection (a) shall apply to claims under paragraph (1) is in effect. No penalty shall be imposed under the In- under workmen’s compensation acts filed ‘‘(C) ADJUSTMENTS IN THE CASE OF TIERED ternal Revenue Code of 1986 solely by reason after the date of the enactment of this Act. PARTNERSHIPS.—For purposes of this para- of a failure by a person to use the electronic SEC. 953. TAX-EXEMPT STATUS FOR CERTAIN graph, if the income of the partnership in- fund transfer system established under sec- STATE WORKER’S COMPENSATION cludes its distributive share of income from tion 6302(h) of such Code if— ACT COMPANIES. another partnership for any taxable year, (1) such person is a member of a class of (a) IN GENERAL.—Section 501(c)(27) (relat- the gross income referred to in subparagraph taxpayers first required to use such system ing to membership organizations under (A) shall include the gross income of such on or after July 1, 1997, and workmen’s compensation acts) is amended other partnership from the active conduct of (2) such failure occurs before January 1, by adding at the end the following: trades and businesses of such other partner- 1999. ‘‘(B) Any organization (including a mutual ship (in lieu of such distributive share). A insurance company) if— similar rule shall apply in the case of lower- SEC. 942. CLARIFICATION OF TREATMENT OF HOME OFFICE USE FOR ADMINIS- ‘‘(i) such organization is created by State tiered partnerships. TRATIVE AND MANAGEMENT ACTIVI- law and is organized and operated under ‘‘(D) TREATMENT OF TAX.—For purposes of TIES. State law exclusively to— this title, the tax imposed by this paragraph (a) IN GENERAL.—Paragraph (1) of section ‘‘(I) provide workmen’s compensation in- shall be treated as imposed by chapter 1 280A(c) is amended by adding at the end the surance which is required by State law or other than for purposes of determining the following new sentence: ‘‘For purposes of with respect to which State law provides sig- amount of any credit allowable under chap- subparagraph (A), the term ‘principal place nificant disincentives if such insurance is ter 1. of business’ includes a place of business not purchased by an employer, and ‘‘(4) ELECTION.—An election and consent which is used by the taxpayer for the admin- ‘‘(II) provide related coverage which is in- under this subsection shall apply to the tax- istrative or management activities of any cidental to workmen’s compensation insur- able year for which made and all subsequent trade or business of the taxpayer if there is ance, taxable years unless revoked by the partner- no other fixed location of such trade or busi- ‘‘(ii) such organization must provide work- ship. Such revocation may be made without ness where the taxpayer conducts substan- men’s compensation insurance to any em- the consent of the Secretary, but, once so re- tial administrative or management activi- ployer in the State (for employees in the voked, may not be reinstated.’’. ties of such trade or business.’’. State or temporarily assigned out-of-State) (b) EFFECTIVE DATE.—The amendment (b) EFFECTIVE DATE.—The amendment which seeks such insurance and meets other made by this section shall apply to taxable made by subsection (a) shall apply to taxable reasonable requirements relating thereto, years beginning after December 31, 1997. years beginning after December 31, 1997. ‘‘(iii)(I) the State makes a financial com- SEC. 955. EXCLUSION FROM UNRELATED BUSI- Subtitle F—Other Provisions mitment with respect to such organization NESS TAXABLE INCOME FOR CER- TAIN SPONSORSHIP PAYMENTS. SEC. 951. USE OF ESTIMATES OF SHRINKAGE FOR either by extending the full faith and credit (a) IN GENERAL.—Section 513 (relating to INVENTORY ACCOUNTING. of the State to debt of such organization or unrelated trade or business income) is (a) IN GENERAL.—Section 471 (relating to by providing the initial operating capital of amended by adding at the end the following general rule for inventories) is amended by such organization and (II) in the case of peri- new subsection: redesignating subsection (b) as subsection (c) ods after the date of enactment of this sub- ‘‘(i) TREATMENT OF CERTAIN SPONSORSHIP paragraph, the assets of such organization and by inserting after subsection (a) the fol- PAYMENTS.— revert to the State upon dissolution, and lowing new subsection: ‘‘(1) IN GENERAL.—The term ‘unrelated ‘‘(b) ESTIMATES OF INVENTORY SHRINKAGE ‘‘(iv) the majority of the board of directors trade or business’ does not include the activ- PERMITTED.—A method of determining in- or oversight body of such organization are ity of soliciting and receiving qualified spon- ventories shall not be deemed not to clearly appointed by the chief executive officer or sorship payments. reflect income solely because it utilizes esti- other executive branch official of the State, ‘‘(2) QUALIFIED SPONSORSHIP PAYMENTS.— mates of inventory shrinkage that are con- by the State legislature, or by both.’’. For purposes of this subsection— firmed by a physical count only after the (b) CONFORMING AMENDMENTS.—Section ‘‘(A) IN GENERAL.—The term ‘qualified last day of the taxable year if— 501(c)(27) of such Code is amended by insert- sponsorship payment’ means any payment ‘‘(1) the taxpayer normally does a physical ing ‘‘(A)’’ after ‘‘(27)’’, by redesignating sub- made by any person engaged in a trade or count of inventories at each location on a paragraphs (A), (B), and (C) as clauses (i), business with respect to which there is no ar- regular and consistent basis, and (ii), and (iii), respectively, and by redesignat- rangement or expectation that such person ‘‘(2) the taxpayer makes proper adjust- ing clauses (i) and (ii) of subparagraphs (B) will receive any substantial return benefit ments to such inventories and to its estimat- and (C) (before redesignation) as subclauses other than the use or acknowledgement of ing methods to the extent such estimates are (I) and (II), respectively. the name or logo (or product lines) of such greater than or less than the actual shrink- (c) EFFECTIVE DATE.—The amendments person’s trade or business in connection with age.’’. made by this section shall apply to taxable the activities of the organization that re- (b) EFFECTIVE DATE.— years beginning after December 31, 1997. ceives such payment. Such a use or acknowl- (1) IN GENERAL.—The amendment made by SEC. 954. ELECTION TO CONTINUE EXCEPTION edgement does not include advertising such this section shall apply to taxable years end- FROM TREATMENT OF PUBLICLY person’s products or services (including mes- ing after the date of the enactment of this TRADED PARTNERSHIPS AS COR- sages containing qualitative or comparative Act. PORATIONS. (a) IN GENERAL.—Section 7704 is amended language, price information or other indica- (2) COORDINATION WITH SECTION 481.—In the tions of savings or value, an endorsement, or case of any taxpayer permitted by this sec- by adding at the end thereof the following an inducement to purchase, sell, or use such tion to change its method of accounting to a new subsection: ‘‘(g) EXCEPTION FOR EXISTING PUBLICLY products or services). permissible method for any taxable year— TRADED PARTNERSHIPS.— ‘‘(B) LIMITATIONS.— (A) such changes shall be treated as initi- ‘‘(1) IN GENERAL.—Subsection (a) shall not ‘‘(i) CONTINGENT PAYMENTS.—The term ated by the taxpayer, apply to an existing publicly traded partner- ‘qualified sponsorship payment’ does not in- (B) such changes shall be treated as made ship which elects the application of this sub- clude any payment if the amount of such with the consent of the Secretary, and section and consents to the application of payment is contingent upon the level of at- (C) the period for taking into account the the tax imposed by paragraph (3). tendance at one or more events, broadcast adjustments under section 481 by reason of ‘‘(2) EXISTING PUBLICLY TRADED PARTNER- ratings, or other factors indicating the de- such change shall be 4 years. SHIP.—For purposes of this section, the term gree of public exposure to one or more SEC. 952. ASSIGNMENT OF WORKMEN’S COM- PENSATION LIABILITY ELIGIBLE ‘existing publicly traded partnership’ means events. FOR EXCLUSION RELATING TO PER- any publicly traded partnership to which ‘‘(ii) ACKNOWLEDGEMENTS OR ADVERTISING SONAL INJURY LIABILITY ASSIGN- subsection (a) does not apply as of the date IN PERIODICALS.—The term ‘qualified spon- MENTS. of the enactment of this paragraph (other sorship payment’ does not include any pay- (a) IN GENERAL.—Subsection (c) of section than by reason of subsection (c)(1)). ment which entitles the payor to an ac- 130 (relating to certain personal injury liabil- ‘‘(3) ADDITIONAL TAX ON ELECTING PUBLICLY knowledgement or advertising in regularly ity assignments) is amended— TRADED PARTNERSHIPS.— scheduled and printed material published by June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4731

or on behalf of the payee organization that is SEC. 958. NONRECOGNITION OF GAIN ON SALE OF (b) EFFECTIVE DATE.—The amendment not related to and primarily distributed in STOCK TO CERTAIN FARMERS’ CO- made by subsection (a) shall apply to sales connection with a specific event conducted OPERATIVES. and exchanges after the date of the enact- by the payee organization. (a) IN GENERAL.—Section 1042 (relating to ment of this Act. sales of stock to employee stock ownership ‘‘(3) ALLOCATION OF PORTIONS OF SINGLE SEC. 960. INCREASED DEDUCTIBILITY OF BUSI- plans or certain cooperatives) is amended by PAYMENT.—For purposes of this subsection, NESS MEAL EXPENSES FOR INDIVID- to the extent that a portion of a payment adding at the end the following new sub- UALS SUBJECT TO FEDERAL HOURS would (if made as a separate payment) be a section: OF SERVICE. ‘‘(g) APPLICATION OF SECTION TO SALES OF qualified sponsorship payment, such portion (a) IN GENERAL.—Section 274(n) (relating to STOCK IN AGRICULTURAL REFINERS AND PROC- of such payment and the other portion of only 50 percent of meal and entertainment ESSORS TO ELIGIBLE FARM COOPERATIVES.— such payment shall be treated as separate expenses allowed as deduction) is amended ‘‘(1) IN GENERAL.—This section shall apply payments.’’. by adding at the end the following new para- to the sale of stock of a qualified refiner or graph: (b) EFFECTIVE DATE.—The amendment processor to an eligible farmers’ cooperative. ‘‘(3) SPECIAL RULE FOR INDIVIDUALS SUBJECT made by this section shall apply to payments ‘‘(2) QUALIFIED REFINER OR PROCESSOR.—For TO FEDERAL HOURS OF SERVICE.— solicited or received after December 31, 1997. purposes of this subsection, the term ‘quali- ‘‘(A) IN GENERAL.—In the case of any ex- SEC. 956. ASSOCIATIONS OF HOLDERS OF fied refiner or processor’ means a domestic penses for food or beverages consumed while TIMESHARE INTERESTS TO BE corporation— away from home (within the meaning of sec- TAXED LIKE OTHER HOMEOWNERS ‘‘(A) substantially all of the activities of tion 162(a)(2)) by an individual during, or in- ASSOCIATIONS. which consist of the active conduct of the cident to, the period of duty subject to the (a) TIMESHARE ASSOCIATIONS INCLUDED AS trade or business of refining or processing hours of service limitations of the Depart- HOMEOWNER ASSOCIATIONS.— agricultural or horticultural products, and ment of Transportation, paragraph (1) shall (1) IN GENERAL.—Paragraph (1) of section ‘‘(B) which purchases more than one-half of be applied by substituting ‘the applicable 528(c) (defining homeowners association) is such products to be refined or processed percentage’ for ‘50 percent’. amended— from— ‘‘(B) APPLICABLE PERCENTAGE.—For pur- (A) by striking ‘‘or a residential real estate ‘‘(i) farmers who make up the eligible poses of this paragraph, the term ‘applicable management association’’ and inserting ‘‘, a farmers’ cooperative which is purchasing percentage’ means the percentage deter- residential real estate management associa- stock in the corporation in a transaction to mined under the following table: tion, or a timeshare association’’ in the ma- which this subsection is to apply, and ‘‘(ii) such cooperative. ‘‘For taxable years The applicable terial preceding subparagraph (A), beginning ‘‘(3) ELIGIBLE FARMERS’ COOPERATIVE.—For (B) by striking ‘‘or’’ at the end of clause (i) in calendar year— percentage is— purposes of this section, the term ‘eligible of subparagraph (B), by striking the period 1998 or 1999 ...... 55 farmers’ cooperative’ means an organization at the end of clause (ii) of subparagraph (B) 2000 or 2001 ...... 60 to which part I of subchapter T applies which and inserting ‘‘, or’’, and by adding at the 2002 or 2003 ...... 65 is engaged in the marketing of agricultural end of subparagraph (B) the following new 2004 or 2005 ...... 70 clause: or horticultural products. 2006 or 2007 ...... 75 ‘‘(iii) owners of timeshare rights to use, or ‘‘(4) SPECIAL RULES.—In applying this sec- 2008 or thereafter ...... 80.’’. tion to a sale to which paragraph (1) ap- timeshare ownership interests in, associa- (b) EFFECTIVE DATE.—The amendment tion property in the case of a timeshare asso- plies— ‘‘(A) the eligible farmers’ cooperative shall made by subsection (a) shall apply to taxable ciation,’’, and years beginning after December 31, 1997. (C) by inserting ‘‘and, in the case of a be treated in the same manner as a coopera- SEC. 961. QUALIFIED LESSEE CONSTRUCTION AL- timeshare association, for activities pro- tive described in subsection (b)(1)(B), ‘‘(B) subsection (b)(2) shall be applied by LOWANCES FOR SHORT-TERM vided to or on behalf of members of the asso- LEASES. substituting ‘100 percent’ for ‘30 percent’ ciation’’ before the comma at the end of sub- (a) IN GENERAL.—Part III of subchapter B paragraph (C). each place it appears, ‘‘(C) the determination as to whether any of chapter 1 is amended by inserting after (2) TIMESHARE ASSOCIATION DEFINED.—Sub- section 109 the following new section: section (c) of section 528 is amended by re- stock in the domestic corporation is a quali- ‘‘SEC. 110. QUALIFIED LESSEE CONSTRUCTION designating paragraph (4) as paragraph (5) fied security shall be made without regard to whether the stock is an employer security or ALLOWANCES FOR SHORT-TERM and by inserting after paragraph (3) the fol- LEASES. to subsection (c)(1)(A), and lowing new paragraph: ‘‘(a) IN GENERAL.—Gross income of a lessee ‘‘(D) paragraphs (2)(D) and (7) of subsection ‘‘(4) TIMESHARE ASSOCIATION.—The term does not include any amount received in (c) shall not apply.’’. ‘timeshare association’ means any organiza- cash (or treated as a rent reduction) by a les- tion (other than a condominium manage- (b) EFFECTIVE DATE.—The amendment made by this section shall apply to sales see from a lessor— ment association) meeting the requirement ‘‘(1) under a short-term lease of retail of subparagraph (A) of paragraph (1) if any after December 31, 1997. SEC. 959. EXCEPTION FROM REPORTING OF REAL space, and member thereof holds a timeshare right to ‘‘(2) for the purpose of such lessee’s con- use, or a timeshare ownership interest in, ESTATE TRANSACTIONS FOR SALES AND EXCHANGES OF CERTAIN PRIN- structing or improving qualified long-term real property constituting association prop- CIPAL RESIDENCES. real property for use in such lessee’s trade or erty.’’. (a) IN GENERAL.—Subsection (e) of section business at such retail space, (b) EXEMPT FUNCTION INCOME.—Paragraph 6045 (relating to return required in the case but only to the extent that such amount (3) of section 528(d) is amended by striking of real estate transactions) is amended by does not exceed the amount expended by the ‘‘or’’ at the end of subparagraph (A), by adding at the end the following new para- lessee for such construction or improvement. striking the period at the end of subpara- graph: ‘‘(b) CONSISTENT TREATMENT BY LESSOR.— graph (B) and inserting ‘‘, or’’, and by adding ‘‘(5) EXCEPTION FOR SALES OR EXCHANGES OF Qualified long-term real property con- at the end the following new subparagraph: CERTAIN PRINCIPAL RESIDENCES.— structed or improved in connection with any ‘‘(C) owners of timeshare rights to use, or ‘‘(A) IN GENERAL.—Paragraph (1) shall not amount excluded from a lessee’s income by timeshare ownership interests in, real prop- apply to any sale or exchange of a residence reason of subsection (a) shall be treated as erty in the case of a timeshare association.’’. for $250,000 or less if the person referred to in nonresidential real property by the lessor. (c) RATE OF TAX.—Subsection (b) of section paragraph (2)(A) receives written assurance ‘‘(c) DEFINITIONS.—For purposes of this sec- 528 (relating to certain homeowners associa- in a form acceptable to the Secretary from tion— tions) is amended by inserting before the pe- the seller that— ‘‘(1) QUALIFIED LONG-TERM REAL PROP- riod ‘‘(32 percent of such income in the case ‘‘(i) such residence is the principal resi- ERTY.—The term ‘qualified long-term real of a timeshare association)’’. dence (within the meaning of section 121) of property’ means nonresidential real property the seller, (d) EFFECTIVE DATE.—The amendments which is part of, or otherwise present at, the ‘‘(ii) there is no federally subsidized mort- retail space referred to in subsection (a) and made by this section shall apply to taxable gage financing assistance with respect to the years beginning after December 31, 1996. which reverts to the lessor at the termi- mortgage on such residence, and nation of the lease. SEC. 957. ADDITIONAL ADVANCE REFUNDING OF ‘‘(iii) the seller meets the requirements of ‘‘(2) SHORT-TERM LEASE.—The term ‘short- CERTAIN VIRGIN ISLAND BONDS. section 121(a) with respect to such sale or ex- term lease’ means a lease (or other agree- Subclause (I) of section 149(d)(3)(A)(i) of change. ment for occupancy or use) of retail space for the Internal Revenue Code of 1986 shall not If such assurance includes an assurance that 15 years or less (as determined under the apply to the second advance refunding of any the seller is married, the preceding sentence rules of section 168(i)(3)). issue of the Virgin Islands which was first shall be applied by substituting ‘$500,000’ for ‘‘(3) RETAIL SPACE.—The term ‘retail space’ advance refunded before June 9, 1997, if the ‘$250,000’. means real property leased, occupied, or oth- debt provisions of the refunding bonds are ‘‘(B) SELLER.—For purposes of this para- erwise used by a lessee in its trade or busi- changed to repeal the priority first lien re- graph, the term ‘seller’ includes the person ness of selling tangible personal property or quirement of the refunded bonds. relinquishing the residence in an exchange.’’. services to the general public. H4732 CONGRESSIONAL RECORD — HOUSE June 26, 1997

‘‘(d) INFORMATION REQUIRED TO BE FUR- as subsections (f) through (j), respectively, ‘‘(I) a judgment rendered by a court of NISHED TO SECRETARY.—Under regulations, and by inserting after subsection (d) the fol- competent jurisdiction which has deter- the lessee and lessor described in subsection lowing new subsection: mined an amount of State tax to be due, or (a) shall, at such times and in such manner ‘‘(e) COLLECTION OF PAST-DUE, LEGALLY EN- ‘‘(II) a determination after an administra- as may be provided in such regulations, fur- FORCEABLE STATE TAX OBLIGATIONS.— tive hearing which has determined an nish to the Secretary— ‘‘(1) IN GENERAL.—Upon receiving notice amount of State tax to be due, and ‘‘(1) information concerning the amounts from any State that a named person owes a ‘‘(ii) which is no longer subject to judicial received (or treated as a rent reduction) and past-due, legally enforceable State tax obli- review, or expended as described in subsection (a), and gation to such State, the Secretary shall, ‘‘(B) which resulted from a State tax which ‘‘(2) any other information which the Sec- under such conditions as may be prescribed has been assessed but not collected, the time retary deems necessary to carry out the pro- by the Secretary— for redetermination of which has expired, visions of this section.’’. ‘‘(A) reduce the amount of any overpay- and which has not been delinquent for more (b) TREATMENT AS INFORMATION RETURN.— ment payable to such person by the amount than 10 years. of such State tax obligation; Subparagraph (A) of section 6724(d)(1)(A) is For purposes of this paragraph, the term ‘‘(B) pay the amount by which such over- amended by striking ‘‘or’’ at the end of ‘State tax’ includes any local tax adminis- payment is reduced under subparagraph (A) clause (vii), by adding ‘‘or’’ at the end of tered by the chief tax administration agency to such State and notify such State of such clause (viii), and by adding at the end the of the State. person’s name, taxpayer identification num- following new clause: ‘‘(6) REGULATIONS.—The Secretary shall ber, address, and the amount collected; and ‘‘(ix) section 110(d) (relating to qualified issue regulations prescribing the time and ‘‘(C) notify the person making such over- lessee construction allowances for short- manner in which States must submit notices payment that the overpayment has been re- term leases),’’. of past-due, legally enforceable State tax ob- duced by an amount necessary to satisfy a (c) CROSS REFERENCE.—Paragraph (8) of ligations and the necessary information that past-due, legally enforceable State tax obli- section 168(i) (relating to treatment of lease- must be contained in or accompany such no- gation. hold improvements) is amended by adding at tices. The regulations shall specify the types the end the following new subparagraph: If an offset is made pursuant to a joint re- of State taxes and the minimum amount of ‘‘(C) CROSS REFERENCE.— turn, the notice under subparagraph (B) shall debt to which the reduction procedure estab- ‘‘For treatment of qualified long-term real include the names, taxpayer identification lished by paragraph (1) may be applied. The property constructed or improved in connec- numbers, and addresses of each person filing regulations may require States to pay a fee tion with cash or rent reduction from lessor such return. to reimburse the Secretary for the cost of to lessee, see section 110(b).’’. ‘‘(2) OFFSET PERMITTED ONLY AGAINST RESI- applying such procedure. Any fee paid to the DENTS OF STATE SEEKING OFFSET.—Paragraph (d) CLERICAL AMENDMENT.—The table of Secretary pursuant to the preceding sen- (1) shall apply to an overpayment by any sections for part III of subchapter B of chap- tence shall be used to reimburse appropria- person for a taxable year only if the address ter 1 is amended by inserting after the item tions which bore all or part of the cost of ap- shown on the return for such taxable year is relating to section 109 the following new plying such procedure. an address within the State seeking the off- item: ‘‘(7) ERRONEOUS PAYMENT TO STATE.—Any set. State receiving notice from the Secretary ‘‘Sec. 110. Qualified lessee construction al- ‘‘(3) PRIORITIES FOR OFFSET.—Any overpay- that an erroneous payment has been made to lowances for short-term ment by a person shall be reduced pursuant such State under paragraph (1) shall pay leases.’’. to this subsection— promptly to the Secretary, in accordance (e) EFFECTIVE DATE.—The amendments ‘‘(A) after such overpayment is reduced with such regulations as the Secretary may made by this section shall apply to leases en- pursuant to— prescribe, an amount equal to the amount of tered into after the date of the enactment of ‘‘(i) subsection (a) with respect to any li- such erroneous payment (without regard to this Act. ability for any internal revenue tax on the whether any other amounts payable to such part of the person who made the overpay- SEC. 962. TAX TREATMENT OF CONSOLIDATIONS State under such paragraph have been paid OF LIFE INSURANCE DEPARTMENTS ment, to such State).’’. OF MUTUAL SAVINGS BANKS. ‘‘(ii) subsection (c) with respect to past-due (b) DISCLOSURE OF CERTAIN INFORMATION TO (a) GENERAL RULE.—Section 594 (relating support, and STATES REQUESTING REFUND OFFSETS FOR to alternative tax for mutual savings banks ‘‘(iii) subsection (d) with respect to any PAST-DUE, LEGALLY ENFORCEABLE STATE TAX conducting life insurance business) is amend- past-due, legally enforceable debt owed to a OBLIGATIONS.— ed by adding at the end thereof the following Federal agency, and (1) Paragraph (10) of section 6103(l) is new subsection: ‘‘(B) before such overpayment is credited amended by striking ‘‘(c) or (d)’’ each place ‘‘(c) TREATMENT OF CONSOLIDATIONS.—If 2 to the future liability for any Federal inter- it appears and inserting ‘‘(c), (d), or (e)’’. or more life insurance departments to which nal revenue tax of such person pursuant to (2) The paragraph heading for such para- subsection (a) applied are consolidated into a subsection (b). graph (10) is amended by striking ‘‘SECTION single life insurance company pursuant to a If the Secretary receives notice from 1 or 6402(c) OR 6402(d)’’ and inserting ‘‘SUBSECTION requirement of State law— more agencies of the State of more than 1 (c), (d), OR (e) OF SECTION 6402’’. ‘‘(1) such consolidation shall be treated as debt subject to paragraph (1) that is owed by (c) CONFORMING AMENDMENTS.— a reorganization described in section such person to such an agency, any overpay- (1) Subsection (a) of section 6402 is amend- 368(a)(1)(E), and ment by such person shall be applied against ed by striking ‘‘(c) and (d)’’ and inserting ‘‘(2) any payments required to be made to such debts in the order in which such debts ‘‘(c), (d), and (e)’’. policyholders in connection with such con- accrued. (2) Paragraph (2) of section 6402(d) is solidation shall be treated as policyholder ‘‘(4) NOTICE; CONSIDERATION OF EVIDENCE.— amended by striking ‘‘and before such over- dividends deductible under section 808 but No State may take action under this sub- payment’’ and inserting ‘‘and before such only if— section until such State— overpayment is reduced pursuant to sub- ‘‘(A) such payments are only with respect ‘‘(A) notifies the person owing the past-due section (e) and before such overpayment’’. to policies in effect immediately before such State tax liability that the State proposes to (3) Subsection (f) of section 6402, as redesig- consolidation, take action pursuant to this section, nated by subsection (a), is amended— ‘‘(B) such payments are only with respect ‘‘(B) gives such person at least 60 days to (A) by striking ‘‘(c) or (d)’’ and inserting to policies which are participating before present evidence that all or part of such li- ‘‘(c), (d), or (e)’’, and and after such consolidation, ability is not past-due or not legally enforce- (B) by striking ‘‘Federal agency’’ and in- ‘‘(C) such payments shall cease with re- able, serting ‘‘Federal agency or State’’. spect to any policy if such policy lapses after ‘‘(C) considers any evidence presented by (4) Subsection (h) of section 6402, as redes- such consolidation, such person and determines that an amount ignated by subsection (a), is amended by ‘‘(D) the policyholders before such consoli- of such debt is past-due and legally enforce- striking ‘‘subsection (c)’’ and inserting ‘‘sub- dation had no divisible right to the surplus able, and section (c) or (e)’’. of any such department and had no right to ‘‘(D) satisfies such other conditions as the (d) AMENDMENTS APPLIED AFTER TECHNICAL vote, and Secretary may prescribe to ensure that the CORRECTIONS TO PERSONAL RESPONSIBILITY ‘‘(E) the approval of such policyholders was determination made under subparagraph (C) AND WORK OPPORTUNITY RECONCILIATION ACT not required for such consolidation.’’. is valid and that the State has made reason- OF 1996.— (b) EFFECTIVE DATE.—The amendment able efforts to obtain payment of such State (1) Section 110(l) of the Personal Respon- made by subsection (a) shall take effect on tax obligation. sibility and Work Opportunity Reconcili- December 31, 1991. ‘‘(5) PAST-DUE, LEGALLY ENFORCEABLE ation Act of 1996 is amended by striking SEC. 963. OFFSET OF PAST-DUE, LEGALLY EN- STATE TAX OBLIGATION.—For purposes of this paragraphs (4), (5), and (7) (and the amend- FORCEABLE STATE TAX OBLIGA- subsection, the term ‘past-due, legally en- ments made by such paragraphs), and the In- TIONS AGAINST OVERPAYMENTS. forceable State tax obligation’ means a ternal Revenue Code of 1986 shall be applied (a) IN GENERAL.—Section 6402 is amended debt— as if such paragraphs (and amendments) had by redesignating subsections (e) through (i) ‘‘(A)(i) which resulted from— never been enacted. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4733

(2) For purposes of applying the amend- ‘‘(c) LAW ENFORCEMENT OFFICER.—For pur- ‘‘(B) tugs of 365 kilowatts or more. ments made by this section other than this poses of this section, the term ‘law enforce- A vessel shall be considered ‘self-propelled subsection, the provisions of this subsection ment officer’ means an individual serving a seagoing’ if its permanent propulsion and shall be treated as having been enacted im- public agency (as defined in section 1204 of steering provide it all the characteristics of mediately before the other provisions of this the Omnibus Crime Control and Safe Streets self-navigability in the high seas. section. Act of 1968) in an official capacity, with or ‘‘(2) As used in this subsection— (e) EFFECTIVE DATE.—The amendments without compensation, as a law enforcement ‘‘(A) the term ‘Shipbuilding Agreement made by this section (other than subsection officer (as defined in such section).’’. Party’ means a state or separate customs (d)) shall apply to refunds payable under sec- (b) CLERICAL AMENDMENT.—The table of territory that is a signatory to the Ship- tion 6402 of the Internal Revenue Code of 1986 sections for part III of subchapter B of chap- building Agreement; and after December 31, 1998. ter 1 is amended by striking the last item ‘‘(B) the term ‘Shipbuilding Agreement’ SEC. 964. EXEMPTION OF THE INCREMENTAL and inserting the following new items: COST OF A CLEAN FUEL VEHICLE means The Agreement Respecting Normal FROM THE LIMITS ON DEPRECIA- ‘‘Sec. 138. Survivor benefits attributable to Competitive Conditions in the Commercial TION FOR VEHICLES. service by a law enforcement Shipbuilding and Repair Industry, resulting (a) IN GENERAL.—Section 280F(a)(1) (relat- officer who is killed in the line from negotiations under the auspices of the ing to limiting depreciation on luxury auto- of duty. Organization for Economic Cooperation and mobiles) is amended by adding at the end the ‘‘Sec. 139. Cross references to other Acts.’’. Development, and entered into on December following new subparagraph: 21, 1994.’’. (c) EFFECTIVE DATE.—The amendments ‘‘(C) SPECIAL RULE FOR CERTAIN CLEAN-FUEL (b) APPLICABILITY.—The amendment made made by this subsection shall apply to PASSENGER AUTOMOBILES.— by subsection (a) applies only with respect to amounts received in taxable years beginning ‘‘(i) MODIFIED AUTOMOBILES.—In the case of activities occurring in a Shipbuilding Agree- a passenger automobile which is propelled by after December 31, 1996, with respect to indi- ment Party (as defined in section 466(i) of a fuel which is not a clean-burning fuel to viduals dying after such date. the Tariff Act of 1930) during the 1-year pe- which is installed qualified clean-fuel vehicle SEC. 966. TEMPORARY SUSPENSION OF TAXABLE riod beginning on the date of the enactment property (as defined in section 179A(c)(1)(A)) INCOME LIMIT ON PERCENTAGE DE- of this Act. PLETION FOR MARGINAL PRODUC- for purposes of permitting such vehicle to be TION. Subtitle H—United States-Caribbean Basin propelled by a clean burning fuel (as defined In the case of taxable years beginning after Trade Partnership Act in section 179A(e)(1)), subparagraph (A) shall December 31, 1997, and before January 1, 2000, not apply to the cost of the installed quali- SEC. 981. SHORT TITLE. paragraph (1) of section 613A(d) of the Inter- This subtitle may be cited as the ‘‘United fied clean burning vehicle property as depre- nal Revenue Code of 1986 shall not apply to ciated pursuant to section 168 by applying States-Caribbean Basin Trade Partnership so much of the allowance for depletion com- Act’’. the rules under subsections (b)(1), (d)(1), and puted under section 613A(c) of such Code as SEC. 982. FINDINGS AND POLICY. (e)(3)(B) thereof. is attributable to paragraph (6) thereof. ‘‘(ii) PURPOSE BUILT PASSENGER VEHICLES.— (a) FINDINGS.—The Congress makes the fol- In the case of a purpose built passenger vehi- Subtitle G—Extension of Duty-Free Treat- lowing findings: cle (as defined in section 4001(a)(2)(C)(ii)), ment Under Generalized System of Pref- (1) The United States apparel industry is a each of the annual limitations specified in erences; Tariff Treatment of Certain Equip- major component of the United States manu- subparagraph (A) shall be tripled.’’. ment and Repair of Vessels facturing sector of the United States, em- (b) EFFECTIVE DATE.—The amendments SEC. 971. GENERALIZED SYSTEM OF PREF- ploying nearly 825,000 people who are located made by this section shall apply to property ERENCES. in every State in the country. The United placed in service on or after the date of en- (a) EXTENSION OF DUTY-FREE TREATMENT States apparel industry consumes 42 percent actment of this Act and before January 1, UNDER SYSTEM.—Section 505 of the Trade of the fabric produced by United States tex- 2005. Act of 1974 (19 U.S.C. 2465) is amended by tile mills, which employ more than 650,000 SEC. 965. TAX BENEFITS FOR LAW ENFORCEMENT striking ‘‘May 31, 1997’’ and inserting ‘‘May people. OFFICERS KILLED IN THE LINE OF 31, 1999’’. (2) In 1973 the United States apparel indus- DUTY. (b) RETROACTIVE APPLICATION FOR CERTAIN try supplied 88 percent of the garments (a) IN GENERAL.—Part III of subchapter B LIQUIDATIONS AND RELIQUIDATIONS.— consumed by Americans, and in 1995 that of chapter 1 (relating to items specifically (1) IN GENERAL.—Notwithstanding section share fell to less than 50 percent. excluded from gross income) is amended by 514 of the Tariff Act of 1930 or any other pro- (3) Countries in the Western Hemisphere redesignating section 138 as section 139 and vision of law and subject to paragraph (2), offer the greatest opportunities for increased by inserting after section 137 the following the entry— exports of United States textile and apparel new section: (A) of any article to which duty-free treat- products. ‘‘SEC. 138. SURVIVOR BENEFITS ATTRIBUTABLE ment under title V of the Trade Act of 1974 (4) Given the greater propensity of coun- TO SERVICE BY A LAW ENFORCE- would have applied if the entry had been MENT OFFICER WHO IS KILLED IN tries located in the Western Hemisphere to made on May 31, 1997, and use United States components and to pur- THE LINE OF DUTY. (B) that was made after May 31, 1997, and ‘‘(a) IN GENERAL.—Gross income shall not chase United States products compared to before the date of the enactment of this Act, include any amount paid as a survivor annu- other countries, increased trade and eco- ity on account of the death of a law enforce- shall be liquidated or reliquidated as free of nomic activity between the United States ment officer killed in the line of duty— duty, and the Secretary of the Treasury and countries in the Western Hemisphere ‘‘(1) if such annuity is provided under a shall refund any duty paid with respect to will create new jobs in the United States as governmental plan which meets the require- such entry. As used in this subsection, the a result of expanding export opportunities. ments of section 401(a) to the spouse (or a term ‘‘entry’’ includes a withdrawal from (5) The Caribbean Basin Economic Recov- former spouse) of the law enforcement offi- warehouse for consumption. ery Act represents a permanent commitment cer or to a child of such officer, and (2) REQUESTS.—Liquidation or reliquida- by the United States to encourage the devel- ‘‘(2) to the extent such annuity is attrib- tion may be made under paragraph (1) with opment of strong democratic governments utable to such officer’s service as a law en- respect to an entry only if a request therefor and revitalized economies in neighboring forcement officer. is filed with the Customs Service, within 180 countries in the Caribbean Basin. ‘‘(b) EXCEPTIONS.— days after the date of the enactment of this (6) The economic security of the countries ‘‘(1) IN GENERAL.—Subsection (a) shall not Act, that contains sufficient information to in the Caribbean Basin is potentially threat- apply with respect to the death of any law enable the Customs Service— ened by the diversion of investment to Mex- enforcement officer if— (A) to locate the entry; or ico as a result of the North American Free ‘‘(A) the death was caused by the inten- (B) to reconstruct the entry if it cannot be Trade Agreement. tional misconduct of the officer or by such located. (7) Offering NAFTA equivalent benefits to officer’s intention to bring about such offi- SEC. 972. EQUIPMENT AND REPAIR OF VESSELS. Caribbean Basin beneficiary countries, pend- cer’s death, (a) TARIFF TREATMENT.—Section 466 of the ing their eventual accession to the NAFTA ‘‘(B) the officer was voluntarily intoxi- Tariff Act of 1930 (19 U.S.C. 1466), is amended or a free trade agreement comparable to the cated (as defined in section 1204 of the Omni- by adding at the end the following new sub- NAFTA, will promote the growth of free en- bus Crime Control and Safe Streets Act of section: terprise and economic opportunity in the re- 1968) at the time of death, or ‘‘(i)(1) The duty imposed by subsection (a) gion, and thereby enhance the national secu- ‘‘(C) the officer was performing such offi- shall not apply with respect to activities oc- rity interests of the United States. cer’s duties in a grossly negligent manner at curring in a Shipbuilding Agreement Party, (b) POLICY.—It is the policy of the United the time of death. with respect to— States— ‘‘(2) EXCEPTION FOR BENEFITS PAID TO CER- ‘‘(A) self-propelled seagoing vessels of 100 (1) to assure that the domestic textile and TAIN INDIVIDUALS.—Subsection (a) shall not gross tons or more that are used for trans- apparel industry remains competitive in the apply to any payment to an individual whose portation of goods or persons or for perform- global marketplace by encouraging the for- actions were a substantial contributing fac- ance of a specialized service (including, but mation and expansion of ‘‘partnerships’’ be- tor to the death of the officer. not limited to, ice breakers and dredges), and tween the textile and apparel industry of the H4734 CONGRESSIONAL RECORD — HOUSE June 26, 1997 United States and the textile and apparel in- ‘‘(aa) under subheading 9802.00.80 of the which subclause (II) applies, based upon a dustry of various countries located in the HTS; or pro rata share of the exports to the United Western Hemisphere; and ‘‘(bb) under chapter 61 or 62 of the HTS if, States of textile and apparel goods of each of (2) to offer to the products of Caribbean after such assembly, the article would have those countries during the first 12 months of Basin partnership countries tariffs and quota qualified for treatment under subheading the 14-month period ending on the date of treatment equivalent to that accorded to 9802.00.80 of the HTS, but for the fact the ar- the enactment of the United States-Carib- products of NAFTA countries, and to seek ticle was subjected to bleaching, dyeing, bean Basin Trade Partnership Act. the accession of these partnership countries stone-washing, enzyme-washing, acid-wash- ‘‘(iii) PRIOR CONSULTATION.—The President to the NAFTA or a free trade agreement ing, perma-pressing, or similar processes or may implement the preferential tariff treat- comparable to the NAFTA at the earliest embroidery; or ment described in clause (i) only after con- possible date, with the goal of achieving full ‘‘(II) is knit-to-shape in a partnership sultation with representatives of the United participation in the NAFTA or in a free country from yarns wholly formed in the States textile and apparel industry and other trade agreement comparable to the NAFTA United States; interested parties regarding— by all partnership countries by not later ‘‘(III) is made from fabric knit in a part- ‘‘(I) the specific articles to which such than January 1, 2005. nership country from yarns wholly formed in treatment will be extended, SEC. 983. DEFINITIONS. the United States; ‘‘(II) the annual quantities of such articles As used in this Act: ‘‘(IV) is cut and assembled in a partnership that may be imported at the preferential (1) PARTNERSHIP COUNTRY.—The term country from yarns wholly formed in the duty rates described in clause (i), and ‘‘partnership country’’ means a beneficiary United States; or ‘‘(III) the allocation of such annual quan- country as defined in section 212(a)(1)(A) of ‘‘(V) is identified under subparagraph (C) tities among beneficiary countries. the Caribbean Basin Economic Recovery Act as a handloomed, handmade, or folklore arti- ‘‘(C) HANDLOOMED, HANDMADE, AND FOLK- (19 U.S.C. 2702(a)(1)(A)). cle of such country and is certified as such LORE ARTICLES.—For purposes of subpara- (2) NAFTA.—The term ‘‘NAFTA’’ means by the competent authority of such country; graph (A), the Trade Representative shall the North American Free Trade Agreement and consult with representatives of the partner- entered into between the United States, ‘‘(iii) no quantitative restriction under any ship country for the purpose of identifying Mexico, and Canada on December 17, 1992. bilateral textile agreement may be applied particular textile and apparel goods that are (3) TRADE REPRESENTATIVE.—The term to the importation into the United States of mutually agreed upon as being handloomed, ‘‘Trade Representative’’ means the United any textile or apparel article that— handmade, or folklore goods of a kind de- States Trade Representative. ‘‘(I) originates in the territory of a part- scribed in section 2.3 (a), (b), or (c) or Appen- (4) WTO AND WTO MEMBER.—The terms nership country, or dix 3.1.B.11 of the Annex. ‘‘WTO’’ and ‘‘WTO member’’ have the mean- ‘‘(II) qualifies for duty-free treatment ‘‘(D) BILATERAL EMERGENCY ACTIONS.—(i) ings given those terms in section 2 of the under subclause (I), (II), (III), (IV), or (V) of The President may take— Uruguay Round Agreements Act (19 U.S.C. clause (ii). ‘‘(I) bilateral emergency tariff actions of a kind described in section 4 of the Annex with 3501). ‘‘(B) NAFTA TRANSITION PERIOD TREATMENT respect to any textile or apparel article im- SEC. 984. TEMPORARY PROVISIONS TO PROVIDE OF NONORIGINATING TEXTILE AND APPAREL AR- NAFTA PARITY TO PARTNERSHIP ported from a partnership country if the ap- TICLES.— COUNTRIES. plication of tariff treatment under subpara- ‘‘(i) PREFERENTIAL TARIFF TREATMENT.— (a) TEMPORARY PROVISIONS.—Section 213(b) graph (A) to such article results in condi- Subject to clause (ii), the President may of the Caribbean Basin Economic Recovery tions that would be cause for the taking of place in effect at any time during the transi- Act (19 U.S.C. 2703(b)) is amended to read as such actions under such section 4 with re- tion period with respect to any textile or ap- follows: spect to an article described in the same 8- parel article that— ‘‘(b) IMPORT-SENSITIVE ARTICLES.— digit subheading of the HTS that is imported ‘‘(I) is a product of a partnership country, ‘‘(1) IN GENERAL.—Subject to paragraphs (2) from Mexico; or but through (5), the duty-free treatment pro- ‘‘(II) bilateral emergency quantitative re- ‘‘(II) does not qualify as a good that origi- vided under this title does not apply to— striction actions of a kind described in sec- nates in the territory of a partnership coun- ‘‘(A) textile and apparel articles which are tion 5 of the Annex with respect to imports subject to textile agreements; try, of any textile or apparel article described in ‘‘(B) footwear not designated at the time of tariff treatment that is identical to the in- subparagraph (B)(i) (I) and (II) if the impor- the effective date of this title as eligible ar- preference-level tariff treatment accorded at tation of such article into the United States ticles for the purpose of the generalized sys- such time under Appendix 6.B of the Annex results in conditions that would be cause for tem of preferences under title V of the Trade to an article described in the same 8-digit the taking of such actions under such sec- Act of 1974; subheading of the HTS that is a product of tion 5 with respect to a like article that is a ‘‘(C) tuna, prepared or preserved in any Mexico and is imported into the United product of Mexico. manner, in airtight containers; States. For purposes of this clause, the ‘in- ‘‘(ii) The requirement in paragraph (5) of ‘‘(D) petroleum, or any product derived preference-level tariff treatment’ accorded section 4 of the Annex (relating to providing from petroleum, provided for in headings 2709 to an article that is a product of Mexico is compensation) shall not be deemed to apply and 2710 of the HTS; the rate of duty applied to that article when to a bilateral emergency action taken under ‘‘(E) watches and watch parts (including imported in quantities less than or equal to this subparagraph. cases, bracelets and straps), of whatever type the quantities specified in Schedule 6.B.1, ‘‘(iii) For purposes of applying bilateral including, but not limited to, mechanical, 6.B.2., or 6.B.3. of the Annex for imports of emergency action under this subparagraph— quartz digital, or quartz analog, if such that article from Mexico into the United ‘‘(I) the term ‘transition period’ in sections watches or watch parts contain any material States. 4 and 5 of the Annex shall be deemed to be which is the product of any country with re- ‘‘(ii) LIMITATIONS ON CERTAIN ARTICLES.—(I) the period defined in paragraph (5)(D); and spect to which HTS column 2 rates of duty Tariff treatment under clause (i) may be ex- ‘‘(II) any requirements to consult specified apply; or tended, during any calendar year, to not in section 4 or 5 of the Annex are deemed to ‘‘(F) articles to which reduced rates of more than 45,000,000 square meter equiva- be satisfied if the President requests con- duty apply under subsection (h). lents of cotton or man-made fiber apparel, to sultations with the partnership country in ‘‘(2) NAFTA TRANSITION PERIOD TREATMENT not more than 1,500,000 square meter equiva- question and the country does not agree to OF CERTAIN TEXTILE AND APPAREL ARTICLES.— lents of wool apparel, and to not more than consult within the time period specified in ‘‘(A) EQUIVALENT TARIFF AND QUOTA TREAT- 25,000,000 square meter equivalents of goods such section. MENT.—During the transition period— entered under subheading 9802.00.80 of the ‘‘(3) NAFTA TRANSITION PERIOD TREATMENT ‘‘(i) the tariff treatment accorded at any HTS. OF CERTAIN OTHER ARTICLES ORIGINATING IN time to any textile or apparel article that ‘‘(II) Except as provided in subclause (III), BENEFICIARY COUNTRIES.— originates in the territory of a partnership the amounts set forth in subclause (I) shall ‘‘(A) EQUIVALENT TARIFF TREATMENT.— country shall be identical to the tariff treat- be allocated among the 7 partnership coun- ‘‘(i) IN GENERAL.—Subject to clause (ii), the ment that is accorded at such time under tries with the largest volume of exports to tariff treatment accorded at any time during section 2 of the Annex to an article described the United States of textile and apparel the transition period to any article referred in the same 8-digit subheading of the HTS goods in calendar year 1996, based upon a pro to in any of subparagraphs (B) through (F) of that is an originating good of Mexico and is rata share of the volume of textile and ap- paragraph (1) that originates in the territory imported into the United States; parel goods of each of those 7 countries that of a partnership country shall be identical to ‘‘(ii) duty-free treatment under this title entered the United States under subheading the tariff treatment that is accorded at such shall apply to any textile or apparel article 9802.00.80 of the HTS during the first 12 time under Annex 302.2 of the NAFTA to an that is imported into the United States from months of the 14-month period ending on the article described in the same 8-digit sub- a partnership country and that— date of the enactment of the United States- heading of the HTS that is an originating ‘‘(I) is assembled in a partnership country, Caribbean Basin Trade Partnership Act. good of Mexico and is imported into the from fabrics wholly formed and cut in the ‘‘(III) Five percent of the amounts set forth United States. United States from yarns formed in the in subclause (I) shall be allocated among the ‘‘(ii) EXCEPTION.—Clause (i) does not apply United States, and is entered— partnership countries, other than those to to any article accorded duty-free treatment June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4735 under U.S. Note 2(b) to subchapter II of chap- ‘‘(C) The term ‘partnership country’ means under the General Agreement on Tariffs and ter 98 of the HTS. a beneficiary country. Trade and the World Trade Organization; ‘‘(B) RELATIONSHIP TO SUBSECTION (h) DUTY ‘‘(D) The term ‘textile or apparel article’ ‘‘(3) with respect to subsection (c)(9), the REDUCTIONS.—If at any time during the tran- means any article referred to in paragraph extent to which beneficiary countries are sition period the rate of duty that would (but (1)(A) that is a good listed in Appendix 1.1 of providing or taking steps to provide protec- for action taken under subparagraph (A)(i) in the Annex. tion of intellectual property rights com- regard to such period) apply with respect to ‘‘(E) The term ‘transition period’ means, parable to the protection provided to the any article under subsection (h) is a rate of with respect to a partnership country, the United States in bilateral intellectual prop- duty that is lower than the rate of duty re- period that begins on January 1, 1998, and erty rights agreements; sulting from such action, then such lower ends on the earlier of— ‘‘(4) with respect to subsection (b)(2) and rate of duty shall be applied for the purposes ‘‘(i) December 31, 1998; or subsection (c)(5), the extent that beneficiary of implementing such action. ‘‘(ii) the date on which— countries are providing or taking steps to ‘‘(4) CUSTOMS PROCEDURES.— ‘‘(I) the United States first applies the provide protection of investment and inves- ‘‘(A) IN GENERAL.— NAFTA to the partnership country upon its tors comparable to the protection provided ‘‘(i) The obligations under chapter 5 of the accession to the NAFTA, or to the United States in bilateral investment NAFTA regarding customs procedures, as ‘‘(II) there enters into force with respect to treaties; such obligations apply to the exporting the United States and the partnership coun- ‘‘(5) with respect to subsection (c)(3), the country, shall apply to importations under try a free trade agreement comparable to the extent that beneficiary countries are provid- paragraphs (2) and (3) of articles from part- NAFTA that makes substantial progress in ing the United States with equitable and rea- nership countries. achieving the negotiating objectives set sonable market access in the product sectors ‘‘(ii) The Secretary of the Treasury shall forth in section 108(b)(5) of the North Amer- for which benefits are provided under this prescribe regulations that require, as a con- ican Free Trade Agreement Implementation title; dition of entry, that any importer of record Act (19 U.S.C. 3317(b)(5)). ‘‘(6) with respect to subsection (c)(11), the that claims preferential treatment under ‘‘(F) An article shall be deemed as origi- extent that beneficiary countries are cooper- paragraph (2) or (3) must comply with re- nating in the territory of a partnership coun- ating with the United States in administer- quirements similar in all material respects try if the article meets the rules of origin for ing the provisions of section 213(b); and to the requirements of article 502.1 of the a good set forth in chapter 4 of the NAFTA, ‘‘(7) with respect to subsection (c)(8), the NAFTA. The certificate of origin that other- and, in the case of an article described in Ap- extent that beneficiary countries are meet- wise would be required under this subpara- pendix 6.A of the Annex, the requirements ing the internationally recognized worker graph shall not be required in the case of an stated in such Appendix 6.A for such article rights criteria under such subsection. article imported under paragraph (2) or (3) if to be treated as if it were an originating In the first report under this subsection, the such certificate of origin would not be re- good. In applying such chapter 4 or Appendix President shall include a review of the im- quired under article 503 of the NAFTA for a 6.A with respect to a partnership country for plementation of section 213(b), and his analy- similar importation from Mexico. purposes of this subsection— sis of whether the benefits under paragraphs ‘‘(B) PENALTIES FOR ENGAGING IN TRANS- ‘‘(i) no countries other than the United (2) and (3) of such section further the objec- SHIPMENT OR OTHER CUSTOMS FRAUD.—If an States and partnership countries may be tives of this title and whether such benefits exporter is determined under the laws of the treated as being Parties to the NAFTA, should be continued.’’. United States to have engaged in illegal ‘‘(ii) references to trade between the Unit- (d) CONFORMING AMENDMENT.—Section transshipment of textile or apparel products ed States and Mexico shall be deemed to 213(a)(1) of the Caribbean Basin Economic from a partnership country, then the Presi- refer to trade between the United States and Recovery Act is amended by inserting ‘‘and dent shall deny all benefits under this title partnership countries, and except as provided in section 213(b)(2) and to such exporter, and any successors of such ‘‘(iii) references to a Party shall be deemed (3),’’ after ‘‘Tax Reform Act of 1986,’’. exporter, for a period of 2 years. to refer to the United States or a partnership SEC. 985. EFFECT OF NAFTA ON SUGAR IMPORTS ‘‘(C) STUDY BY USTR ON COOPERATION OF country, and references to the Parties shall FROM BENEFICIARY COUNTRIES. OTHER COUNTRIES CONCERNING CIRCUMVEN- be deemed to refer to any combination of The President shall monitor the effects, if TION.—The Trade Representative, in con- partnership countries or the United States.’’. any, that the implementation of the NAFTA sultation with the United States Commis- (b) DETERMINATION REGARDING RETENTION has on the access of beneficiary countries sioner of Customs, shall conduct a study OF DESIGNATION.—Section 212(e)(1) of the under the Caribbean Basin Economic Recov- analyzing the extent to which each partner- Caribbean Basin Economic Recovery Act (19 ery Act to the United States market for sug- ship country— U.S.C. 2702(e)) is amended— ars, syrups, and molasses. If the President ‘‘(i) has cooperated fully with the United (1) by inserting ‘‘(A)’’ after ‘‘(1)’’; considers that the implementation of the States, consistent with its domestic laws and (2) by redesignating subparagraphs (A) and NAFTA is affecting, or will likely affect, in procedures, in instances of circumvention or (B) as clauses (i) and (ii), respectively; an adverse manner the access of such coun- alleged circumvention of existing quotas on (3) by adding at the end the following: tries to the United States market, the Presi- imports of textile and apparel goods, to es- ‘‘(B)(i) Based on the President’s review and dent shall promptly— tablish necessary relevant facts in the places analysis described in subsection (f), the (1) take such actions, after consulting with of import, export, and, where applicable, President may determine if the preferential interested parties and with the appropriate transshipment, including investigation of treatment under section 213(b)(2) and (3) committees of the House of Representatives circumvention practices, exchanges of docu- should be withdrawn, suspended, or limited and the Senate, or ments, correspondence, reports, and other with respect to any article of a partnership (2) propose to the Congress such legislative relevant information, to the extent such in- country. Such determination shall be in- actions, formation is available; cluded in the report required by subsection as may be necessary or appropriate to ame- ‘‘(ii) has taken appropriate measures, con- (f). liorate such adverse effect. sistent with its domestic laws and proce- ‘‘(ii) Withdrawal, suspension, or limitation SEC. 986. DUTY-FREE TREATMENT FOR CERTAIN dures, against exporters and importers in- of the preferential treatment under section BEVERAGES MADE WITH CARIBBEAN volved in instances of false declaration con- 213(b)(2) and (3) with respect to a partnership RUM. cerning fiber content, quantities, descrip- country shall be taken only after the re- Section 213(a) of the Caribbean Basin Eco- tion, classification, or origin of textile and quirements of subsection (a)(2) and para- nomic Recovery Act (19 U.S.C. 2703(a)) is apparel goods; and amended— ‘‘(iii) has penalized the individuals and en- graph (2) of this subsection have been met.’’. (c) REPORTING REQUIREMENTS.—Section (1) in paragraph (5), by striking ‘‘chapter’’ tities involved in any such circumvention, 212(f) of the Caribbean Basin Economic Re- and inserting ‘‘title’’; and consistent with its domestic laws and proce- covery Act (19 U.S.C. 2702(f)) is amended to (2) by adding at the end the following new dures, and has worked closely to seek the co- read as follows: paragraph: operation of any third country to prevent ‘‘(f) REPORTING REQUIREMENTS.—Not later ‘‘(6) Notwithstanding paragraph (1), the such circumvention from taking place in than 1 year after the date of the enactment duty-free treatment provided under this title that third country. of the United States-Caribbean Basin Trade shall apply to liqueurs and spirituous bev- The Trade Representative shall submit to Partnership Act and at the close of each 3- erages produced in the territory of Canada the Congress, not later than October 1, 1998, year period thereafter, the President shall from rum if— a report on the study conducted under this submit to the Congress a complete report re- ‘‘(A) such rum is the growth, product, or subparagraph. garding the operation of this title, includ- manufacture of a beneficiary country or of ‘‘(5) DEFINITIONS.—For purposes of this sub- ing— the Virgin Islands of the United States; section— ‘‘(1) with respect to subsections (b) and (c) ‘‘(B) such rum is imported directly from a ‘‘(A) The term ‘the Annex’ means Annex of this section, the results of a general re- beneficiary country or the Virgin Islands of 300–B of the NAFTA. view of beneficiary countries based on the the United States into the territory of Can- ‘‘(B) The term ‘NAFTA’ means the North considerations described in such subsections; ada, and such liqueurs and spirituous bev- American Free Trade Agreement entered ‘‘(2) with respect to subsection (c)(4), the erages are imported directly from the terri- into between the United States, Mexico, and degree to which a country follows accepted tory of Canada into the customs territory of Canada on December 17, 1992. rules of international trade provided for the United States; H4736 CONGRESSIONAL RECORD — HOUSE June 26, 1997 ‘‘(C) when imported into the customs terri- (J) the extent which the country works to spect to any property, acquires the same or tory of the United States, such liqueurs and accommodate market access objectives of substantially identical property, or spirituous beverages are classified in sub- the United States. ‘‘(E) to the extent prescribed by the Sec- heading 2208.90 or 2208.40 of the HTS; and (c) PARITY REVIEW IN THE EVENT A NEW retary in regulations, enters into 1 or more ‘‘(D) such rum accounts for at least 90 per- COUNTRY ACCEDES TO NAFTA.—If— other transactions (or acquires 1 or more po- cent by volume of the alcoholic content of (1) a country or group of countries accedes sitions) that have substantially the same ef- such liqueurs and spiritous beverages.’’. to the NAFTA, or fect as a transaction described in any of the SEC. 987. MEETINGS OF TRADE MINISTERS AND (2) the United States negotiates a com- preceding subparagraphs. USTR. parable free trade agreement with another ‘‘(2) EXCEPTION FOR SALES OF NONPUBLICLY (a) SCHEDULE OF MEETINGS.—The President country or group of countries, TRADED PROPERTY.—The term ‘constructive shall take the necessary steps to convene a the Trade Representative shall provide to sale’ shall not include any contract for sale meeting with the trade ministers of the part- the committees referred to in subsection (a) of any stock, debt instrument, or partner- nership countries in order to establish a a separate report on the economic impact of ship interest which is not a marketable secu- schedule of regular meetings, to commence the new trade relationship on partnership rity (as defined in section 453(f)) if the con- as soon as is practicable, of the trade min- countries. The report shall include any tract settles within 1 year after the date isters and the Trade Representative, for the measures the Trade Representative proposes such contract is entered into. purpose set forth in subsection (b). to minimize the potential for the diversion ‘‘(3) EXCEPTION FOR CERTAIN CLOSED TRANS- (b) PURPOSE.—The purpose of the meetings ACTIONS.—In applying this section, there scheduled under subsection (a) is to reach of investment from partnership countries to shall be disregarded any transaction (which agreement between the United States and the new NAFTA member or free trade agree- would otherwise be treated as a constructive partnership countries on the likely timing ment partner. sale) during the taxable year if— and procedures for initiating negotiations TITLE X—REVENUES ‘‘(A) such transaction is closed before the for partnership to accede to the NAFTA, or Subtitle A—Financial Products end of the 30th day after the close of such to enter into mutually advantageous free SEC. 1001. CONSTRUCTIVE SALES TREATMENT trade agreements with the United States taxable year, and FOR APPRECIATED FINANCIAL POSI- ‘‘(B) in the case of a transaction which is that contain provisions comparable to those TIONS. closed during the 90-day period ending on in the NAFTA and would make substantial (a) IN GENERAL.—Part IV of subchapter P such 30th day— progress in achieving the negotiating objec- of chapter 1 is amended by adding at the end ‘‘(i) the taxpayer holds the appreciated fi- tives set forth in section 108(b)(5) of the the following new section: North American Free Trade Agreement Im- nancial position throughout the 60-day pe- ‘‘SEC. 1259. CONSTRUCTIVE SALES TREATMENT riod beginning on the date such transaction plementation Act (19 U.S.C. 3317(b)(5)). FOR APPRECIATED FINANCIAL POSI- SEC. 988. REPORT ON ECONOMIC DEVELOPMENT TIONS. is closed, and ‘‘(ii) at no time during such 60-day period AND MARKET ORIENTED REFORMS ‘‘(a) IN GENERAL.—If there is a constructive IN THE CARIBBEAN. sale of an appreciated financial position— is the taxpayer’s risk of loss with respect to (a) IN GENERAL.—The Trade Representative ‘‘(1) the taxpayer shall recognize gain as if such position reduced by reason of a cir- shall make an assessment of the economic such position were sold, assigned, or other- cumstance which would be described in sec- development efforts and market oriented re- wise terminated at its fair market value on tion 246(c)(4) if references to stock included forms in each partnership country and the the date of such constructive sale (and any references to such position. ability of each such country, on the basis of gain shall be taken into account for the tax- ‘‘(4) RELATED PERSON.—A person is related such efforts and reforms, to undertake the able year which includes such date), and to another person with respect to a trans- obligations of the NAFTA. The Trade Rep- ‘‘(2) for purposes of applying this title for action if— resentative shall, not later than July 1, 1998, ‘‘(A) the relationship is described in sec- submit to the President and to the Commit- periods after the constructive sale— ‘‘(A) proper adjustment shall be made in tion 267 or 707(b), and tee on Finance of the Senate and the Com- ‘‘(B) such transaction is entered into with mittee on Ways and Means of the House of the amount of any gain or loss subsequently realized with respect to such position for any a view toward avoiding the purposes of this Representatives a report on that assessment. section. (b) ACCESSION TO NAFTA.— gain taken into account by reason of para- graph (1), and ‘‘(d) OTHER DEFINITIONS.—For purposes of (1) ABILITY OF COUNTRIES TO IMPLEMENT this section— NAFTA.—The Trade Representative shall in- ‘‘(B) the holding period of such position shall be determined as if such position were ‘‘(1) FORWARD CONTRACT.—The term ‘for- clude in the report under subsection (a) a ward contract’ means a contract to deliver a discussion of possible timetables and proce- originally acquired on the date of such con- structive sale. substantially fixed amount of property for a dures pursuant to which partnership coun- substantially fixed price. tries can complete the economic reforms ‘‘(b) APPRECIATED FINANCIAL POSITION.— ‘‘(2) OFFSETTING NOTIONAL PRINCIPAL CON- necessary to enable them to negotiate acces- For purposes of this section— TRACT.—The term ‘offsetting notional prin- sion to the NAFTA. The Trade Representa- ‘‘(1) IN GENERAL.—Except as provided in cipal contract’ means, with respect to any tive shall also include an assessment of the paragraph (2), the term ‘appreciated finan- property, an agreement which includes— potential phase-in periods that may be nec- cial position’ means any position with re- ‘‘(A) a requirement to pay (or provide cred- essary for those partnership countries with spect to any stock, debt instrument, or part- it for) all or substantially all of the invest- less developed economies to implement the nership interest if there would be gain were ment yield (including appreciation) on such obligations of the NAFTA. such position sold, assigned, or otherwise property for a specified period, and (2) FACTORS IN ASSESSING ABILITY TO IMPLE- terminated at its fair market value. ‘‘(B) a right to be reimbursed for (or re- MENT NAFTA.—In assessing the ability of each ‘‘(2) EXCEPTIONS.—The term ‘appreciated fi- partnership country to undertake the obliga- nancial position’ shall not include— ceive credit for) all or substantially all of tions of the NAFTA, the Trade Representa- ‘‘(A) any position with respect to straight any decline in the value of such property. tive should consider, among other factors— debt (as defined in section 1361(c)(5)(B) with- ‘‘(e) SPECIAL RULES.— (A) whether the country has joined the out regard to clause (iii) thereof), and ‘‘(1) TREATMENT OF SUBSEQUENT SALE OF PO- WTO; ‘‘(B) any position which is marked to mar- SITION WHICH WAS DEEMED SOLD.—If— (B) the extent to which the country pro- ket under any provision of this title or the ‘‘(A) there is a constructive sale of any ap- vides equitable access to the markets of that regulations thereunder. preciated financial position, country; ‘‘(3) POSITION.—The term ‘position’ means ‘‘(B) such position is subsequently disposed (C) the degree to which the country uses an interest, including a futures or forward of, and export subsidies or imposes export perform- contract, short sale, or option. ‘‘(C) at the time of such disposition, the ance requirements or local content require- ‘‘(c) CONSTRUCTIVE SALE.—For purposes of transaction resulting in the constructive ments; this section— sale of such position is open with respect to (D) macroeconomic reforms in the country ‘‘(1) IN GENERAL.—A taxpayer shall be the taxpayer or any related person, such as the abolition of price controls on treated as having made a constructive sale of solely for purposes of determining whether traded goods and fiscal discipline; an appreciated financial position if the tax- the taxpayer has entered into a constructive (E) progress the country has made in the payer (or a related person)— sale of any other appreciated financial posi- protection of intellectual property rights; ‘‘(A) enters into a short sale of the same or tion held by the taxpayer, the taxpayer shall (F) progress the country has made in the substantially identical property, be treated as entering into such transaction elimination of barriers to trade in services; ‘‘(B) enters into an offsetting notional immediately after such disposition. For pur- (G) whether the country provides national principal contract with respect to the same poses of the preceding sentence, an assign- treatment to foreign direct investment; or substantially identical property, ment or other termination shall be treated (H) the level of tariffs bound by the coun- ‘‘(C) enters into a futures or forward con- as a disposition. try under the WTO (if the country is a WTO tract to deliver the same or substantially ‘‘(2) CERTAIN TRUST INSTRUMENTS TREATED member); identical property, AS STOCK.—For purposes of this section, an (I) the extent to which the country has ‘‘(D) in the case of an appreciated financial interest in a trust which is actively traded taken other trade liberalization measures; position that is a short sale or a contract de- (within the meaning of section 1092(d)(1)) and scribed in subparagraph (B) or (C) with re- shall be treated as stock. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4737

‘‘(3) MULTIPLE POSITIONS IN PROPERTY.—If a if, within before the close of the 30-day pe- property, and at all times thereafter before taxpayer holds multiple positions in prop- riod beginning on the date of the enactment such transfer. erty, the determination of whether a specific of this Act, such position and property are SEC. 1003. MODIFICATION OF RULES FOR ALLO- transaction is a constructive sale and, if so, clearly identified in the taxpayer’s records CATING INTEREST EXPENSE TO TAX- which appreciated financial position is as offsetting. The preceding sentence shall EXEMPT INTEREST. deemed sold shall be made in the same man- cease to apply as of the date the taxpayer (a) PRO RATA ALLOCATION RULES APPLICA- ner as actual sales. ceases to hold such position or property. BLE TO CORPORATIONS.— ‘‘(f) REGULATIONS.—The Secretary shall (3) SPECIAL RULE.—In the case of a dece- (1) IN GENERAL.—Paragraph (1) of section prescribe such regulations as may be nec- dent dying after June 8, 1997, if— 265(b) is amended by striking ‘‘In the case of essary or appropriate to carry out the pur- (A) there was a constructive sale on or be- a financial institution’’ and inserting ‘‘In the poses of this section.’’. fore such date of any appreciated financial case of a corporation’’. (b) ELECTION OF MARK TO MARKET FOR SE- position, (2) ONLY OBLIGATIONS ACQUIRED AFTER JUNE CURITIES TRADERS AND FOR TRADERS AND (B) the transaction resulting in such con- 8, 1997, TAKEN INTO ACCOUNT.—Subparagraph DEALERS IN COMMODITIES.—Subsection (d) of structive sale of such position remains open (A) of section 265(b)(2) is amended by strik- section 475 (relating to mark to market ac- (with respect to the decedent or any related ing ‘‘August 7, 1986’’ and inserting ‘‘June 8, counting method for dealers in securities) is person) for not less than 2 years after the 1997 (August 7, 1986, in the case of a financial amended by adding at the end the following date of such transaction (whether such pe- institution)’’. new paragraph: riod is before or after such date), and (3) SMALL ISSUER EXCEPTION NOT TO ‘‘(4) ELECTION OF MARK TO MARKET FOR SE- (C) such transaction is not closed within APPLY.—Subparagraph (A) of section 265(b)(3) CURITIES TRADERS AND FOR TRADERS AND the 30-day period beginning on the date of is amended by striking ‘‘Any qualified’’ and DEALERS IN COMMODITIES.— inserting ‘‘In the case of a financial institu- the enactment of this Act, ‘‘(A) IN GENERAL.—In the case of a person— tion, any qualified’’. ‘‘(i) who is engaged in a trade or business then, for purposes of such Code, such posi- (4) EXCEPTION FOR CERTAIN BONDS ACQUIRED to which this paragraph applies, and tion (and any property related thereto, as de- ON SALE OF GOODS OR SERVICES.—Subpara- ‘‘(ii) who elects to be treated as a dealer in termined under the principles of section graph (B) of section 265(b)(4) is amended by securities for purposes of this section with 1259(d)(1) of such Code (as so added)) shall be adding at the end the following new sen- respect to such trade or business, treated as property constituting rights to re- tence: ‘‘In the case of a taxpayer other than ceive an item of income in respect of a dece- subsections (a), (b)(3), (c)(3), and (e) and the a financial institution, such term shall not dent under section 691 of such Code. preceding provisions of this subsection (or, include a nonsalable obligation acquired by (4) ELECTION OF SECURITIES TRADERS, AND in the case of a dealer in commodities, this such taxpayer in the ordinary course of busi- FOR TRADERS AND DEALERS IN COMMODITIES, section) shall apply to all commodities and ness as payment for goods or services pro- TO BE TREATED AS DEALERS IN SECURITIES.— securities held by such person in any trade vided by such taxpayer to any State or local (A) IN GENERAL.—The amendment made by or business with respect to which such elec- government.’’. subsection (b) shall apply to taxable years tion is in effect in the same manner as if (5) LOOK-THRU RULES FOR PARTNERSHIPS.— ending after the date of the enactment of such person were a dealer in securities and Paragraph (6) of section 265(b) is amended by this Act. all references to securities included ref- adding at the end the following new subpara- (B) 4-YEAR SPREAD OF ADJUSTMENTS.—In erences to commodities. graph: the case of a taxpayer who elects under sec- ‘‘(C) LOOK-THRU RULES FOR PARTNERSHIPS.— ‘‘(B) APPLICATION OF PARAGRAPH.—This tion 475(d)(4) of the Internal Revenue Code of paragraph shall apply to any active trade or In the case of a corporation which is a part- 1986 (as added by this section) to change its business— ner in a partnership, such corporation shall method of accounting for its first taxable ‘‘(i) as a trader in securities, or be treated for purposes of this subsection as year ending after the date of the enactment ‘‘(ii) as a trader or dealer in commodities. holding directly its allocable share of the as- of this Act, the net amount of the adjust- sets of the partnership.’’. ‘‘(C) EXCEPTION FOR CERTAIN HOLDINGS OF ments required to be taken into account by (6) APPLICATION OF PRO RATA DISALLOWANCE TRADERS.—In the case of a trader in securi- the taxpayer under section 481 of the Inter- ties or commodities, subsection (a) shall not ON AFFILIATED GROUP BASIS.—Subsection (b) nal Revenue Code of 1986 shall be taken into apply to any security or commodity (to of section 265 is amended by adding at the account ratably over the 4-taxable year pe- which subsection (a) would otherwise apply end the following new paragraph: riod beginning with such first taxable year. solely by reason of this paragraph) if such se- ‘‘(7) APPLICATION OF DISALLOWANCE ON AF- curity or commodity is clearly identified in SEC. 1002. LIMITATION ON EXCEPTION FOR IN- FILIATED GROUP BASIS.— the trader’s records (before the close of the VESTMENT COMPANIES UNDER SEC- ‘‘(A) IN GENERAL.—For purposes of this sub- TION 351. day applicable under subsection (b)(2)) as section, all members of an affiliated group (a) IN GENERAL.—Paragraph (1) of section being held other than in a trade or business filing a consolidated return under section 351(e) (relating to exceptions) is amended by to which the election under subparagraph (A) 1501 shall be treated as 1 taxpayer. adding at the end the following: ‘‘For pur- is in effect. A security or commodity so iden- ‘‘(B) TREATMENT OF INSURANCE COMPA- poses of the preceding sentence, the deter- tified shall be treated as described in sub- NIES.—This subsection shall not apply to an mination of whether a company is an invest- section (b)(1). insurance company, and subparagraph (A) ment company shall be made— shall be applied without regard to any mem- ‘‘(D) COMMODITY.—For purposes of this ‘‘(A) by taking into account all stock and paragraph, the term ‘commodities’ includes ber of an affiliated group which is an insur- securities held by the company, whether or only commodities of a kind customarily ance company.’’. not readily marketable, and dealt in on an organized commodity ex- (6) DE MINIMIS EXCEPTION FOR NONFINANCIAL ‘‘(B) by treating all of the following as se- change. INSTITUTIONS.—Subsection (b) of section 265 curities: is amended by adding at the end the follow- ‘‘(E) ELECTION.—An election under this ‘‘(i) Money. paragraph may be made separately for each ing new paragraph: ‘‘(ii) Any financial instrument (as defined trade or business and without the consent of ‘‘(8) DE MINIMIS EXCEPTION FOR NON- in section 731(c)(2)(C)). the Secretary. Such an election, once made, FINANCIAL INSTITUTIONS.—In the case of a ‘‘(iii) Any foreign currency. shall apply to the taxable year for which corporation, paragraph (1) shall not apply for ‘‘(iv) Any interest in a real estate invest- made and all subsequent taxable years unless any taxable year if the amount described in ment trust, a common trust fund, a regu- revoked with the consent of the Secretary.’’. paragraph (2)(A) with respect to such cor- lated investment company, or a publicly (c) CLERICAL AMENDMENT.—The table of poration does not exceed the lesser of— sections for part IV of subchapter P of chap- traded partnership (as defined in section ‘‘(A) 2 percent of the amount described in ter 1 is amended by adding at the end the fol- 7704(b)). paragraph (2)(B), or lowing new item: ‘‘(v) Any interest described in clause (iv), ‘‘(B) $1,000,000. (v), or (vi) of section 731(c)(2)(B) (or which The preceding sentence shall not apply to a ‘‘Sec. 1259. Constructive sales treatment for would be so described without regard to any appreciated financial posi- financial institution or to a dealer in tax-ex- reference to active trading or market- empt obligations.’’. tions.’’. ability). (7) CLERICAL AMENDMENT.—The subsection (d) EFFECTIVE DATES.— ‘‘(vi) Any other asset specified in regula- heading for section 265(b) is amended by (1) IN GENERAL.—Except as otherwise pro- tions prescribed by the Secretary.’’. striking ‘‘FINANCIAL INSTITUTIONS’’ and in- vided in this subsection, the amendments (b) EFFECTIVE DATE.— serting ‘‘CORPORATIONS’’. made by this section shall apply to any con- (1) IN GENERAL.—The amendment made by (b) APPLICATION OF SECTION 265(a)(2) WITH structive sale after June 8, 1997. subsection (a) shall apply to transfers after RESPECT TO CONTROLLED GROUPS.—Para- (2) EXCEPTION FOR SALES OF POSITIONS, ETC. June 8, 1997, in taxable years ending after graph (2) of section 265(a) is amended after HELD BEFORE JUNE 9, 1997.—A constructive such date. ‘‘obligations’’ by inserting ‘‘held by the tax- sale before June 9, 1997, and the property to (2) BINDING CONTRACTS.—The amendment payer (or any corporation which is a member which the position involved in the trans- made by subsection (a) shall not apply to of a controlled group (as defined in section action relates, shall not be taken into ac- any transfer pursuant to a written binding 267(f)(1)) which includes the taxpayer)’’. count in determining whether any other con- contract in effect on June 8, 1997, that pro- (c) EFFECTIVE DATE.—The amendments structive sale after June 8, 1997, has occurred vides for the transfer of a fixed amount of made by this section shall apply to taxable H4738 CONGRESSIONAL RECORD — HOUSE June 26, 1997 years beginning after the date of the enact- by inserting after subsection (j) the follow- uidations and non-pro rata redemptions) is ment of this Act. ing new subsection: amended to read as follows: SEC. 1004. GAINS AND LOSSES FROM CERTAIN ‘‘(k) DISALLOWANCE OF DEDUCTION ON CER- ‘‘(1) TREATMENT OF PARTIAL LIQUIDATIONS TERMINATIONS WITH RESPECT TO TAIN DEBT INSTRUMENTS OF CORPORATIONS.— AND CERTAIN REDEMPTIONS.—Except as other- PROPERTY. ‘‘(1) IN GENERAL.—No deduction shall be al- wise provided in regulations— (a) APPLICATION OF CAPITAL TREATMENT TO lowed under this chapter for any interest ‘‘(A) REDEMPTIONS.—In the case of any re- PROPERTY OTHER THAN PERSONAL PROP- paid or accrued on a disqualified debt instru- demption of stock— ERTY.— ment. ‘‘(i) which is part of a partial liquidation (1) IN GENERAL.—Paragraph (1) of section ‘‘(2) DISQUALIFIED DEBT INSTRUMENT.—For (within the meaning of section 302(e)) of the 1234A (relating to gains and losses from cer- purposes of this subsection, the term ‘dis- redeeming corporation, tain terminations) is amended by striking qualified debt instrument’ means any indebt- ‘‘(ii) which is not pro rata as to all share- ‘‘personal property (as defined in section edness of a corporation which is payable in holders, or 1092(d)(1))’’ and inserting ‘‘property’’. equity of the issuer or a related party. ‘‘(iii) which would not have been treated (2) EFFECTIVE DATE.—The amendment ‘‘(3) SPECIAL RULES FOR AMOUNTS PAYABLE (in whole or in part) as a dividend if any op- made by paragraph (1) shall apply to termi- IN EQUITY.—For purposes of paragraph (2), in- tions had not been taken into account under nations more than 30 days after the date of debtedness shall be treated as payable in eq- section 318(a)(4), the enactment of this Act. uity of the issuer or a related party only if— any amount treated as a dividend with re- (b) APPLICATION OF CAPITAL TREATMENT, ‘‘(A) a substantial amount of the principal spect to such redemption shall be treated as ETC. TO OBLIGATIONS ISSUED BY NATURAL or interest is required to be paid or con- an extraordinary dividend to which para- PERSONS.— verted, or at the option of the issuer or a re- graphs (1) and (2) of subsection (a) apply (1) IN GENERAL.—Section 1271(b) is amended lated party is payable in, or convertible into, without regard to the period the taxpayer to read as follows: such equity, held such stock. In the case of a redemption ‘‘(b) EXCEPTION FOR CERTAIN OBLIGA- ‘‘(B) a substantial amount of the principal described in clause (iii), only the basis in the TIONS.— or interest is required to be determined, or stock redeemed shall be taken into account ‘‘(1) IN GENERAL.—This section shall not at the option of the issuer or a related party under subsection (a). apply to— is determined, by reference to the value of ‘‘(B) REORGANIZATIONS, ETC.—An exchange ‘‘(A) any obligation issued by a natural such equity, or described in section 356 which is treated as a person before June 9, 1997, and ‘‘(C) the indebtedness is part of an arrange- dividend shall be treated as a redemption of ‘‘(B) any obligation issued before July 2, ment which is reasonably expected to result stock for purposes of applying subparagraph 1982, by an issuer which is not a corporation in a transaction described in subparagraph (A).’’. and is not a government or political subdivi- (A) or (B). (c) TIME FOR REDUCTION.—Paragraph (1) of sion thereof. For purposes of subparagraphs (A) and (B), section 1059(d) is amended to read as follows: ‘‘(2) TERMINATION.—Paragraph (1) shall not principal or interest shall be treated as re- ‘‘(1) TIME FOR REDUCTION.—Any reduction apply to any obligation purchased (within quired to be so paid, converted, or deter- in basis under subsection (a)(1) shall be the meaning of section 179(d)(2)) after June 8, mined if it may be required at the option of treated as occurring at the beginning of the 1997.’’. the holder or a related party and there is a ex-dividend date of the extraordinary divi- (2) EFFECTIVE DATE.—The amendment substantial certainty the option will be exer- dend to which the reduction relates.’’. made by paragraph (1) shall take effect on cised. (d) EFFECTIVE DATES.— the date of enactment of this Act. ‘‘(4) RELATED PARTY.—For purposes of this (1) IN GENERAL.—The amendments made by SEC. 1005. DETERMINATION OF ORIGINAL ISSUE subsection, a person is a related party with this section shall apply to distributions after DISCOUNT WHERE POOLED DEBT respect to another person if such person May 3, 1995. OBLIGATIONS SUBJECT TO ACCEL- bears a relationship to such other person de- (2) TRANSITION RULE.—The amendments ERATION. scribed in section 267(b) or 707(b). made by this section shall not apply to any (a) IN GENERAL.—Subparagraph (C) of sec- ‘‘(5) REGULATIONS.—The Secretary shall distribution made pursuant to the terms of— tion 1272(a)(6) (relating to debt instruments prescribe such regulations as may be nec- (A) a written binding contract in effect on to which the paragraph applies) is amended essary or appropriate to carry out the pur- May 3, 1995, and at all times thereafter be- by striking ‘‘or’’ at the end of clause (i), by poses of this subsection, including regula- fore such distribution, or striking the period at the end of clause (ii) tions preventing avoidance of this subsection (B) a tender offer outstanding on May 3, and inserting ‘‘, or’’, and by inserting after through the use of an issuer other than a 1995. clause (i) the following: corporation.’’. (3) CERTAIN DIVIDENDS NOT PURSUANT TO ‘‘(iii) any pool of debt instruments the (b) EFFECTIVE DATE.— CERTAIN REDEMPTIONS.—In determining yield on which may be reduced by reason of (1) IN GENERAL.—The amendment made by whether the amendment made by subsection prepayments (or to the extent provided in this section shall apply to disqualified debt (a) applies to any extraordinary dividend regulations, by reason of other events). instruments issued after June 8, 1997. other than a dividend treated as an extraor- To the extent provided in regulations pre- (2) TRANSITION RULE.—The amendment dinary dividend under section 1059(e)(1) of scribed by the Secretary, in the case of a made by this section shall not apply to any the Internal Revenue Code of 1986 (as amend- small business engaged in the trade or busi- instrument issued after June 8, 1997, if such ed by this Act), paragraphs (1) and (2) shall ness of selling tangible personal property at instrument is— be applied by substituting ‘‘September 13, retail, clause (iii) shall not apply to debt in- (A) issued pursuant to a written agreement 1995’’ for ‘‘May 3, 1995’’. struments incurred in the ordinary course of which was binding on such date and at all SEC. 1012. APPLICATION OF SECTION 355 TO DIS- such trade or business while held by such times thereafter, TRIBUTIONS FOLLOWED BY ACQUI- (B) described in a ruling request submitted SITIONS AND TO INTRAGROUP business.’’. TRANSACTIONS. (b) EFFECTIVE DATES.— to the Internal Revenue Service on or before (a) DISTRIBUTIONS FOLLOWED BY ACQUISI- such date, or (1) IN GENERAL.—The amendment made by TIONS.—Section 355 (relating to distribution this section shall apply to taxable years be- (C) described on or before such date in a of stock and securities of a controlled cor- ginning after the date of the enactment of public announcement or in a filing with the poration) is amended by adding at the end this Act. Securities and Exchange Commission re- the following new subsection: (2) CHANGE IN METHOD OF ACCOUNTING.—In quired solely by reason of the distribution. ‘‘(e) RECOGNITION OF GAIN WHERE CERTAIN the case of any taxpayer required by this Subtitle B—Corporate Organizations and DISTRIBUTIONS OF STOCK OR SECURITIES ARE section to change its method of accounting Reorganizations FOLLOWED BY ACQUISITION.— for its first taxable year beginning after the SEC. 1011. TAX TREATMENT OF CERTAIN EX- ‘‘(1) GENERAL RULE.—If there is a distribu- date of the enactment of this Act— TRAORDINARY DIVIDENDS. tion to which this subsection applies, the fol- (A) such change shall be treated as initi- (a) TREATMENT OF EXTRAORDINARY DIVI- lowing rules shall apply: ated by the taxpayer, DENDS IN EXCESS OF BASIS.—Paragraph (2) of ‘‘(A) ACQUISITION OF CONTROLLED CORPORA- (B) such change shall be treated as made section 1059(a) (relating to corporate share- TION.—If there is an acquisition described in with the consent of the Secretary, and holder’s recognition of gain attributable to paragraph (2)(A)(ii) with respect to any con- (C) the net amount of the adjustments re- nontaxed portion of extraordinary dividends) trolled corporation, any stock or securities quired to be taken into account by the tax- is amended to read as follows: in the controlled corporation shall not be payer under section 481 of the Internal Reve- ‘‘(2) AMOUNTS IN EXCESS OF BASIS.—If the treated as qualified property for purposes of nue Code of 1986 shall be taken into account nontaxed portion of such dividends exceeds subsection (c)(2) of this section or section ratably over the 4-taxable year period begin- such basis, such excess shall be treated as 361(c)(2). ning with such first taxable year. gain from the sale or exchange of such stock ‘‘(B) ACQUISITION OF DISTRIBUTING CORPORA- SEC. 1006. DENIAL OF INTEREST DEDUCTIONS ON for the taxable year in which the extraor- TION.—If there is an acquisition described in CERTAIN DEBT INSTRUMENTS. dinary dividend is received.’’. paragraph (2)(A)(ii) with respect to the dis- (a) IN GENERAL.—Section 163 (relating to (b) TREATMENT OF REDEMPTIONS WHERE OP- tributing corporation, the controlled cor- deduction for interest) is amended by redes- TIONS INVOLVED.—Paragraph (1) of section poration shall recognize gain in an amount ignating subsection (k) as subsection (l) and 1059(e) (relating to treatment of partial liq- equal to the amount of net gain which would June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4739 be recognized if all the assets of the distrib- distribution made in a title 11 or similar case percent interest in such corporation imme- uting corporation (immediately after the (as defined in section 368(a)(3)). diately after the distribution. distribution) were sold (at such time) for fair ‘‘(C) AGGREGATION AND ATTRIBUTION ‘‘(2) 50-PERCENT INTEREST.—For purposes of market value. Any gain recognized under the RULES.— this subsection, the term ‘50-percent inter- preceding sentence shall be treated as long- ‘‘(i) AGGREGATION.—The rules of paragraph est’ means stock possessing 50 percent of the term capital gain and shall be taken into ac- (7)(A) of subsection (d) shall apply. total combined voting power of all classes of count for the taxable year which includes ‘‘(ii) ATTRIBUTION.—Section 355(d)(8)(A) stock entitled to vote and 50 percent of the the day after the date of such distribution. shall apply in determining whether a person total value of shares of all classes of stock.’’. ‘‘(2) DISTRIBUTIONS TO WHICH SUBSECTION holds stock or securities in any corporation. (2) D REORGANIZATIONS.—Section APPLIES.— ‘‘(D) SUCCESSORS AND PREDECESSORS.—For 368(a)(2)(H) (relating to special rule for deter- ‘‘(A) IN GENERAL.—This subsection shall purposes of this subsection, any reference to mining whether certain transactions are apply to any distribution— a controlled corporation or a distributing qualified under paragraph (1)(D)) is amended ‘‘(i) to which this section (or so much of corporation shall include a reference to any to read as follows: section 356 as relates to this section) applies, predecessor or successor of such corporation. ‘‘(H) SPECIAL RULES FOR DETERMINING and ‘‘(E) STATUTE OF LIMITATIONS.—If there is WHETHER CERTAIN TRANSACTIONS ARE QUALI- ‘‘(ii) which is part of a plan (or series of re- an acquisition to which paragraph (1) (A) or FIED UNDER PARAGRAPH (1)(D).—For purposes lated transactions) pursuant to which 1 or (B) applies— of determining whether a transaction quali- more persons acquire directly or indirectly ‘‘(i) the statutory period for the assess- fies under paragraph (1)(D)— stock representing a 50-percent or greater in- ment of any deficiency attributable to any ‘‘(i) in the case of a transaction with re- terest in the distributing corporation or any part of the gain recognized under this sub- spect to which the requirements of subpara- controlled corporation. section by reason of such acquisition shall graphs (A) and (B) of section 354(b)(1) are ‘‘(B) PLAN PRESUMED TO EXIST IN CERTAIN not expire before the expiration of 3 years met, the term ‘control’ has the meaning CASES.—If 1 or more persons acquire directly from the date the Secretary is notified by given such term by section 304(c), and or indirectly stock representing a 50-percent the taxpayer (in such manner as the Sec- ‘‘(ii) in the case of a transaction with re- or greater interest in the distributing cor- retary may by regulations prescribe) that spect to which the requirements of section poration or any controlled corporation dur- such acquisition occurred, and 355 are met, the shareholders described in ing the 4-year period beginning on the date ‘‘(ii) such deficiency may be assessed be- paragraph (1)(D) shall be treated as having which is 2 years before the date of the dis- fore the expiration of such 3-year period not- control of the corporation to which the as- tribution, such acquisition shall be treated withstanding the provisions of any other law sets are transferred if such shareholders hold as pursuant to a plan described in subpara- or rule of law which would otherwise prevent a 50-percent or greater interest (as defined in graph (A)(ii) unless it is established that the such assessment. section 351(c)(2)) in such corporation imme- distribution and the acquisition are not pur- ‘‘(5) REGULATIONS.—The Secretary shall diately after the transfer.’’. suant to a plan or series of related trans- prescribe such regulations as may be nec- (d) EFFECTIVE DATES.— actions. essary to carry out the purposes of this sub- (1) SECTION 355 RULES.—The amendments ‘‘(C) COORDINATION WITH SUBSECTION (d).— section, including regulations— made by subsections (a) and (b) shall apply This subsection shall not apply to any dis- ‘‘(A) providing for the application of this to distributions after April 16, 1997. tribution to which subsection (d) applies. subsection where there is more than 1 con- (2) DIVISIVE TRANSACTIONS.—The amend- ‘‘(3) SPECIAL RULES RELATING TO ACQUISI- trolled corporation, ments made by subsection (c) shall apply to TIONS.— ‘‘(B) treating 2 or more distributions as 1 transfers after the date of the enactment of ‘‘(A) CERTAIN ACQUISITIONS NOT TAKEN INTO distribution where necessary to prevent the this Act. ACCOUNT.—Except as provided in regulations, avoidance of such purposes, and (3) TRANSITION RULE.—The amendments the following acquisitions shall not be treat- ‘‘(C) providing for the application of rules made by this section shall not apply to any ed as described in paragraph (2)(A)(ii): similar to the rules of subsection (d)(6) where distribution after April 16, 1997, if such dis- ‘‘(i) The acquisition of stock in any con- appropriate for purposes of paragraph tribution is— trolled corporation by the distributing cor- (A) made pursuant to a written agreement poration. (2)(B).’’. which was binding on such date and at all ‘‘(ii) The acquisition by a person of stock (b) SECTION 355 NOT TO APPLY TO CERTAIN times thereafter, in any controlled corporation by reason of INTRAGROUP TRANSACTIONS.—Section 355, as holding stock in the distributing corpora- amended by subsection (a), is amended by (B) described in a ruling request submitted tion. adding at the end the following new sub- to the Internal Revenue Service on or before ‘‘(iii) The acquisition by a person of stock section: such date, or in any successor corporation of the distribut- ‘‘(f) SECTION NOT TO APPLY TO CERTAIN (C) described on or before such date in a ing corporation or any controlled corpora- INTRAGROUP TRANSACTIONS.—Except as pro- public announcement or in a filing with the tion by reason of holding stock in such dis- vided in regulations, this section shall not Securities and Exchange Commission re- tributing or controlled corporation. apply to the distribution of stock from 1 quired solely by reason of the distribution. ‘‘(iv) The acquisition of stock in a corpora- member of an affiliated group filing a con- This paragraph shall not apply to any writ- tion if shareholders owning directly or indi- solidated return to another member of such ten agreement, ruling request, or public an- rectly a 50-percent or greater interest in the group, and the Secretary shall provide prop- nouncement or filing unless it identifies the distributing corporation or any controlled er adjustments for the treatment of such dis- unrelated acquirer of the distributing cor- corporation before such acquisition own indi- tribution, including (if necessary) adjust- poration or of any controlled corporation, rectly a 50-percent or greater interest in ments to— whichever is applicable. such distributing or controlled corporation ‘‘(1) the adjusted basis of any stock SEC. 1013. TAX TREATMENT OF REDEMPTIONS IN- after such acquisition. which— VOLVING RELATED CORPORATIONS. This subparagraph shall not apply to any ac- ‘‘(A) is in a corporation which is a member (a) STOCK PURCHASES BY RELATED COR- quisition if the stock held before the acquisi- of such group, and PORATIONS.—The last sentence of section tion was acquired pursuant to a plan de- ‘‘(B) is held by another member of such 304(a)(1) (relating to acquisition by related scribed in subparagraph (A)(ii). group, and corporation other than subsidiary) is amend- ‘‘(B) ASSET ACQUISITIONS.—Except as pro- ‘‘(2) the earnings and profits of any mem- ed to read as follows: ‘‘To the extent that vided in regulations, for purposes of this sub- ber of such group.’’. such distribution is treated as a distribution section, if the assets of the distributing cor- (c) DETERMINATION OF CONTROL IN CERTAIN to which section 301 applies, the transferor poration or any controlled corporation are DIVISIVE TRANSACTIONS.— and the acquiring corporation shall be treat- acquired by a successor corporation in a (1) SECTION 351 TRANSACTIONS.—Section ed in the same manner as if the transferor transaction described in subparagraph (A), 351(c) (relating to special rule) is amended to had transferred the stock so acquired to the (C), or (D) of section 368(a)(1) or any other read as follows: acquiring corporation in exchange for stock transaction specified in regulations by the ‘‘(c) SPECIAL RULES WHERE DISTRIBUTION of the acquiring corporation in a transaction Secretary, the shareholders (immediately be- TO SHAREHOLDERS.— to which section 351(a) applies, and then the fore the acquisition) of the corporation ac- ‘‘(1) IN GENERAL.—In determining control acquiring corporation had redeemed the quiring such assets shall be treated as ac- for purposes of this section— stock it was treated as issuing in such trans- quiring stock in the corporation from which ‘‘(A) the fact that any corporate transferor action.’’. the assets were acquired. distributes part or all of the stock in the cor- (b) COORDINATION WITH SECTION 1059.— ‘‘(4) DEFINITION AND SPECIAL RULES.—For poration which it receives in the exchange to Clause (iii) of section 1059(e)(1)(A), as amend- purposes of this subsection— its shareholders shall not be taken into ac- ed by this title, is amended to read as fol- ‘‘(A) 50-PERCENT OR GREATER INTEREST.— count, and lows: The term ‘50-percent or greater interest’ has ‘‘(B) if the requirements of section 355 are ‘‘(iii) which would not have been treated the meaning given such term by subsection met with respect to such distribution, the (in whole or in part) as a dividend if— (d)(4). shareholders shall be treated as in control of ‘‘(I) any options had not been taken into ‘‘(B) DISTRIBUTIONS IN TITLE 11 OR SIMILAR such corporation immediately after the ex- account under section 318(a)(4), or CASE.—Paragraph (1) shall not apply to any change if the shareholders hold at least a 50- ‘‘(II) section 304(a) had not applied,’’. H4740 CONGRESSIONAL RECORD — HOUSE June 26, 1997

(c) SPECIAL RULE FOR ACQUISITIONS BY FOR- Subtitle C—Other Corporate Provisions ‘‘(i) 50 percent of the fees paid to all pro- EIGN CORPORATIONS.—Section 304(b) (relating SEC. 1021. REGISTRATION AND OTHER PROVI- moters of the tax shelter with respect to of- to special rules for application of subsection SIONS RELATING TO CONFIDENTIAL ferings made before the date such shelter is (a)) is amended by adding at the end the fol- CORPORATE TAX SHELTERS. registered under section 6111, or lowing new paragraph: (a) IN GENERAL.—Section 6111 (relating to ‘‘(ii) $10,000. ‘‘(5) ACQUISITIONS BY FOREIGN CORPORA- registration of tax shelters) is amended by Clause (i) shall be applied by substituting ‘75 TIONS.— redesignating subsections (d) and (e) as sub- percent’ for ‘50 percent’ in the case of an in- ‘‘(A) IN GENERAL.—In the case of any acqui- sections (e) and (f), respectively, and by in- tentional failure or act described in para- sition to which subsection (a) applies in serting after subsection (c) the following new graph (1). which the acquiring corporation is a foreign subsection: ‘‘(B) SPECIAL RULE FOR PARTICIPANTS RE- corporation, the only earnings and profits ‘‘(d) CERTAIN CONFIDENTIAL ARRANGEMENTS QUIRED TO REGISTER SHELTER.—In the case of taken into account under paragraph (2)(A) TREATED AS TAX SHELTERS.— a person required to register such a tax shel- shall be those earnings and profits— ‘‘(1) IN GENERAL.—For purposes of this sec- ter by reason of section 6111(d)(3)— ‘‘(i) which are attributable (under regula- tion, the term ‘tax shelter’ includes any en- ‘‘(i) such person shall be required to pay tions prescribed by the Secretary) to stock tity, plan, arrangement, or transaction— the penalty under paragraph (1) only if such of the acquiring corporation owned (within ‘‘(A) a significant purpose of the structure person actually participated in such shelter, the meaning of section 958(a)) by a corpora- of which is the avoidance or evasion of Fed- ‘‘(ii) the amount of such penalty shall be tion or individual which is— eral income tax for a direct or indirect par- determined by taking into account under ticipant which is a corporation, ‘‘(I) a United States shareholder (within subparagraph (A)(i) only the fees paid by ‘‘(B) which is offered to any potential par- the meaning of section 951(b)) of the acquir- such person, and ticipant under conditions of confidentiality, ing corporation, and ‘‘(iii) such penalty shall be in addition to and ‘‘(II) the transferor or a person who bears a the penalty imposed on any other person for ‘‘(C) for which the tax shelter promoters relationship to the transferor described in failing to register such shelter.’’. may receive fees in excess of $100,000 in the section 267(b) or 707(b), and (c) MODIFICATIONS TO SUBSTANTIAL UNDER- aggregate. ‘‘(ii) which were accumulated during the STATEMENT PENALTY.— ‘‘(2) CONDITIONS OF CONFIDENTIALITY.—For period or periods such stock was owned by (1) RESTRICTION ON REASONABLE BASIS FOR purposes of paragraph (1)(B), an offer is such person while the acquiring corporation CORPORATE UNDERSTATEMENT OF INCOME under conditions of confidentiality if— was a controlled foreign corporation. TAX.—Subparagraph (B) of section 6662(d)(2) ‘‘(A) the potential participant to whom the is amended by adding at the end the follow- ‘‘(B) APPLICATION OF SECTION 1248.—For pur- offer is made (or any other person acting on poses of subparagraph (A), the rules of sec- ing new flush sentence: behalf of such participant) has an under- ‘‘For purposes of clause (ii)(II), in no event tion 1248(d) shall apply except to the extent standing or agreement with or for the bene- otherwise provided by the Secretary. shall a corporation be treated as having a fit of any promoter of the tax shelter that reasonable basis for its tax treatment of an ‘‘(C) REGULATIONS.—The Secretary shall such participant (or such other person) will prescribe such regulations as are appropriate item attributable to a multiple-party financ- limit disclosure of the tax shelter or any sig- ing transaction if such treatment does not to carry out the purposes of this para- nificant tax features of the tax shelter, or graph.’’. clearly reflect the income of the corpora- ‘‘(B) any promoter of the tax shelter— tion.’’. (d) EFFECTIVE DATE.— ‘‘(i) claims, knows, or has reason to know, (2) MODIFICATION TO DEFINITION OF TAX (1) IN GENERAL.—The amendments made by ‘‘(ii) knows or has reason to know that any SHELTER.—Clause (iii) of section 6662(d)(2)(C) this section shall apply to distributions and other person (other than the potential par- is amended by striking ‘‘the principal pur- acquisitions after June 8, 1997. ticipant) claims, or pose’’ and inserting ‘‘a significant purpose’’. (2) TRANSITION RULE.—The amendments ‘‘(iii) causes another person to claim, (d) CONFORMING AMENDMENTS.— made by this section shall not apply to any that the tax shelter (or any aspect thereof) is (1) Paragraph (2) of section 6707(a) is distribution or acquisition after June 8, 1997, proprietary to any person other than the po- amended by striking ‘‘The penalty’’ and in- if such distribution or acquisition is— tential participant or is otherwise protected serting ‘‘Except as provided in paragraph (3), (A) made pursuant to a written agreement from disclosure to or use by others. the penalty’’. which was binding on such date and at all For purposes of this subsection, the term (2) Subparagraph (A) of section 6707(a)(1) is times thereafter, ‘promoter’ means any person or any related amended by striking ‘‘paragraph (2)’’ and in- (B) described in a ruling request submitted person (within the meaning of section 267 or serting ‘‘paragraph (2) or (3), as the case may to the Internal Revenue Service on or before 707) who participates in the organization, be’’. such date, or management, or sale of the tax shelter. (e) EFFECTIVE DATE.— (C) described in a public announcement or ‘‘(3) PERSONS OTHER THAN PROMOTER RE- (1) IN GENERAL.—Except as provided in filing with the Securities and Exchange QUIRED TO REGISTER IN CERTAIN CASES.— paragraph (2), the amendments made by this Commission on or before such date. ‘‘(A) IN GENERAL.—If— section shall apply to any tax shelter (as de- SEC. 1014. MODIFICATION OF HOLDING PERIOD ‘‘(i) the requirements of subsection (a) are fined in section 6111(d) of the Internal Reve- APPLICABLE TO DIVIDENDS RE- not met with respect to any tax shelter (as nue Code of 1986, as amended by this section) CEIVED DEDUCTION. defined in paragraph (1)) by any tax shelter interests in which are offered to potential (a) IN GENERAL.—Subparagraph (A) of sec- promoter, and participants after the Secretary of the tion 246(c)(1) is amended to read as follows: ‘‘(ii) no tax shelter promoter is a United Treasury prescribes guidance with respect to ‘‘(A) which is held by the taxpayer for 45 States person, meeting requirements added by such amend- days or less during the 90-day period begin- then each United States person who dis- ments. ning on the date which is 45 days before the cussed participation in such shelter shall (2) MODIFICATIONS TO SUBSTANTIAL UNDER- date on which such share becomes ex-divi- register such shelter under subsection (a). STATEMENT PENALTY.—The amendments dend with respect to such dividend, or’’. ‘‘(B) EXCEPTION.—Subparagraph (A) shall made by subsection (c) shall apply to items not apply to a United States person who dis- with respect to transactions entered into (b) CONFORMING AMENDMENTS.— cussed participation in a tax shelter if— (1) Paragraph (2) of section 246(c) is amend- after the date of the enactment of this Act. ‘‘(i) such person notified the promoter in ed to read as follows: SEC. 1022. CERTAIN PREFERRED STOCK TREAT- writing (not later than the close of the 90th ED AS BOOT. ‘‘(2) 90-DAY RULE IN THE CASE OF CERTAIN day after the day on which such discussions (a) SECTION 351.—Section 351 (relating to PREFERENCE DIVIDENDS.—In the case of stock began) that such person would not partici- transfer to corporation controlled by trans- having preference in dividends, if the tax- pate in such shelter, and feror) is amended by redesignating sub- payer receives dividends with respect to such ‘‘(ii) such person does not participate in section (g) as subsection (h) and by inserting stock which are attributable to a period or such shelter. after subsection (f) the following new sub- periods aggregating in excess of 366 days, ‘‘(4) OFFER TO PARTICIPATE TREATED AS section: paragraph (1)(A) shall be applied— OFFER FOR SALE.—For purposes of sub- ‘‘(g) NONQUALIFIED PREFERRED STOCK NOT ‘‘(A) by substituting ‘90 days’ for ‘45 days’ sections (a) and (b), an offer to participate in TREATED AS STOCK.— each place it appears, and a tax shelter (as defined in paragraph (1)) ‘‘(1) IN GENERAL.—For purposes of sub- ‘‘(B) by substituting ‘180-day period’ for shall be treated as an offer for sale.’’. sections (a) and (b), the term ‘stock’ shall ‘90-day period’.’’. (b) PENALTY.—Subsection (a) of section not include nonqualified preferred stock. (2) Paragraph (3) of section 246(c) is amend- 6707 (relating to failure to furnish informa- ‘‘(2) NONQUALIFIED PREFERRED STOCK.—For ed by adding ‘‘and’’ at the end of subpara- tion regarding tax shelters) is amended by purposes of paragraph (1)— graph (A), by striking subparagraph (B), and adding at the end the following new para- ‘‘(A) IN GENERAL.—The term ‘nonqualified by redesignating subparagraph (C) as sub- graph: preferred stock’ means preferred stock if— paragraph (B). ‘‘(3) CONFIDENTIAL ARRANGEMENTS.— ‘‘(i) the holder of such stock has the right (c) EFFECTIVE DATE.—The amendments ‘‘(A) IN GENERAL.—In the case of a tax shel- to require the issuer or a related person to made by this section shall apply to dividends ter (as defined in section 6111(d)), the penalty redeem or purchase the stock, received or accrued after the 30th day after imposed under paragraph (1) shall be an ‘‘(ii) the issuer or a related person is re- the date of the enactment of this Act. amount equal to the greater of— quired to redeem or purchase such stock, June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4741

‘‘(iii) the issuer or a related person has the tion’ means any corporation which is de- ‘‘(2) APPLICATION OF SUBSECTION.— right to redeem or purchase the stock and, scribed in clause (i) of section 447(d)(2)(C) ‘‘(A) IN GENERAL.—This subsection shall as of the issue date, it is more likely than throughout the 8-year period beginning on apply to any payment to an attorney in con- not that such right will be exercised, or the date which is 5 years before the date of nection with legal services (whether or not ‘‘(iv) the dividend rate on such stock varies the recapitalization. For purposes of the pre- such services are performed for the payor). in whole or in part (directly or indirectly) ceding sentence, stock shall not be treated ‘‘(B) EXCEPTION.—This subsection shall not with reference to interest rates, commodity as owned by a family member during any pe- apply to the portion of any payment which is prices, or other similar indices. riod described in section 355(d)(6)(B).’’. required to be reported under section 6041(a) ‘‘(B) LIMITATIONS.—Clauses (i), (ii), and (iii) (c) SECTION 355.—Paragraph (3) of section (or would be so required but for the dollar of subparagraph (A) shall apply only if the 355(a) is amended by adding at the end the limitation contained therein) or section right or obligation referred to therein may following new subparagraph: 6051.’’. be exercised within the 20-year period begin- ‘‘(D) NONQUALIFIED PREFERRED STOCK.— (b) REPORTING OF ATTORNEYS’ FEES PAY- ning on the issue date of such stock and such Nonqualified preferred stock (as defined in ABLE TO CORPORATIONS.—The regulations right or obligation is not subject to a contin- section 351(g)(2)) received in a distribution providing an exception under section 6041 of gency which, as of the issue date, makes re- with respect to stock other than non- the Internal Revenue Code of 1986 for pay- mote the likelihood of the redemption or qualified preferred stock (as so defined) shall ments made to corporations shall not apply purchase. not be treated as stock or securities.’’. to payments of attorneys’ fees. ‘‘(C) EXCEPTIONS FOR CERTAIN RIGHTS OR OB- (d) SECTION 356.—Section 356 is amended by (c) EFFECTIVE DATE.—The amendment LIGATIONS.— redesignating subsections (e) and (f) as sub- made by this section shall apply to payments ‘‘(i) IN GENERAL.—A right or obligation sections (f) and (g), respectively, and by in- made after December 31, 1997. shall not be treated as described in clause (i), serting after subsection (d) the following new SEC. 1032. DECREASE OF THRESHOLD FOR RE- (ii), or (iii) of subparagraph (A) if— subsection: PORTING PAYMENTS TO CORPORA- ‘‘(I) it may be exercised only upon the ‘‘(e) NONQUALIFIED PREFERRED STOCK TIONS PERFORMING SERVICES FOR FEDERAL AGENCIES. death, disability, or mental incompetency of TREATED AS OTHER PROPERTY.—For purposes the holder, or of this section— (a) IN GENERAL.—Subsection (d) of section ‘‘(II) in the case of a right or obligation to ‘‘(1) IN GENERAL.—Except as provided in 6041A (relating to returns regarding pay- redeem or purchase stock transferred in con- paragraph (2), the term ‘other property’ in- ments of remuneration for services and di- nection with the performance of services for cludes nonqualified preferred stock (as de- rect sales) is amended by adding at the end the issuer or a related person (and which rep- fined in section 351(g)(2)). the following new paragraph: resents reasonable compensation), it may be ‘‘(2) EXCEPTION.—The term ‘other property’ ‘‘(3) PAYMENTS TO CORPORATIONS BY FED- exercised only upon the holder’s separation does not include nonqualified preferred stock ERAL EXECUTIVE AGENCIES.— from service from the issuer or a related per- (as so defined) to the extent that, under sec- ‘‘(A) IN GENERAL.—Notwithstanding any son. tion 354 or 355, such preferred stock would be regulation prescribed by the Secretary be- ‘‘(ii) EXCEPTION.—Clause (i)(I) shall not permitted to be received without the rec- fore the date of the enactment of this para- apply if the stock relinquished in the ex- ognition of gain.’’. graph, subsection (a) shall apply to remu- change, or the stock acquired in the ex- (e) CONFORMING AMENDMENTS.— neration paid to a corporation by any Fed- change is in— (1) Subparagraph (B) of section 354(a)(2) eral executive agency (as defined in section ‘‘(I) a corporation if any class of stock in and subparagraph (C) of section 355(a)(3)(C) 6050M(b)). such corporation or a related party is readily are each amended by inserting ‘‘(including ‘‘(B) EXCEPTION.—Subparagraph (A) shall tradable on an established securities market nonqualified preferred stock, as defined in not apply to— or otherwise, or section 351(g)(2))’’ after ‘‘stock’’. ‘‘(i) services under contracts described in ‘‘(II) any other corporation if such ex- (2) Subparagraph (A) of section 354(a)(3) section 6050M(e)(3) with respect to which the change is part of a transaction or series of and subparagraph (A) of section 355(a)(4) are requirements of section 6050M(e)(2) are met, transactions in which such corporation is to each amended by inserting ‘‘nonqualified and become a corporation described in subclause preferred stock and’’ after ‘‘including’’. ‘‘(ii) such other services as the Secretary (I). (3) Section 1036 is amended by redesignat- may specify in regulations prescribed after ‘‘(3) DEFINITIONS.—For purposes of this sub- ing subsection (b) as subsection (c) and by in- the date of the enactment of this para- section— serting after subsection (a) the following new graph.’’. ‘‘(A) PREFERRED STOCK.—The term ‘pre- subsection: (b) EFFECTIVE DATE.—The amendment ferred stock’ means stock which is limited made by this section shall apply to returns ‘‘(b) NONQUALIFIED PREFERRED STOCK NOT and preferred as to dividends and does not the due date for which (determined without TREATED AS STOCK.—For purposes of this sec- participate (including through a conversion tion, nonqualified preferred stock (as defined regard to any extension) is more than 90 days privilege) in corporate growth to any signifi- in section 351(g)(2)) shall be treated as prop- after the date of the enactment of this Act. cant extent. erty other than stock.’’. SEC. 1033. DISCLOSURE OF RETURN INFORMA- ‘‘(B) RELATED PERSON.—A person shall be TION FOR ADMINISTRATION OF CER- (f) EFFECTIVE DATE.— treated as related to another person if they TAIN VETERANS PROGRAMS. (1) IN GENERAL.—The amendments made by (a) GENERAL RULE.—Subparagraph (D) of bear a relationship to such other person de- this section shall apply to transactions after section 6103(l)(7) (relating to disclosure of re- scribed in section 267(b) or 707(b). June 8, 1997. ‘‘(4) REGULATIONS.—The Secretary may turn information to Federal, State, and local (2) TRANSITION RULE.—The amendments agencies administering certain programs) is prescribe such regulations as may be nec- made by this section shall not apply to any amended by striking ‘‘Clause (viii) shall not essary or appropriate to carry out the pur- transaction after June 8, 1997, if such trans- apply after September 30, 1998.’’. poses of this subsection and sections action is— (b) EFFECTIVE DATE.—The amendment 354(a)(2)(C), 355(a)(3)(D), and 356(e). The Sec- (A) made pursuant to a written agreement made by subsection (a) shall take effect on retary may also prescribe regulations, con- which was binding on such date and at all the date of the enactment of this Act. sistent with the treatment under this sub- times thereafter, section and such sections, for the treatment (B) described in a ruling request submitted SEC. 1034. CONTINUOUS LEVY ON CERTAIN PAY- MENTS. of nonqualified preferred stock under other to the Internal Revenue Service on or before (a) IN GENERAL.—Section 6331 (relating to provisions of this title.’’. such date, or (b) SECTION 354.—Paragraph (2) of section levy and distraint) is amended— (C) described on or before such date in a 354(a) (relating to exchanges of stock and se- (1) by redesignating subsection (h) as sub- public announcement or in a filing with the curities in certain reorganizations) is section (i), and Securities and Exchange Commission re- amended by adding at the end the following (2) by inserting after subsection (g) the fol- quired solely by reason of the distribution. new subparagraph: lowing new subsection: ‘‘(C) NONQUALIFIED PREFERRED STOCK.— Subtitle D—Administrative Provisions ‘‘(h) CONTINUING LEVY ON CERTAIN PAY- ‘‘(i) IN GENERAL.—Nonqualified preferred SEC. 1031. REPORTING OF CERTAIN PAYMENTS MENTS.— stock (as defined in section 351(g)(2)) re- MADE TO ATTORNEYS. ‘‘(1) IN GENERAL.—The effect of a levy on ceived in exchange for stock other than non- (a) IN GENERAL.—Section 6045 (relating to specified payments to or received by a tax- qualified preferred stock (as so defined) shall returns of brokers) is amended by adding at payer shall be continuous from the date such not be treated as stock or securities. the end the following new subsection: levy is first made until such levy is released. ‘‘(ii) RECAPITALIZATIONS OF FAMILY-OWNED ‘‘(f) RETURN REQUIRED IN THE CASE OF PAY- Notwithstanding section 6334, such continu- CORPORATIONS.— MENTS TO ATTORNEYS.— ous levy shall attach to up to 15 percent of ‘‘(I) IN GENERAL.—Clause (i) shall not apply ‘‘(1) IN GENERAL.—Any person engaged in a any specified payment due to the taxpayer. in the case of a recapitalization under sec- trade or business and making a payment (in ‘‘(2) SPECIFIED PAYMENT.—For the purposes tion 368(a)(1)(E) of a family-owned corpora- the course of such trade or business) to of paragraph (1), the term ‘specified pay- tion. which this subsection applies shall file a re- ment’ means— ‘‘(II) FAMILY-OWNED CORPORATION.—For turn under subsection (a) and a statement ‘‘(A) any Federal payment other than a purposes of this clause, except as provided in under subsection (b) with respect to such payment for which eligibility is based on the regulations, the term ‘family-owned corpora- payment. income or assets (or both) of a payee, H4742 CONGRESSIONAL RECORD — HOUSE June 26, 1997

‘‘(B) any payment described in paragraph (c) EFFECTIVE DATE.—The amendments ‘‘(5) UNITED STATES PERSON’S RETURN MUST (4), (7), (9), or (11) of section 6334(a), and made by this section shall apply to levies is- BE CONSISTENT WITH TRUST RETURN OR SEC- ‘‘(C) any annuity or pension payment sued after the date of the enactment of this RETARY NOTIFIED OF INCONSISTENCY.—Rules under the Railroad Retirement Act or bene- Act. similar to the rules of section 6034A(c) shall fit under the Railroad Unemployment Insur- SEC. 1037. RETURNS OF BENEFICIARIES OF ES- apply to items reported by a trust under sub- ance Act described in subsection (a)(6) of this TATES AND TRUSTS REQUIRED TO section (b)(1)(B) and to United States persons section.’’. FILE RETURNS CONSISTENT WITH referred to in such subsection.’’. ESTATE OR TRUST RETURN OR TO (b) EFFECTIVE DATE.—The amendment (c) EFFECTIVE DATE.—The amendments made by subsection (a) shall apply to levies NOTIFY SECRETARY OF INCONSIST- ENCY. made by this section shall apply to returns issued after the date of the enactment of this (a) DOMESTIC ESTATES AND TRUSTS.—Sec- of beneficiaries and owners filed after the Act. tion 6034A (relating to information to bene- date of the enactment of this Act. SEC. 1035. MODIFICATION OF LEVY EXEMPTION. ficiaries of estates and trusts) is amended by Subtitle E—Excise Tax Provisions (a) IN GENERAL.—Section 6334 (relating to adding at the end the following new sub- SEC. 1041. EXTENSION AND MODIFICATION OF property exempt from levy) is amended by section: AIRPORT AND AIRWAY TRUST FUND redesignating subsection (f) as subsection (g) ‘‘(c) BENEFICIARY’S RETURN MUST BE CON- TAXES. and by inserting after subsection (e) the fol- SISTENT WITH ESTATE OR TRUST RETURN OR (a) FUEL TAXES.— lowing new subsection: SECRETARY NOTIFIED OF INCONSISTENCY.— (1) AVIATION FUEL.—Clause (ii) of section ‘‘(f) LEVY ALLOWED ON CERTAIN SPECIFIED ‘‘(1) IN GENERAL.—A beneficiary of any es- 4091(b)(3)(A) is amended by striking ‘‘Sep- PAYMENTS.—Any payment described in sub- tate or trust to which subsection (a) applies tember 30, 1997’’ and inserting ‘‘September paragraph (B) or (C) of section 6331(h)(2) shall shall, on such beneficiary’s return, treat any 30, 2007’’. not be exempt from levy if the Secretary ap- reported item in a manner which is consist- (2) AVIATION GASOLINE.—Subparagraph (B) proves the levy thereon under section ent with the treatment of such item on the of section 4081(d)(2) is amended by striking 6331(h).’’. applicable entity’s return. ‘‘September 30, 1997’’ and inserting ‘‘Septem- (b) EFFECTIVE DATE.—The amendment ‘‘(2) NOTIFICATION OF INCONSISTENT TREAT- ber 30, 2007’’. made by subsection (a) shall apply to levies MENT.— (3) NONCOMMERCIAL AVIATION.—Subpara- issued after the date of the enactment of this ‘‘(A) IN GENERAL.—In the case of any re- graph (B) of section 4041(c)(3) is amended by Act. ported item, if— striking ‘‘September 30, 1997’’ and inserting SEC. 1036. CONFIDENTIALITY AND DISCLOSURE ‘‘(i)(I) the applicable entity has filed a re- ‘‘September 30, 2007’’. OF RETURNS AND RETURN INFOR- turn but the beneficiary’s treatment on such MATION. (b) TICKET TAXES.— beneficiary’s return is (or may be) inconsist- (a) IN GENERAL.—Subsection (k) of section (1) PERSONS.—Clause (ii) of section 6103 is amended by adding at the end the fol- ent with the treatment of the item on the 4261(g)(1)(A) is amended by striking ‘‘Sep- lowing new paragraph: applicable entity’s return, or tember 30, 1997’’ and inserting ‘‘September ‘‘(II) the applicable entity has not filed a ‘‘(8) LEVIES ON CERTAIN GOVERNMENT PAY- 30, 2007’’. return, and MENTS.— (2) PROPERTY.—Clause (ii) of section ‘‘(ii) the beneficiary files with the Sec- ‘‘(A) DISCLOSURE OF RETURN INFORMATION IN 4271(d)(1)(A) is amended by striking ‘‘Sep- retary a statement identifying the inconsist- LEVIES ON FINANCIAL MANAGEMENT SERVICE.— tember 30, 1997’’ and inserting ‘‘September In serving a notice of levy, or release of such ency, 30, 2007’’. levy, with respect to any applicable govern- paragraph (1) shall not apply to such item. (c) MODIFICATIONS TO TAX ON TRANSPOR- ment payment, the Secretary may disclose ‘‘(B) BENEFICIARY RECEIVING INCORRECT IN- TATION OF PERSONS BY AIR.— to officers and employees of the Financial FORMATION.—A beneficiary shall be treated (1) IN GENERAL.—Section 4261 (relating to Management Service— as having complied with clause (ii) of sub- imposition of tax) is amended by striking ‘‘(i) return information, including taxpayer paragraph (A) with respect to a reported subsections (a), (b), and (c) and inserting the identity information, item if the beneficiary— following new subsections: ‘‘(ii) the amount of any unpaid liability ‘‘(i) demonstrates to the satisfaction of the ‘‘(a) IN GENERAL.—There is hereby imposed under this title (including penalties and in- Secretary that the treatment of the reported on the amount paid for taxable transpor- terest), and item on the beneficiary’s return is consistent tation of any person a tax equal to 7.5 per- ‘‘(iii) the type of tax and tax period to with the treatment of the item on the state- cent of the amount so paid. ‘‘(b) DOMESTIC SEGMENTS OF TAXABLE which such unpaid liability relates. ment furnished under subsection (a) to the TRANSPORTATION.— ‘‘(B) RESTRICTION ON USE OF DISCLOSED IN- beneficiary by the applicable entity, and ‘‘(1) IN GENERAL.—There is hereby imposed FORMATION.—Return information disclosed ‘‘(ii) elects to have this paragraph apply on the amount paid for each domestic seg- under subparagraph (A) may be used by offi- with respect to that item. ment of taxable transportation by air a tax cers and employees of the Financial Manage- ‘‘(3) EFFECT OF FAILURE TO NOTIFY.—In any in the amount determined in accordance ment Service only for the purpose of, and to case— with the following table for the calendar the extent necessary in, transferring levied ‘‘(A) described in subparagraph (A)(i)(I) of year in which the segment begins: funds in satisfaction of the levy, maintaining paragraph (2), and appropriate agency records in regard to such ‘‘(B) in which the beneficiary does not In the case of segments levy or the release thereof, notifying the tax- comply with subparagraph (A)(ii) of para- beginning during: The tax is: payer and the agency certifying such pay- graph (2), 1997 or 1998 ...... $2.00 1999 ...... $2.25 ment that the levy has been honored, or in any adjustment required to make the treat- 2000 ...... $2.50 the defense of any litigation ensuing from ment of the items by such beneficiary con- 2001 ...... $2.75 the honor of such levy. sistent with the treatment of the items on 2002 or thereafter ...... $3.00. ‘‘(C) APPLICABLE GOVERNMENT PAYMENT.— the applicable entity’s return shall be treat- For purposes of this paragraph, the term ‘ap- ed as arising out of mathematical or clerical ‘‘(2) DOMESTIC SEGMENT.—For purposes of plicable government payment’ means— errors and assessed according to section this section, the term ‘domestic segment’ ‘‘(i) any Federal payment (other than a 6213(b)(1). Paragraph (2) of section 6213(b) means any segment which is taxable trans- payment for which eligibility is based on the shall not apply to any assessment referred to portation described in section 4262(a)(1). income or assets (or both) of a payee) cer- in the preceding sentence. ‘‘(3) CHANGES IN SEGMENTS BY REASON OF REROUTING.—If— tified to the Financial Management Service ‘‘(4) DEFINITIONS.—For purposes of this sub- for disbursement, and section— ‘‘(A) a ticket is purchased for transpor- tation between 2 locations on specified ‘‘(ii) any other payment which is certified ‘‘(A) REPORTED ITEM.—The term ‘reported to the Financial Management Service for item’ means any item for which information flights, and disbursement and which the Secretary des- is required to be furnished under subsection ‘‘(B) at the initiation of the air carrier ignates by published notice.’’. (a). after such purchase, there is a change in the (b) CONFORMING AMENDMENTS.— ‘‘(B) APPLICABLE ENTITY.—The term ‘appli- route taken which changes the number of do- (1) Section 6301(p) is amended— cable entity’ means the estate or trust of mestic segments, but there is no change in (A) in paragraph (3)(A), by striking ‘‘(2), or which the taxpayer is the beneficiary. the amount charged for such transportation, (6)’’ and inserting ‘‘(2), (6), or (8), and ‘‘(5) ADDITION TO TAX FOR FAILURE TO COM- the tax imposed by paragraph (1) shall be de- (B) in paragraph (4), by inserting ‘‘(k)(8),’’ PLY WITH SECTION.—For addition to tax in termined without regard to such change in after ‘‘(j) (1) or (2),’’ each place it appears. the case of a beneficiary’s negligence in con- route. (2) Section 552a(a)(8)(B) of title 5, United nection with, or disregard of, the require- ‘‘(c) USE OF INTERNATIONAL TRAVEL FACILI- States Code, is amended by striking ‘‘or’’ at ments of this section, see part II of sub- TIES.— the end of clause (v), by adding ‘‘or’’ at the chapter A of chapter 68.’’. ‘‘(1) IN GENERAL.—There is hereby imposed end of clause (vi), and by adding at the end (b) FOREIGN TRUSTS.—Subsection (d) of sec- a tax of $15.50 on any amount paid (whether the following new clause: tion 6048 (relating to information with re- within or without the United States) for any ‘‘(vii) matches performed incident to a levy spect to certain foreign trusts) is amended transportation of any person by air, if such described in section 6103(k)(8) of the Internal by adding at the end the following new para- transportation begins or ends in the United Revenue Code of 1986;’’. graph: States. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4743

‘‘(2) EXCEPTION FOR TRANSPORTATION EN- a location proximate to (and in a type size (c) EXEMPTIONS FROM TAX; REFUNDS TO TIRELY TAXABLE UNDER SUBSECTION (a).—This not less than half the type size of) the state- VENDORS.— subsection shall not apply to any transpor- ment of the amount described in subpara- (1) IN GENERAL.—Section 4082 (relating to tation all of which is taxable under sub- graph (A), and exemptions for diesel fuel) is amended by section (a) (determined without regard to ‘‘(2) describe such taxes substantially as: striking ‘‘diesel fuel’’ each place it appears sections 4281 and 4282). ‘user taxes to pay for airport construction in subsections (a) and (c) and inserting ‘‘die- ‘‘(3) SPECIAL RULE FOR ALASKA AND HA- and airway safety and operations’.’’. sel fuel and kerosene’’. WAII.—In any case in which the tax imposed (e) INCREASED AIRPORT AND AIRWAY TRUST (2) CERTAIN KEROSENE EXEMPT FROM DYEING by paragraph (1) applies to a domestic seg- FUND DEPOSITS.— REQUIREMENT.—Section 4082 is amended by ment, such tax shall apply only on depar- (1) Paragraph (1) of section 9502(b) is redesignating subsections (c) and (d) as sub- ture.’’. amended— sections (d) and (e), respectively, and by in- (2) SPECIAL RULES.—Section 4261 is amend- (A) by striking ‘‘(to the extent that the serting after subsection (b) the following new ed by redesignating subsections (e), (f), and rate of the tax on such gasoline exceeds 4.3 subsection: (g), as subsections (f), (g), and (h), respec- cents per gallon)’’ in subparagraph (C), and ‘‘(c) EXCEPTIONS TO DYEING REQUIRE- tively, and by inserting after subsection (d) (B) by striking ‘‘to the extent attributable MENTS.— the following new subsection: to the Airport and Airway Trust Fund fi- ‘‘(1) AVIATION-GRADE KEROSENE.—Sub- ‘‘(e) SPECIAL RULES.— nancing rate’’ in subparagraph (C). section (a)(2) shall not apply to a removal, ‘‘(1) AMOUNTS PAID OUTSIDE THE UNITED (2) Section 9502 is amended by striking sub- entry, or sale of aviation-grade kerosene (as STATES.—In the case of amounts paid outside section (f). determined under regulations prescribed by the United States for taxable transportation, (f) EFFECTIVE DATES.— the Secretary) if the person receiving the the taxes imposed by subsections (a) and (b) (1) FUEL TAXES.—The amendments made by kerosene is registered under section 4101 shall apply only to segments of such trans- subsection (a) shall apply take effect on Oc- with respect to the tax imposed by section portation which begin and end in the United tober 1, 1997. 4091. States. (2) TICKET TAXES.— ‘‘(2) USE FOR NON-FUEL FEEDSTOCK PUR- ‘‘(2) AMOUNTS PAID FOR RIGHT TO AWARD (A) IN GENERAL.—Except as otherwise pro- POSES.—Subsection (a)(2) shall not apply to FREE OR REDUCED RATE AIR TRANSPOR- vided in this paragraph, the amendments kerosene— TATION.—Any amount paid (and the value of made by subsections (b) and (c) shall apply ‘‘(A) received by pipeline or barge for use any other benefit provided) to an air carrier to transportation beginning on or after Octo- by the person receiving the kerosene in the (or any related person) for the right to pro- ber 1, 1997. manufacture or production of any substance vide mileage awards for (or other reductions (B) TREATMENT OF AMOUNTS PAID FOR TICK- (other than gasoline, diesel fuel, or special in the cost of) any transportation of persons ETS PURCHASED BEFORE DATE OF ENACT- fuels referred to in section 4041), or by air shall be treated for purposes of sub- MENT.—The amendments made by subsection ‘‘(B) to the extent provided in regulations, section (a) as an amount paid for taxable (c) shall not apply to amounts paid for a removed or entered— transportation, and such amount shall be ticket purchased before the date of the en- ‘‘(i) for such a use by the person removing taxable under subsection (a) without regard actment of this Act for a specified flight be- or entering the kerosene, or to any other provision of this subchapter. ginning on or after October 1, 1997. ‘‘(ii) for resale by such person for such a The Secretary shall prescribe rules which re- (C) AMOUNTS PAID FOR RIGHT TO AWARD use by the purchaser, allocate items of income, deduction, credit, MILEAGE AWARDS.— but only if the person receiving, removing, exclusion, or other allowance to the extent (i) IN GENERAL.—Paragraph (2) of section or entering the kerosene and such purchaser necessary to prevent the avoidance of tax 4261(e) of the Internal Revenue Code of 1986 (if any) are registered under section 4101 imposed by reason of this paragraph. (as added by the amendment made by sub- with respect to the tax imposed by section ‘‘(3) INFLATION ADJUSTMENT OF DOLLAR section (c)) shall apply to amounts paid after 4081.’’. RATES OF TAX.— September 30, 1997. (3) REFUNDS.— ‘‘(A) IN GENERAL.—In the case of taxable (ii) PAYMENTS WITHIN CONTROLLED GROUP.— (A) Subsection (l) of section 6427 is amend- events in a calendar year after the last non- For purposes of clause (i), any amount paid ed by inserting ‘‘or kerosene’’ after ‘‘diesel indexed year, the dollar amount contained in after June 11, 1997, and before October 1, 1997, fuel’’ each place it appears in paragraphs (1), subsection (b) and the dollar amount con- by 1 member of a controlled group for a right (2), and (5) (including the heading for para- tained in subsection (c) shall each be in- which is described in such section 4261(e)(2) graph (5)). creased by an amount equal to— and is furnished by another member of such (B) Paragraph (5) of section 6427(l) is ‘‘(i) such dollar amount, multiplied by group after September 30, 1997, shall be amended by redesignating subparagraph (B) ‘‘(ii) the cost-of-living adjustment deter- treated as paid after September 30, 1997. For as subparagraph (C) and by inserting after mined under section 1(f)(3) for such calendar purposes of the preceding sentence, all per- subparagraph (A) the following new subpara- year by substituting the year before the last sons treated as a single employer under sub- graph: nonindexed year for ‘calendar year 1992’ in section (a) or (b) of section 52 of such Code ‘‘(B) SALES OF KEROSENE NOT FOR USE IN subparagraph (B) thereof. shall be treated as members of a controlled MOTOR FUEL.—Paragraph (1)(A) shall not If any increase determined under the preced- group. apply to kerosene sold by a vendor— ing sentence is not a multiple of 10 cents, (3) ADVERTISING.—The amendment made by ‘‘(i) for any use if such sale is from a pump such increase shall be rounded to the nearest subsection (d) shall take effect on October 1, which (as determined under regulations pre- multiple of 10 cents. 1997. scribed by the Secretary) is not suitable for use in fueling any diesel-powered highway ‘‘(B) LAST NONINDEXED YEAR.—For purposes (4) INCREASED DEPOSITS INTO AIRPORT AND vehicle or train, or of subparagraph (A), the last nonindexed AIRWAY TRUST FUND.—The amendments made year is— by subsection (e) shall apply with respect to ‘‘(ii) to the extent provided by the Sec- ‘‘(i) 2002 in the case of a dollar amount con- taxes received in the Treasury on and after retary, for blending with heating oil to be tained in subsection (b), and October 1, 1997. used during periods of extreme or unseason- ‘‘(ii) 1998 in the case of a dollar amount (g) DELAYED DEPOSITS OF AIRLINE TICKET able cold.’’. contained in subsection (c). TAX REVENUES.—Notwithstanding section (C) Subparagraph (C) of section 6427(l)(5), ‘‘(C) TAXABLE EVENT.—For purposes of sub- 6302 of the Internal Revenue Code of 1986, in as redesignated by subparagraph (B) of this paragraph (A), in the case of the tax imposed the case of deposits of taxes imposed by sec- paragraph, is amended by striking ‘‘subpara- subsection (b), the beginning of the domestic tion 4261 of the Internal Revenue Code of graph (A)’’ and inserting ‘‘subparagraph (A) segment shall be treated as the taxable 1986, the due date for any such deposit which or (B)’’. event.’’. would (but for this subsection) be required to (D) The heading for subsection (l) of sec- (3) SECONDARY LIABILITY OF CARRIER FOR be made— tion 6427 is amended by inserting ‘‘, KER- UNPAID TAX.—Subsection (c) of section 4263 is (1) after August 14, 1997, and before October OSENE,’’ after ‘‘DIESEL FUEL’’. amended by striking ‘‘subchapter—’’ and all 1, 1997, shall be October 10, 1997, or (d) CONFORMING AMENDMENTS.— that follows and inserting ‘‘, such tax shall (2) after June 30, 1998, and before October 1, (1) Paragraph (2) of section 4041(a) is be paid by the carrier providing the initial 1998, shall be October 13, 1998. amended by striking ‘‘kerosene, gas oil, or segment of such transportation which begins SEC. 1042. KEROSENE TAXED AS DIESEL FUEL. fuel oil’’ and inserting ‘‘gas oil, fuel oil’’. or ends in the United States.’’. (a) IN GENERAL.—Subsection (a) of section (2) Paragraph (1) of section 4041(c) is (d) MODIFICATION OF RULES ON AIRLINE 4083 (defining taxable fuel) is amended by amended by striking ‘‘any liquid’’ and insert- FARE ADVERTISING.—Subsection (b) of sec- striking ‘‘and’’ at the end of subparagraph ing ‘‘kerosene and any other liquid’’. tion 7275 (relating to advertising) is amended (A), by striking the period at the end of sub- (3)(A) The heading for section 4082 is by striking ‘‘shall—’’ and all that follows paragraph (B) and inserting ‘‘, and’’, and by amended by inserting ‘‘AND KEROSENE’’ and inserting ‘‘shall— adding at the end the following new subpara- after ‘‘DIESEL FUEL’’. ‘‘(1) separately state— graph: (B) The table of sections for subpart A of ‘‘(A) the amount to be paid for such trans- ‘‘(C) kerosene.’’. part III of subchapter A of chapter 32 is portation, and (b) RATE OF TAX.—Clause (iii) of section amended by inserting ‘‘and kerosene’’ after ‘‘(B) the amount of the taxes imposed by 4081(a)(2)(A) is amended by inserting ‘‘or ker- ‘‘diesel fuel’’ in the item relating to section subsections (a), (b), and (c) of section 4261 at osene’’ after ‘‘diesel fuel’’. 4082. H4744 CONGRESSIONAL RECORD — HOUSE June 26, 1997

(4) Subsection (b) of section 4083 is amend- the tax imposed by section 4081 of the Inter- (2) by inserting ‘‘AND SPECIAL RULE’’ after ed by striking ‘‘gasoline, diesel fuel,’’ and in- nal Revenue Code of 1986 is allowable for ‘‘DEFINITIONS’’ in the heading. serting ‘‘taxable fuels’’. such use. (b) EFFECTIVE DATE.— (5) Subsection (a) of section 4093 is amend- (5) EXCEPTION FOR FUEL HELD IN VEHICLE (1) IN GENERAL.—The amendments made by ed by striking ‘‘any liquid’’ and inserting TANK.—No tax shall be imposed by paragraph this section shall apply to amounts paid on ‘‘kerosene and any other liquid’’. (1) on kerosene held in the tank of a motor or after the date of the enactment of this (6) The material following subparagraph vehicle or motorboat. Act. (6) EXCEPTION FOR CERTAIN AMOUNTS OF (F) of section 6416(b)(2) is amended by insert- (2) PAYMENTS WITHIN CONTROLLED GROUP.— ing ‘‘or kerosene’’ after ‘‘diesel fuel’’. FUEL.— For purposes of paragraph (1), any amount (7) Paragraphs (1) and (3) of section 6427(f), (A) IN GENERAL.—No tax shall be imposed paid after June 11, 1997, and before the date and the heading for section 6427(f), are each by paragraph (1) on kerosene held on July 1, of the enactment of this Act by 1 member of amended by inserting ‘‘kerosene,’’ after ‘‘die- 1998, by any person if the aggregate amount a controlled group for a right which is de- of kerosene held by such person on such date sel fuel,’’. scribed in section 4251(b)(3) of the Internal does not exceed 2,000 gallons. The preceding (8) Paragraph (2) of section 6427(f) is Revenue Code of 1986 (as added by this sec- sentence shall apply only if such person sub- amended by striking ‘‘or diesel fuel’’ each tion) and is furnished by another member of mits to the Secretary (at the time and in the place it appears and inserting ‘‘, diesel fuel, such group shall be treated as paid on the manner required by the Secretary) such in- or kerosene’’. date of the enactment of this Act. For pur- formation as the Secretary shall require for (9) Subparagraph (A) of section 6427(i)(3) is poses of the preceding sentence, all persons purposes of this paragraph. amended by striking ‘‘or diesel fuel’’ and in- treated as a single employer under sub- (B) EXEMPT FUEL.—For purposes of sub- serting ‘‘, diesel fuel, or kerosene’’. section (a) or (b) of section 52 of such Code paragraph (A), there shall not be taken into (10) The heading for paragraph (4) of sec- shall be treated as members of a controlled account fuel held by any person which is ex- tion 6427(i) is amended to read as follows: group. ‘‘(4) SPECIAL RULE FOR REFUNDS UNDER SUB- empt from the tax imposed by paragraph (1) SECTION (l).—’’ by reason of paragraph (4) or (5). Subtitle F—Provisions Relating to Tax- (11) Paragraph (1) of section 6715(c) is (C) CONTROLLED GROUPS.—For purposes of Exempt Entities amended by inserting ‘‘or kerosene’’ after this paragraph— SEC. 1051. EXPANSION OF LOOK-THRU RULE FOR (i) CORPORATIONS.— ‘‘diesel fuel’’. INTEREST, ANNUITIES, ROYALTIES, (12)(A) The text of section 7232 is amended (I) IN GENERAL.—All persons treated as a AND RENTS DERIVED BY SUBSIDI- by striking ‘‘gasoline, lubricating oil, diesel controlled group shall be treated as 1 person. ARIES OF TAX-EXEMPT ORGANIZA- fuel’’ and inserting ‘‘any taxable fuel (as de- (II) CONTROLLED GROUP.—The term ‘‘con- TIONS. trolled group’’ has the meaning given to such fined in section 4083)’’. (a) IN GENERAL.—Paragraph (13) of section term by subsection (a) of section 1563 of such (B) The section heading for section 7232 is 512(b) is amended to read as follows: Code; except that for such purposes the amended to read as follows: ‘‘(13) SPECIAL RULES FOR CERTAIN AMOUNTS phrase ‘‘more than 50 percent’’ shall be sub- ‘‘SEC. 7232. FAILURE TO REGISTER UNDER SEC- RECEIVED FROM CONTROLLED ENTITIES.— TION 4101, FALSE REPRESENTA- stituted for the phrase ‘‘at least 80 percent’’ ‘‘(A) IN GENERAL.—If an organization (in TIONS OF REGISTRATION STATUS, each place it appears in such subsection. this paragraph referred to as the ‘controlling ETC.’’. (ii) NONINCORPORATED PERSONS UNDER COM- organization’) receives (directly or indi- (C) The table of sections for part II of sub- MON CONTROL.—Under regulations prescribed rectly) a specified payment from another en- chapter A of chapter 75 is amended by strik- by the Secretary, principles similar to the tity which it controls (in this paragraph re- ing the item relating to section 7232 and in- principles of clause (i) shall apply to a group ferred to as the ‘controlled entity’), notwith- serting the following: of persons under common control where 1 or standing paragraphs (1), (2), and (3), the con- more of such persons is not a corporation. ‘‘Sec. 7232. Failure to register under section trolling organization shall include such pay- (7) COORDINATION WITH SECTION 4081.—No tax 4101, false representations of ment as an item of gross income derived shall be imposed by paragraph (1) on ker- registration status, etc.’’. from an unrelated trade or business to the osene to the extent that tax has been (or will extent such payment reduces the net unre- (13) Sections 9503(b)(1)(E) and 9508(b)(2) are be) imposed on such kerosene under section lated income of the controlled entity (or in- each amended by striking ‘‘and diesel fuel’’ 4081 or 4091 of such Code. creases any net unrelated loss of the con- and inserting ‘‘, diesel fuel, and kerosene’’. (8) OTHER LAWS APPLICABLE.—All provi- trolled entity). There shall be allowed all de- (14) Subparagraph (B) of section 9503(b)(5) sions of law, including penalties, applicable ductions of the controlling organization di- is amended by striking ‘‘or diesel fuel’’ and with respect to the taxes imposed by section rectly connected with amounts treated as de- inserting ‘‘, diesel fuel, or kerosene’’. 4081 of such Code shall, insofar as applicable rived from an unrelated trade or business (15) Paragraphs (1)(B) and (2) of section and not inconsistent with the provisions of under the preceding sentence. 9503(f) are each amended by inserting ‘‘or this subsection, apply with respect to the ‘‘(B) NET UNRELATED INCOME OR LOSS.—For kerosene’’ after ‘‘diesel fuel’’ each place it floor stock taxes imposed by paragraph (1) to purposes of this paragraph— appears. the same extent as if such taxes were im- ‘‘(i) NET UNRELATED INCOME.—The term (e) EFFECTIVE DATE.—The amendments posed by such section 4081. made by this section shall take effect on ‘net unrelated income’ means— SEC. 1043. RESTORATION OF LEAKING UNDER- ‘‘(I) in the case of a controlled entity July 1, 1998. GROUND STORAGE TANK TRUST (f) FLOOR STOCK TAXES.— FUND TAXES. which is not exempt from tax under section (1) IMPOSITION OF TAX.—In the case of ker- Paragraph (3) of section 4081(d) is amended 501(a), the portion of such entity’s taxable osene which is held on July 1, 1998, by any by striking ‘‘shall not apply after December income which would be unrelated business person, there is hereby imposed a floor 31, 1995’’ and inserting ‘‘shall apply after the taxable income if such entity were exempt stocks tax of 24.3 cents per gallon. date of the enactment of the Taxpayer Relief from tax under section 501(a) and had the (2) LIABILITY FOR TAX AND METHOD OF PAY- Act of 1997 and before October 1, 2002’’. same exempt purposes (as defined in section MENT.— SEC. 1044. APPLICATION OF COMMUNICATIONS 513A(a)(5)(A)) as the controlling organiza- (A) LIABILITY FOR TAX.—A person holding TAX TO LONG-DISTANCE PREPAID tion, or kerosene on July 1, 1998, to which the tax im- TELEPHONE CARDS. ‘‘(II) in the case of a controlled entity posed by paragraph (1) applies shall be liable (a) IN GENERAL.—Subsection (b) of section which is exempt from tax under section for such tax. 4251 is amended— 501(a), the amount of the unrelated business (B) METHOD OF PAYMENT.—The tax imposed (1) by adding at the end the following new taxable income of the controlled entity. by paragraph (1) shall be paid in such man- paragraph: ‘‘(ii) NET UNRELATED LOSS.—the term ‘net ner as the Secretary shall prescribe. ‘‘(3) LONG-DISTANCE PREPAID TELEPHONE unrelated loss’ means the net operating loss (C) TIME FOR PAYMENT.—The tax imposed CARDS AND SIMILAR ARRANGEMENTS.—Any adjusted under rules similar to the rules of by paragraph (1) shall be paid on or before amount paid (and the value of any other ben- clause (i). August 31, 1998. efit provided) to a provider of communica- ‘‘(C) SPECIFIED PAYMENT.—For purposes of (3) DEFINITIONS.—For purposes of this sub- tions services (or any related person) for the this paragraph, the term ‘specified payment’ section— right to award, sell, or otherwise make avail- means any interest, annuity, royalty, or (A) HELD BY A PERSON.—Kerosene shall be able telephone service (or reductions in the rent. considered as ‘‘held by a person’’ if title cost of such service) other than local tele- ‘‘(D) DEFINITION OF CONTROL.—For purposes thereto has passed to such person (whether phone service through prepaid telephone of this paragraph— or not delivery to the person has been made). cards or any similar arrangement shall be ‘‘(i) CONTROL.—The term ‘control’ means— (B) SECRETARY.—The term ‘‘Secretary’’ treated as an amount paid for communica- ‘‘(I) in the case of a corporation, ownership means the Secretary of the Treasury or his tions services. The Secretary shall prescribe (by vote or value) of more than 50 percent of delegate. rules which reallocate items of income, de- the stock in such corporation, (4) EXCEPTION FOR EXEMPT USES.—The tax duction, credit, exclusion, or other allowance ‘‘(II) in the case of a partnership, owner- imposed by paragraph (1) shall not apply to to the extent necessary to prevent the avoid- ship of more than 50 percent of the profits in- kerosene held by any person exclusively for ance of tax imposed by reason of this para- terests or capital interests in such partner- any use to the extent a credit or refund of graph.’’, and ship, or June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4745 ‘‘(III) in any other case, ownership of more SEC. 1053. MODIFICATIONS TO EXCEPTION FROM adding at the end the following new para- than 50 percent of the beneficial interests in REPORTING, ETC. OF LOBBYING AC- graph: TIVITIES. the entity. ‘‘(7) TERMINATION.— (a) IN GENERAL.—Paragraph (3) of section ‘‘(ii) CONSTRUCTIVE OWNERSHIP.—Section ‘‘(A) IN GENERAL.—No suspense account 318 (relating to constructive ownership of 6033(e) (relating to exception where dues gen- may be established under this subsection by stock) shall apply for purposes of determin- erally nondeductible) is amended to read as any corporation required by this section to ing ownership of stock in a corporation. follows: change its method of accounting for any tax- Similar principles shall apply for purposes of ‘‘(3) EXCEPTION WHERE DUES GENERALLY able year ending after June 8, 1997. NONDEDUCTIBLE.— determining ownership of interests in any ‘‘(B) PHASEOUT OF EXISTING SUSPENSE AC- ‘‘(A) IN GENERAL.—Paragraph (1)(A) shall other entity. COUNTS.— not apply to an organization if more than 90 ‘‘(E) RELATED PERSONS.—The Secretary ‘‘(i) IN GENERAL.—Each suspense account percent of the amount of the aggregate an- shall prescribe such rules as may be nec- under this subsection shall be reduced (but nual dues (or similar payments) paid to such essary or appropriate to prevent avoidance of not below zero) for each taxable year begin- organization are paid— the purposes of this paragraph through the ning after June 8, 1997, by an amount equal ‘‘(i) by individuals or families whose an- use of related persons.’’. to the lesser of— nual dues (or similar amounts) are less than (b) EFFECTIVE DATE.— ‘‘(I) the applicable portion of such account, $100, or (1) IN GENERAL.—Except as provided in or ‘‘(ii) by organizations which are exempt paragraph (2), the amendments made by this ‘‘(II) 50 percent of the taxable income of from tax. section shall apply to taxable years begin- the corporation for the taxable year, or, if ning after the date of the enactment of this For purposes of the preceding sentence, all the corporation has no taxable income for Act. organizations sharing a name, charter, his- such year, the amount of any net operating (2) CONTROL TEST.—In the case of taxable toric affiliation, or similar characteristics loss (as defined in section 172(c)) for such years beginning before January 1, 1999, an or- and coordinating their lobbying activities taxable year. ganization shall be treated as controlling an- shall be treated as 1 organization. For purposes of the preceding sentence, the other organization for purposes of section ‘‘(B) INFLATION ADJUSTMENT.—In the case amount of taxable income and net operating 512(b)(13) of the Internal Revenue Code of of dues for annual periods beginning in any loss shall be determined without regard to 1986 (as amended by this section) only if it calendar year after 1998, the dollar amount this paragraph. controls such organization within the mean- contained in subparagraph (A)(i) shall be in- ‘‘(ii) COORDINATION WITH OTHER REDUC- ing of such section, determined by substitut- creased by an amount equal to— TIONS.—The amount of the applicable portion ing ‘‘80 percent’’ for ‘‘50 percent’’ each place ‘‘(i) such dollar amount, multiplied by it appears in subparagraph (D) thereof. ‘‘(ii) the cost-of-living adjustment deter- for any taxable year shall be reduced (but mined under section 1(f)(3) for such calendar not below zero) by the amount of any reduc- SEC. 1052. LIMITATION ON INCREASE IN BASIS OF year by substituting ‘calendar year 1997’ for tion required for such taxable year under PROPERTY RESULTING FROM SALE any other provision of this subsection. BY TAX-EXEMPT ENTITY TO A RELAT- ‘calendar year 1992’ in subparagraph (B) ED PERSON. thereof. ‘‘(iv) INCLUSION IN INCOME.—Any reduction in a suspense account under this paragraph (a) IN GENERAL.—Part IV of subchapter O If any increase determined under the preced- shall be included in gross income for the tax- of chapter 1 (relating to special rules for gain ing sentence is not a multiple of $5, such in- able year of the reduction. or loss on disposition of property) is amend- crease shall be rounded to the nearest mul- ‘‘(C) APPLICABLE PORTION.—For purposes of ed by redesignating section 1061 as section tiple of $5. subparagraph (B), the term ‘applicable por- 1062 and by inserting after section 1060 the (b) EFFECTIVE DATE.—The amendment following new section: made by subsection (a) shall apply to taxable tion’ means, for any taxable year, the years beginning after December 31, 1997. amount which would ratably reduce the ‘‘SEC. 1061. BASIS LIMITATION FOR SALE OR EX- amount in the account (after taking into ac- CHANGE OF PROPERTY BY TAX-EX- SEC. 1054. TERMINATION OF CERTAIN EXCEP- count prior reductions) to zero over the pe- EMPT ENTITY TO RELATED PERSON. TIONS FROM RULES RELATING TO EXEMPT ORGANIZATIONS WHICH riod consisting of such taxable year and the ‘‘(a) GENERAL RULE.—In the case of a sale remaining taxable years in such first 20 tax- or exchange of property directly or indi- PROVIDE COMMERCIAL-TYPE INSUR- ANCE. able years. rectly between a tax-exempt entity and a re- (a) IN GENERAL.—Subparagraphs (A) and ‘‘(D) AMOUNTS AFTER 20TH YEAR.—Any lated person, the basis of the related person (B) of section 1012(c)(4) of the Tax Reform amount in the account as of the close of the in the property acquired shall not exceed the Act of 1986 shall not apply to any taxable 20th year referred to in subparagraph (C) adjusted basis of such property (immediately year beginning after December 31, 1997. shall be treated as the applicable portion for before the exchange) in the hands of the tax- (b) SPECIAL RULES.—In the case of an orga- each succeeding year thereafter to the ex- exempt entity, increased by the amount of nization to which section 501(m) of the Inter- tent not reduced under this paragraph for gain recognized to the tax-exempt entity on nal Revenue Code of 1986 applies solely by any prior taxable year after such 20th year.’’. the transfer which is subject to tax under reason of the amendment made by sub- section 511. (b) EFFECTIVE DATE.—The amendments section (a)— made by this section shall apply to taxable ‘‘(b) DEFINITIONS.—For purposes of this sec- (1) no adjustment shall be made under sec- tion— tion 481 (or any other provision) of such Code years ending after June 8, 1997. ‘‘(1) TAX-EXEMPT ENTITY.—The term ‘tax- on account of a change in its method of ac- exempt entity’ means any entity which is ex- SEC. 1062. MODIFICATION OF TAXABLE YEARS TO counting for its first taxable year beginning WHICH NET OPERATING LOSSES empt from the tax imposed by this chapter. after December 31, 1997, and MAY BE CARRIED. ‘‘(2) RELATED PERSON.—The term ‘related (2) for purposes of determining gain or loss, (a) IN GENERAL.—Subparagraph (A) of sec- person’ means any person bearing a relation- the adjusted basis of any asset held on the tion 172(b)(1) (relating to years to which loss ship to the tax-exempt entity which is de- 1st day of such taxable year shall be treated scribed in section 267(b) or 707(b)(1). For pur- as equal to its fair market value as of such may be carried) is amended— poses of applying section 267(b)(2) under the day. (1) by striking ‘‘3’’ in clause (i) and insert- preceding sentence, such an entity shall be (c) RESERVE WEAKENING AFTER JUNE 8, ing ‘‘2’’, and treated as if it were an individual.’’. 1997.—Any reserve weakening after June 8, (2) by striking ‘‘15’’ in clause (ii) and in- (b) CLERICAL AMENDMENT.—The table of 1997, by an organization described in sub- serting ‘‘20’’. sections for part IV of subchapter O of chap- section (b) shall be treated as occurring in (b) RETENTION OF 3-YEAR CARRYBACK FOR ter 1 is amended by striking the last item such organizations 1st taxable year begin- CASUALTY LOSSES OF INDIVIDUALS.—Para- and inserting the following: ning after December 31, 1997. graph (1) of section 172(b) is amended by add- ‘‘Sec. 1061. Basis limitation for sale or ex- (d) REGULATIONS.—The Secretary of the ing at the end the following new subpara- Treasury or his delegate may prescribe rules change of property by tax-ex- graph: for providing proper adjustments for organi- empt entity to related person. ‘‘(F) CASUALTY LOSSES OF INDIVIDUALS.— zations described in subsection (b) with re- Subparagraph (A)(i) shall be applied by sub- ‘‘Sec. 1062. Cross references.’’. spect to short taxable years which begin dur- stituting ‘3 years’ for ‘2 years’ with respect ing 1998 by reason of section 843 of the Inter- (c) EFFECTIVE DATE.— to the portion of the net operating loss of an nal Revenue Code of 1986. (1) IN GENERAL.—The amendments made by individual for the taxable year which is at- this section shall apply to sales and ex- Subtitle G—Other Revenue Provisions tributable to losses of property arising from changes after June 8, 1997. SEC. 1061. TERMINATION OF SUSPENSE AC- fire, storm, shipwreck, or other casualty, or (2) BINDING CONTRACTS.—The amendments COUNTS FOR FAMILY CORPORA- from theft.’’. made by this section shall not apply to any TIONS REQUIRED TO USE ACCRUAL sale or exchange pursuant to a written con- METHOD OF ACCOUNTING. (c) EFFECTIVE DATE.—The amendments tract which was binding on June 8, 1997, and (a) IN GENERAL.—Subsection (i) of section made by this section shall apply to net oper- at all times thereafter before the sale or ex- 447 (relating to method of accounting for cor- ating losses for taxable years beginning after change. porations engaged in farming) is amended by the date of the enactment of this Act. H4746 CONGRESSIONAL RECORD — HOUSE June 26, 1997 SEC. 1063. EXPANSION OF DENIAL OF DEDUCTION issuers as is necessary to carry out clause of clause (ii) and inserting ‘‘, and’’, and by FOR CERTAIN AMOUNTS PAID IN (ii). Any report required under the preceding adding at the end the following new clause: CONNECTION WITH INSURANCE. sentence shall be treated as a statement re- ‘‘(iii) the increase for the taxable year in (a) DENIAL OF DEDUCTION FOR PREMIUMS.— ferred to in section 6724(d)(1). policy cash values (within the meaning of Paragraph (1) of section 264(a) is amended to ‘‘(B) TREATMENT OF PARTNERSHIPS AND S section 264(e)(3)(A)) of life insurance policies read as follows: CORPORATIONS.—In the case of a partnership and annuity and endowment contracts to ‘‘(1) Premiums on any life insurance pol- or S corporation, this subsection shall be ap- which section 264(e) applies.’’. icy, or endowment or annuity contract, if plied at the partnership and corporate levels. (c) CONFORMING AMENDMENT.—Subpara- the taxpayer is directly or indirectly a bene- ‘‘(6) SPECIAL RULES.— graph (A) of section 265(b)(4) is amended by ficiary under the policy or contract.’’. ‘‘(A) COORDINATION WITH SUBSECTION (a) AND inserting ‘‘, section 264,’’ before ‘‘and section (b) INTEREST ON POLICY LOANS.—Paragraph SECTION 265.—If interest on any indebtedness 291’’. (4) of section 264(a) is amended by striking is disallowed under subsection (a) or section (d) EFFECTIVE DATE.—The amendments ‘‘individual, who’’ and all that follows and 265— made by this section shall apply to contracts inserting ‘‘individual.’’. ‘‘(i) such disallowed interest shall not be issued after June 8, 1997, in taxable years (c) PRO RATA ALLOCATION OF INTEREST EX- taken into account for purposes of applying ending after such date. For purposes of the PENSE TO POLICY CASH VALUES.—Section 264 preceding sentence, any material increase in is amended by adding at the end the follow- this subsection, and the death benefit or other material change in ing new subsection: ‘‘(ii) for purposes of applying paragraph the contract shall be treated as a new con- ‘‘(e) PRO RATA ALLOCATION OF INTEREST (2)(B), the adjusted bases otherwise taken tract but the addition of covered lives shall EXPENSE TO POLICY CASH VALUES.— into account shall be reduced (but not below be treated as a new contract only with re- ‘‘(1) IN GENERAL.—No deduction shall be al- zero) by the amount of such indebtedness. lowed for that portion of the taxpayer’s in- ‘‘(B) COORDINATION WITH SECTION 263A.—This spect to such additional covered lives. For terest expense which is allocable to subsection shall be applied before the appli- purposes of this subsection, an increase in unborrowed policy cash values. cation of section 263A (relating to capitaliza- the death benefit under a policy or contract ‘‘(2) ALLOCATION.—For purposes of para- tion of certain expenses where taxpayer pro- issued in connection with a lapse described graph (1), the portion of the taxpayer’s inter- duces property).’’. in section 501(d)(2) of the Health Insurance est expense which is allocable to unborrowed ‘‘(7) INTEREST EXPENSE.—The term ‘interest Portability and Accountability Act of 1996 policy cash values is an amount which bears expense’ means the aggregate amount allow- shall not be treated as a new contract. the same ratio to such interest expense as— able to the taxpayer as a deduction for inter- SEC. 1064. ALLOCATION OF BASIS AMONG PROP- ‘‘(A) the taxpayer’s average unborrowed est (within the meaning of section 265(b)(4)) ERTIES DISTRIBUTED BY PARTNER- policy cash values of life insurance policies, for the taxable year (determined without re- SHIP. (a) IN GENERAL.—Subsection (c) of section and annuity and endowment contracts, is- gard to this subsection, section 265(b), and 732 is amended to read as follows: sued after June 8, 1997, bears to section 291). ‘‘(c) ALLOCATION OF BASIS.— ‘‘(B) the average adjusted bases (within the ‘‘(8) AGGREGATION RULES.— ‘‘(1) IN GENERAL.—The basis of distributed meaning of section 1016) for all assets of the ‘‘(A) IN GENERAL.—All members of a con- properties to which subsection (a)(2) or (b) is taxpayer. trolled group (within the meaning of sub- applicable shall be allocated— ‘‘(3) UNBORROWED POLICY CASH VALUES.— section (d)(5)(B)) shall be treated as 1 tax- ‘‘(A)(i) first to any unrealized receivables The term ‘unborrowed policy cash value’ payer for purposes of this subsection. (as defined in section 751(c)) and inventory means, with respect to any life insurance ‘‘(B) TREATMENT OF INSURANCE COMPA- items (as defined in section 751(d)(2)) in an policy or annuity or endowment contract, NIES.—This subsection shall not apply to an the excess of— insurance company, and subparagraph (A) amount equal to the adjusted basis of each ‘‘(A) the cash surrender value of such pol- shall be applied without regard to any insur- such property to the partnership, and icy or contract determined without regard to ance company.’’. ‘‘(ii) if the basis to be allocated is less than any surrender charge, over (b) TREATMENT OF INSURANCE COMPANIES.— the sum of the adjusted bases of such prop- ‘‘(B) the amount of any loan in respect of (1) Clause (ii) of section 805(a)(4)(C) is erties to the partnership, then, to the extent such policy or contract. amended by inserting ‘‘, or out of the in- any decrease is required in order to have the ‘‘(4) EXCEPTION FOR CERTAIN POLICIES AND crease for the taxable year in policy cash adjusted bases of such properties equal the CONTRACTS COVERING OFFICERS, DIRECTORS, values (within the meaning of section basis to be allocated, in the manner provided AND EMPLOYEES.—Paragraph (1) shall not 264(e)(3)(A)) of life insurance policies and an- in paragraph (3), and apply to any policy or contract owned by an nuity and endowment contracts to which ‘‘(B) to the extent of any basis not allo- entity engaged in a trade or business which section 264(e) applies’’ after ‘‘tax-exempt in- cated under subparagraph (A), to other dis- covers any individual who is an officer, di- terest’’. tributed properties— rector, or employee of such trade or business (2) Clause (iii) of section 805(a)(4)(D) is ‘‘(i) first by assigning to each such other at the time first covered by the policy or amended by striking ‘‘and’’ and inserting ‘‘, property such other property’s adjusted basis contract, and such policies and contracts the increase for the taxable year in policy to the partnership, and shall not be taken into account under para- cash values (within the meaning of section ‘‘(ii) then, to the extent any increase or de- graph (2). 264(e)(3)(A)) of life insurance policies and an- crease in basis is required in order to have ‘‘(5) EXCEPTION FOR POLICIES AND CON- nuity and endowment contracts to which the adjusted bases of such other distributed TRACTS HELD BY NATURAL PERSONS; TREAT- section 264(e) applies, and’’. properties equal such remaining basis, in the MENT OF PARTNERSHIPS AND S CORPORA- (3) Subparagraph (B) of section 807(a)(2) is manner provided in paragraph (2) or (3), TIONS.— amended by striking ‘‘interest,’’ and insert- whichever is appropriate. ‘‘(A) POLICIES AND CONTRACTS HELD BY NAT- ing ‘‘interest and the amount of the policy- ‘‘(2) METHOD OF ALLOCATING INCREASE.— URAL PERSONS.— holder’s share of the increase for the taxable Any increase required under paragraph (1)(B) ‘‘(i) IN GENERAL.—This subsection shall not year in policy cash values (within the mean- shall be allocated among the properties— apply to any policy or contract held by a ing of section 264(e)(3)(A)) of life insurance ‘‘(A) first to properties with unrealized ap- natural person. policies and annuity and endowment con- preciation in proportion to their respective ‘‘(ii) EXCEPTION WHERE BUSINESS IS BENE- tracts to which section 264(e) applies,’’. amounts of unrealized appreciation before FICIARY.—If a trade or business is directly or (4) Subparagraph (B) of section 807(b)(1) is such increase (but only to the extent of each indirectly the beneficiary under any policy amended by striking ‘‘interest,’’ and insert- property’s unrealized appreciation), and or contract, to the extent of the unborrowed ing ‘‘interest and the amount of the policy- ‘‘(B) then, to the extent such increase is cash value of such policy or contract, such holder’s share of the increase for the taxable not allocated under subparagraph (A), in pro- policy or contract shall be treated as held by year in policy cash values (within the mean- portion to their respective fair market val- such trade or business and not by a natural ing of section 264(e)(3)(A)) of life insurance ues. person. policies and annuity and endowment con- ‘‘(3) METHOD OF ALLOCATING DECREASE.— ‘‘(iii) SPECIAL RULES.— tracts to which section 264(e) applies,’’. Any decrease required under paragraph (1)(A) ‘‘(I) CERTAIN TRADES OR BUSINESSES NOT (5) Paragraph (1) of section 812(d) is amend- or (1)(B) shall be allocated— TAKEN INTO ACCOUNT.—Clause (ii) shall not ed by striking ‘‘and’’ at the end of subpara- ‘‘(A) first to properties with unrealized de- apply to any trade or business carried on as graph (B), by striking the period at the end preciation in proportion to their respective a sole proprietorship and to any trade or of subparagraph (C) and inserting ‘‘, and’’, amounts of unrealized depreciation before business performing services as an employee. and by adding at the end the following new such decrease (but only to the extent of each ‘‘(II) LIMITATION ON UNBORROWED CASH subparagraph: property’s unrealized depreciation), and VALUE.—The amount of the unborrowed cash ‘‘(D) the increase for any taxable year in ‘‘(B) then, to the extent such decrease is value of any policy or contract which is the policy cash values (within the meaning not allocated under subparagraph (A), in pro- taken into account by reason of clause (ii) of section 264(e)(3)(A)) of life insurance poli- portion to their respective adjusted bases (as shall not exceed the benefit to which the cies and annuity and endowment contracts adjusted under subparagraph (A)).’’. trade or business is entitled under the policy to which section 264(e) applies.’’. (b) EFFECTIVE DATE.—The amendment or contract. (6) Subparagraph (B) of section 832(b)(5) is made by subsection (a) shall apply to dis- ‘‘(iv) REPORTING.—The Secretary shall re- amended by striking ‘‘and’’ at the end of tributions after the date of the enactment of quire such reporting from policyholders and clause (i), by striking the period at the end this Act. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4747 SEC. 1065. REPEAL OF REQUIREMENT THAT IN- amended by adding at the end the following telephones and any computer or peripheral VENTORY BE SUBSTANTIALLY AP- new subsection: equipment (as defined in section 168(i)). PRECIATED. ‘‘(g) FAILURE TO BE DILIGENT IN DETERMIN- ‘‘(D) RENT-TO-OWN CONTRACT.—The term (a) IN GENERAL.—Paragraph (2) of section ING ELIGIBILITY FOR EARNED INCOME CRED- ‘rent-to-own contract’ means any lease for 751(a) is amended to read as follows: IT.—Any person who is an income tax pre- the use of consumer property between a rent- ‘‘(2) inventory items of the partnership,’’. parer with respect to any return or claim for to-own dealer and a customer who is an indi- (b) CONFORMING AMENDMENTS.— refund who fails to comply with due dili- vidual which— (1) Subsection (d) of section 751 is amended gence requirements imposed by the Sec- ‘‘(i) is titled ‘Rent-to-Own Agreement’ or to read as follows: retary by regulations with respect to deter- ‘Lease Agreement with Ownership Option,’ ‘‘(d) INVENTORY ITEMS.—For purposes of mining eligibility for, or the amount of, the this subchapter, the term ‘inventory items’ or uses other similar language, credit allowable by section 32 shall pay a means— ‘‘(ii) provides for level, regular periodic penalty of $100 for each such failure.’’. ‘‘(1) property of the partnership of the kind payments (for a payment period which is a (c) EXTENSION PROCEDURES APPLICABLE TO described in section 1221(1), week or month), MATHEMATICAL OR CLERICAL ERRORS.—Para- ‘‘(2) any other property of the partnership ‘‘(iii) provides that legal title to such prop- graph (2) of section 6213(g) (relating to the which, on sale or exchange by the partner- erty remains with the rent-to-own dealer definition of mathematical or clerical errors) ship, would be considered property other until the customer makes all the payments is amended by striking ‘‘and’’ at the end of than a capital asset and other than property described in clause (ii) or early purchase subparagraph (H), by striking the period at described in section 1231, payments required under the contract to ac- the end of subparagraph (I) and inserting ‘‘, ‘‘(3) any other property of the partnership quire legal title to the item of property, and’’, and by inserting after subparagraph (I) which, if sold or exchanged by the partner- ‘‘(iv) provides a beginning date and a maxi- the following new subparagraph: ship, would result in a gain taxable under mum period of time for which the contract ‘‘(J) an omission of information required subsection (a) of section 1246 (relating to may be in effect that does not exceed 156 by section 32(k)(2) (relating to taxpayers gain on foreign investment company stock), weeks or 36 months from such beginning date making improper prior claims of earned in- and (including renewals or options to extend), come credit).’’. ‘‘(4) any other property held by the part- ‘‘(v) provides for level payments within the (d) EFFECTIVE DATE.—The amendments nership which, if held by the selling or dis- 156-week or 36-month period that, in the ag- made by this section shall apply to taxable gregate, generally exceed the normal retail tributee partner, would be considered prop- years beginning after December 31, 1996. erty of the type described in paragraph (1), price of the consumer property plus interest, SEC. 1068. LIMITATION ON PROPERTY FOR ‘‘(vi) provides for payments under the con- (2), or (3).’’. WHICH INCOME FORECAST METHOD (2) Sections 724(d)(2), 731(a)(2)(B), 731(c)(6), tract that, in the aggregate, do not exceed MAY BE USED. $10,000 per item of consumer property, 732(c)(1)(A) (as amended by the preceding (a) LIMITATION.—Subsection (g) of section section), 735(a)(2), and 735(c)(1) are each ‘‘(vii) provides that the customer does not 167 is amended by adding at the end the fol- have any legal obligation to make all the amended by striking ‘‘section 751(d)(2)’’ and lowing new paragraph: inserting ‘‘section 751(d)’’. payments referred to in clause (ii) set forth ‘‘(6) LIMITATION ON PROPERTY FOR WHICH IN- under the contract, and that at the end of (c) EFFECTIVE DATE.—The amendments COME FORECAST METHOD MAY BE USED.—The made by this section shall apply to sales, ex- each payment period the customer may ei- depreciation deduction allowable under this ther continue to use the consumer property changes, and distributions after the date of section may be determined under the income the enactment of this Act. by making the payment for the next pay- forecast method or any similar method only ment period or return such property to the SEC. 1066. EXTENSION OF TIME FOR TAXING with respect to— PRECONTRIBUTION GAIN. rent-to-own dealer in good working order, in ‘‘(A) property described in paragraph (3) or (a) IN GENERAL.—Sections 704(c)(1)(B) and which case the customer does not incur any (4) of section 168(f), 737(b)(1) are each amended by striking ‘‘5 further obligations under the contract and is ‘‘(B) copyrights, years’’ and inserting ‘‘10 years’’. not entitled to a return of any payments pre- (b) EFFECTIVE DATE.—The amendment ‘‘(C) books, viously made under the contract, and made by subsection (a) shall apply to prop- ‘‘(D) patents, and ‘‘(viii) provides that the customer has no erty contributed to a partnership after June ‘‘(E) other property specified in regula- right to sell, sublease, mortgage, pawn, 8, 1997. tions. pledge, encumber, or otherwise dispose of the SEC. 1067. RESTRICTIONS ON AVAILABILITY OF Such methods may not be used with respect consumer property until all the payments EARNED INCOME CREDIT FOR TAX- to any amortizable section 197 intangible (as stated in the contract have been made.’’. PAYERS WHO IMPROPERLY defined in section 197(c)).’’. (c) EFFECTIVE DATE.—The amendment CLAIMED CREDIT IN PRIOR YEAR. (b) DEPRECIATION PERIOD FOR RENT-TO-OWN made by this section shall apply to property (a) IN GENERAL.—Section 32 is amended by PROPERTY.— placed in service after the date of the enact- redesignating subsections (k) and (l) as sub- (1) IN GENERAL.—Subparagraph (A) of sec- ment of this Act. sections (l) and (m), respectively, and by in- tion 168(e)(3) (relating to 3-year property) is serting after subsection (j) the following new SEC. 1069. REPEAL OF SPECIAL RULE FOR RENT- amended by striking ‘‘and’’ at the end of AL USE OF VACATION HOMES, ETC., subsection: clause (i), by striking the period at the end ‘‘(k) RESTRICTIONS ON TAXPAYERS WHO IM- FOR LESS THAN 15 DAYS. of clause (ii) and inserting ‘‘, and’’, and by PROPERLY CLAIMED CREDIT IN PRIOR YEAR.— (a) IN GENERAL.—Section 280A (relating to adding at the end the following new clause: ‘‘(1) TAXPAYERS MAKING PRIOR FRAUDULENT disallowance of certain expenses in connec- ‘‘(iii) any qualified rent-to-own property.’’. OR RECKLESS CLAIMS.— tion with business use of home, rental of va- (2) 4-YEAR CLASS LIFE.—The table contained ‘‘(A) IN GENERAL.—No credit shall be al- cation homes, etc.) is amended by striking in section 168(g)(3)(B) is amended by insert- lowed under this section for any taxable year subsection (g). ing before the first item the following new in the disallowance period. (b) NO BASIS REDUCTION UNLESS DEPRECIA- item: ‘‘(B) DISALLOWANCE PERIOD.—For purposes TION CLAIMED.—Section 1016 is amended by of paragraph (1), the disallowance period is— ‘‘(A)(iii) ...... 4 ’’. redesignating subsection (e) as subsection (f) ‘‘(i) the period of 10 taxable years after the (3) DEFINITION OF QUALIFIED RENT-TO-OWN and by inserting after subsection (d) the fol- most recent taxable year for which there was PROPERTY.—Subsection (i) of section 168 is lowing new subsection: a final determination that the taxpayer’s amended by adding at the end the following ‘‘(e) SPECIAL RULE WHERE RENTAL USE OF claim of credit under this section was due to new paragraph: VACATION HOME, ETC., FOR LESS THAN 15 fraud, and ‘‘(14) QUALIFIED RENT-TO-OWN PROPERTY.— DAYS.—If a dwelling unit is used during the ‘‘(ii) the period of 2 taxable years after the ‘‘(A) IN GENERAL.—The term ‘qualified taxable year by the taxpayer as a residence most recent taxable year for which there was rent-to-own property’ means property held and such dwelling unit is actually rented for a final determination that the taxpayer’s by a rent-to-own dealer for purposes of being less than 15 days during the taxable year, the claim of credit under this section was due to subject to a rent-to-own contract. reduction under subsection (a)(2) by reason reckless or intentional disregard of rules and ‘‘(B) RENT-TO-OWN DEALER.—The term of such rental use in any taxable year begin- regulations (but not due to fraud). ‘rent-to-own dealer’ means a person that, in ning after December 31, 1997, shall not exceed ‘‘(2) TAXPAYERS MAKING IMPROPER PRIOR the ordinary course of business, regularly en- the depreciation deduction allowed for such CLAIMS.—In the case of a taxpayer who is de- ters into rent-to-own contracts with cus- rental use.’’. nied credit under this section for any taxable tomers for the use of consumer property, if a (c) EFFECTIVE DATE.—The amendments year as a result of the deficiency procedures substantial portion of those contracts termi- made by this section shall apply to taxable under subchapter B of chapter 63, no credit nate and the property is returned to such years beginning after December 31, 1997. shall be allowed under this section for any person before the receipt of all payments re- SEC. 1070. EXPANSION OF REQUIREMENT THAT subsequent taxable year unless the taxpayer quired to transfer ownership of the property INVOLUNTARILY CONVERTED PROP- provides such information as the Secretary from such person to the customer. ERTY BE REPLACED WITH PROP- may require to demonstrate eligibility for ‘‘(C) CONSUMER PROPERTY.—The term ERTY ACQUIRED FROM AN UNRE- such credit.’’. ‘consumer property’ means tangible personal LATED PERSON. (b) DUE DILIGENCE REQUIREMENT ON INCOME property of a type generally used within the (a) IN GENERAL.—Subsection (i) of section TAX RETURN PREPARERS.—Section 6695 is home. Such term shall not include cellular 1033 is amended to read as follows: H4748 CONGRESSIONAL RECORD — HOUSE June 26, 1997

‘‘(i) REPLACEMENT PROPERTY MUST BE AC- ment made by subsection (a) shall apply to ‘‘(i) such item of income is passive income QUIRED FROM UNRELATED PERSON IN CERTAIN only 1⁄3 of such gross receipts. (as defined in subsection (d)(2)(A) without re- CASES.— (2) 1999.—In the case of gross receipts at- gard to clause (iii) thereof), and ‘‘(1) IN GENERAL.—If the property which is tributable to calendar year 1999, the amend- ‘‘(ii) such item of income is shown on a involuntarily converted is held by a taxpayer ment made by subsection (a) shall apply to payee statement furnished to the individual. to which this subsection applies, subsection only 2⁄3 of such gross receipts. ‘‘(B) CREDITABLE FOREIGN TAXES.—The (a) shall not apply if the replacement prop- SEC. 1102. ADJUSTMENT OF DOLLAR LIMITATION term ‘creditable foreign taxes’ means any erty or stock is acquired from a related per- ON SECTION 911 EXCLUSION. taxes for which a credit is allowable under son. The preceding sentence shall not apply (a) GENERAL RULE.—Paragraph (2) of sec- section 901; except that such term shall not to the extent that the related person ac- tion 911(b) is amended by— include any tax unless such tax is shown on quired the replacement property or stock (1) by striking ‘‘of $70,000’’ in subparagraph a payee statement furnished to such individ- from an unrelated person during the period (A) and inserting ‘‘equal to the exclusion ual. applicable under subsection (a)(2)(B). amount for the calendar year in which such ‘‘(C) PAYEE STATEMENT.—The term ‘payee ‘‘(2) TAXPAYERS TO WHICH SUBSECTION AP- taxable year begins’’, and statement’ has the meaning given to such PLIES.—This subsection shall apply to— (2) by adding at the end the following new term by section 6724(d)(2). ‘‘(A) a C corporation, subparagraph: ‘‘(D) ESTATES AND TRUSTS NOT ELIGIBLE.— ‘‘(B) a partnership in which 1 or more C ‘‘(D) EXCLUSION AMOUNT.— This subsection shall not apply to any estate corporations own, directly or indirectly (de- ‘‘(i) IN GENERAL.—The exclusion amount or trust.’’. termined in accordance with section for any calendar year is the exclusion (b) EFFECTIVE DATE.—The amendment 707(b)(3)), more than 50 percent of the capital amount determined in accordance with the made by subsection (a) shall apply to taxable interest, or profits interest, in such partner- following table (as adjusted by clause (ii)): years beginning after December 31, 1997. ship at the time of the involuntary conver- SEC. 1104. EXCHANGE RATE USED IN TRANSLAT- sion, and ING FOREIGN TAXES. ‘‘For calendar year— The exclusion ‘‘(C) any other taxpayer if, with respect to (a) ACCRUED TAXES TRANSLATED BY USING amount is— property which is involuntarily converted AVERAGE RATE FOR YEAR TO WHICH TAXES during the taxable year, the aggregate of the 1998 ...... $72,000 RELATE.— amount of realized gain on such property on 1999 ...... 74,000 (1) IN GENERAL.—Subsection (a) of section which there is realized gain exceeds $100,000. 2000 ...... 76,000 986 (relating to translation of foreign taxes) In the case of a partnership, subparagraph 2001 ...... 78,000 is amended to read as follows: (C) shall apply with respect to the partner- 2002 and thereafter ...... 80,000. ‘‘(a) FOREIGN INCOME TAXES.— ship and with respect to each partner. A ‘‘(ii) INFLATION ADJUSTMENT.—In the case ‘‘(1) TRANSLATION OF ACCRUED TAXES.— similar rule shall apply in the case of an S of any taxable year beginning in a calendar ‘‘(A) IN GENERAL.—For purposes of deter- corporation and its shareholders. year after 2007, the $80,000 amount in clause mining the amount of the foreign tax credit, ‘‘(3) RELATED PERSON.—For purposes of this (i) shall be increased by an amount equal to in the case of a taxpayer who takes foreign subsection, a person is related to another the product of— income taxes into account when accrued, the person if the person bears a relationship to ‘‘(I) such dollar amount, and amount of any foreign income taxes (and any the other person described in section 267(b) ‘‘(II) the cost-of-living adjustment deter- adjustment thereto) shall be translated into or 707(b)(1).’’. mined under section 1(f)(3) for the calendar dollars by using the average exchange rate (b) EFFECTIVE DATE.—The amendment year in which the taxable year begins, deter- for the taxable year to which such taxes re- made by this section shall apply to involun- mined by substituting ‘2006’ for ‘1992’ in sub- late. tary conversions occurring after June 8, 1997. paragraph (B) thereof. ‘‘(B) EXCEPTION FOR CERTAIN TAXES.—Sub- SEC. 1071. TREATMENT OF EXCEPTION FROM IN- If any increase determined under the preced- paragraph (A) shall not apply to any foreign STALLMENT SALES RULES FOR ing sentence is not a multiple of $100, such income taxes— SALES OF PROPERTY BY A MANU- increase shall be rounded to the next lowest ‘‘(i) paid after the date 2 years after the FACTURER TO A DEALER. multiple of $100.’’. close of the taxable year to which such taxes (a) IN GENERAL.—Paragraph (2) of section relate, or 811(c) of the Tax Reform Act of 1986 is hereby (b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable ‘‘(ii) paid before the beginning of the tax- repealed. able year to which such taxes relate. (b) EFFECTIVE DATE.— years beginning after December 31, 1997. ‘‘(C) EXCEPTION FOR INFLATIONARY CUR- (1) IN GENERAL.—The amendment made by SEC. 1103. CERTAIN INDIVIDUALS EXEMPT FROM RENCIES.—Subparagraph (A) shall not apply this section shall apply to taxable years be- FOREIGN TAX CREDIT LIMITATION. to any foreign income taxes the liability for ginning after the date of the enactment of (a) GENERAL RULE.—Section 904 (relating which is denominated in any inflationary this Act. to limitations on foreign tax credit) is currency (as determined under regulations). (2) COORDINATION WITH SECTION 481.—In the amended by redesignating subsection (j) as ‘‘(D) CROSS REFERENCE.— case of any taxpayer required by this section subsection (k) and by inserting after sub- to change its method of accounting for any section (i) the following new subsection: ‘‘For adjustments where tax is not paid taxable year— ‘‘(j) CERTAIN INDIVIDUALS EXEMPT.— within 2 years, see section 905(c). (A) such changes shall be treated as initi- ‘‘(1) IN GENERAL.—In the case of an individ- ‘‘(2) TRANSLATION OF TAXES TO WHICH PARA- ated by the taxpayer, ual to whom this subsection applies for any GRAPH (1) DOES NOT APPLY.—For purposes of (B) such changes shall be treated as made taxable year— determining the amount of the foreign tax with the consent of the Secretary, and ‘‘(A) the limitation of subsection (a) shall credit, in the case of any foreign income (C) the net amount of the adjustments re- not apply, taxes to which subparagraph (A) of para- quired to be taken into account under sec- ‘‘(B) no taxes paid or accrued by the indi- graph (1) does not apply— tion 481(a) of the Internal Revenue Code of vidual during such taxable year may be ‘‘(A) such taxes shall be translated into 1986 shall be taken into account ratably over deemed paid or accrued under subsection (c) dollars using the exchange rates as of the the 4 taxable year period beginning with the in any other taxable year, and time such taxes were paid to the foreign first taxable year beginning after the date of ‘‘(C) no taxes paid or accrued by the indi- country or possession of the United States, the enactment of this Act. vidual during any other taxable year may be and TITLE XI—SIMPLIFICATION AND OTHER deemed paid or accrued under subsection (c) ‘‘(B) any adjustment to the amount of such FOREIGN-RELATED PROVISIONS in such taxable year. taxes shall be translated into dollars using— Subtitle A—General Provisions ‘‘(2) INDIVIDUALS TO WHOM SUBSECTION AP- ‘‘(i) except as provided in clause (ii), the PLIES.—This subsection shall apply to an in- exchange rate as of the time when such ad- SEC. 1101. TREATMENT OF COMPUTER SOFT- dividual for any taxable year if— justment is paid to the foreign country or WARE AS FSC EXPORT PROPERTY. ‘‘(A) the entire amount of such individual’s possession, or (a) IN GENERAL.—Subparagraph (B) of sec- tion 927(a)(2) (relating to property excluded gross income for the taxable year from ‘‘(ii) in the case of any refund or credit of from eligibility as FSC export property) is sources without the United States consists foreign income taxes, using the exchange amended by inserting ‘‘, and other than com- of qualified passive income, rate as of the time of the original payment puter software (whether or not patented)’’ ‘‘(B) the amount of the creditable foreign of such foreign income taxes. before ‘‘, for commercial or home use’’. taxes paid or accrued by the individual dur- ‘‘(3) FOREIGN INCOME TAXES.—For purposes (b) EFFECTIVE DATE.—The amendment ing the taxable year does not exceed $300 of this subsection, the term ‘foreign income made by subsection (a) shall apply to gross ($600 in the case of a joint return), and taxes’ means any income, war profits, or ex- receipts attributable to periods after Decem- ‘‘(C) such individual elects to have this cess profits taxes paid or accrued to any for- ber 31, 1997, in taxable years ending after subsection apply for the taxable year. eign country or to any possession of the such date. ‘‘(3) DEFINITIONS.—For purposes of this sub- United States.’’. (c) PHASEIN OF TREATMENT.—For purposes section— (2) ADJUSTMENT WHEN NOT PAID WITHIN 2 of the Internal Revenue Code of 1986— ‘‘(A) QUALIFIED PASSIVE INCOME.—The term YEARS AFTER YEAR TO WHICH TAXES RELATE.— (1) 1998.—In the case of gross receipts at- ‘qualified passive income’ means any item of Subsection (c) of section 905 is amended to tributable to calendar year 1998, the amend- gross income if— read as follows: June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4749

‘‘(c) ADJUSTMENTS TO ACCRUED TAXES.— graph (5) and inserting ‘‘, and’’, and by add- tent that expenses properly allocable to such ‘‘(1) IN GENERAL.—If— ing at the end thereof the following new transaction meet the requirements of section ‘‘(A) accrued taxes when paid differ from paragraph: 162 or 212 (other than that part of section 212 the amounts claimed as credits by the tax- ‘‘(6) setting forth procedures for determin- dealing with expenses incurred in connection payer, ing the average exchange rate for any pe- with taxes).’’. ‘‘(B) accrued taxes are not paid before the riod.’’. (b) EFFECTIVE DATE.—The amendments date 2 years after the close of the taxable (3) CONFORMING AMENDMENTS.—Subsection made by this section shall apply to taxable year to which such taxes relate, or (b) of section 989 is amended by striking years beginning after December 31, 1997. ‘‘(C) any tax paid is refunded in whole or in ‘‘weighted’’ each place it appears. SEC. 1107. ALL NONCONTROLLED SECTION 902 part, (c) EFFECTIVE DATES.— CORPORATIONS WHICH ARE NOT the taxpayer shall notify the Secretary, who (1) IN GENERAL.—The amendments made by PASSIVE FOREIGN INVESTMENT shall redetermine the amount of the tax for subsections (a)(1) and (b) shall apply to taxes COMPANIES IN ONE FOREIGN TAX LIMITATION BASKET. the year or years affected. The Secretary paid or accrued in taxable years beginning (a) IN GENERAL.—Subparagraph (E) of sec- may prescribe adjustments to tax pools after December 31, 1997. tion 904(d)(2) (relating to noncontrolled sec- under sections 902 and 960 in lieu of the rede- (2) SUBSECTION (a)(2).—The amendment tion 902 corporations) is amended by adding termination under the preceding sentence. made by subsection (a)(2) shall apply to at the end the following new clause: ‘‘(2) SPECIAL RULE FOR TAXES NOT PAID taxes which relate to taxable years begin- ‘‘(iv) ALL NON-PFIC’S TREATED AS ONE.—All WITHIN 2 YEARS.— ning after December 31, 1997. noncontrolled section 902 corporations which ‘‘(A) IN GENERAL.—Except as provided in SEC. 1105. ELECTION TO USE SIMPLIFIED SEC- are not passive foreign investment compa- subparagraph (B), in making the redeter- TION 904 LIMITATION FOR ALTER- nies (as defined in section 1297) shall be mination under paragraph (1), no credit shall NATIVE MINIMUM TAX. treated as one noncontrolled section 902 cor- be allowed for accrued taxes not paid before (a) GENERAL RULE.—Subsection (a) of sec- poration for purposes of paragraph (1). The the date referred to in subparagraph (B) of tion 59 (relating to alternative minimum tax Secretary may prescribe regulations regard- paragraph (1). foreign tax credit) is amended by adding at ing the treatment of distributions out of ‘‘(B) TAXES SUBSEQUENTLY PAID.—Any such the end thereof the following new paragraph: earnings and profits for periods prior to the taxes if subsequently paid shall be taken ‘‘(3) ELECTION TO USE SIMPLIFIED SECTION 904 taxpayer’s acquisition of such stock.’’. into account for the taxable year to which LIMITATION.— (b) EFFECTIVE DATE.—The amendment such taxes relate (and translated as provided ‘‘(A) IN GENERAL.—In determining the al- made by subsection (a) shall apply to taxable in section 986(a)(2)(A)). ternative minimum tax foreign tax credit for years beginning after December 31, 2001. ‘‘(3) ADJUSTMENTS.—The amount of tax (if any taxable year to which an election under any) due on any redetermination under para- this paragraph applies— Subtitle B—Treatment of Controlled Foreign graph (1) shall be paid by the taxpayer on no- ‘‘(i) subparagraph (B) of paragraph (1) shall Corporations tice and demand by the Secretary, and the not apply, and SEC. 1111. GAIN ON CERTAIN STOCK SALES BY amount of tax overpaid (if any) shall be cred- ‘‘(ii) the limitation of section 904 shall be CONTROLLED FOREIGN CORPORA- ited or refunded to the taxpayer in accord- based on the proportion which— TIONS TREATED AS DIVIDENDS. ance with subchapter B of chapter 66 (section ‘‘(I) the taxpayer’s taxable income (as de- (a) GENERAL RULE.—Section 964 (relating 6511 et seq.). termined for purposes of the regular tax) to miscellaneous provisions) is amended by ‘‘(4) BOND REQUIREMENTS.—In the case of from sources without the United States (but adding at the end thereof the following new any tax accrued but not paid, the Secretary, not in excess of the taxpayer’s entire alter- subsection: as a condition precedent to the allowance of native minimum taxable income), bears to ‘‘(e) GAIN ON CERTAIN STOCK SALES BY CON- the credit provided in this subpart, may re- ‘‘(II) the taxpayer’s entire alternative min- TROLLED FOREIGN CORPORATIONS TREATED AS quire the taxpayer to give a bond, with sure- imum taxable income for the taxable year. DIVIDENDS.— ties satisfactory to and approved by the Sec- ‘‘(B) ELECTION.— ‘‘(1) IN GENERAL.—If a controlled foreign retary, in such sum as the Secretary may re- ‘‘(i) IN GENERAL.—An election under this corporation sells or exchanges stock in any quire, conditioned on the payment by the paragraph may be made only for the tax- other foreign corporation, gain recognized on taxpayer of any amount of tax found due on payer’s first taxable year which begins after such sale or exchange shall be included in any such redetermination. Any such bond December 31, 1997, and for which the tax- the gross income of such controlled foreign shall contain such further conditions as the payer claims an alternative minimum tax corporation as a dividend to the same extent Secretary may require. foreign tax credit. that it would have been so included under ‘‘(5) OTHER SPECIAL RULES.—In any redeter- ‘‘(ii) ELECTION REVOCABLE ONLY WITH CON- section 1248(a) if such controlled foreign cor- mination under paragraph (1) by the Sec- SENT.—An election under this paragraph, poration were a United States person. For retary of the amount of tax due from the once made, shall apply to the taxable year purposes of determining the amount which taxpayer for the year or years affected by a for which made and all subsequent taxable would have been so includible, the deter- refund, the amount of the taxes refunded for years unless revoked with the consent of the mination of whether such other foreign cor- which credit has been allowed under this sec- Secretary.’’. poration was a controlled foreign corpora- tion shall be reduced by the amount of any (b) EFFECTIVE DATE.—The amendment tion shall be made without regard to the pre- tax described in section 901 imposed by the made by this section shall apply to taxable ceding sentence. foreign country or possession of the United years beginning after December 31, 1997. ‘‘(2) SAME COUNTRY EXCEPTION NOT APPLICA- States with respect to such refund; but no SEC. 1106. TREATMENT OF PERSONAL TRANS- BLE.—Clause (i) of section 954(c)(3)(A) shall credit under this subpart, or deduction under ACTIONS BY INDIVIDUALS UNDER not apply to any amount treated as a divi- section 164, shall be allowed for any taxable FOREIGN CURRENCY RULES. dend by reason of paragraph (1). year with respect to any such tax imposed on (a) GENERAL RULE.—Subsection (e) of sec- ‘‘(3) CLARIFICATION OF DEEMED SALES.—For the refund. No interest shall be assessed or tion 988 (relating to application to individ- purposes of this subsection, a controlled for- collected on any amount of tax due on any uals) is amended to read as follows: eign corporation shall be treated as having redetermination by the Secretary, resulting ‘‘(e) APPLICATION TO INDIVIDUALS.— sold or exchanged any stock if, under any from a refund to the taxpayer, for any period ‘‘(1) IN GENERAL.—The preceding provisions provision of this subtitle, such controlled before the receipt of such refund, except to of this section shall not apply to any section foreign corporation is treated as having gain the extent interest was paid by the foreign 988 transaction entered into by an individual from the sale or exchange of such stock.’’. country or possession of the United States which is a personal transaction. (b) AMENDMENT OF SECTION 904(d).—Clause on such refund for such period.’’. ‘‘(2) EXCLUSION FOR CERTAIN PERSONAL (i) of section 904(d)(2)(E) is amended by strik- (b) AUTHORITY TO USE AVERAGE RATES.— TRANSACTIONS.—If— ing ‘‘and except as provided in regulations, (1) IN GENERAL.—Subsection (a) of section ‘‘(A) nonfunctional currency is disposed of the taxpayer was a United States share- 986 (as amended by subsection (a)) is amend- by an individual in any transaction, and holder in such corporation’’. ed by redesignating paragraph (3) as para- ‘‘(B) such transaction is a personal trans- (c) EFFECTIVE DATES.— graph (4) and inserting after paragraph (2) action, (1) The amendment made by subsection (a) the following new paragraph: no gain shall be recognized for purposes of shall apply to gain recognized on trans- ‘‘(3) AUTHORITY TO PERMIT USE OF AVERAGE this subtitle by reason of changes in ex- actions occurring after the date of the enact- RATES.—To the extent prescribed in regula- change rates after such currency was ac- ment of this Act. tions, the average exchange rate for the pe- quired by such individual and before such (2) The amendment made by subsection (b) riod (specified in such regulations) during disposition. The preceding sentence shall not shall apply to distributions after the date of which the taxes or adjustment is paid may apply if the gain which would otherwise be the enactment of this Act. be used instead of the exchange rate as of the recognized on the transaction exceeds $200. SEC. 1112. MISCELLANEOUS MODIFICATIONS TO time of such payment.’’. ‘‘(3) PERSONAL TRANSACTIONS.—For pur- SUBPART F. (2) DETERMINATION OF AVERAGE RATES.— poses of this subsection, the term ‘personal (a) SECTION 1248 GAIN TAKEN INTO ACCOUNT Subsection (c) of section 989 is amended by transaction’ means any transaction entered IN DETERMINING PRO RATA SHARE.— striking ‘‘and’’ at the end of paragraph (4), into by an individual, except that such term (1) IN GENERAL.—Paragraph (2) of section by striking the period at the end of para- shall not include any transaction to the ex- 951(a) (defining pro rata share of subpart F H4750 CONGRESSIONAL RECORD — HOUSE June 26, 1997

income) is amended by adding at the end foreign corporation indirectly through a ‘‘(e) EXCEPTION FOR UNITED STATES SHARE- thereof the following new sentence: ‘‘For chain of foreign corporations connected HOLDERS OF CONTROLLED FOREIGN CORPORA- purposes of subparagraph (B), any gain in- through stock ownership of at least 10 per- TIONS.— cluded in the gross income of any person as cent of their voting stock, ‘‘(1) IN GENERAL.—For purposes of this a dividend under section 1248 shall be treated ‘‘(ii) the foreign corporation described in part, a corporation shall not be treated with as a distribution received by such person subsection (a) is the first tier corporation in respect to a shareholder as a passive foreign with respect to the stock involved.’’. such chain, and investment company during the qualified (2) EFFECTIVE DATE.—The amendment ‘‘(iii) such other corporation is not below portion of such shareholder’s holding period made by paragraph (1) shall apply to disposi- the sixth tier in such chain. with respect to stock in such corporation. tions after the date of the enactment of this The term ‘qualified group’ shall not include ‘‘(2) QUALIFIED PORTION.—For purposes of Act. any foreign corporation below the third tier this subsection, the term ‘qualified portion’ (b) BASIS ADJUSTMENTS IN STOCK HELD BY in the chain referred to in clause (i) unless means the portion of the shareholder’s hold- FOREIGN CORPORATION.— such foreign corporation is a controlled for- ing period— ‘‘(A) which is after December 31, 1997, and (1) IN GENERAL.—Section 961 (relating to eign corporation (as defined in section 957) ‘‘(B) during which the shareholder is a adjustments to basis of stock in controlled and the domestic corporation is a United United States shareholder (as defined in sec- foreign corporations and of other property) States shareholder (as defined in section tion 951(b)) of the corporation and the cor- is amended by adding at the end thereof the 951(b)) in such foreign corporation. Para- poration is a controlled foreign corporation. following new subsection: graph (1) shall apply to those taxes paid by ‘‘(c) BASIS ADJUSTMENTS IN STOCK HELD BY ‘‘(3) NEW HOLDING PERIOD IF QUALIFIED POR- a member of the qualified group below the FOREIGN CORPORATION.—Under regulations TION ENDS.— third tier only with respect to periods during prescribed by the Secretary, if a United ‘‘(A) IN GENERAL.—Except as provided in which it was a controlled foreign corpora- States shareholder is treated under section subparagraph (B), if the qualified portion of tion.’’. 958(a)(2) as owning any stock in a controlled a shareholder’s holding period with respect ONFORMING AMENDMENTS.— foreign corporation which is actually owned (2) C to any stock ends after December 31, 1997, by another controlled foreign corporation, (A) Subparagraph (B) of section 902(c)(3) is solely for purposes of this part, the share- adjustments similar to the adjustments pro- amended by adding ‘‘or’’ at the end of clause holder’s holding period with respect to such vided by subsections (a) and (b) shall be (i) and by striking clauses (ii) and (iii) and stock shall be treated as beginning as of the made to the basis of such stock in the hands inserting the following new clause: first day following such period. ‘‘(ii) the requirements of subsection (b)(2) of such other controlled foreign corporation, ‘‘(B) EXCEPTION.—Subparagraph (A) shall but only for the purposes of determining the are met with respect to such foreign corpora- not apply if such stock was, with respect to amount included under section 951 in the tion.’’. such shareholder, stock in a passive foreign gross income of such United States share- (B) Subparagraph (B) of section 902(c)(4) is investment company at any time before the holder (or any other United States share- amended by striking ‘‘3rd foreign corpora- qualified portion of the shareholder’s holding holder who acquires from any person any tion’’ and inserting ‘‘sixth tier foreign cor- period with respect to such stock and no portion of the interest of such United States poration’’. election under section 1298(b)(1) is made.’’. (C) The heading for paragraph (3) of section shareholder by reason of which such share- SEC. 1122. ELECTION OF MARK TO MARKET FOR holder was treated as owning such stock, but 902(c) is amended by striking ‘‘WHERE DOMES- MARKETABLE STOCK IN PASSIVE only to the extent of such portion, and sub- TIC CORPORATION ACQUIRES 10 PERCENT OF FOR- FOREIGN INVESTMENT COMPANY. ject to such proof of identity of such interest EIGN CORPORATION’’ and inserting ‘‘WHERE (a) IN GENERAL.—Part VI of subchapter P as the Secretary may prescribe by regula- FOREIGN CORPORATION FIRST QUALIFIES’’. of chapter 1 is amended by redesignating tions).’’. (D) Paragraph (3) of section 902(c) is subpart C as subpart D, by redesignating sec- (2) EFFECTIVE DATE.—The amendment amended by striking ‘‘ownership’’ each place tions 1296 and 1297 as sections 1297 and 1298, made by paragraph (1) shall apply for pur- it appears. respectively, and by inserting after subpart poses of determining inclusions for taxable (b) SECTION 960 CREDIT.—Paragraph (1) of B the following new subpart: years of United States shareholders begin- section 960(a) (relating to special rules for ‘‘Subpart C—Election of Mark to Market For ning after December 31, 1997. foreign tax credits) is amended to read as Marketable Stock (c) CLARIFICATION OF TREATMENT OF follows: ‘‘Sec. 1296. Election of mark to market for BRANCH TAX EXEMPTIONS OR REDUCTIONS.— ‘‘(1) DEEMED PAID CREDIT.—For purposes of marketable stock. (1) IN GENERAL.—Subsection (b) of section subpart A of this part, if there is included ‘‘SEC. 1296. ELECTION OF MARK TO MARKET FOR 952 is amended by adding at the end thereof under section 951(a) in the gross income of a MARKETABLE STOCK. the following new sentence: ‘‘For purposes of domestic corporation any amount attrib- ‘‘(a) GENERAL RULE.—In the case of mar- this subsection, any exemption (or reduc- utable to earnings and profits of a foreign ketable stock in a passive foreign invest- tion) with respect to the tax imposed by sec- corporation which is a member of a qualified ment company which is owned (or treated tion 884 shall not be taken into account.’’. group (as defined in section 902(b)) with re- under subsection (g) as owned) by a United (2) EFFECTIVE DATE.—The amendment spect to the domestic corporation, then, ex- States person at the close of any taxable made by paragraph (1) shall apply to taxable cept to the extent provided in regulations, year of such person, at the election of such years beginning after December 31, 1986. section 902 shall be applied as if the amount person— SEC. 1113. INDIRECT FOREIGN TAX CREDIT AL- so included were a dividend paid by such for- ‘‘(1) If the fair market value of such stock LOWED FOR CERTAIN LOWER TIER eign corporation (determined by applying as of the close of such taxable year exceeds COMPANIES. section 902(c) in accordance with section its adjusted basis, such United States person (a) SECTION 902 CREDIT.— 904(d)(3)(B)).’’. shall include in gross income for such tax- (1) IN GENERAL.—Subsection (b) of section (c) EFFECTIVE DATE.— able year an amount equal to the amount of 902 (relating to deemed taxes increased in (1) IN GENERAL.—The amendments made by such excess. case of certain 2nd and 3rd tier foreign cor- this section shall apply to taxes of foreign ‘‘(2) If the adjusted basis of such stock ex- porations) is amended to read as follows: corporations for taxable years of such cor- ceeds the fair market value of such stock as ‘‘(b) DEEMED TAXES INCREASED IN CASE OF porations beginning after the date of enact- of the close of such taxable year, such United CERTAIN LOWER TIER CORPORATIONS.— ment of this Act. States person shall be allowed a deduction ‘‘(1) IN GENERAL.—If— (2) SPECIAL RULE.—In the case of any chain for such taxable year equal to the lesser of— ‘‘(A) any foreign corporation is a member of foreign corporations described in clauses ‘‘(A) the amount of such excess, or of a qualified group, and (i) and (ii) of section 902(b)(2)(B) of the Inter- ‘‘(B) the unreversed inclusions with respect ‘‘(B) such foreign corporation owns 10 per- nal Revenue Code of 1986 (as amended by this to such stock. cent or more of the voting stock of another section), no liquidation, reorganization, or ‘‘(b) BASIS ADJUSTMENTS.— member of such group from which it receives similar transaction in a taxable year begin- ‘‘(1) IN GENERAL.—The adjusted basis of dividends in any taxable year, ning after the date of the enactment of this stock in a passive foreign investment com- such foreign corporation shall be deemed to Act shall have the effect of permitting taxes pany— have paid the same proportion of such other to be taken into account under section 902 of ‘‘(A) shall be increased by the amount in- member’s post-1986 foreign income taxes as the Internal Revenue Code of 1986 which cluded in the gross income of the United would be determined under subsection (a) if could not have been taken into account States person under subsection (a)(1) with re- such foreign corporation were a domestic under such section but for such transaction. spect to such stock, and corporation. ‘‘(B) shall be decreased by the amount al- ‘‘(2) QUALIFIED GROUP.—For purposes of Subtitle C—Treatment of Passive Foreign lowed as a deduction to the United States paragraph (1), the term ‘qualified group’ Investment Companies person under subsection (a)(2) with respect means— SEC. 1121. UNITED STATES SHAREHOLDERS OF to such stock. ‘‘(A) the foreign corporation described in CONTROLLED FOREIGN CORPORA- ‘‘(2) SPECIAL RULE FOR STOCK CONSTRUC- subsection (a), and TIONS NOT SUBJECT TO PFIC INCLU- TIVELY OWNED.—In the case of stock in a pas- ‘‘(B) any other foreign corporation if— SION. sive foreign investment company which the ‘‘(i) the domestic corporation owns at least Section 1296 is amended by adding at the United States person is treated as owning 5 percent of the voting stock of such other end the following new subsection: under subsection (g)— June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4751 ‘‘(A) the adjustments under paragraph (1) which it is the issuer and which is redeem- of subparagraph (B) are not satisfied, section shall apply to such stock in the hands of the able at its net asset value, all stock in a pas- 1291 shall apply to— person actually holding such stock but only sive foreign investment company which it ‘‘(i) any distributions with respect to, or for purposes of determining the subsequent owns directly or indirectly shall be treated disposition of, such stock in the first taxable treatment under this chapter of the United as marketable stock for purposes of this sec- year of the taxpayer for which such election States person with respect to such stock, tion. Except as provided in regulations, simi- is made, and and lar treatment as marketable stock shall ‘‘(ii) any amount which, but for section ‘‘(B) similar adjustments shall be made to apply in the case of any other regulated in- 1291, would have been included in gross in- the adjusted basis of the property by reason vestment company which publishes net asset come under subsection (a) with respect to of which the United States person is treated valuations at least annually. such stock for such taxable year in the same as owning such stock. ‘‘(f) TREATMENT OF CONTROLLED FOREIGN manner as if such amount were gain on the ‘‘(c) CHARACTER AND SOURCE RULES.— CORPORATIONS WHICH ARE SHAREHOLDERS IN disposition of such stock. ‘‘(1) ORDINARY TREATMENT.— PASSIVE FOREIGN INVESTMENT COMPANIES.— ‘‘(B) REQUIREMENTS.—The requirements of ‘‘(A) GAIN.—Any amount included in gross In the case of a foreign corporation which is this subparagraph are met if, with respect to income under subsection (a)(1), and any gain a controlled foreign corporation and which each of such corporation’s taxable years for on the sale or other disposition of market- owns (or is treated under subsection (g) as which such corporation was a passive foreign able stock in a passive foreign investment owning) stock in a passive foreign invest- investment company and which begin after company (with respect to which an election ment company— December 31, 1986, and included any portion under this section is in effect), shall be treat- ‘‘(1) this section (other than subsection of the taxpayer’s holding period in such ed as ordinary income. (c)(2)) shall apply to such foreign corporation stock, such corporation was treated as a ‘‘(B) LOSS.—Any— in the same manner as if such corporation qualified electing fund under this part with ‘‘(i) amount allowed as a deduction under were a United States person, and respect to the taxpayer. subsection (a)(2), and ‘‘(2) for purposes of subpart F of part III of ‘‘(2) SPECIAL RULES FOR REGULATED INVEST- ‘‘(ii) loss on the sale or other disposition of subchapter N— MENT COMPANIES.— marketable stock in a passive foreign invest- ‘‘(A) any amount included in gross income ‘‘(A) IN GENERAL.—If a regulated invest- ment company (with respect to which an under subsection (a)(1) shall be treated as ment company elects the application of this election under this section is in effect) to the foreign personal holding company income de- section with respect to any marketable extent that the amount of such loss does not scribed in section 954(c)(1)(A), and stock in a corporation after the beginning of exceed the unreversed inclusions with re- ‘‘(B) any amount allowed as a deduction the taxpayer’s holding period in such stock, spect to such stock, under subsection (a)(2) shall be treated as a then, with respect to such company’s first shall be treated as an ordinary loss. The deduction allocable to foreign personal hold- taxable year for which such company elects amount so treated shall be treated as a de- ing company income so described. the application of this section with respect duction allowable in computing adjusted ‘‘(g) STOCK OWNED THROUGH CERTAIN FOR- to such stock— gross income. EIGN ENTITIES.—Except as provided in regula- ‘‘(i) section 1291 shall not apply to such stock with respect to any distribution or dis- ‘‘(2) SOURCE.—The source of any amount tions— included in gross income under subsection ‘‘(1) IN GENERAL.—For purposes of this sec- position during, or amount included in gross (a)(1) (or allowed as a deduction under sub- tion, stock owned, directly or indirectly, by income under this section for, such first tax- section (a)(2)) shall be determined in the or for a foreign partnership or foreign trust able year, but same manner as if such amount were gain or or foreign estate shall be considered as being ‘‘(ii) such regulated investment company’s loss (as the case may be) from the sale of owned proportionately by its partners or tax under this chapter for such first taxable stock in the passive foreign investment com- beneficiaries. Stock considered to be owned year shall be increased by the aggregate pany. by a person by reason of the application of amount of interest which would have been ‘‘(d) UNREVERSED INCLUSIONS.—For pur- the preceding sentence shall, for purposes of determined under section 1291(c)(3) if section poses of this section, the term ‘unreversed applying such sentence, be treated as actu- 1291 were applied without regard to this sub- inclusions’ means, with respect to any stock ally owned by such person. paragraph. in a passive foreign investment company, the ‘‘(2) TREATMENT OF CERTAIN DISPOSITIONS.— Clause (ii) shall not apply if for the preced- excess (if any) of— In any case in which a United States person ing taxable year the company elected to ‘‘(1) the amount included in gross income is treated as owning stock in a passive for- mark to market the stock held by such com- of the taxpayer under subsection (a)(1) with eign investment company by reason of para- pany as of the last day of such preceding tax- respect to such stock for prior taxable years, graph (1)— able year. over ‘‘(A) any disposition by the United States ‘‘(B) DISALLOWANCE OF DEDUCTION.—No de- ‘‘(2) the amount allowed as a deduction person or by any other person which results duction shall be allowed to any regulated in- under subsection (a)(2) with respect to such in the United States person being treated as vestment company for the increase in tax stock for prior taxable years. no longer owning such stock, and under subparagraph (A)(ii). The amount referred to in paragraph (1) shall ‘‘(B) any disposition by the person owning ‘‘(k) ELECTION.—This section shall apply to include any amount which would have been such stock, marketable stock in a passive foreign invest- included in gross income under subsection shall be treated as a disposition by the Unit- ment company which is held by a United States person only if such person elects to (a)(1) with respect to such stock for any ed States person of the stock in the passive apply this section with respect to such prior taxable year but for section 1291. foreign investment company. stock. Such an election shall apply to the ‘‘(e) MARKETABLE STOCK.—For purposes of ‘‘(h) COORDINATION WITH SECTION 851(b).— taxable year for which made and all subse- this section— For purposes of paragraphs (2) and (3) of sec- quent taxable years unless— ‘‘(1) IN GENERAL.—The term ‘marketable tion 851(b), any amount included in gross in- ‘‘(1) such stock ceases to be marketable stock’ means— come under subsection (a) shall be treated as stock, or ‘‘(A) any stock which is regularly traded a dividend. ‘‘(2) the Secretary consents to the revoca- on— ‘‘(i) STOCK ACQUIRED FROM A DECEDENT.—In tion of such election. ‘‘(i) a national securities exchange which is the case of stock of a passive foreign invest- ‘‘(l) TRANSITION RULE FOR INDIVIDUALS BE- registered with the Securities and Exchange ment company which is acquired by bequest, COMING SUBJECT TO UNITED STATES TAX.—If Commission or the national market system devise, or inheritance (or by the decedent’s any individual becomes a United States per- established pursuant to section 11A of the estate) and with respect to which an election son in a taxable year beginning after Decem- Securities and Exchange Act of 1934, or under this section was in effect as of the date ber 31, 1997, solely for purposes of this sec- ‘‘(ii) any exchange or other market which of the decedent’s death, notwithstanding sec- tion, the adjusted basis (before adjustments the Secretary determines has rules adequate tion 1014, the basis of such stock in the hands under subsection (b)) of any marketable to carry out the purposes of this part, of the person so acquiring it shall be the ad- stock in a passive foreign investment com- ‘‘(B) to the extent provided in regulations, justed basis of such stock in the hands of the pany owned by such individual on the first stock in any foreign corporation which is decedent immediately before his death (or, if day of such taxable year shall be treated as comparable to a regulated investment com- lesser, the basis which would have been de- being the greater of its fair market value on pany and which offers for sale or has out- termined under section 1014 without regard such first day or its adjusted basis on such standing any stock of which it is the issuer to this subsection). first day.’’. and which is redeemable at its net asset ‘‘(j) COORDINATION WITH SECTION 1291 FOR (b) COORDINATION WITH INTEREST CHARGE, value, and FIRST YEAR OF ELECTION.— ETC.— ‘‘(C) to the extent provided in regulations, ‘‘(1) TAXPAYERS OTHER THAN REGULATED IN- (1) Paragraph (1) of section 1291(d) is any option on stock described in subpara- VESTMENT COMPANIES.— amended by adding at the end the following graph (A) or (B). ‘‘(A) IN GENERAL.—If the taxpayer elects new flush sentence: ‘‘(2) SPECIAL RULE FOR REGULATED INVEST- the application of this section with respect ‘‘Except as provided in section 1296(j), this MENT COMPANIES.—In the case of any regu- to any marketable stock in a corporation section also shall not apply if an election lated investment company which is offering after the beginning of the taxpayer’s holding under section 1296(k) is in effect for the tax- for sale or has outstanding any stock of period in such stock, and if the requirements payer’s taxable year.’’. H4752 CONGRESSIONAL RECORD — HOUSE June 26, 1997

(2) The subsection heading for subsection ‘‘Sec. 1297. Passive foreign investment com- ‘‘(c) REGULATIONS RELATING TO TRANSFERS (d) of section 1291 is amended by striking pany. TO FOREIGN PERSONS.—The Secretary may ‘‘SUBPART B’’ and inserting ‘‘SUBPARTS B ‘‘Sec. 1298. Special rules.’’. provide by regulations that subsection (a) AND C’’. shall not apply to gain realized on the trans- (6) The table of subparts for part VI of sub- (3) Subparagraph (A) of section 1291(a)(3) is fer of property to a partnership if such gain, chapter P of chapter 1 is amended by strik- amended to read as follows: when recognized, will be includible in the ing the last item and inserting the following gross income of a person other than a United ‘‘(A) HOLDING PERIOD.—The taxpayer’s new items: holding period shall be determined under States person.’’. section 1223; except that— ‘‘Subpart C. Election of mark to market for (4) REPEAL OF U.S. SOURCE TREATMENT OF ‘‘(i) for purposes of applying this section to marketable stock. DEEMED ROYALTIES.—Subparagraph (C) of an excess distribution, such holding period ‘‘Subpart D. General provisions.’’. section 367(d)(2) is amended to read as fol- lows: shall be treated as ending on the date of such (e) CLARIFICATION OF GAIN RECOGNITION ‘‘(C) AMOUNTS RECEIVED TREATED AS ORDI- distribution, and ELECTION.—The last sentence of section NARY INCOME.—For purposes of this chapter, ‘‘(ii) if section 1296 applied to such stock 1298(b)(1), as so redesignated, is amended by any amount included in gross income by rea- with respect to the taxpayer for any prior inserting ‘‘(determined without regard to the son of this subsection shall be treated as or- taxable year, such holding period shall be preceding sentence)’’ after ‘‘investment com- dinary income.’’. treated as beginning on the first day of the pany’’. (5) TRANSFERS OF INTANGIBLES TO PARTNER- first taxable year beginning after the last SEC. 1123. EFFECTIVE DATE. SHIPS.— taxable year for which section 1296 so ap- The amendments made by this subtitle (A) Subsection (d) of section 367 is amended plied.’’. shall apply to— by adding at the end the following new para- (1) taxable years of United States persons (c) TREATMENT OF MARK-TO-MARKET GAIN graph: beginning after December 31, 1997, and UNDER SECTION 4982.— ‘‘(3) REGULATIONS RELATING TO TRANSFERS (2) taxable years of foreign corporations (1) Subsection (e) of section 4982 is amend- OF INTANGIBLES TO PARTNERSHIPS.—The Sec- ending with or within such taxable years of ed by adding at the end thereof the following retary may provide by regulations that the United States persons. new paragraph: rules of paragraph (2) also apply to the trans- ‘‘(6) TREATMENT OF GAIN RECOGNIZED UNDER Subtitle D—Repeal of Excise Tax on fer of intangible property by a United States SECTION 1296.—For purposes of determining a Transfers to Foreign Entities person to a partnership in circumstances regulated investment company’s ordinary in- SEC. 1131. REPEAL OF EXCISE TAX ON TRANS- consistent with the purposes of this sub- come— FERS TO FOREIGN ENTITIES; REC- section.’’. ‘‘(A) notwithstanding paragraph (1)(C), sec- OGNITION OF GAIN ON CERTAIN (B) Section 721 is amended by adding at the TRANSFERS TO FOREIGN TRUSTS tion 1296 shall be applied as if such compa- AND ESTATES. end the following new subsection: ‘‘(d) TRANSFERS OF INTANGIBLES.— ny’s taxable year ended on October 31, and (a) REPEAL OF EXCISE TAX.—Chapter 5 (re- ‘‘(B) any ordinary gain or loss from an ac- lating to transfers to avoid income tax) is ‘‘For regulatory authority to treat intangi- tual disposition of stock in a passive foreign hereby repealed. bles transferred to a partnership as sold, see investment company during the portion of (b) RECOGNITION OF GAIN ON CERTAIN section 367(d)(3).’’. the calendar year after October 31 shall be TRANSFERS TO FOREIGN TRUSTS AND ES- (c) TECHNICAL AND CONFORMING AMEND- taken into account in determining such reg- TATES.—Subpart F of part I of subchapter J MENTS.— ulated investment company’s ordinary in- of chapter 1 is amended by adding at the end (1) Subsection (h) of section 814 is amended come for the following calendar year. the following new section: by striking ‘‘or 1491’’. In the case of a company making an election ‘‘SEC. 684. RECOGNITION OF GAIN ON CERTAIN (2) Section 1057 (relating to election to under paragraph (4), the preceding sentence TRANSFERS TO CERTAIN FOREIGN treat transfer to foreign trust, etc., as tax- shall be applied by substituting the last day TRUSTS AND ESTATES. able exchange) is hereby repealed. of the company’s taxable year for October ‘‘(a) IN GENERAL.—In the case of any trans- (3) Section 6422 is amended by striking fer of property by a United States person to 31.’’. paragraph (5) and by redesignating para- a foreign estate or trust, for purposes of this (2) Subsection (b) of section 852 is amended graphs (6) through (13) as paragraphs (5) subtitle, such transfer shall be treated as a by adding at the end thereof the following through (12), respectively. sale or exchange for an amount equal to the new paragraph: (4) The table of chapters for subtitle A is fair market value of the property trans- amended by striking the item relating to ‘‘(10) SPECIAL RULE FOR CERTAIN LOSSES ON ferred, and the transferor shall recognize as chapter 5. STOCK IN PASSIVE FOREIGN INVESTMENT COM- gain the excess of— (5) The table of sections for part IV of sub- PANY.—To the extent provided in regula- ‘‘(1) the fair market value of the property chapter O of chapter 1 is amended by strik- tions, the taxable income of a regulated in- so transferred, over ing the item relating to section 1057. vestment company (other than a company to ‘‘(2) the adjusted basis (for purposes of de- (6) The table of sections for subpart F of which an election under section 4982(e)(4) ap- termining gain) of such property in the part I of subchapter J of chapter 1 is amend- plies) shall be computed without regard to hands of the transferor. any net reduction in the value of any stock ‘‘(b) EXCEPTION.—Subsection (a) shall not ed by adding at the end the following new of a passive foreign investment company apply to a transfer to a trust by a United item: with respect to which an election under sec- States person if such person is treated as the ‘‘Sec. 684. Recognition of gain on certain tion 1296(k) is in effect occurring after Octo- owner of such trust under section 671.’’. transfers to certain foreign ber 31 of the taxable year, and any such re- (b) OTHER ANTI-AVOIDANCE PROVISIONS RE- trusts and estates.’’. duction shall be treated as occurring on the PLACING REPEALED EXCISE TAX.— (d) EFFECTIVE DATE.—The amendments first day of the following taxable year.’’. (1) GAIN RECOGNITION ON EXCHANGES INVOLV- made by this section shall take effect on the (3) Subsection (c) of section 852 is amended ING FOREIGN PERSONS.—Section 1035 is date of the enactment of this Act. by inserting after ‘‘October 31 of such year’’ amended by redesignating subsection (c) as the following: ‘‘, without regard to any net subsection (d) and by inserting after sub- Subtitle E—Information Reporting reduction in the value of any stock of a pas- section (b) the following new subsection: SEC. 1141. CLARIFICATION OF APPLICATION OF sive foreign investment company with re- ‘‘(c) EXCHANGES INVOLVING FOREIGN PER- RETURN REQUIREMENT TO FOR- spect to which an election under section SONS.—To the extent provided in regulations, EIGN PARTNERSHIPS. 1296(k) is in effect occurring after October 31 subsection (a) shall not apply to any ex- (a) IN GENERAL.—Section 6031 (relating to return of partnership income) is amended by of such year,’’. change having the effect of transferring property to any person other than a United adding at the end the following new sub- (d) CONFORMING AMENDMENTS.— States person.’’. section: (1) Sections 532(b)(4) and 542(c)(10) are each (2) TRANSFERS TO FOREIGN CORPORATIONS.— ‘‘(e) FOREIGN PARTNERSHIPS.— amended by striking ‘‘section 1296’’ and in- Section 367 is amended by adding at the end ‘‘(1) EXCEPTION FOR FOREIGN PARTNER- serting ‘‘section 1297’’. the following new subsection: SHIP.—Except as provided in paragraph (2), (2) Subsection (f) of section 551 is amended ‘‘(f) OTHER TRANSFERS.—To the extent pro- the preceding provisions of this section shall by striking ‘‘section 1297(b)(5)’’ and inserting vided in regulations, if a United States per- not apply to a foreign partnership. ‘‘section 1298(b)(5)’’. son transfers property to a foreign corpora- ‘‘(2) CERTAIN FOREIGN PARTNERSHIPS RE- (3) Subsections (a)(1) and (d) of section 1293 tion as paid-in surplus or as a contribution QUIRED TO FILE RETURN.—Except as provided are each amended by striking ‘‘section to capital (in a transaction not otherwise de- in regulations prescribed by the Secretary, 1297(a)’’ and inserting ‘‘section 1298(a)’’. scribed in this section), such foreign corpora- this section shall apply to a foreign partner- (4) Paragraph (3) of section 1297(b), as re- tion shall not, for purposes of determining ship for any taxable year if for such year, designated by subsection (a), is hereby re- the extent to which gain shall be recognized such partnership has— pealed. on such transfer, be considered to be a cor- ‘‘(A) gross income derived from sources (5) The table of sections for subpart D of poration.’’. within the United States, or part VI of subchapter P of chapter 1, as re- (3) CERTAIN TRANSFERS TO PARTNERSHIPS.— ‘‘(B) gross income which is effectively con- designated by subsection (a), is amended to Section 721 is amended by adding at the end nected with the conduct of a trade or busi- read as follows: the following new subsection: ness within the United States. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4753

The Secretary may provide simplified filing ‘‘(3) PARTNERSHIP-RELATED DEFINITIONS.— (f) EFFECTIVE DATE.—The amendments procedures for foreign partnerships to which ‘‘(A) CONTROL.—A person is in control of a made by this section shall apply to annual this section applies.’’. partnership if such person owns directly or accounting periods of foreign partnerships (b) SANCTION FOR FAILURE BY FOREIGN indirectly more than a 50 percent interest in beginning after the date of the enactment of PARTNERSHIP TO COMPLY WITH SECTION 6031 such partnership. this Act. TO INCLUDE DENIAL OF DEDUCTIONS.—Sub- ‘‘(B) 50-PERCENT INTEREST.—For purposes of SEC. 1143. MODIFICATIONS RELATING TO RE- section (f) of section 6231 is amended— subparagraph (A), a 50-percent interest in a TURNS REQUIRED TO BE FILED BY (1) by striking ‘‘LOSSES AND’’ in the head- partnership is— REASON OF CHANGES IN OWNER- ing and inserting ‘‘DEDUCTIONS, LOSSES, ‘‘(i) an interest equal to 50 percent of the SHIP INTERESTS IN FOREIGN PART- NERSHIP. AND’’, and capital interest, or 50 percent of the profits (a) NO RETURN REQUIRED UNLESS CHANGES (2) by striking ‘‘loss or’’ each place it ap- interest, in such partnership, or INVOLVE 10-PERCENT INTEREST IN PARTNER- pears and inserting ‘‘deduction, loss, or’’. ‘‘(ii) to the extent provided in regulations, SHIP.— (c) EFFECTIVE DATE.—The amendments an interest to which 50 percent of the deduc- made by this section shall apply to taxable (1) IN GENERAL.—Subsection (a) of section tions or losses of such partnership are allo- 6046A (relating to returns as to interests in years beginning after the date of the enact- cated. ment of this Act. foreign partnerships) is amended by adding For purposes of the preceding sentence, rules at the end the following new sentence: SEC. 1142. CONTROLLED FOREIGN PARTNER- similar to the rules of section 267(c) (other SHIPS SUBJECT TO INFORMATION ‘‘Paragraphs (1) and (2) shall apply to any ac- REPORTING COMPARABLE TO IN- than paragraph (3)) shall apply, except so as quisition or disposition only if the United FORMATION REPORTING FOR CON- to consider a United States person as owning States person directly or indirectly holds at TROLLED FOREIGN CORPORATIONS. such an interest which is owned by a person least a 10-percent interest in such partner- (a) IN GENERAL.—So much of section 6038 which is not a United States person. ship either before or after such acquisition (relating to information with respect to cer- ‘‘(C) 10-PERCENT INTEREST.—A 10-percent or disposition, and paragraph (3) shall apply tain foreign corporations) as precedes para- interest in a partnership is an interest which to any change only if the change is equiva- graph (2) of subsection (a) is amended to read would be described in subparagraph (B) if ‘10 lent to at least a 10-interest in such partner- as follows: percent’ were substituted for ‘50 percent’ ship.’’. ‘‘SEC. 6038. INFORMATION REPORTING WITH RE- each place it appears.’’. (2) 10-PERCENT INTEREST.—Section 6046A is SPECT TO CERTAIN FOREIGN COR- (2) CLERICAL AMENDMENT.—The paragraph amended by redesignating subsection (d) as PORATIONS AND PARTNERSHIPS. heading for paragraph (2) of section 6038(e) subsection (e) and by inserting after sub- ‘‘(a) REQUIREMENT.— (as so redesignated) is amended by inserting section (c) the following new subsection: ‘‘(1) IN GENERAL.—Every United States per- ‘‘OF CORPORATION’’ after ‘‘CONTROL’’. ‘‘(d) 10-PERCENT INTEREST.—For purposes son shall furnish, with respect to any foreign (c) MODIFICATION OF SANCTIONS ON PART- of subsection (a), a 10-percent interest in a business entity which such person controls, NERSHIPS AND CORPORATIONS FOR FAILURE TO partnership is an interest described in sec- such information as the Secretary may pre- FURNISH INFORMATION.— tion 6038(e)(3)(C).’’. scribe relating to— (1) IN GENERAL.—Subsection (b) of section (b) MODIFICATION OF PENALTY ON FAILURE ‘‘(A) the name, the principal place of busi- 6038 is amended— TO REPORT CHANGES IN OWNERSHIP INTERESTS ness, and the nature of business of such en- (A) by striking ‘‘$1,000’’ each place it ap- IN FOREIGN CORPORATIONS AND PARTNER- tity, and the country under whose laws such pears and inserting ‘‘$10,000’’, and SHIPS.—Subsection (a) of section 6679 (relat- entity is incorporated (or organized in the (B) by striking ‘‘$24,000’’ in paragraph (2) ing to failure to file returns, etc., with re- case of a partnership); and inserting ‘‘$50,000’’. spect to foreign corporations or foreign part- ‘‘(B) in the case of a foreign corporation, nerships) is amended to read as follows: (d) REPORTING BY 10-PERCENT PARTNERS.— ‘‘(a) CIVIL PENALTY.— its post-1986 undistributed earnings (as de- Subsection (a) of section 6038 is amended by ‘‘(1) IN GENERAL.—In addition to any crimi- fined in section 902(c)); adding at the end the following new para- nal penalty provided by law, any person re- ‘‘(C) a balance sheet for such entity listing graph: assets, liabilities, and capital; quired to file a return under section 6035, ‘‘(5) INFORMATION REQUIRED FROM 10-PER- ‘‘(D) transactions between such entity 6046, or 6046A who fails to file such return at CENT PARTNER OF CONTROLLED FOREIGN PART- and— the time provided in such section, or who NERSHIP.—In the case of a foreign partner- files a return which does not show the infor- ‘‘(i) such person, ship which is controlled by United States mation required pursuant to such section, ‘‘(ii) any corporation or partnership which persons holding at least 10-percent interests shall pay a penalty of $10,000, unless it is such person controls, and (but not by any one United States person), shown that such failure is due to reasonable ‘‘(iii) any United States person owning, at the Secretary may require each United cause. the time the transaction takes place— States person who holds a 10-percent interest ‘‘(2) INCREASE IN PENALTY WHERE FAILURE ‘‘(I) in the case of a foreign corporation, 10 in such partnership to furnish information CONTINUES AFTER NOTIFICATION.—If any fail- percent or more of the value of any class of relating to such partnership, including infor- ure described in paragraph (1) continues for stock outstanding of such corporation, and mation relating to such partner’s ownership more than 90 days after the day on which the ‘‘(II) in the case of a foreign partnership, at interests in the partnership and allocations Secretary mails notice of such failure to the least a 10-percent interest in such partner- to such partner of partnership items.’’. ship; and United States person, such person shall pay (e) TECHNICAL AMENDMENTS.— ‘‘(E)(i) in the case of a foreign corporation, a penalty (in addition to the amount re- (1) The following provisions of section 6038 a description of the various classes of stock quired under paragraph (1)) of $10,000 for each are each amended by striking ‘‘foreign cor- outstanding, and a list showing the name 30-day period (or fraction thereof) during poration’’ each place it appears and inserting and address of, and number of shares held by, which such failure continues after the expi- ‘‘foreign business entity’’: each United States person who is a share- ration of such 90-day period. The increase in (A) Paragraphs (2) and (3) of subsection (a). holder of record owning at any time during any penalty under this paragraph shall not (B) Subsection (b). the annual accounting period 5 percent or exceed $50,000. (C) Subsection (c) other than paragraph more in value of any class of stock outstand- ‘‘(3) REDUCED PENALTY FOR RETURNS RELAT- (1)(B) thereof. ing of such foreign corporation, and ING TO FOREIGN PERSONAL HOLDING COMPA- (D) Subsection (d). ‘‘(ii) information comparable to the infor- NIES.—In the case of a return required under (E) Subsection (e)(4) (as redesignated by mation described in clause (i) in the case of section 6035, paragraph (1) shall be applied by subsection (b)). a foreign partnership. substituting ‘$1,000’ for ‘$10,000’, and para- (2) Subparagraph (B) of section 6038(c)(1) is The Secretary may also require the furnish- graph (2) shall not apply.’’. amended by inserting ‘‘in the case of a for- (c) EFFECTIVE DATE.—The amendments ing of any other information which is similar eign business entity which is a foreign cor- made by this section shall apply to transfers or related in nature to that specified in the poration,’’ after ‘‘(B)’’. and changes after the date of the enactment preceding sentence or which the Secretary (3) Paragraph (8) of section 318(b) is amend- of this Act. determines to be appropriate to carry out ed by striking ‘‘6038(d)(1)’’ and inserting the provisions of this title.’’. SEC. 1144. TRANSFERS OF PROPERTY TO FOR- ‘‘6038(d)(2)’’. EIGN PARTNERSHIPS SUBJECT TO (b) DEFINITIONS.— (4) Paragraph (4) of section 901(k) is amend- INFORMATION REPORTING COM- (1) IN GENERAL.—Subsection (e) of section ed by striking ‘‘foreign corporation’’ and in- PARABLE TO INFORMATION RE- 6038 (relating to definitions) is amended— serting ‘‘foreign corporation or partnership’’. PORTING FOR SUCH TRANSFERS TO (A) by redesignating paragraphs (1) and (2) (5) The table of sections for subpart A of FOREIGN CORPORATIONS. as paragraphs (2) and (4), respectively, part III of subchapter A of chapter 61 is (a) IN GENERAL.—Paragraph (1) of section (B) by inserting before paragraph (2) (as so amended by striking the item relating to 6038B(a) (relating to notice of certain trans- redesignated) the following new paragraph: section 6038 and inserting the following new fers to foreign corporations) is amended to ‘‘(1) FOREIGN BUSINESS ENTITY.—The term item: read as follows: ‘foreign business entity’ means a foreign cor- ‘‘(1) transfers property to— poration and a foreign partnership.’’, and ‘‘Sec. 6038. Information reporting with re- ‘‘(A) a foreign corporation in an exchange (C) by inserting after paragraph (2) (as so spect to certain foreign cor- described in section 332, 351, 354, 355, 356, or redesignated) the following new paragraph: porations and partnerships.’’. 361, or H4754 CONGRESSIONAL RECORD — HOUSE June 26, 1997 ‘‘(B) a foreign partnership in a contribu- SEC. 1146. INCREASE IN FILING THRESHOLDS as a United States person on the day before tion described in section 721 or in any other FOR RETURNS AS TO ORGANIZATION the date of the enactment of this Act may contribution described in regulations pre- OF FOREIGN CORPORATIONS AND elect to continue to be treated as a United scribed by the Secretary,’’. ACQUISITIONS OF STOCK IN SUCH States person notwithstanding section CORPORATIONS. 7701(a)(30)(E) of such Code.’’. (b) EXCEPTIONS.—Section 6038B is amended (a) IN GENERAL.—Subsection (a) of section (b) EFFECTIVE DATE.—The amendment by redesignating subsection (b) as subsection 6046 (relating to returns as to organization or made by subsection (a) shall take effect as if (c) and by inserting after subsection (a) the reorganization of foreign corporations and as included in the amendments made by section following new subsection: to acquisitions of their stock) is amended to 1907(a) of the Small Business Job Protection read as follows: ‘‘(b) EXCEPTIONS FOR CERTAIN TRANSFERS Act of 1996. ‘‘(a) REQUIREMENT OF RETURN.— TO FOREIGN PARTNERSHIPS; SPECIAL RULE.— SEC. 1162. REPEAL OF STOCK AND SECURITIES ‘‘(1) IN GENERAL.—A return complying with SAFE HARBOR REQUIREMENT THAT ‘‘(1) EXCEPTIONS.—Subsection (a)(1)(B) the requirements of subsection (b) shall be shall apply to a transfer by a United States PRINCIPAL OFFICE BE OUTSIDE THE made by— UNITED STATES. person to a foreign partnership only if— ‘‘(A) each United States citizen or resident (a) IN GENERAL.—The last sentence of ‘‘(A) the United States person holds (imme- who becomes an officer or director of a for- clause (ii) of section 864(b)(2)(A) (relating to diately after the transfer) directly or indi- eign corporation if a United States person stock or securities) is amended by striking ‘‘, rectly at least a 10-percent interest (as de- (as defined in section 7701(a)(30)) meets the or in the case of a corporation’’ and all that fined in section 6046A(d)) in the partnership, stock ownership requirements of paragraph follows and inserting a period. or (2) with respect to such corporation, (b) EFFECTIVE DATE.—The amendment ‘‘(B) the value of the property transferred ‘‘(B) each United States person— made by subsection (a) shall apply to taxable (when added to the value of the property ‘‘(i) who acquires stock which, when added years beginning after December 31, 1997. transferred by such person or any related to any stock owned on the date of such ac- Subtitle H—Other Provisions person to such partnership or a related part- quisition, meets the stock ownership re- nership during the 12-month period ending SEC. 1171. DEFINITION OF FOREIGN PERSONAL quirements of paragraph (2) with respect to a HOLDING COMPANY INCOME. on the date of the transfer) exceeds $100,000. foreign corporation, or (a) INCOME FROM NOTIONAL PRINCIPAL CON- For purposes of the preceding sentence, the ‘‘(ii) who acquires stock which, without re- TRACTS AND PAYMENTS IN LIEU OF DIVI- value of any transferred property is its fair gard to stock owned on the date of such ac- DENDS.— market value at the time of its transfer. quisition, meets the stock ownership re- (1) IN GENERAL.—Paragraph (1) of section ‘‘(2) SPECIAL RULE.—If by reason of an ad- quirements of paragraph (2) with respect to a 954(c) (defining foreign personal holding com- justment under section 482 or otherwise, a foreign corporation, pany income) is amended by adding at the contribution described in subsection (a)(1) is ‘‘(C) each person (not described in subpara- end the following new subparagraphs: deemed to have been made, such contribu- graph (B)) who is treated as a United States ‘‘(F) INCOME FROM NOTIONAL PRINCIPAL CON- tion shall be treated for purposes of this sec- shareholder under section 953(c) with respect TRACTS.—Net income from notional principal tion as having been made not earlier than to a foreign corporation, and contracts. Any item of income, gain, deduc- the date specified by the Secretary.’’. ‘‘(D) each person who becomes a United tion, or loss from a notional principal con- (c) MODIFICATION OF PENALTY APPLICABLE States person while meeting the stock own- tract entered into for purposes of hedging TO FOREIGN CORPORATIONS AND PARTNER- ership requirements of paragraph (2) with re- any item described in any preceding subpara- graph shall not be taken into account for SHIPS.—Paragraph (1) of section 6038B(b) is spect to stock of a foreign corporation. amended by striking ‘‘equal to’’ and all that In the case of a foreign corporation with re- purposes of this subparagraph but shall be taken into account under such other sub- follows and inserting ‘‘equal to 10 percent of spect to which any person is treated as a paragraph. the fair market value of the property at the United States shareholder under section ‘‘(G) PAYMENTS IN LIEU OF DIVIDENDS.—Pay- time of the exchange (and, in the case of a 953(c), subparagraph (A) shall be treated as including a reference to each United States ments in lieu of dividends which are made contribution described in subsection pursuant to an agreement to which section (a)(1)(B), such person shall recognize gain as person who is an officer or director of such corporation. 1058 applies.’’. if the contributed property had been sold for ‘‘(2) STOCK OWNERSHIP REQUIREMENTS.—A (2) CONFORMING AMENDMENT.—Subpara- such value at the time of such contribu- person meets the stock ownership require- graph (B) of section 954(c)(1) is amended— tion).’’. ments of this paragraph with respect to any (A) by striking the second sentence, and (d) EFFECTIVE DATE.— corporation if such person owns 10 percent or (B) by striking ‘‘also’’ in the last sentence. (1) IN GENERAL.—The amendments made by more of— (b) EXCEPTION FOR DEALERS.—Paragraph (2) this section shall apply to transfers made ‘‘(A) the total combined voting power of all of section 954(c) is amended by adding at the after the date of the enactment of this Act. classes of stock of such corporation entitled end the following new subparagraph: ‘‘(C) EXCEPTION FOR DEALERS.—Except as (2) ELECTION OF RETROACTIVE EFFECT.—Sec- to vote, or tion 1494(c) of the Internal Revenue Code of ‘‘(B) the total value of the stock of such provided in subparagraph (A), (E), or (G) of 1986 shall not apply to any transfer after Au- corporation.’’. paragraph (1) or by regulations, in the case of a regular dealer in property (within the gust 20, 1996, if the person otherwise required (b) EFFECTIVE DATE.—The amendment to file a return with respect to such transfer made by this section shall take effect on meaning of paragraph (1)(B)), forward con- elects to apply the amendments made by this January 1, 1998. tracts, option contracts, or similar financial section to transfers after August 20, 1996. The instruments (including notional principal Subtitle F—Determination of Foreign or contracts and all instruments referenced to Secretary of the Treasury or his delegate Domestic Status of Partnerships may prescribe simplified reporting under the commodities), there shall not be taken into SEC. 1151. DETERMINATION OF FOREIGN OR DO- preceding sentence. account in computing foreign personal hold- MESTIC STATUS OF PARTNERSHIPS. ing income any item of income, gain, deduc- SEC. 1145. EXTENSION OF STATUTE OF LIMITA- (a) IN GENERAL.—Paragraph (4) of section tion, or loss from any transaction (including TION FOR FOREIGN TRANSFERS. 7701(a) is amended by inserting before the pe- hedging transactions) entered into in the or- riod ‘‘unless, in the case of a partnership, the dinary course of such dealer’s trade or busi- (a) IN GENERAL.—Paragraph (8) of section partnership is more properly treated as a for- 6501(c) (relating to failure to notify Sec- ness as such a dealer.’’. eign partnership under regulations pre- (c) EFFECTIVE DATE.—The amendments retary under section 6038B) is amended to scribed by the Secretary’’. made by this section shall apply to taxable read as follows: (b) EFFECTIVE DATE.—The amendment years beginning after the date of the enact- ‘‘(8) FAILURE TO NOTIFY SECRETARY OF CER- made by subsection (a) shall apply to taxable ment of this Act. TAIN FOREIGN TRANSFERS.—In the case of any years beginning after the date of the enact- SEC. 1172. PERSONAL PROPERTY USED PREDOMI- information which is required to be reported ment of this Act. NANTLY IN THE UNITED STATES to the Secretary under section 6038, 6038A, Subtitle G—Other Simplification Provisions TREATED AS NOT PROPERTY OF A 6038B, 6046, 6046A, or 6048, the time for assess- LIKE KIND WITH RESPECT TO PROP- ment of any tax imposed by this title with SEC. 1161. TRANSITION RULE FOR CERTAIN ERTY USED PREDOMINANTLY OUT- respect to any event or period to which such TRUSTS. SIDE THE UNITED STATES. information relates shall not expire before (a) IN GENERAL.—Paragraph (3) of section (a) IN GENERAL.—Subsection (h) of section the date which is 3 years after the date on 1907(a) of the Small Business Job Protection 1031 (relating to exchange of property held which the Secretary is furnished the infor- Act of 1996 is amended by adding at the end for productive use or investment) is amended mation required to be reported under such the following flush sentence: to read as follows: section.’’. ‘‘To the extent prescribed in regulations by ‘‘(h) SPECIAL RULES FOR FOREIGN REAL AND the Secretary of the Treasury or his dele- PERSONAL PROPERTY.—For purposes of this (b) EFFECTIVE DATE.—The amendment gate, a trust which was in existence on Au- section— made by subsection (a) shall apply to infor- gust 20, 1996 (other than a trust treated as ‘‘(1) REAL PROPERTY.—Real property lo- mation the due date for the reporting of owned by the grantor under subpart E of part cated in the United States and real property which is after the date of the enactment of I of subchapter J of chapter 1 of the Internal located outside the United States are not this Act. Revenue Code of 1986), and which was treated property of a like kind. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4755

‘‘(2) PERSONAL PROPERTY.— ‘‘(A) any stock of any corporation in such SEC. 1174. PENALTIES FOR FAILURE TO DIS- ‘‘(A) IN GENERAL.—Personal property used chain (the ownership of which is required to CLOSE POSITION THAT CERTAIN predominantly within the United States and obtain credit under subsection (a) for such INTERNATIONAL TRANSPORTATION personal property used predominantly out- INCOME IS NOT INCLUDIBLE IN taxes) is held for less than the period de- GROSS INCOME. side the United States are not property of a scribed in paragraph (1)(A)(i), or (a) IN GENERAL.—Section 883 is amended by like kind. ‘‘(B) the corporation holding the stock is adding at the end the following new sub- ‘‘(B) PREDOMINANT USE.—Except as pro- under an obligation referred to in paragraph section: vided in subparagraph (C) and (D), the pre- (1)(A)(ii). ‘‘(d) PENALTIES FOR FAILURE TO DISCLOSE dominant use of any property shall be deter- ‘‘(3) 45-DAY RULE IN THE CASE OF CERTAIN POSITION THAT CERTAIN INTERNATIONAL mined based on— PREFERENCE DIVIDENDS.—In the case of stock TRANSPORTATION INCOME IS NOT INCLUDIBLE ‘‘(i) in the case of the property relin- having preference in dividends and dividends IN GROSS INCOME.— quished in the exchange, the 2-year period with respect to such stock which are attrib- ‘‘(1) IN GENERAL.—A taxpayer who, with re- ending on the date of such relinquishment, utable to a period or periods aggregating in spect to any tax imposed by this title, takes and excess of 366 days, paragraph (1)(A)(i) shall the position that any of its gross income de- ‘‘(ii) in the case of the property acquired in be applied— rived from the international operation of 1 the exchange, the 2-year period beginning on or more ships or aircraft is not includible in the date of such acquisition. ‘‘(A) by substituting ‘45 days’ for ‘15 days’ each place it appears, and gross income by reason of paragraph (1) or (2) ‘‘(C) PROPERTY HELD FOR LESS THAN 2 of subsection (a) or paragraph (1) or (2) of YEARS.—Except in the case of an exchange ‘‘(B) by substituting ‘90-day period’ for ‘30- day period’. section 872(b) (or by reason of any applicable which is part of a transaction (or series of treaty) shall be entitled to such treatment ‘‘(4) EXCEPTION FOR CERTAIN TAXES PAID BY transactions) structured to avoid the pur- only if such position is disclosed (in such SECURITIES DEALERS.— poses of this subsection— manner as the Secretary may prescribe) on ‘‘(A) IN GENERAL.—Paragraphs (1) and (2) ‘‘(i) only the periods the property was held the return of tax for such tax (or any state- shall not apply to any qualified tax with re- by the person relinquishing the property (or ment attached to such return). any related person) shall be taken into ac- spect to any security held in the active con- ‘‘(2) ADDITIONAL PENALTIES FOR FAILING TO count under subparagraph (B)(i), and duct in a foreign country of a securities busi- DISCLOSE POSITION.—If a taxpayer fails to ness of any person— ‘‘(ii) only the periods the property was held meet the requirement of paragraph (1) for ‘‘(i) who is registered as a securities broker by the person acquiring the property (or any any taxable year with respect to the inter- or dealer under section 15(a) of the Securities related person) shall be taken into account national operation of 1 or more ships or 1 or under subparagraph (B)(ii). Exchange Act of 1934, more aircraft— ‘‘(D) SPECIAL RULE FOR CERTAIN PROP- ‘‘(ii) who is registered as a Government se- ‘‘(A) the amount of the income from the ERTY.—Property described in any subpara- curities broker or dealer under section 15C(a) international operation to which such failure graph of section 168(g)(4) shall be treated as of such Act, or relates— used predominantly in the United States.’’. ‘‘(iii) who is licensed or authorized in such ‘‘(i) which is from sources without the (b) EFFECTIVE DATE.— foreign country to conduct securities activi- United States, and (1) IN GENERAL.—The amendment made by ties in such country and is subject to bona ‘‘(ii) which is attributable to a fixed place this section shall apply to transfers after fide regulation by a securities regulating au- of business in the United States, June 8, 1997, in taxable years ending after thority of such country. shall be treated for purposes of this title as such date. ‘‘(B) QUALIFIED TAX.—For purposes of sub- effectively connected with the conduct of a (2) BINDING CONTRACTS.—The amendment paragraph (A), the term ‘qualified tax’ means trade or business within the United States, made by this section shall not apply to any a tax paid to a foreign country (other than and transfer pursuant to a written binding con- the foreign country referred to in subpara- ‘‘(B) no deductions or credits shall be al- tract in effect on June 8, 1997, and at all graph (A)) if— lowed which are attributable to income from times thereafter before the disposition of ‘‘(i) the dividend to which such tax is at- the international operation to which the property. A contract shall not fail to meet tributable is subject to taxation on a net failure relates. the requirements of the preceding sentence basis by the country referred to in subpara- ‘‘(3) REASONABLE CAUSE EXCEPTION.—This solely because— graph (A), and subsection shall not apply to a failure to dis- (A) it provides for a sale in lieu of an ex- ‘‘(ii) such country allows a credit against close a position if it is shown that such fail- change, or its net basis tax for the full amount of the ure is due to reasonable cause and not due to (B) the property to be acquired as replace- tax paid to such other foreign country. ment property was not identified under such willful neglect.’’. ‘‘(C) REGULATIONS.—The Secretary may contract before June 9, 1997. (b) CONFORMING AMENDMENTS.—Paragraphs prescribe such regulations as may be appro- (1) and (2) of section 872(b), and paragraphs SEC. 1173. HOLDING PERIOD REQUIREMENT FOR priate to prevent the abuse of the exception CERTAIN FOREIGN TAXES. (1) and (2) of section 883(a), are each amended provided by this paragraph. (a) IN GENERAL.—Section 901 is amended by by striking ‘‘Gross income’’ each place it ap- ‘‘(5) CERTAIN RULES TO APPLY.—For pur- redesignating subsection (k) as subsection (l) pears and inserting ‘‘Except as provided in and by inserting after subsection (j) the fol- poses of this subsection, the rules of para- section 883(d), gross income’’. lowing new subsection: graphs (3) and (4) of section 246(c) shall (c) EFFECTIVE DATE.— ‘‘(k) MINIMUM HOLDING PERIOD FOR CERTAIN apply. (1) IN GENERAL.—The amendments made by TAXES.— ‘‘(6) TREATMENT OF BONA FIDE SALES.—If a this section shall apply to taxable years be- ‘‘(1) WITHHOLDING TAXES.— person’s holding period is reduced by reason ginning after December 31, 1997. ‘‘(A) IN GENERAL.—In no event shall a cred- of the application of the rules of section (2) COORDINATION WITH TREATIES.—The it be allowed under subsection (a) for any 246(c)(4) to any contract for the bona fide amendments made by this section shall not withholding tax on a dividend with respect sale of stock, the determination of whether apply in any case where their application to stock in a corporation if— such person’s holding period meets the re- would be contrary to any treaty obligation ‘‘(i) such stock is held by the recipient of quirements of paragraph (2) shall be made as of the United States. the dividend for 15 days or less during the 30- of the date such contract is entered into. (d) INFORMATION TO BE PROVIDED BY CUS- day period beginning on the date which is 15 ‘‘(7) TAXES ALLOWED AS DEDUCTION, ETC.— TOMS SERVICE.—The United States Custom days before the date on which such share be- Sections 275 and 78 shall not apply to any tax Service shall provide the Secretary of the comes ex-dividend with respect to such divi- which is not allowable as a credit under sub- Treasury or his delegate with such informa- tion as may be specified by such Secretary in dend, or section (a) by reason of this subsection.’’. order to enable such Secretary to determine ‘‘(ii) to the extent that the recipient of the (b) NOTICE OF WITHHOLDING TAXES PAID BY whether ships which are not registered in the dividend is under an obligation (whether pur- REGULATED INVESTMENT COMPANY.—Sub- United States are engaged in transportation suant to a short sale or otherwise) to make section (c) of section 853 (relating to foreign to or from the United States. related payments with respect to positions SEC. 1175. DENIAL OF TREATY BENEFITS FOR in substantially similar or related property. tax credit allowed to shareholders) is amend- ed by adding at the end the following new CERTAIN PAYMENTS THROUGH HY- ‘‘(B) WITHHOLDING TAX.—For purposes of BRID ENTITIES. sentence: ‘‘Such notice shall also include the this paragraph, the term ‘withholding tax’ A foreign person shall be entitled under includes any tax determined on a gross basis; amount of such taxes which (without regard any income tax treaty of the United States but does not include any tax which is in the to the election under this section) would not with a foreign country to any reduced rate of nature of a prepayment of a tax imposed on be allowable as a credit under section 901(a) any withholding tax imposed by the Internal a net basis. to the regulated investment company by rea- Revenue Code of 1986 on an item of income ‘‘(2) DEEMED PAID TAXES.—In the case of in- son of section 901(k).’’. derived through any partnership or other come, war profits, or excess profits taxes pass-thru entity only to the extent that such deemed paid under section 853, 902, or 960 (c) EFFECTIVE DATE.—The amendments item is treated for purposes of the taxation through a chain of ownership of stock in 1 or made by this section shall apply to dividends laws of such foreign country as an item of in- more corporations, no credit shall be allowed paid or accrued more than 30 days after the come of such person. The preceding sentence under subsection (a) for such taxes if— date of the enactment of this Act. shall not apply if— H4756 CONGRESSIONAL RECORD — HOUSE June 26, 1997 (1) the treaty contains a provision address- sections (h) and (i) as subsections (g) and (h), year in which the taxable year begins, deter- ing the applicability of the treaty in the case respectively. mined by substituting ‘1997’ for ‘1992’ in sub- of an item of income derived through a part- (c) EFFECTIVE DATE.—The amendments paragraph (B) thereof. nership, or made by this section shall apply to If any increase determined under the preced- (2) the foreign country imposes tax on a carrybacks arising in taxable years begin- ing sentence is not a multiple of $50, such in- distribution of such item of income from ning after the date of the enactment of this crease shall be rounded to the nearest mul- such partnership to such person. Act. tiple of $50.’’. SEC. 1177. CLARIFICATION OF PERIOD OF LIMI- SEC. 1176. INTEREST ON UNDERPAYMENTS NOT (c) EFFECTIVE DATE.—The amendments TATIONS ON CLAIM FOR CREDIT OR REDUCED BY FOREIGN TAX CREDIT made by this section shall apply to taxable CARRYBACKS. REFUND ATTRIBUTABLE TO FOR- EIGN TAX CREDIT CARRYFORWARD. years beginning after December 31, 1997. (a) IN GENERAL.—Subsection (d) of section (a) IN GENERAL.—Subparagraph (A) of sec- SEC. 1202. INCREASE IN AMOUNT OF TAX EXEMPT 6601 is amended by redesignating paragraphs tion 6511(d)(3) is amended by striking ‘‘for FROM ESTIMATED TAX REQUIRE- (2) and (3) as paragraphs (3) and (4), respec- the year with respect to which the claim is MENTS. tively, and by inserting after paragraph (1) made’’ and inserting ‘‘for the year in which (a) IN GENERAL.—Paragraph (1) of section the following new paragraph: such taxes were actually paid or accrued’’. 6654(e) (relating to exception where tax is ‘‘(2) FOREIGN TAX CREDIT CARRYBACKS.—If (b) EFFECTIVE DATE.—The amendment small amount) is amended by striking ‘‘$500’’ any credit allowed for any taxable year is in- made by subsection (a) shall apply to taxes and inserting ‘‘$1,000’’. creased by reason of a carryback of tax paid paid or accrued in taxable years beginning (b) EFFECTIVE DATE.—The amendments or accrued to foreign countries or posses- after the date of the enactment of this Act. sions of the United States, such increase made by this section shall apply to taxable SEC. 1178. MISCELLANEOUS CLARIFICATIONS. years beginning after December 31, 1997. shall not affect the computation of interest (a) ATTRIBUTION OF DEEMED PAID FOREIGN SEC. 1203. OPTIONAL METHODS FOR COMPUTING under this section for the period ending with TAXES TO PRIOR DISTRIBUTIONS.—Subpara- SECA TAX COMBINED. the filing date for the taxable year in which graph (B) of section 902(c)(2) is amended by such taxes were in fact paid or accrued, or, striking ‘‘deemed paid with respect to’’ and (a) INTERNAL REVENUE CODE.— with respect to any portion of such credit inserting ‘‘attributable to’’. (1) IN GENERAL.—Subsection (h) of section carryback from a taxable year attributable (b) FINANCIAL SERVICES INCOME DETER- 1402 is amended to read as follows: to a net operating loss carryback or a capital MINED WITHOUT REGARD TO HIGH-TAXED IN- ‘‘(h) OPTIONAL METHOD FOR COMPUTING loss carryback from a subsequent taxable COME.—Subclause (II) of section SELF-EMPLOYMENT INCOME.— year, such increase shall not affect the com- 904(d)(2)(C)(i) is amended by striking ‘‘sub- ‘‘(1) INDIVIDUALS.—In the case of any trade putation of interest under this section for clause (I)’’ and inserting ‘‘subclauses (I) and or business which is carried on by an individ- the period ending with the filing date for (III)’’. ual— such subsequent taxable year.’’. (c) EFFECTIVE DATE.—The amendments ‘‘(A) if the gross income derived by him (b) CONFORMING AMENDMENT TO REFUNDS made by this section shall take effect on the from such trade or business is not more than ATTRIBUTABLE TO FOREIGN TAX CREDIT date of the enactment of this Act. the upper limit for the taxable year, the net CARRYBACKS.— TITLE XII—SIMPLIFICATION PROVISIONS earnings from self-employment derived by (1) IN GENERAL.—Subsection (f) of section RELATING TO INDIVIDUALS AND BUSI- him from such trade or business may, at his 6611 is amended by redesignating paragraphs NESSES option, be deemed to be 662⁄3 percent of such (2) and (3) as paragraphs (3) and (4), respec- Subtitle A—Provisions Relating to gross income, or tively, and by inserting after paragraph (1) Individuals ‘‘(B) if the gross income derived by him the following new paragraph: from such trade or business is more than the SEC. 1201. BASIC STANDARD DEDUCTION AND ‘‘(2) FOREIGN TAX CREDIT CARRYBACKS.—For MINIMUM TAX EXEMPTION AMOUNT upper limit for the taxable year and the net purposes of subsection (a), if any overpay- FOR CERTAIN DEPENDENTS. earnings from self-employment derived by ment of tax imposed by subtitle A results (a) BASIC STANDARD DEDUCTION.— him from such trade or business (computed from a carryback of tax paid or accrued to (1) IN GENERAL.—Paragraph (5) of section under subsection (a) without regard to this foreign countries or possessions of the Unit- 63(c) (relating to limitation on basic stand- sentence) are less than the lower limit for ed States, such overpayment shall be deemed ard deduction in the case of certain depend- the taxable year, the net earnings from self- not to have been made before the filing date ents) is amended by striking ‘‘shall not ex- employment derived by him from such trade for the taxable year in which such taxes were ceed’’ and all that follows and inserting or business may, at his option, be deemed to in fact paid or accrued, or, with respect to ‘‘shall not exceed the greater of— be the lower limit for the taxable year. any portion of such credit carryback from a ‘‘(A) $500, or ‘‘(2) MEMBER OF A PARTNERSHIP.—In the taxable year attributable to a net operating ‘‘(B) the sum of $250 and such individual’s case of a member of a partnership carrying loss carryback or a capital loss carryback earned income.’’. on any trade or business— from a subsequent taxable year, such over- (2) CONFORMING AMENDMENT.—Paragraph ‘‘(A) if his distributive share of the gross payment shall be deemed not to have been (4) of section 63(c) is amended— income of the partnership derived from such made before the filing date for such subse- (A) by striking ‘‘(5)(A)’’ in the material trade or business (after such gross income quent taxable year.’’. preceding subparagraph (A) and inserting has been reduced by the sum of all payments (2) CONFORMING AMENDMENTS.— ‘‘(5)’’, and to which section 707(c) applies) is not more (A) Paragraph (4) of section 6611(f) (as so (B) by striking ‘‘by substituting’’ and all than the upper limit for the taxable year, his redesignated) is amended— that follows in subparagraph (B) and insert- distributive share of income described in sec- (i) by striking ‘‘PARAGRAPHS (1) AND (2)’’ and ing ‘‘by substituting for ‘calendar year 1992’ tion 702(a)(8) derived from such trade or busi- inserting ‘‘PARAGRAPHS (1), (2), AND (3)’’, and in subparagraph (B) thereof— ness may, at his option, be deemed to be an (ii) by striking ‘‘paragraph (1) or (2)’’ each ‘‘(i) ‘calendar year 1987’ in the case of the amount equal to 662⁄3 percent of his distribu- place it appears and inserting ‘‘paragraph (1), dollar amounts contained in paragraph (2) or tive share of such gross income (after such (2), or (3)’’. (5)(A) or subsection (f), and gross income has been so reduced), or (B) Clause (ii) of section 6611(f)(4)(B) (as so ‘‘(ii) ‘calendar year 1997’ in the case of the ‘‘(B) if his distributive share of the gross redesignated) is amended by striking ‘‘and’’ dollar amount contained in paragraph income of the partnership derived from such at the end of subclause (I), by redesignating (5)(B).’’. trade or business (after such gross income subclause (II) as subclause (III), and by in- (b) MINIMUM TAX EXEMPTION AMOUNT.— has been reduced by the sum of all payments serting after subclause (I) the following new Subsection (j) of section 59 is amended to to which section 707(c) applies) is more than subclause: read as follows: the upper limit for the taxable year and his ‘‘(II) in the case of a carryback of taxes ‘‘(j) TREATMENT OF UNEARNED INCOME OF distributive share (whether or not distrib- paid or accrued to foreign countries or pos- MINOR CHILDREN.— uted) of income described in section 702(a)(8) sessions of the United States, the taxable ‘‘(1) IN GENERAL.—In the case of a child to derived from such trade or business (com- year in which such taxes were in fact paid or whom section 1(g) applies, the exemption puted under this subsection without regard accrued (or, with respect to any portion of amount for purposes of section 55 shall not to this sentence) is less than the lower limit such carryback from a taxable year attrib- exceed the sum of— for the taxable year, his distributive share of utable to a net operating loss carryback or a ‘‘(A) such child’s earned income (as defined income described in section 702(a)(8) derived capital loss carryback from a subsequent in section 911(d)(2)) for the taxable year, plus from such trade or business may, at his op- taxable year, such subsequent taxable year), ‘‘(B) $5,000. tion, be deemed to be the lower limit for the and’’. ‘‘(2) INFLATION ADJUSTMENT.—In the case of taxable year. (C) Subclause (III) of section any taxable year beginning in a calendar ‘‘(3) UPPER AND LOWER LIMITS.—For pur- 6611(f)(4)(B)(ii) (as so redesignated) is amend- year after 1998, the dollar amount in para- poses of this subsection— ed by inserting ‘‘(as defined in paragraph graph (1)(B) shall be increased by an amount ‘‘(A) LOWER LIMIT.—The lower limit for any (3)(B))’’ after ‘‘credit carryback’’ the first equal to the product of— taxable year is the sum of the amounts ap- place it appears. ‘‘(A) such dollar amount, and plicable under section 213(d) of the Social Se- (D) Section 6611 is amended by striking ‘‘(B) the cost-of-living adjustment deter- curity Act for calendar quarters ending with subsection (g) and by redesignating sub- mined under section 1(f)(3) for the calendar or within such taxable year. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4757

‘‘(B) UPPER LIMIT.—The upper limit for any trade or business (after such gross income ‘‘(A) the amount allowable as a deduction taxable year is the amount equal to 150 per- has been reduced by the sum of all payments under this chapter for the use of a vehicle in cent of the lower limit for such taxable year. to which section 707(c) of such Code applies) performing such services shall be equal to ‘‘(4) DETERMINATION OF GROSS INCOME.—For is more than the upper limit for the taxable the amount of such qualified reimburse- purposes of this subsection, the term ‘gross year and his distributive share (whether or ments; and income’ means— not distributed) of income described in sec- ‘‘(B) such qualified reimbursements shall ‘‘(A) in the case of any such trade or busi- tion 702(a)(8) of such Code derived from such be treated as paid under a reimbursement or ness in which the income is computed under trade or business (computed under this sub- other expense allowance arrangement for a cash receipts and disbursements method, section without regard to this sentence) is purposes of section 62(a)(2)(A) (and section the gross receipts from such trade or busi- less than the lower limit for the taxable 62(c) shall not apply to such qualified reim- ness reduced by the cost or other basis of year, his distributive share of income de- bursements). property which was purchased and sold in scribed in section 702(a)(8) of such Code de- ‘‘(2) DEFINITION OF QUALIFIED REIMBURSE- carrying on such trade or business, adjusted rived from such trade or business may, at his MENTS.—For purposes of this subsection, the (after such reduction) in accordance with the option, be deemed to be the lower limit for term ‘qualified reimbursements’ means the provisions of paragraphs (1) through (7) and the taxable year. amounts paid by the United States Postal paragraph (9) of subsection (a), and ‘‘(3) UPPER AND LOWER LIMITS.—For pur- Service to employees as an equipment main- ‘‘(B) in the case of any such trade or busi- poses of this subsection— tenance allowance under the 1991 collective ness in which the income is computed under ‘‘(A) LOWER LIMIT.—The lower limit for any bargaining agreement between the United an accrual method, the gross income from taxable year is the sum of the amounts ap- States Postal Service and the National Rural such trade or business, adjusted in accord- plicable under section 213(d) for calendar Letter Carriers’ Association. Amounts paid ance with the provisions of paragraphs (1) quarters ending with or within such taxable as an equipment maintenance allowance by through (7) and paragraph (9) of subsection year. such Postal Service under later collective (a). ‘‘(B) UPPER LIMIT.—The upper limit for any bargaining agreements that supersede the ‘‘(5) INCOME DERIVED FROM MORE THAN 1 taxable year is the amount equal to 150 per- 1991 agreement shall be considered qualified TRADE OR BUSINESS.—For purposes of this cent of the lower limit for such taxable year. reimbursements if such amounts do not ex- subsection, if an individual (including a ‘‘(4) DETERMINATION OF GROSS INCOME.—For ceed the amounts that would have been paid member of a partnership) derives gross in- purposes of this subsection, the term ‘gross under the 1991 agreement, adjusted for come from more than 1 such trade or busi- income’ means— changes in the Consumer Price Index (as de- ness, such gross income (including his dis- ‘‘(A) in the case of any such trade or busi- fined in section 1(f)(5)) since 1991.’’. tributive share of the gross income of any ness in which the income is computed under (b) TECHNICAL AMENDMENT.—Section 6008 of partnership derived from any such trade or a cash receipts and disbursements method, the Technical and Miscellaneous Revenue business) shall be deemed to have been de- the gross receipts from such trade or busi- Act of 1988 is hereby repealed. rived from one trade or business. ness reduced by the cost or other basis of (c) EFFECTIVE DATE.—The amendments ‘‘(6) ELECTION.—The option under this sub- property which was purchased and sold in made by this section shall apply to taxable section shall be allowed for any taxable year carrying on such trade or business, adjusted years beginning after December 31, 1997. only if elected on the first return filed for (after such reduction) in accordance with the SEC. 1205. TREATMENT OF TRAVELING EXPENSES such taxable year.’’. provisions of paragraphs (1) through (6) and OF CERTAIN FEDERAL EMPLOYEES (2) CONFORMING AMENDMENT.—Subsection paragraph (8) of subsection (a), and ENGAGED IN CRIMINAL INVESTIGA- (a) of section 1402 is amended by striking all TIONS. ‘‘(B) in the case of any such trade or busi- that follows the first sentence following (a) IN GENERAL.—Subsection (a) of section ness in which the income is computed under paragraph (15) and inserting ‘‘For optional 162 is amended by adding at the end the fol- an accrual method, the gross income from method of determining net earnings from lowing new sentence: ‘‘The preceding sen- such trade or business, adjusted in accord- self-employment, see subsection (h).’’. tence shall not apply to any Federal em- ance with the provisions of paragraphs (1) (b) SOCIAL SECURITY ACT.—Subsection (g) ployee during any period for which such em- through (6) and paragraph (8) of subsection of section 211 of the Social Security Act is ployee is certified by the Attorney General (a). amended to read as follows: (or the designee thereof) as traveling on be- ‘‘(5) INCOME DERIVED FROM MORE THAN 1 ‘‘(g) OPTIONAL METHOD FOR COMPUTING half of the United States in temporary duty TRADE OR BUSINESS.—For purposes of this SELF-EMPLOYMENT INCOME.— status to investigate, or provide support subsection, if an individual (including a ‘‘(1) INDIVIDUALS.—In the case of any trade services for the investigation of, a Federal member of a partnership) derives gross in- or business which is carried on by an individ- crime.’’. come from more than 1 such trade or busi- ual— (b) EFFECTIVE DATE.—The amendment ness, such gross income (including his dis- ‘‘(A) if the gross income derived by him made by subsection (a) shall apply to tributive share of the gross income of any from such trade or business is not more than amounts paid or incurred with respect to partnership derived from any such trade or the upper limit for the taxable year, the net taxable years ending after the date of the en- business) shall be deemed to have been de- earnings from self-employment derived by actment of this Act. rived from one trade or business. him from such trade or business may, at his SEC. 1206. PAYMENT OF TAX BY COMMERCIALLY 2 ‘‘(6) ELECTION.—The option under this sub- option, be deemed to be 66 ⁄3 percent of such ACCEPTABLE MEANS. section shall be allowed for any taxable year gross income, or (a) GENERAL RULE.—Section 6311 is amend- ‘‘(B) if the gross income derived by him only if elected on the first return filed for ed to read as follows: such taxable year.’’. from such trade or business is more than the ‘‘SEC. 6311. PAYMENT OF TAX BY COMMERCIALLY ONFORMING AMENDMENT upper limit for the taxable year and the net (2) C .—Subsection ACCEPTABLE MEANS. (a) of section 211 of the Social Security Act earnings from self-employment derived by ‘‘(a) AUTHORITY TO RECEIVE.—It shall be him from such trade or business (computed is amended by striking all that follows the lawful for the Secretary to receive for inter- under subsection (a) without regard to this first sentence following paragraph (15) and nal revenue taxes (or in payment for internal sentence) are less than the lower limit for inserting ‘‘For optional method of determin- revenue stamps) any commercially accept- the taxable year, the net earnings from self- ing net earnings from self-employment, see able means that the Secretary deems appro- employment derived by him from such trade subsection (g).’’. priate to the extent and under the conditions or business may, at his option, be deemed to (c) EFFECTIVE DATE.—The amendments provided in regulations prescribed by the be the lower limit for the taxable year. made by this section shall apply to taxable Secretary. ‘‘(2) MEMBER OF A PARTNERSHIP.—In the years beginning after December 31, 1997. ‘‘(b) ULTIMATE LIABILITY.—If a check, case of a member of a partnership carrying SEC. 1204. TREATMENT OF CERTAIN REIM- money order, or other method of payment, on any trade or business— BURSED EXPENSES OF RURAL MAIL including payment by credit card, debit card, ‘‘(A) if his distributive share of the gross CARRIERS. or charge card so received is not duly paid, income of the partnership derived from such (a) IN GENERAL.—Section 162 (relating to or is paid and subsequently charged back to trade or business (after such gross income trade or business expenses) is amended by re- the Secretary, the person by whom such has been reduced by the sum of all payments designating subsection (o) as subsection (p) check, or money order, or other method of to which section 707(c) of the Internal Reve- and by inserting after subsection (n) the fol- payment has been tendered shall remain lia- nue Code of 1986 applies) is not more than lowing new subsection: ble for the payment of the tax or for the the upper limit for the taxable year, his dis- ‘‘(o) TREATMENT OF CERTAIN REIMBURSED stamps, and for all legal penalties and addi- tributive share of income described in sec- EXPENSES OF RURAL MAIL CARRIERS.— tions, to the same extent as if such check, tion 702(a)(8) of such Code derived from such ‘‘(1) GENERAL RULE.—In the case of any em- money order, or other method of payment trade or business may, at his option, be ployee of the United States Postal Service had not been tendered. deemed to be an amount equal to 662⁄3 per- who performs services involving the collec- ‘‘(c) LIABILITY OF BANKS AND OTHERS.—If cent of his distributive share of such gross tion and delivery of mail on a rural route any certified, treasurer’s, or cashier’s check income (after such gross income has been so and who receives qualified reimbursements (or other guaranteed draft), or any money reduced), or for the expenses incurred by such employee order, or any other means of payment that ‘‘(B) if his distributive share of the gross for the use of a vehicle in performing such has been guaranteed by a financial institu- income of the partnership derived from such services— tion (such as a credit card, debit card, or H4758 CONGRESSIONAL RECORD — HOUSE June 26, 1997 charge card transaction which has been 1602(f)) shall not include the Secretary with ten procedures promulgated by the Sec- guaranteed expressly by a financial institu- respect to credit card transactions in pay- retary.’’. tion) so received is not duly paid, the United ment of internal revenue taxes (or payment (2) Section 7431 (relating to civil damages States shall, in addition to its right to exact for internal revenue stamps), and for unauthorized disclosure of returns and payment from the party originally indebted ‘‘(E) notwithstanding any other provision return information) is amended by adding at therefor, have a lien for— of law to the contrary, in the case of pay- the end the following new subsection: ‘‘(1) the amount of such check (or draft) ment made by credit card or debit card ‘‘(g) SPECIAL RULE FOR INFORMATION OB- upon all assets of the financial institution on transaction of an amount owed to a person TAINED UNDER SECTION 6103(k)(8).—For pur- which drawn, as the result of the correction of an error poses of this section, any reference to sec- ‘‘(2) the amount of such money order upon under section 161 of the Truth-in-Lending tion 6103 shall be treated as including a ref- all the assets of the issuer thereof, or Act (15 U.S.C. 1666) or section 908 of the Elec- erence to section 6311(e).’’. ‘‘(3) the guaranteed amount of any other tronic Fund Transfer Act (15 U.S.C. 1693f), (3) Section 6103(p)(3)(A) is amended by transaction upon all the assets of the insti- the Secretary is authorized to provide such striking ‘‘or (6)’’ and inserting ‘‘(6), or (8)’’. tution making such guarantee, amount to such person as a credit to that (e) EFFECTIVE DATE.—The amendments and such amount shall be paid out of such as- person’s credit card or debit card account made by this section shall take effect on the sets in preference to any other claims what- through the applicable credit card or debit day 9 months after the date of the enactment soever against such financial institution, is- card system. of this Act. suer, or guaranteeing institution, except the ‘‘(e) CONFIDENTIALITY OF INFORMATION.— Subtitle B—Provisions Relating to Businesses necessary costs and expenses of administra- ‘‘(1) IN GENERAL.—Except as otherwise au- Generally tion and the reimbursement of the United thorized by this subsection, no person may SEC. 1211. MODIFICATIONS TO LOOK-BACK METH- States for the amount expended in the re- use or disclose any information relating to OD FOR LONG-TERM CONTRACTS. demption of the circulating notes of such fi- credit or debit card transactions obtained (a) LOOK-BACK METHOD NOT TO APPLY IN nancial institution. pursuant to section 6103(k)(8) other than for CERTAIN CASES.—Subsection (b) of section ‘‘(d) PAYMENT BY OTHER MEANS.— purposes directly related to the processing of 460 (relating to percentage of completion ‘‘(1) AUTHORITY TO PRESCRIBE REGULA- such transactions, or the billing or collec- method) is amended by adding at the end the TIONS.—The Secretary shall prescribe such tion of amounts charged or debited pursuant following new paragraph: regulations as the Secretary deems nec- thereto. ‘‘(6) ELECTION TO HAVE LOOK-BACK METHOD essary to receive payment by commercially ‘‘(2) EXCEPTIONS.— NOT APPLY IN DE MINIMIS CASES.— acceptable means, including regulations ‘‘(A) Debit or credit card issuers or others ‘‘(A) AMOUNTS TAKEN INTO ACCOUNT AFTER that— acting on behalf of such issuers may also use COMPLETION OF CONTRACT.—Paragraph (1)(B) ‘‘(A) specify which methods of payment by and disclose such information for purposes shall not apply with respect to any taxable commercially acceptable means will be ac- directly related to servicing an issuer’s ac- year (beginning after the taxable year in ceptable, counts. which the contract is completed) if— ‘‘(B) specify when payment by such means ‘‘(B) Debit or credit card issuers or others ‘‘(i) the cumulative taxable income (or will be considered received, directly involved in the processing of credit loss) under the contract as of the close of ‘‘(C) identify types of nontax matters re- or debit card transactions or the billing or such taxable year, is within lated to payment by such means that are to collection of amounts charged or debited ‘‘(ii) 10 percent of the cumulative look- be resolved by persons ultimately liable for thereto may also use and disclose such infor- back taxable income (or loss) under the con- payment and financial intermediaries, with- mation for purposes directly related to— tract as of the close of the most recent tax- out the involvement of the Secretary, and ‘‘(i) statistical risk and profitability as- able year to which paragraph (1)(B) applied ‘‘(D) ensure that tax matters will be re- sessment; (or would have applied but for subparagraph solved by the Secretary, without the involve- ‘‘(ii) transferring receivables, accounts, or (B)). ment of financial intermediaries. interest therein; ‘‘(B) DE MINIMIS DISCREPANCIES.—Para- ‘‘(2) AUTHORITY TO ENTER INTO CON- ‘‘(iii) auditing the account information; graph (1)(B) shall not apply in any case to TRACTS.—Notwithstanding section 3718(f) of ‘‘(iv) complying with Federal, State, or which it would otherwise apply if— title 31, United States Code, the Secretary is local law; and ‘‘(i) the cumulative taxable income (or authorized to enter into contracts to obtain ‘‘(v) properly authorized civil, criminal, or loss) under the contract as of the close of services related to receiving payment by regulatory investigation by Federal, State, each prior contract year, is within other means where cost beneficial to the or local authorities. ‘‘(ii) 10 percent of the cumulative look- Government. ‘‘(3) PROCEDURES.—Use and disclosure of in- back income (or loss) under the contract as ‘‘(3) SPECIAL PROVISIONS FOR USE OF CREDIT formation under this paragraph shall be of the close of such prior contract year. CARDS.—If use of credit cards is accepted as made only to the extent authorized by writ- ‘‘(C) DEFINITIONS.—For purposes of this a method of payment of taxes pursuant to ten procedures promulgated by the Sec- paragraph— subsection (a)— retary. ‘‘(i) CONTRACT YEAR.—The term ‘contract ‘‘(A) a payment of internal revenue taxes ‘‘(4) CROSS REFERENCE.— year’ means any taxable year for which in- (or a payment for internal revenue stamps) ‘‘For provision providing for civil damages come is taken into account under the con- by a person by use of a credit card shall not for violation of paragraph (1), see section tract. be subject to section 161 of the Truth-in- 7431.’’. ‘‘(ii) LOOK-BACK INCOME OR LOSS.—The look- Lending Act (15 U.S.C. 1666), or to any simi- (b) SEPARATE APPROPRIATION REQUIRED FOR back income (or loss) is the amount which lar provisions of State law, if the error al- PAYMENT OF CREDIT CARD FEES.—No amount would be the taxable income (or loss) under leged by the person is an error relating to may be paid by the United States to a credit the contract if the allocation method set the underlying tax liability, rather than an card issuer for the right to receive payments forth in paragraph (2)(A) were used in deter- error relating to the credit card account of internal revenue taxes by credit card mining taxable income. such as a computational error or numerical without a separate appropriation therefor. ‘‘(iii) DISCOUNTING NOT APPLICABLE.—The transposition in the credit card transaction (c) CLERICAL AMENDMENT.—The table of amounts taken into account after the com- or an issue as to whether the person author- sections for subchapter B of chapter 64 is pletion of the contract shall be determined ized payment by use of the credit card, amended by striking the item relating to without regard to any discounting under the ‘‘(B) a payment of internal revenue taxes section 6311 and inserting the following: 2nd sentence of paragraph (2). (or a payment for internal revenue stamps) ‘‘(D) CONTRACTS TO WHICH PARAGRAPH AP- ‘‘Sec. 6311. Payment of tax by commercially shall not be subject to section 170 of the PLIES.—This paragraph shall only apply if Truth-in-Lending Act (15 U.S.C. 1666i), or to acceptable means.’’. the taxpayer makes an election under this any similar provisions of State law, (d) AMENDMENTS TO SECTIONS 6103 AND 7431 subparagraph. Unless revoked with the con- ‘‘(C) a payment of internal revenue taxes WITH RESPECT TO DISCLOSURE AUTHORIZA- sent of the Secretary, such an election shall (or a payment for internal revenue stamps) TION.— apply to all long-term contracts completed by a person by use of a debit card shall not (1) Subsection (k) of section 6103 (relating during the taxable year for which election is be subject to section 908 of the Electronic to confidentiality and disclosure of returns made or during any subsequent taxable Fund Transfer Act (15 U.S.C. 1693f), or to any and return information) is amended by add- year.’’. similar provisions of State law, if the error ing at the end the following new paragraph: (b) MODIFICATION OF INTEREST RATE.— alleged by the person is an error relating to ‘‘(8) DISCLOSURE OF INFORMATION TO ADMIN- (1) IN GENERAL.—Subparagraph (C) of sec- the underlying tax liability, rather than an ISTER SECTION 6311.—The Secretary may dis- tion 460(b)(2) is amended by striking ‘‘the error relating to the debit card account such close returns or return information to finan- overpayment rate established by section as a computational error or numerical trans- cial institutions and others to the extent the 6621’’ and inserting ‘‘the adjusted overpay- position in the debit card transaction or an Secretary deems necessary for the adminis- ment rate (as defined in paragraph (7))’’. issue as to whether the person authorized tration of section 6311. Disclosures of infor- (2) ADJUSTED OVERPAYMENT RATE.—Sub- payment by use of the debit card, mation for purposes other than to accept section (b) of section 460 is amended by add- ‘‘(D) the term ‘creditor’ under section 103(f) payments by checks or money orders shall be ing at the end the following new paragraph: of the Truth-in-Lending Act (15 U.S.C. made only to the extent authorized by writ- ‘‘(7) ADJUSTED OVERPAYMENT RATE.— June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4759

‘‘(A) IN GENERAL.—The adjusted overpay- ‘‘(5) applicable net AMT adjustment sepa- ity treated as a trade or business under para- ment rate for any interest accrual period is rately computed for— graph (5) or (6) of section 469(c). the overpayment rate in effect under section ‘‘(A) passive loss limitation activities, and ‘‘(2) TAX-EXEMPT INTEREST.—The term ‘tax- 6621 for the calendar quarter in which such ‘‘(B) other activities, exempt interest’ means interest excludable interest accrual period begins. ‘‘(6) general credits, from gross income under section 103. ‘‘(B) INTEREST ACCRUAL PERIOD.—For pur- ‘‘(7) low-income housing credit determined ‘‘(3) APPLICABLE NET AMT ADJUSTMENT.— poses of subparagraph (A), the term ‘interest under section 42, ‘‘(A) IN GENERAL.—The applicable net AMT accrual period’ means the period— ‘‘(8) rehabilitation credit determined under adjustment is— ‘‘(i) beginning on the day after the return section 47, ‘‘(i) with respect to taxpayers other than due date for any taxable year of the tax- ‘‘(9) foreign income taxes, corporations, the net adjustment determined payer, and ‘‘(10) the credit allowable under section 29, by using the adjustments applicable to indi- ‘‘(ii) ending on the return due date for the and viduals, and following taxable year. ‘‘(11) other items to the extent that the ‘‘(ii) with respect to corporations, the net For purposes of the preceding sentence, the Secretary determines that the separate adjustment determined by using the adjust- term ‘return due date’ means the date pre- treatment of such items is appropriate. ments applicable to corporations. ‘‘(b) SEPARATE COMPUTATIONS.—In deter- ‘‘(B) NET ADJUSTMENT.—The term ‘net ad- scribed for filing the return of the tax im- mining the amounts required under sub- justment’ means the net adjustment in the posed by this chapter (determined without section (a) to be separately taken into ac- items attributable to passive loss activities regard to extensions).’’. count by any partner, this section and sec- or other activities (as the case may be) (c) EFFECTIVE DATE.— tion 773 shall be applied separately with re- which would result if such items were deter- (1) IN GENERAL.—Except as provided in spect to such partner by taking into account mined with the adjustments of sections 56, paragraph (2), the amendments made by this such partner’s distributive share of the items 57, and 58. section shall apply to contracts completed in of income, gain, loss, deduction, or credit of ‘‘(4) TREATMENT OF CERTAIN SEPARATELY taxable years ending after the date of the en- the partnership. STATED ITEMS.— actment of this Act. ‘‘(c) TREATMENT AT PARTNER LEVEL.— ‘‘(A) EXCLUSION FOR CERTAIN PURPOSES.—In (2) SUBSECTION (b).—The amendments made ‘‘(1) IN GENERAL.—Except as provided in determining the amounts referred to in para- by subsection (b) shall apply for purposes of this subsection, rules similar to the rules of graphs (1) and (2) of subsection (a), any net section 167(g) of the Internal Revenue Code section 702(b) shall apply to any partner’s capital gain or net capital loss (as the case of 1986 to property placed in service after distributive share of the amounts referred to may be), and any item referred to in sub- September 13, 1995. in subsection (a). section (a)(11), shall be excluded. SEC. 1212. MINIMUM TAX TREATMENT OF CER- ‘‘(2) INCOME OR LOSS FROM PASSIVE LOSS ‘‘(B) ALLOCATION RULES.—The net capital TAIN PROPERTY AND CASUALTY IN- LIMITATION ACTIVITIES.—For purposes of this gain shall be treated— SURANCE COMPANIES. chapter, any partner’s distributive share of ‘‘(i) as allocable to passive loss limitation (a) IN GENERAL.—Clause (i) of section any income or loss described in subsection activities to the extent the net capital gain 56(g)(4)(B) (relating to inclusion of items in- (a)(1) shall be treated as an item of income does not exceed the net capital gain deter- cluded for purposes of computing earnings or loss (as the case may be) from the conduct mined by only taking into account gains and and profits) is amended by adding at the end of a trade or business which is a single pas- losses from sales and exchanges of property the following new sentence: ‘‘In the case of sive activity (as defined in section 469). A used in connection with such activities, and any insurance company taxable under sec- similar rule shall apply to a partner’s dis- ‘‘(ii) as allocable to other activities to the tion 831(b), this clause shall not apply to any tributive share of amounts referred to in extent such gain exceeds the amount allo- amount not described in section 834(b).’’. paragraphs (3)(A) and (5)(A) of subsection (a). cated under clause (i). (b) EFFECTIVE DATE.—The amendment ‘‘(3) INCOME OR LOSS FROM OTHER ACTIVI- A similar rule shall apply for purposes of al- made by subsection (a) shall apply to taxable TIES.— locating any net capital loss. years beginning after December 31, 1997. ‘‘(A) IN GENERAL.—For purposes of this ‘‘(C) NET CAPITAL LOSS.—The term ‘net cap- chapter, any partner’s distributive share of Subtitle C—Simplification Relating to ital loss’ means the excess of the losses from any income or loss described in subsection Electing Large Partnerships sales or exchanges of capital assets over the (a)(2) shall be treated as an item of income gains from sales or exchange of capital as- PART I—GENERAL PROVISIONS or expense (as the case may be) with respect sets. SEC. 1221. SIMPLIFIED FLOW-THROUGH FOR to property held for investment. ‘‘(5) GENERAL CREDITS.—The term ‘general ELECTING LARGE PARTNERSHIPS. ‘‘(B) DEDUCTIONS FOR LOSS NOT SUBJECT TO credits’ means any credit other than the low- (a) GENERAL RULE.—Subchapter K (relat- SECTION 67.—The deduction under section 212 income housing credit, the rehabilitation ing to partners and partnerships) is amended for any loss described in subparagraph (A) credit, the foreign tax credit, and the credit by adding at the end the following new part: shall not be treated as a miscellaneous item- allowable under section 29. ‘‘PART IV—SPECIAL RULES FOR ELECTING ized deduction for purposes of section 67. ‘‘(6) FOREIGN INCOME TAXES.—The term ‘for- LARGE PARTNERSHIPS ‘‘(4) TREATMENT OF NET CAPITAL GAIN OR eign income taxes’ means taxes described in LOSS.—For purposes of this chapter, any ‘‘Sec. 771. Application of subchapter to elect- section 901 which are paid or accrued to for- partner’s distributive share of any gain or ing large partnerships. eign countries and to possessions of the loss described in subsection (a)(3) shall be ‘‘Sec. 772. Simplified flow-through. United States. treated as a long-term capital gain or loss, ‘‘(e) SPECIAL RULE FOR UNRELATED BUSI- ‘‘Sec. 773. Computations at partnership level. as the case may be. NESS TAX.—In the case of a partner which is ‘‘Sec. 774. Other modifications. ‘‘(5) MINIMUM TAX TREATMENT.—In deter- an organization subject to tax under section ‘‘Sec. 775. Electing large partnership defined. mining the alternative minimum taxable in- 511, such partner’s distributive share of any come of any partner, such partner’s distribu- ‘‘Sec. 776. Special rules for partnerships hold- items shall be taken into account separately tive share of any applicable net AMT adjust- ing oil and gas properties. to the extent necessary to comply with the ment shall be taken into account in lieu of provisions of section 512(c)(1). ‘‘Sec. 777. Regulations. making the separate adjustments provided in ‘‘(f) SPECIAL RULES FOR APPLYING PASSIVE ‘‘SEC. 771. APPLICATION OF SUBCHAPTER TO sections 56, 57, and 58 with respect to the LOSS LIMITATIONS.—If any person holds an ELECTING LARGE PARTNERSHIPS. items of the partnership. Except as provided interest in an electing large partnership ‘‘The preceding provisions of this sub- in regulations, the applicable net AMT ad- other than as a limited partner— chapter to the extent inconsistent with the justment shall be treated, for purposes of ‘‘(1) paragraph (2) of subsection (c) shall provisions of this part shall not apply to an section 53, as an adjustment or item of tax not apply to such partner, and electing large partnership and its partners. preference not specified in section ‘‘(2) such partner’s distributive share of the ‘‘SEC. 772. SIMPLIFIED FLOW-THROUGH. 53(d)(1)(B)(ii). partnership items allocable to passive loss ‘‘(a) GENERAL RULE.—In determining the ‘‘(6) GENERAL CREDITS.—A partner’s dis- limitation activities shall be taken into ac- income tax of a partner of an electing large tributive share of the amount referred to in count separately to the extent necessary to partnership, such partner shall take into ac- paragraph (6) of subsection (a) shall be taken comply with the provisions of section 469. count separately such partner’s distributive into account as a current year business cred- The preceding sentence shall not apply to share of the partnership’s— it. any items allocable to an interest held as a ‘‘(1) taxable income or loss from passive ‘‘(d) OPERATING RULES.—For purposes of limited partner. loss limitation activities, this section— ‘‘SEC. 773. COMPUTATIONS AT PARTNERSHIP ‘‘(2) taxable income or loss from other ac- ‘‘(1) PASSIVE LOSS LIMITATION ACTIVITY.— LEVEL. tivities, The term ‘passive loss limitation activity’ ‘‘(a) GENERAL RULE.— ‘‘(3) net capital gain (or net capital loss)— means— ‘‘(1) TAXABLE INCOME.—The taxable income ‘‘(A) to the extent allocable to passive loss ‘‘(A) any activity which involves the con- of an electing large partnership shall be limitation activities, and duct of a trade or business, and computed in the same manner as in the case ‘‘(B) to the extent allocable to other activi- ‘‘(B) any rental activity. of an individual except that— ties, For purposes of the preceding sentence, the ‘‘(A) the items described in section 772(a) ‘‘(4) tax-exempt interest, term ‘trade or business’ includes any activ- shall be separately stated, and H4760 CONGRESSIONAL RECORD — HOUSE June 26, 1997 ‘‘(B) the modifications of subsection (b) ‘‘(A) any credit recapture shall be taken does not include any individual performing shall apply. into account by the partnership, and substantial services in connection with the ‘‘(2) ELECTIONS.—All elections affecting the ‘‘(B) the amount of such recapture shall be activities of the partnership and holding an computation of the taxable income of an determined as if the credit with respect to interest in such partnership, or an individual electing large partnership or the computa- which the recapture is made had been fully who formerly performed substantial services tion of any credit of an electing large part- utilized to reduce tax. in connection with such activities and who nership shall be made by the partnership; ex- ‘‘(2) METHOD OF TAKING RECAPTURE INTO AC- held an interest in such partnership at the cept that the election under section 901, and COUNT.—An electing large partnership shall time the individual performed such services. any election under section 108, shall be made take into account a credit recapture by re- ‘‘(2) EXCLUSION.—For purposes of this part, by each partner separately. ducing the amount of the appropriate cur- an election under subsection (a) shall not be ‘‘(3) LIMITATIONS, ETC.— rent year credit to the extent thereof, and if effective with respect to any partnership if ‘‘(A) IN GENERAL.—Except as provided in such recapture exceeds the amount of such substantially all the partners of such part- subparagraph (B), all limitations and other current year credit, the partnership shall be nership— provisions affecting the computation of the liable to pay such excess. ‘‘(A) are individuals performing substantial taxable income of an electing large partner- ‘‘(3) DISPOSITIONS NOT TO TRIGGER RECAP- services in connection with the activities of ship or the computation of any credit of an TURE.—No credit recapture shall be required such partnership or are personal service cor- electing large partnership shall be applied at by reason of any transfer of an interest in an porations (as defined in section 269A(b)) the the partnership level (and not at the partner electing large partnership. owner-employees (as defined in section level). ‘‘(4) CREDIT RECAPTURE.—For purposes of 269A(b)) of which perform such substantial ‘‘(B) CERTAIN LIMITATIONS APPLIED AT PART- this subsection, the term ‘credit recapture’ services, NER LEVEL.—The following provisions shall means any increase in tax under section 42(j) ‘‘(B) are retired partners who had per- be applied at the partner level (and not at or 50(a). formed such substantial services, or the partnership level): ‘‘(c) PARTNERSHIP NOT TERMINATED BY REA- ‘‘(C) are spouses of partners who are per- ‘‘(i) Section 68 (relating to overall limita- SON OF CHANGE IN OWNERSHIP.—Subparagraph forming (or had previously performed) such tion on itemized deductions). (B) of section 708(b)(1) shall not apply to an substantial services. ‘‘(ii) Sections 49 and 465 (relating to at risk electing large partnership. ‘‘(3) SPECIAL RULE FOR LOWER TIER PART- limitations). ‘‘(d) PARTNERSHIP ENTITLED TO CERTAIN NERSHIPS.—For purposes of this subsection, ‘‘(iii) Section 469 (relating to limitation on CREDITS.—The following shall be allowed to the activities of a partnership shall include passive activity losses and credits). an electing large partnership and shall not the activities of any other partnership in ‘‘(iv) Any other provision specified in regu- be taken into account by the partners of which the partnership owns directly an in- lations. such partnership: terest in the capital and profits of at least 80 ‘‘(4) COORDINATION WITH OTHER PROVI- ‘‘(1) The credit provided by section 34. percent. SIONS.—Paragraphs (2) and (3) shall apply ‘‘(2) Any credit or refund under section ‘‘(c) EXCLUSION OF COMMODITY POOLS.—For notwithstanding any other provision of this 852(b)(3)(D). purposes of this part, an election under sub- chapter other than this part. ‘‘(e) TREATMENT OF REMIC RESIDUALS.— section (a) shall not be effective with respect ‘‘(b) MODIFICATIONS TO DETERMINATION OF For purposes of applying section 860E(e)(6) to to any partnership the principal activity of TAXABLE INCOME.—In determining the tax- any electing large partnership— which is the buying and selling of commod- able income of an electing large partner- ‘‘(1) all interests in such partnership shall ities (not described in section 1221(1)), or op- ship— be treated as held by disqualified organiza- tions, futures, or forwards with respect to ‘‘(1) CERTAIN DEDUCTIONS NOT ALLOWED.— tions, such commodities. The following deductions shall not be al- ‘‘(2) in lieu of applying subparagraph (C) of ‘‘(d) SECRETARY MAY RELY ON TREATMENT lowed: section 860E(e)(6), the amount subject to tax ON RETURN.—If, on the partnership return of ‘‘(A) The deduction for personal exemp- under section 860E(e)(6) shall be excluded any partnership, such partnership is treated tions provided in section 151. from the gross income of such partnership, as an electing large partnership, such treat- ‘‘(B) The net operating loss deduction pro- and ment shall be binding on such partnership vided in section 172. ‘‘(3) subparagraph (D) of section 860E(e)(6) and all partners of such partnership but not ‘‘(C) The additional itemized deductions shall not apply. on the Secretary. for individuals provided in part VII of sub- ‘‘(f) SPECIAL RULES FOR APPLYING CERTAIN ‘‘SEC. 776. SPECIAL RULES FOR PARTNERSHIPS chapter B (other than section 212 thereof). INSTALLMENT SALE RULES.—In the case of an HOLDING OIL AND GAS PROPERTIES. ‘‘(2) CHARITABLE DEDUCTIONS.—In determin- electing large partnership— ‘‘(a) COMPUTATION OF PERCENTAGE DEPLE- ing the amount allowable under section 170, ‘‘(1) the provisions of sections 453(l)(3) and TION.—In the case of an electing large part- the limitation of section 170(b)(2) shall 453A shall be applied at the partnership nership, except as provided in subsection apply. level, and (b)— ‘‘(3) COORDINATION WITH SECTION 67.—In lieu ‘‘(2) in determining the amount of interest ‘‘(1) the allowance for depletion under sec- of applying section 67, 70 percent of the payable under such sections, such partner- tion 611 with respect to any partnership oil amount of the miscellaneous itemized deduc- ship shall be treated as subject to tax under or gas property shall be computed at the tions shall be disallowed. this chapter at the highest rate of tax in ef- partnership level without regard to any pro- ‘‘(c) SPECIAL RULES FOR INCOME FROM DIS- fect under section 1 or 11. vision of section 613A requiring such allow- CHARGE OF INDEBTEDNESS.—If an electing ‘‘SEC. 775. ELECTING LARGE PARTNERSHIP DE- ance to be computed separately by each part- large partnership has income from the dis- FINED. ner, charge of any indebtedness— ‘‘(a) GENERAL RULE.—For purposes of this ‘‘(2) such allowance shall be determined ‘‘(1) such income shall be excluded in de- part— without regard to the provisions of section termining the amounts referred to in section ‘‘(1) IN GENERAL.—The term ‘electing large 613A(c) limiting the amount of production 772(a), and partnership’ means, with respect to any for which percentage depletion is allowable ‘‘(2) in determining the income tax of any partnership taxable year, any partnership and without regard to paragraph (1) of sec- partner of such partnership— if— tion 613A(d), and ‘‘(A) such income shall be treated as an ‘‘(A) the number of persons who were part- ‘‘(3) paragraph (3) of section 705(a) shall not item required to be separately taken into ac- ners in such partnership in the preceding apply. count under section 772(a), and partnership taxable year equaled or exceeded ‘‘(b) TREATMENT OF CERTAIN PARTNERS.— ‘‘(B) the provisions of section 108 shall be 100, and ‘‘(1) IN GENERAL.—In the case of a disquali- applied without regard to this part. ‘‘(B) such partnership elects the applica- fied person, the treatment under this chapter ‘‘SEC. 774. OTHER MODIFICATIONS. tion of this part. of such person’s distributive share of any ‘‘(a) TREATMENT OF CERTAIN OPTIONAL AD- To the extent provided in regulations, a item of income, gain, loss, deduction, or JUSTMENTS, ETC.—In the case of an electing partnership shall cease to be treated as an credit attributable to any partnership oil or large partnership— electing large partnership for any partner- gas property shall be determined without re- ‘‘(1) computations under section 773 shall ship taxable year if in such taxable year gard to this part. Such person’s distributive be made without regard to any adjustment fewer than 100 persons were partners in such share of any such items shall be excluded for under section 743(b) or 108(b), but partnership. purposes of making determinations under ‘‘(2) a partner’s distributive share of any ‘‘(2) ELECTION.—The election under this sections 772 and 773. amount referred to in section 772(a) shall be subsection shall apply to the taxable year for ‘‘(2) DISQUALIFIED PERSON.—For purposes of appropriately adjusted to take into account which made and all subsequent taxable years paragraph (1), the term ‘disqualified person’ any adjustment under section 743(b) or 108(b) unless revoked with the consent of the Sec- means, with respect to any partnership tax- with respect to such partner. retary. able year— ‘‘(b) CREDIT RECAPTURE DETERMINED AT ‘‘(b) SPECIAL RULES FOR CERTAIN SERVICE ‘‘(A) any person referred to in paragraph PARTNERSHIP LEVEL.— PARTNERSHIPS.— (2) or (4) of section 613A(d) for such person’s ‘‘(1) IN GENERAL.—In the case of an electing ‘‘(1) CERTAIN PARTNERS NOT COUNTED.—For taxable year in which such partnership tax- large partnership— purposes of this section, the term ‘partner’ able year ends, and June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4761

‘‘(B) any other person if such person’s aver- ‘‘(b) UNDERPAYMENT DUE TO INCONSISTENT a partner in such partnership during such age daily production of domestic crude oil TREATMENT ASSESSED AS MATH ERROR.—Any partnership taxable year, such adjustment and natural gas for such person’s taxable underpayment of tax by a partner by reason shall be treated as an item actually arising year in which such partnership taxable year of failing to comply with the requirements of during such taxable year. ends exceeds 500 barrels. subsection (a) shall be assessed and collected ‘‘(2) PARTNERSHIP LIABLE IN CERTAIN ‘‘(3) AVERAGE DAILY PRODUCTION.—For pur- in the same manner as if such underpayment CASES.—If— poses of paragraph (2), a person’s average were on account of a mathematical or cleri- ‘‘(A) a partnership elects under this para- daily production of domestic crude oil and cal error appearing on the partner’s return. graph to not take an adjustment into ac- natural gas for any taxable year shall be Paragraph (2) of section 6213(b) shall not count under paragraph (1), computed as provided in section 613A(c)(2)— apply to any assessment of an underpayment ‘‘(B) a partnership does not make such an ‘‘(A) by taking into account all production referred to in the preceding sentence. election but in filing its return for any part- of domestic crude oil and natural gas (in- ‘‘(c) ADJUSTMENTS NOT TO AFFECT PRIOR nership taxable year fails to take fully into cluding such person’s proportionate share of YEAR OF PARTNERS.— account any partnership adjustment as re- any production of a partnership), ‘‘(1) IN GENERAL.—Except as provided in quired under paragraph (1), or ‘‘(B) by treating 6,000 cubic feet of natural paragraph (2), subsections (a) and (b) shall ‘‘(C) any partnership adjustment involves a gas as a barrel of crude oil, and apply without regard to any adjustment to reduction in a credit which exceeds the ‘‘(C) by treating as 1 person all persons the partnership item under part II. amount of such credit determined for the treated as 1 taxpayer under section 613A(c)(8) ‘‘(2) CERTAIN CHANGES IN DISTRIBUTIVE partnership taxable year in which the adjust- or among whom allocations are required SHARE TAKEN INTO ACCOUNT BY PARTNER.— ment takes effect, under such section. ‘‘(A) IN GENERAL.—To the extent that any the partnership shall pay to the Secretary an amount determined by applying the rules of ‘‘SEC. 777. REGULATIONS. adjustment under part II involves a change subsection (b)(4) to the adjustments not so ‘‘The Secretary shall prescribe such regu- under section 704 in a partner’s distributive taken into account and any excess referred lations as may be appropriate to carry out share of the amount of any partnership item to in subparagraph (C). the purposes of this part.’’. shown on the partnership return, such ad- ‘‘(3) OFFSETTING ADJUSTMENTS TAKEN INTO (b) CLERICAL AMENDMENT.—The table of justment shall be taken into account in ap- ACCOUNT.—If a partnership adjustment re- parts for subchapter K of chapter 1 is amend- plying this title to such partner for the part- quires another adjustment in a taxable year ed by adding at the end the following new ner’s taxable year for which such item was after the adjusted year and before the part- item: required to be taken into account. ‘‘(B) COORDINATION WITH DEFICIENCY PROCE- nership taxable year in which such partner- ‘‘Part IV. Special rules for electing large DURES.— ship adjustment takes effect, such other ad- partnerships.’’. ‘‘(i) IN GENERAL.—Subchapter B shall not justment shall be taken into account under this subsection for the partnership taxable (c) EFFECTIVE DATE.—The amendments apply to the assessment or collection of any year in which such partnership adjustment made by this section shall apply to partner- underpayment of tax attributable to an ad- takes effect. ship taxable years beginning after December justment referred to in subparagraph (A). ‘‘(4) COORDINATION WITH PART II.—Amounts 31, 1997. ‘‘(ii) ADJUSTMENT NOT PRECLUDED.—Not- taken into account under this subsection for SEC. 1222. SIMPLIFIED AUDIT PROCEDURES FOR withstanding any other law or rule of law, nothing in subchapter B (or in any proceed- any partnership taxable year shall continue ELECTING LARGE PARTNERSHIPS. to be treated as adjustments for the adjusted (a) GENERAL RULE.—Chapter 63 is amended ing under subchapter B) shall preclude the assessment or collection of any underpay- year for purposes of determining whether by adding at the end thereof the following such amounts may be readjusted under part new subchapter: ment of tax (or the allowance of any credit or refund of any overpayment of tax) attrib- II. ‘‘Subchapter D—Treatment of electing large ‘‘(b) PARTNERSHIP LIABLE FOR INTEREST utable to an adjustment referred to in sub- partnerships AND PENALTIES.— paragraph (A) and such assessment or collec- ‘‘(1) IN GENERAL.—If a partnership adjust- ‘‘Part I. Treatment of partnership items and tion or allowance (or any notice thereof) adjustments. ment takes effect during any partnership shall not preclude any notice, proceeding, or taxable year and such adjustment results in ‘‘Part II. Partnership level adjustments. determination under subchapter B. an imputed underpayment for the adjusted ‘‘Part III. Definitions and special rules. ‘‘(C) PERIOD OF LIMITATIONS.—The period year, the partnership— for— ‘‘PART I—TREATMENT OF PARTNERSHIP ‘‘(A) shall pay to the Secretary interest ‘‘(i) assessing any underpayment of tax, or ITEMS AND ADJUSTMENTS computed under paragraph (2), and ‘‘(ii) filing a claim for credit or refund of ‘‘Sec. 6240. Application of subchapter. ‘‘(B) shall be liable for any penalty, addi- any overpayment of tax, tion to tax, or additional amount as provided ‘‘Sec. 6241. Partner’s return must be consist- attributable to an adjustment referred to in in paragraph (3). ent with partnership return. subparagraph (A) shall not expire before the ‘‘(2) DETERMINATION OF AMOUNT OF INTER- ‘‘Sec. 6242. Procedures for taking partnership close of the period prescribed by section 6248 EST.—The interest computed under this para- adjustments into account. for making adjustments with respect to the graph with respect to any partnership ad- ‘‘SEC. 6240. APPLICATION OF SUBCHAPTER. partnership taxable year involved. justment is the interest which would be de- ‘‘(a) GENERAL RULE.—This subchapter shall ‘‘(D) TIERED STRUCTURES.—If the partner termined under chapter 67— only apply to electing large partnerships and referred to in subparagraph (A) is another ‘‘(A) on the imputed underpayment deter- partners in such partnerships. partnership or an S corporation, the rules of mined under paragraph (4) with respect to ‘‘(b) COORDINATION WITH OTHER PARTNER- this paragraph shall also apply to persons such adjustment, SHIP AUDIT PROCEDURES.— holding interests in such partnership or S ‘‘(B) for the period beginning on the day ‘‘(1) IN GENERAL.—Subchapter C of this corporation (as the case may be); except after the return due date for the adjusted chapter shall not apply to any electing large that, if such partner is an electing large year and ending on the return due date for partnership other than in its capacity as a partnership, the adjustment referred to in the partnership taxable year in which such partner in another partnership which is not subparagraph (A) shall be taken into account adjustment takes effect (or, if earlier, in the an electing large partnership. in the manner provided by section 6242. case of any adjustment to which subsection ‘‘(2) TREATMENT WHERE PARTNER IN OTHER ‘‘(d) ADDITION TO TAX FOR FAILURE TO COM- (a)(2) applies, the date on which the payment PARTNERSHIP.—If an electing large partner- PLY WITH SECTION.— under subsection (a)(2) is made). ship is a partner in another partnership ‘‘For addition to tax in case of partner’s dis- Proper adjustments in the amount deter- which is not an electing large partnership— regard of requirements of this section, see mined under the preceding sentence shall be ‘‘(A) subchapter C of this chapter shall part II of subchapter A of chapter 68. made for adjustments required for partner- apply to items of such electing large partner- ‘‘SEC. 6242. PROCEDURES FOR TAKING PARTNER- ship taxable years after the adjusted year ship which are partnership items with re- SHIP ADJUSTMENTS INTO ACCOUNT. and before the year in which the partnership spect to such other partnership, but ‘‘(a) ADJUSTMENTS FLOW THROUGH TO adjustment takes effect by reason of such ‘‘(B) any adjustment under such sub- PARTNERS FOR YEAR IN WHICH ADJUSTMENT partnership adjustment. chapter C shall be taken into account in the TAKES EFFECT.— ‘‘(3) PENALTIES.—A partnership shall be manner provided by section 6242. ‘‘(1) IN GENERAL.—If any partnership ad- liable for any penalty, addition to tax, or ad- ‘‘SEC. 6241. PARTNER’S RETURN MUST BE CON- justment with respect to any partnership ditional amount for which it would have SISTENT WITH PARTNERSHIP RE- item takes effect (within the meaning of sub- been liable if such partnership had been an TURN. section (d)(2)) during any partnership tax- individual subject to tax under chapter 1 for ‘‘(a) GENERAL RULE.—A partner of any able year and if an election under paragraph the adjusted year and the imputed underpay- electing large partnership shall, on the part- (2) does not apply to such adjustment, such ment determined under paragraph (4) were ner’s return, treat each partnership item at- adjustment shall be taken into account in an actual underpayment (or understatement) tributable to such partnership in a manner determining the amount of such item for the for such year. which is consistent with the treatment of partnership taxable year in which such ad- ‘‘(4) IMPUTED UNDERPAYMENT.—For pur- such partnership item on the partnership re- justment takes effect. In applying this title poses of this subsection, the imputed under- turn. to any person who is (directly or indirectly) payment determined under this paragraph H4762 CONGRESSIONAL RECORD — HOUSE June 26, 1997

with respect to any partnership adjustment ‘‘Subpart B. Claims for adjustments by part- ‘‘(B) SPECIAL RULE.—If an electing large is the underpayment (if any) which would re- nership. partnership is a partner in another electing sult— ‘‘Subpart A—Adjustments by Secretary large partnership, any adjustment on ac- ‘‘(A) by netting all adjustments to items of ‘‘Sec. 6245. Secretarial authority. count of such partnership’s failure to comply income, gain, loss, or deduction and by treat- with the requirements of section 6241(a) with ‘‘Sec. 6246. Restrictions on partnership ad- ing any net increase in income as an under- respect to its interest in such other partner- justments. payment equal to the amount of such net in- ship shall be treated as an adjustment re- crease multiplied by the highest rate of tax ‘‘Sec. 6247. Judicial review of partnership ferred to in subparagraph (A), except that in effect under section 1 or 11 for the ad- adjustment. paragraph (2) of section 6213(b) shall not justed year, and ‘‘Sec. 6248. Period of limitations for making apply to such adjustment. ‘‘(B) by taking adjustments to credits into adjustments. ‘‘(2) PARTNERSHIP MAY WAIVE RESTRIC- account as increases or decreases (whichever ‘‘SEC. 6245. SECRETARIAL AUTHORITY. TIONS.—The partnership shall at any time is appropriate) in the amount of tax. ‘‘(a) GENERAL RULE.—The Secretary is au- (whether or not a notice of partnership ad- For purposes of the preceding sentence, any thorized and directed to make adjustments justment has been issued) have the right, by net decrease in a loss shall be treated as an at the partnership level in any partnership a signed notice in writing filed with the Sec- increase in income and a similar rule shall item to the extent necessary to have such retary, to waive the restrictions provided in apply to a net increase in a loss. item be treated in the manner required. subsection (a) on the making of any partner- ‘‘(c) ADMINISTRATIVE PROVISIONS.— ‘‘(b) NOTICE OF PARTNERSHIP ADJUST- ship adjustment. ‘‘(1) IN GENERAL.—Any payment required MENT.— ‘‘(d) LIMIT WHERE NO PROCEEDING BEGUN.— by subsection (a)(2) or (b)(1)(A)— ‘‘(1) IN GENERAL.—If the Secretary deter- If no proceeding under section 6247 is begun ‘‘(A) shall be assessed and collected in the mines that a partnership adjustment is re- with respect to any notice of a partnership same manner as if it were a tax imposed by quired, the Secretary is authorized to send adjustment during the 90-day period de- subtitle C, and notice of such adjustment to the partnership scribed in subsection (a), the amount for ‘‘(B) shall be paid on or before the return by certified mail or registered mail. Such no- which the partnership is liable under section due date for the partnership taxable year in tice shall be sufficient if mailed to the part- 6242 (and any increase in any partner’s liabil- which the partnership adjustment takes ef- nership at its last known address even if the ity for tax under chapter 1 by reason of any fect. partnership has terminated its existence. adjustment under section 6242(a)) shall not ‘‘(2) INTEREST.—For purposes of determin- ‘‘(2) FURTHER NOTICES RESTRICTED.—If the exceed the amount determined in accordance ing interest, any payment required by sub- Secretary mails a notice of a partnership ad- with such notice. section (a)(2) or (b)(1)(A) shall be treated as justment to any partnership for any partner- ‘‘SEC. 6247. JUDICIAL REVIEW OF PARTNERSHIP an underpayment of tax. ship taxable year and the partnership files a ADJUSTMENT. ‘‘(3) PENALTIES.— petition under section 6247 with respect to ‘‘(a) GENERAL RULE.—Within 90 days after ‘‘(A) IN GENERAL.—In the case of any fail- such notice, in the absence of a showing of the date on which a notice of a partnership ure by any partnership to pay on the date fraud, malfeasance, or misrepresentation of adjustment is mailed to the partnership with prescribed therefor any amount required by a material fact, the Secretary shall not mail respect to any partnership taxable year, the subsection (a)(2) or (b)(1)(A), there is hereby another such notice to such partnership with partnership may file a petition for a read- imposed on such partnership a penalty of 10 respect to such taxable year. justment of the partnership items for such percent of the underpayment. For purposes ‘‘(3) AUTHORITY TO RESCIND NOTICE WITH taxable year with— of the preceding sentence, the term ‘under- PARTNERSHIP CONSENT.—The Secretary may, ‘‘(1) the Tax Court, payment’ means the excess of any payment with the consent of the partnership, rescind ‘‘(2) the district court of the United States required under this section over the amount any notice of a partnership adjustment for the district in which the partnership’s (if any) paid on or before the date prescribed mailed to such partnership. Any notice so re- principal place of business is located, or therefor. scinded shall not be treated as a notice of a ‘‘(3) the Claims Court. ‘‘(B) ACCURACY-RELATED AND FRAUD PEN- partnership adjustment, for purposes of this ‘‘(b) JURISDICTIONAL REQUIREMENT FOR ALTIES MADE APPLICABLE.—For purposes of section, section 6246, and section 6247, and BRINGING ACTION IN DISTRICT COURT OR part II of subchapter A of chapter 68, any the taxpayer shall have no right to bring a CLAIMS COURT.— payment required by subsection (a)(2) shall proceeding under section 6247 with respect to ‘‘(1) IN GENERAL.—A readjustment petition be treated as an underpayment of tax. such notice. Nothing in this subsection shall under this section may be filed in a district ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For affect any suspension of the running of any court of the United States or the Claims purposes of this section— period of limitations during any period dur- Court only if the partnership filing the peti- ‘‘(1) PARTNERSHIP ADJUSTMENT.—The term ing which the rescinded notice was outstand- tion deposits with the Secretary, on or be- ‘partnership adjustment’ means any adjust- ing. fore the date the petition is filed, the ment in the amount of any partnership item amount for which the partnership would be of an electing large partnership. ‘‘SEC. 6246. RESTRICTIONS ON PARTNERSHIP AD- JUSTMENTS. liable under section 6242(b) (as of the date of ‘‘(2) WHEN ADJUSTMENT TAKES EFFECT.—A ‘‘(a) GENERAL RULE.—Except as otherwise the filing of the petition) if the partnership partnership adjustment takes effect— provided in this chapter, no adjustment to items were adjusted as provided by the no- ‘‘(A) in the case of an adjustment pursuant any partnership item may be made (and no tice of partnership adjustment. The court to the decision of a court in a proceeding levy or proceeding in any court for the col- may by order provide that the jurisdictional brought under part II, when such decision be- lection of any amount resulting from such requirements of this paragraph are satisfied comes final, adjustment may be made, begun or pros- where there has been a good faith attempt to ‘‘(B) in the case of an adjustment pursuant ecuted) before— satisfy such requirement and any shortfall of to any administrative adjustment request ‘‘(1) the close of the 90th day after the day the amount required to be deposited is time- under section 6251, when such adjustment is on which a notice of a partnership adjust- ly corrected. allowed by the Secretary, or ment was mailed to the partnership, and ‘‘(2) INTEREST PAYABLE.—Any amount de- ‘‘(C) in any other case, when such adjust- ‘‘(2) if a petition is filed under section 6247 posited under paragraph (1), while deposited, ment is made. with respect to such notice, the decision of shall not be treated as a payment of tax for ‘‘(3) ADJUSTED YEAR.—The term ‘adjusted the court has become final. purposes of this title (other than chapter 67). year’ means the partnership taxable year to ‘‘(b) PREMATURE ACTION MAY BE EN- ‘‘(c) SCOPE OF JUDICIAL REVIEW.—A court which the item being adjusted relates. JOINED.—Notwithstanding section 7421(a), with which a petition is filed in accordance ‘‘(4) RETURN DUE DATE.—The term ‘return any action which violates subsection (a) may with this section shall have jurisdiction to due date’ means, with respect to any taxable be enjoined in the proper court, including determine all partnership items of the part- year, the date prescribed for filing the part- the Tax Court. The Tax Court shall have no nership for the partnership taxable year to nership return for such taxable year (deter- jurisdiction to enjoin any action under this which the notice of partnership adjustment mined without regard to extensions). subsection unless a timely petition has been relates and the proper allocation of such ‘‘(5) ADJUSTMENTS INVOLVING CHANGES IN filed under section 6247 and then only in re- items among the partners (and the applica- CHARACTER.—Under regulations, appropriate spect of the adjustments that are the subject bility of any penalty, addition to tax, or ad- adjustments in the application of this sec- of such petition. ditional amount for which the partnership tion shall be made for purposes of taking ‘‘(c) EXCEPTIONS TO RESTRICTIONS ON AD- may be liable under section 6242(b)). into account partnership adjustments which JUSTMENTS.— ‘‘(d) DETERMINATION OF COURT involve a change in the character of any ‘‘(1) ADJUSTMENTS ARISING OUT OF MATH OR REVIEWABLE.—Any determination by a court item of income, gain, loss, or deduction. CLERICAL ERRORS.— under this section shall have the force and ‘‘(e) PAYMENTS NONDEDUCTIBLE.—No deduc- ‘‘(A) IN GENERAL.—If the partnership is no- effect of a decision of the Tax Court or a tion shall be allowed under subtitle A for tified that, on account of a mathematical or final judgment or decree of the district court any payment required to be made by an clerical error appearing on the partnership or the Claims Court, as the case may be, and electing large partnership under this section. return, an adjustment to a partnership item shall be reviewable as such. The date of any ‘‘PART II—PARTNERSHIP LEVEL is required, rules similar to the rules of para- such determination shall be treated as being ADJUSTMENTS graphs (1) and (2) of section 6213(b) shall the date of the court’s order entering the de- ‘‘Subpart A. Adjustments by Secretary. apply to such adjustment. cision. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4763

‘‘(e) EFFECT OF DECISION DISMISSING AC- under subsection (a), the Secretary may ‘‘PART III—DEFINITIONS AND SPECIAL TION.—If an action brought under this sec- allow any part of the requested adjustments. RULES tion is dismissed other than by reason of a ‘‘(c) SPECIAL RULE IN CASE OF EXTENSION ‘‘Sec. 6255. Definitions and special rules. rescission under section 6245(b)(3), the deci- UNDER SECTION 6248.—If the period described sion of the court dismissing the action shall in section 6248(a) is extended pursuant to an ‘‘SEC. 6255. DEFINITIONS AND SPECIAL RULES. be considered as its decision that the notice agreement under section 6248(b), the period ‘‘(a) DEFINITIONS.—For purposes of this of partnership adjustment is correct, and an prescribed by subsection (a)(1) shall not ex- subchapter— appropriate order shall be entered in the pire before the date 6 months after the expi- ‘‘(1) ELECTING LARGE PARTNERSHIP.—The records of the court. ration of the extension under section 6248(b). term ‘electing large partnership’ has the meaning given to such term by section 775. ‘‘SEC. 6248. PERIOD OF LIMITATIONS FOR MAK- ‘‘SEC. 6252. JUDICIAL REVIEW WHERE ADMINIS- ING ADJUSTMENTS. TRATIVE ADJUSTMENT REQUEST IS ‘‘(2) PARTNERSHIP ITEM.—The term ‘part- ‘‘(a) GENERAL RULE.—Except as otherwise NOT ALLOWED IN FULL. nership item’ has the meaning given to such provided in this section, no adjustment ‘‘(a) IN GENERAL.—If any part of an admin- term by section 6231(a)(3). under this subpart to any partnership item istrative adjustment request filed under sec- ‘‘(b) PARTNERS BOUND BY ACTIONS OF PART- for any partnership taxable year may be tion 6251 is not allowed by the Secretary, the NERSHIP, ETC.— made after the date which is 3 years after partnership may file a petition for an adjust- ‘‘(1) DESIGNATION OF PARTNER.—Each elect- the later of— ment with respect to the partnership items ing large partnership shall designate (in the ‘‘(1) the date on which the partnership re- to which such part of the request relates manner prescribed by the Secretary) a part- turn for such taxable year was filed, or with— ner (or other person) who shall have the sole ‘‘(2) the last day for filing such return for ‘‘(1) the Tax Court, authority to act on behalf of such partner- such year (determined without regard to ex- ‘‘(2) the district court of the United States ship under this subchapter. In any case in tensions). for the district in which the principal place which such a designation is not in effect, the ‘‘(b) EXTENSION BY AGREEMENT.—The pe- of business of the partnership is located, or Secretary may select any partner as the riod described in subsection (a) (including an ‘‘(3) the Claims Court. partner with such authority. extension period under this subsection) may ‘‘(b) PERIOD FOR FILING PETITION.—A peti- ‘‘(2) BINDING EFFECT.—An electing large be extended by an agreement entered into by tion may be filed under subsection (a) with partnership and all partners of such partner- the Secretary and the partnership before the respect to partnership items for a partner- ship shall be bound— expiration of such period. ship taxable year only— ‘‘(A) by actions taken under this sub- ‘‘(c) SPECIAL RULE IN CASE OF FRAUD, ‘‘(1) after the expiration of 6 months from chapter by the partnership, and ETC.— the date of filing of the request under section ‘‘(B) by any decision in a proceeding ‘‘(1) FALSE RETURN.—In the case of a false 6251, and brought under this subchapter. or fraudulent partnership return with intent ‘‘(2) before the date which is 2 years after ‘‘(c) PARTNERSHIPS HAVING PRINCIPAL to evade tax, the adjustment may be made at the date of such request. PLACE OF BUSINESS OUTSIDE THE UNITED any time. The 2-year period set forth in paragraph (2) STATES.—For purposes of sections 6247 and ‘‘(2) SUBSTANTIAL OMISSION OF INCOME.—If shall be extended for such period as may be 6252, a principal place of business located any partnership omits from gross income an agreed upon in writing by the partnership outside the United States shall be treated as amount properly includible therein which is and the Secretary. located in the District of Columbia. in excess of 25 percent of the amount of gross ‘‘(c) COORDINATION WITH SUBPART A.— ‘‘(d) TREATMENT WHERE PARTNERSHIP income stated in its return, subsection (a) ‘‘(1) NOTICE OF PARTNERSHIP ADJUSTMENT CEASES TO EXIST.—If a partnership ceases to shall be applied by substituting ‘6 years’ for BEFORE FILING OF PETITION.—No petition may exist before a partnership adjustment under ‘3 years’. be filed under this section after the Sec- this subchapter takes effect, such adjust- ‘‘(3) NO RETURN.—In the case of a failure by retary mails to the partnership a notice of a ment shall be taken into account by the a partnership to file a return for any taxable partnership adjustment for the partnership former partners of such partnership under year, the adjustment may be made at any taxable year to which the request under sec- regulations prescribed by the Secretary. time. tion 6251 relates. ‘‘(e) DATE DECISION BECOMES FINAL.—For ‘‘(4) RETURN FILED BY SECRETARY.—For pur- ‘‘(2) NOTICE OF PARTNERSHIP ADJUSTMENT purposes of this subchapter, the principles of poses of this section, a return executed by AFTER FILING BUT BEFORE HEARING OF PETI- section 7481(a) shall be applied in determin- the Secretary under subsection (b) of section TION.—If the Secretary mails to the partner- ing the date on which a decision of a district 6020 on behalf of the partnership shall not be ship a notice of a partnership adjustment for court or the Claims Court becomes final. treated as a return of the partnership. the partnership taxable year to which the re- ‘‘(f) PARTNERSHIPS IN CASES UNDER TITLE ‘‘(d) SUSPENSION WHEN SECRETARY MAILS quest under section 6251 relates after the fil- 11 OF THE UNITED STATES CODE.—The running NOTICE OF ADJUSTMENT.—If notice of a part- ing of a petition under this subsection but of any period of limitations provided in this nership adjustment with respect to any tax- before the hearing of such petition, such pe- subchapter on making a partnership adjust- able year is mailed to the partnership, the tition shall be treated as an action brought ment (or provided by section 6501 or 6502 on running of the period specified in subsection under section 6247 with respect to such no- the assessment or collection of any amount (a) (as modified by the other provisions of tice, except that subsection (b) of section required to be paid under section 6242) shall, this section) shall be suspended— 6247 shall not apply. in a case under title 11 of the United States ‘‘(1) for the period during which an action ‘‘(3) NOTICE MUST BE BEFORE EXPIRATION OF Code, be suspended during the period during may be brought under section 6247 (and, if a STATUTE OF LIMITATIONS.—A notice of a part- which the Secretary is prohibited by reason petition is filed under section 6247 with re- nership adjustment for the partnership tax- of such case from making the adjustment (or spect to such notice, until the decision of the able year shall be taken into account under assessment or collection) and— court becomes final), and paragraphs (1) and (2) only if such notice is ‘‘(1) for adjustment or assessment, 60 days ‘‘(2) for 1 year thereafter. mailed before the expiration of the period thereafter, and ‘‘Subpart B—Claims for Adjustments by prescribed by section 6248 for making adjust- ‘‘(2) for collection, 6 months thereafter. Partnership ments to partnership items for such taxable ‘‘(g) REGULATIONS.—The Secretary shall ‘‘Sec. 6251. Administrative adjustment re- year. prescribe such regulations as may be nec- quests. ‘‘(d) SCOPE OF JUDICIAL REVIEW.—Except in essary to carry out the provisions of this ‘‘Sec. 6252. Judicial review where adminis- the case described in paragraph (2) of sub- subchapter, including regulations— trative adjustment request is section (c), a court with which a petition is ‘‘(1) to prevent abuse through manipula- not allowed in full. filed in accordance with this section shall tion of the provisions of this subchapter, and ‘‘SEC. 6251. ADMINISTRATIVE ADJUSTMENT RE- have jurisdiction to determine only those ‘‘(2) providing that this subchapter shall QUESTS. partnership items to which the part of the not apply to any case described in section ‘‘(a) GENERAL RULE.—A partnership may request under section 6251 not allowed by the 6231(c)(1) (or the regulations prescribed file a request for an administrative adjust- Secretary relates and those items with re- thereunder) where the application of this ment of partnership items for any partner- spect to which the Secretary asserts adjust- subchapter to such a case would interfere ship taxable year at any time which is— ments as offsets to the adjustments re- with the effective and efficient enforcement ‘‘(1) within 3 years after the later of— quested by the partnership. of this title. ‘‘(A) the date on which the partnership re- ‘‘(e) DETERMINATION OF COURT In any case to which this subchapter does turn for such year is filed, or REVIEWABLE.—Any determination by a court not apply by reason of paragraph (2), rules ‘‘(B) the last day for filing the partnership under this subsection shall have the force similar to the rules of sections 6229(f) and return for such year (determined without re- and effect of a decision of the Tax Court or 6255(f) shall apply.’’. a final judgment or decree of the district gard to extensions), and (b) CLERICAL AMENDMENT.—The table of ‘‘(2) before the mailing to the partnership court or the Claims Court, as the case may subchapters for chapter 63 is amended by of a notice of a partnership adjustment with be, and shall be reviewable as such. The date adding at the end thereof the following new respect to such taxable year. of any such determination shall be treated as item: ‘‘(b) SECRETARIAL ACTION.—If a partnership being the date of the court’s order entering files an administrative adjustment request the decision. ‘‘Subchapter D. Treatment of electing large partnerships.’’. H4764 CONGRESSIONAL RECORD — HOUSE June 26, 1997

SEC. 1223. DUE DATE FOR FURNISHING INFORMA- ‘‘(c) JUDICIAL REVIEW IN THE TAX COURT.— adjustment to the taxpayer for a taxable TION TO PARTNERS OF ELECTING Within 90 days, or 150 days if the notice is ad- year and the taxpayer files a petition with LARGE PARTNERSHIPS. dressed to a person outside the United the Tax Court within the time prescribed in (a) GENERAL RULE.—Subsection (b) of sec- States, after the day on which the notice of subsection (c), the Secretary may not mail tion 6031 (relating to copies to partners) is adjustment authorized in subsection (a) is another such notice to the taxpayer with re- amended by adding at the end the following mailed to the taxpayer, the taxpayer may spect to the same taxable year in the ab- new sentence: ‘‘In the case of an electing file a petition with the Tax Court for rede- sence of a showing of fraud, malfeasance, or large partnership (as defined in section 775), termination of the adjustments. Upon the misrepresentation of a material fact. such information shall be furnished on or be- filing of such a petition, the Tax Court shall ‘‘(g) COORDINATION WITH OTHER PROCEED- fore the first March 15 following the close of have jurisdiction to make a declaration with INGS UNDER THIS SUBCHAPTER.— such taxable year.’’. respect to all items (other than partnership ‘‘(1) IN GENERAL.—The treatment of any (b) TREATMENT AS INFORMATION RETURN.— items and affected items which require part- item that has been determined pursuant to Section 6724 is amended by adding at the end ner level determinations as described in sec- subsection (c) or (d) shall be taken into ac- the following new subsection: tion 6230(a)(2)(A)(i)) for the taxable year to count in determining the amount of any ‘‘(e) SPECIAL RULE FOR CERTAIN PARTNER- which the notice of adjustment relates, in computational adjustment that is made in SHIP RETURNS.—If any partnership return accordance with the principles of section connection with a partnership proceeding under section 6031(a) is required under sec- 6214(a). Any such declaration shall have the under this subchapter (other than under this tion 6011(e) to be filed on magnetic media or force and effect of a decision of the Tax section), or the amount of any deficiency at- Court and shall be reviewable as such. in other machine-readable form, for purposes tributable to affected items in a proceeding ‘‘(d) FAILURE TO FILE PETITION.— of this part, each schedule required to be in- under section 6230(a)(2), for the taxable year ‘‘(1) IN GENERAL.—Except as provided in cluded with such return with respect to each involved. Notwithstanding any other law or paragraph (2), if the taxpayer does not file a partner shall be treated as a separate infor- rule of law pertaining to the period of limita- petition with the Tax Court within the time mation return.’’. tions on the making of assessments, for pur- prescribed in subsection (c), the determina- SEC. 1224. RETURNS MAY BE REQUIRED ON MAG- poses of the preceding sentence, any adjust- tion of the Secretary set forth in the notice NETIC MEDIA. ment made in accordance with this section of adjustment that was mailed to the tax- Paragraph (2) of section 6011(e) (relating to shall be taken into account regardless of payer shall be deemed to be correct. returns on magnetic media) is amended by whether any assessment has been made with ‘‘(2) EXCEPTION.—Paragraph (1) shall not adding at the end thereof the following new respect to such adjustment. apply after the date that the taxpayer— sentence: ‘‘(2) SPECIAL RULE IN CASE OF COMPUTA- ‘‘(A) files a petition with the Tax Court ‘‘Notwithstanding the preceding sentence, TIONAL ADJUSTMENT.—In the case of a com- within the time prescribed in subsection (c) the Secretary shall require partnerships hav- putational adjustment that is made in con- with respect to a subsequent notice of ad- ing more than 100 partners to file returns on nection with a partnership proceeding under justment relating to the same taxable year, magnetic media.’’. this subchapter (other than under this sec- or SEC. 1225. TREATMENT OF PARTNERSHIP ITEMS tion), the provisions of paragraph (1) shall ‘‘(B) files a claim for refund of an overpay- OF INDIVIDUAL RETIREMENT AC- apply only if the computational adjustment ment of tax under section 6511 for the tax- COUNTS. is made within the period prescribed by sec- able year involved. Subsection (b) of section 6012 is amended tion 6229 for assessing any tax under subtitle If a claim for refund is filed by the taxpayer, by adding at the end thereof the following A which is attributable to any partnership then solely for purposes of determining (for new paragraph: item or affected item for the taxable year in- the taxable year involved) the amount of any ‘‘(6) IRA SHARE OF PARTNERSHIP INCOME.— volved. computational adjustment in connection In the case of a trust which is exempt from ‘‘(3) CONVERSION TO DEFICIENCY PROCEED- with a partnership proceeding under this taxation under section 408(e), for purposes of ING.—If— subchapter (other than under this section) or this section, the trust’s distributive share of ‘‘(A) after the notice referred to in sub- the amount of any deficiency attributable to items of gross income and gain of any part- section (a) is mailed to a taxpayer for a tax- affected items in a proceeding under section nership to which subchapter C or D of chap- able year but before the expiration of the pe- 6230(a)(2), the items that are the subject of ter 63 applies shall be treated as equal to the riod for filing a petition with the Tax Court the notice of adjustment shall be presumed trust’s distributive share of the taxable in- under subsection (c) (or, if a petition is filed to have been correctly reported on the tax- come of such partnership.’’. with the Tax Court, before the Tax Court payer’s return during the pendency of the re- SEC. 1226. EFFECTIVE DATE. makes a declaration for that taxable year), fund claim (and, if within the time pre- The amendments made by this part shall the treatment of any partnership item for scribed by section 6532 the taxpayer com- apply to partnership taxable years ending on the taxable year is finally determined, or mences a civil action for refund under sec- or after December 31, 1997. any such item ceases to be a partnership tion 7422, until the decision in the refund ac- item pursuant to section 6231(b), and PART II—PROVISIONS RELATED TO tion becomes final). TEFRA PARTNERSHIP PROCEEDINGS ‘‘(e) LIMITATIONS PERIOD.— ‘‘(B) as a result of that final determination ‘‘(1) IN GENERAL.—Any notice to a taxpayer or cessation, a deficiency can be determined SEC. 1231. TREATMENT OF PARTNERSHIP ITEMS with respect to the items that are the sub- IN DEFICIENCY PROCEEDINGS. under subsection (a) shall be mailed before ject of the notice of adjustment, (a) IN GENERAL.—Subchapter C of chapter the expiration of the period prescribed by 63 is amended by adding at the end the fol- section 6501 (relating to the period of limita- the notice of adjustment shall be treated as lowing new section: tions on assessment). a notice of deficiency under section 6212 and any petition filed in respect of the notice ‘‘SEC. 6234. DECLARATORY JUDGMENT RELATING ‘‘(2) SUSPENSION WHEN SECRETARY MAILS NO- TO TREATMENT OF ITEMS OTHER TICE OF ADJUSTMENT.—If the Secretary mails shall be treated as an action brought under THAN PARTNERSHIP ITEMS WITH a notice of adjustment to the taxpayer for a section 6213. RESPECT TO AN OVERSHELTERED taxable year, the period of limitations on the ‘‘(4) FINALLY DETERMINED.—For purposes of RETURN. making of assessments shall be suspended for this subsection, the treatment of partnership ‘‘(a) GENERAL RULE.—If— the period during which the Secretary is pro- items shall be treated as finally determined ‘‘(1) a taxpayer files an oversheltered re- hibited from making the assessment (and, in if— turn for a taxable year, any event, if a proceeding in respect of the ‘‘(A) the Secretary enters into a settle- ‘‘(2) the Secretary makes a determination notice of adjustment is placed on the docket ment agreement (within the meaning of sec- with respect to the treatment of items (other of the Tax Court, until the decision of the tion 6224) with the taxpayer regarding such than partnership items) of such taxpayer for Tax Court becomes final), and for 60 days items, such taxable year, and thereafter. ‘‘(B) a notice of final partnership adminis- ‘‘(3) the adjustments resulting from such ‘‘(3) RESTRICTIONS ON ASSESSMENT.—Except trative adjustment has been issued and— determination do not give rise to a defi- as otherwise provided in section 6851, 6852, or ‘‘(i) no petition has been filed under sec- ciency (as defined in section 6211) but would 6861, no assessment of a deficiency with re- tion 6226 and the time for doing so has ex- give rise to a deficiency if there were no net spect to any tax imposed by subtitle A at- pired, or loss from partnership items, tributable to any item (other than a partner- ‘‘(ii) a petition has been filed under section the Secretary is authorized to send a notice ship item or any item affected by a partner- 6226 and the decision of the court has become of adjustment reflecting such determination ship item) shall be made— final, or to the taxpayer by certified or registered ‘‘(A) until the expiration of the applicable ‘‘(C) the period within which any tax at- mail. 90-day or 150-day period set forth in sub- tributable to such items may be assessed ‘‘(b) OVERSHELTERED RETURN.—For pur- section (c) for filing a petition with the Tax against the taxpayer has expired. poses of this section, the term ‘oversheltered Court, or ‘‘(h) SPECIAL RULES IF SECRETARY INCOR- return’ means an income tax return which— ‘‘(B) if a petition has been filed with the RECTLY DETERMINES APPLICABLE PROCE- ‘‘(1) shows no taxable income for the tax- Tax Court, until the decision of the Tax DURE.— able year, and Court has become final. ‘‘(1) SPECIAL RULE IF SECRETARY ERRO- ‘‘(2) shows a net loss from partnership ‘‘(f) FURTHER NOTICES OF ADJUSTMENT RE- NEOUSLY MAILS NOTICE OF ADJUSTMENT.—If items. STRICTED.—If the Secretary mails a notice of the Secretary erroneously determines that June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4765 subchapter B does not apply to a taxable until the decision of the court becomes such year remain in dispute, the period of year of a taxpayer and consistent with that final), and’’. limitations for assessing any tax attrib- determination timely mails a notice of ad- (b) SUSPENSION OF STATUTE DURING BANK- utable to the settled items shall be deter- justment to the taxpayer pursuant to sub- RUPTCY PROCEEDING.—Section 6229 is amend- mined as if such agreement had not been en- section (a) of this section, the notice of ad- ed by adding at the end the following new tered into.’’. justment shall be treated as a notice of defi- subsection: (b) EFFECTIVE DATE.—The amendment ciency under section 6212 and any petition ‘‘(h) SUSPENSION DURING PENDENCY OF made by this section shall apply to settle- that is filed in respect of the notice shall be BANKRUPTCY PROCEEDING.—If a petition is ments entered into after the date of the en- treated as an action brought under section filed naming a partner as a debtor in a bank- actment of this Act. 6213. ruptcy proceeding under title 11 of the Unit- SEC. 1236. EXTENSION OF TIME FOR FILING A RE- ‘‘(2) SPECIAL RULE IF SECRETARY ERRO- ed States Code, the running of the period of QUEST FOR ADMINISTRATIVE AD- JUSTMENT. NEOUSLY MAILS NOTICE OF DEFICIENCY.—If the limitations provided in this section with re- (a) IN GENERAL.—Section 6227 (relating to Secretary erroneously determines that sub- spect to such partner shall be suspended— administrative adjustment requests) is chapter B applies to a taxable year of a tax- ‘‘(1) for the period during which the Sec- amended by redesignating subsections (b) payer and consistent with that determina- retary is prohibited by reason of such bank- and (c) as subsections (c) and (d), respec- tion timely mails a notice of deficiency to ruptcy proceeding from making an assess- tively, and by inserting after subsection (a) the taxpayer pursuant to section 6212, the ment, and ‘‘(2) for 60 days thereafter.’’. the following new subsection: notice of deficiency shall be treated as a no- ‘‘(b) SPECIAL RULE IN CASE OF EXTENSION (c) TAX MATTERS PARTNER IN BANK- tice of adjustment under subsection (a) and OF PERIOD OF LIMITATIONS UNDER SECTION RUPTCY.—Section 6229(b) is amended by re- any petition that is filed in respect of the no- 6229.—The period prescribed by subsection designating paragraph (2) as paragraph (3) tice shall be treated as an action brought (a)(1) for filing of a request for an adminis- and by inserting after paragraph (1) the fol- under subsection (c).’’. trative adjustment shall be extended— lowing new paragraph: (b) TREATMENT OF PARTNERSHIP ITEMS IN ‘‘(1) for the period within which an assess- ‘‘(2) SPECIAL RULE WITH RESPECT TO DEBT- DEFICIENCY PROCEEDINGS.—Section 6211 (de- ment may be made pursuant to an agree- ORS IN TITLE 11 CASES.—Notwithstanding any fining deficiency) is amended by adding at ment (or any extension thereof) under sec- other law or rule of law, if an agreement is the end the following new subsection: tion 6229(b), and ‘‘(c) COORDINATION WITH SUBCHAPTER C.—In entered into under paragraph (1)(B) and the ‘‘(2) for 6 months thereafter.’’. determining the amount of any deficiency agreement is signed by a person who would (b) EFFECTIVE DATE.—The amendment for purposes of this subchapter, adjustments be the tax matters partner but for the fact made by this section shall take effect as if to partnership items shall be made only as that, at the time that the agreement is exe- included in the amendments made by section provided in subchapter C.’’. cuted, the person is a debtor in a bankruptcy 402 of the Tax Equity and Fiscal Responsibil- (c) CLERICAL AMENDMENT.—The table of proceeding under title 11 of the United ity Act of 1982. sections for subchapter C of chapter 63 is States Code, such agreement shall be binding SEC. 1237. AVAILABILITY OF INNOCENT SPOUSE amended by adding at the end the following on all partners in the partnership unless the RELIEF IN CONTEXT OF PARTNER- new item: Secretary has been notified of the bank- SHIP PROCEEDINGS. ruptcy proceeding in accordance with regula- (a) IN GENERAL.—Subsection (a) of section ‘‘Sec. 6234. Declaratory judgment relating to tions prescribed by the Secretary.’’. 6230 is amended by adding at the end the fol- treatment of items other than (d) EFFECTIVE DATES.— lowing new paragraph: partnership items with respect (1) SUBSECTIONS (a) AND (b).—The amend- ‘‘(3) SPECIAL RULE IN CASE OF ASSERTION BY to an oversheltered return.’’. ments made by subsections (a) and (b) shall PARTNER’S SPOUSE OF INNOCENT SPOUSE RE- (d) EFFECTIVE DATE.—The amendments apply to partnership taxable years with re- LIEF.— made by this section shall apply to partner- spect to which the period under section 6229 ‘‘(A) Notwithstanding section 6404(b), if the ship taxable years ending after the date of of the Internal Revenue Code of 1986 for as- spouse of a partner asserts that section the enactment of this Act. sessing tax has not expired on or before the 6013(e) applies with respect to a liability that SEC. 1232. PARTNERSHIP RETURN TO BE DETER- date of the enactment of this Act. is attributable to any adjustment to a part- MINATIVE OF AUDIT PROCEDURES (2) SUBSECTION (c).—The amendment made nership item, then such spouse may file with TO BE FOLLOWED. by subsection (c) shall apply to agreements the Secretary within 60 days after the notice (a) IN GENERAL.—Section 6231 (relating to entered into after the date of the enactment of computational adjustment is mailed to definitions and special rules) is amended by of this Act. the spouse a request for abatement of the as- adding at the end the following new sub- SEC. 1234. EXPANSION OF SMALL PARTNERSHIP sessment specified in such notice. Upon re- section: EXCEPTION. ceipt of such request, the Secretary shall ‘‘(g) PARTNERSHIP RETURN TO BE DETER- (a) IN GENERAL.—Clause (i) of section abate the assessment. Any reassessment of MINATIVE OF WHETHER SUBCHAPTER AP- 6231(a)(1)(B) (relating to exception for small the tax with respect to which an abatement PLIES.— partnerships) is amended to read as follows: is made under this subparagraph shall be ‘‘(1) DETERMINATION THAT SUBCHAPTER AP- ‘‘(i) IN GENERAL.—The term ‘partnership’ subject to the deficiency procedures pre- PLIES.—If, on the basis of a partnership re- shall not include any partnership having 10 scribed by subchapter B. The period for mak- turn for a taxable year, the Secretary rea- or fewer partners each of whom is an individ- ing any such reassessment shall not expire sonably determines that this subchapter ap- ual (other than a nonresident alien), a C cor- before the expiration of 60 days after the plies to such partnership for such year but poration, or an estate of a deceased partner. date of such abatement. such determination is erroneous, then the For purposes of the preceding sentence, a ‘‘(B) If the spouse files a petition with the provisions of this subchapter are hereby ex- husband and wife (and their estates) shall be Tax Court pursuant to section 6213 with re- tended to such partnership (and its items) treated as 1 partner.’’. spect to the request for abatement described for such taxable year and to partners of such (b) EFFECTIVE DATE.—The amendment in subparagraph (A), the Tax Court shall partnership. made by this section shall apply to partner- only have jurisdiction pursuant to this sec- ‘‘(2) DETERMINATION THAT SUBCHAPTER DOES ship taxable years ending after the date of tion to determine whether the requirements NOT APPLY.—If, on the basis of a partnership the enactment of this Act. of section 6013(e) have been satisfied. For return for a taxable year, the Secretary rea- SEC. 1235. EXCLUSION OF PARTIAL SETTLE- purposes of such determination, the treat- sonably determines that this subchapter MENTS FROM 1-YEAR LIMITATION ment of partnership items under the settle- does not apply to such partnership for such ON ASSESSMENT. ment, the final partnership administrative year but such determination is erroneous, (a) IN GENERAL.—Subsection (f) of section adjustment, or the decision of the court then the provisions of this subchapter shall 6229 (relating to items becoming nonpartner- (whichever is appropriate) that gave rise to not apply to such partnership (and its items) ship items) is amended— the liability in question shall be conclusive. for such taxable year or to partners of such (1) by striking ‘‘(f) ITEMS BECOMING NON- ‘‘(C) Rules similar to the rules contained in partnership.’’. PARTNERSHIP ITEMS.—If’’ and inserting the subparagraphs (B) and (C) of paragraph (2) (b) EFFECTIVE DATE.—The amendment following: shall apply for purposes of this paragraph.’’. made by this section shall apply to partner- ‘‘(f) SPECIAL RULES.— (b) CLAIMS FOR REFUND.—Subsection (c) of ship taxable years ending after the date of ‘‘(1) ITEMS BECOMING NONPARTNERSHIP section 6230 is amended by adding at the end the enactment of this Act. ITEMS.—If’’, the following new paragraph: SEC. 1233. PROVISIONS RELATING TO STATUTE (2) by moving the text of such subsection 2 ‘‘(5) RULES FOR SEEKING INNOCENT SPOUSE OF LIMITATIONS. ems to the right, and RELIEF.— (a) SUSPENSION OF STATUTE WHERE UN- (3) by adding at the end the following new ‘‘(A) IN GENERAL.—The spouse of a partner TIMELY PETITION FILED.—Paragraph (1) of paragraph: may file a claim for refund on the ground section 6229(d) (relating to suspension where ‘‘(2) SPECIAL RULE FOR PARTIAL SETTLEMENT that the Secretary failed to relieve the Secretary makes administrative adjustment) AGREEMENTS.—If a partner enters into a set- spouse under section 6013(e) from a liability is amended by striking all that follows ‘‘sec- tlement agreement with the Secretary with that is attributable to an adjustment to a tion 6226’’ and inserting the following: ‘‘(and, respect to the treatment of some of the part- partnership item. if a petition is filed under section 6226 with nership items in dispute for a partnership ‘‘(B) TIME FOR FILING CLAIM.—Any claim respect to such administrative adjustment, taxable year but other partnership items for under subparagraph (A) shall be filed within H4766 CONGRESSIONAL RECORD — HOUSE June 26, 1997

6 months after the day on which the Sec- (5) So much of subparagraph (A) of section (e) OTHER PROVISIONS.— retary mails to the spouse the notice of com- 6230(c)(2) as precedes ‘‘shall be filed’’ is (1) Subsection (c) of section 7459 is amend- putational adjustment referred to in sub- amended to read as follows: ed by striking ‘‘or section 6228(a)’’ and in- section (a)(3)(A). ‘‘(A) UNDER PARAGRAPH (1) (A) OR (C).—Any serting ‘‘, 6228(a), or 6234(c)’’. ‘‘(C) SUIT IF CLAIM NOT ALLOWED.—If the claim under subparagraph (A) or (C) of para- (2) Subsection (o) of section 6501 is amend- claim under subparagraph (B) is not allowed, graph (1)’’. ed by adding at the end the following new the spouse may bring suit with respect to (6) Paragraph (4) of section 6230(c) is paragraph: the claim within the period specified in para- amended by adding at the end the following: ‘‘(3) For declaratory judgment relating to graph (3). ‘‘In addition, the determination under the treatment of items other than partnership ‘‘(D) PRIOR DETERMINATIONS ARE BINDING.— final partnership administrative adjustment items with respect to an oversheltered re- For purposes of any claim or suit under this or under the decision of the court (whichever turn, see section 6234.’’. paragraph, the treatment of partnership is appropriate) concerning the applicability (f) EFFECTIVE DATE.—The amendments items under the settlement, the final part- of any penalty, addition to tax, or additional made by this section shall apply to partner- nership administrative adjustment, or the amount which relates to an adjustment to a ship taxable years ending after the date of decision of the court (whichever is appro- partnership item shall also be conclusive. the enactment of this Act. priate) that gave rise to the liability in ques- Notwithstanding the preceding sentence, the SEC. 1240. TREATMENT OF PREMATURE PETI- tion shall be conclusive.’’. partner shall be allowed to assert any part- TIONS FILED BY NOTICE PARTNERS OR 5-PERCENT GROUPS. (c) TECHNICAL AMENDMENTS.— ner level defenses that may apply or to chal- (1) Paragraph (1) of section 6230(a) is lenge the amount of the computational ad- (a) IN GENERAL.—Subsection (b) of section amended by striking ‘‘paragraph (2)’’ and in- justment.’’. 6226 (relating to judicial review of final part- serting ‘‘paragraph (2) or (3)’’. (c) EFFECTIVE DATE.—The amendments nership administrative adjustments) is (2) Subsection (a) of section 6503 is amend- made by this section shall apply to partner- amended by redesignating paragraph (5) as ed by striking ‘‘section 6230(a)(2)(A)’’ and in- ship taxable years ending after the date of paragraph (6) and by inserting after para- serting ‘‘paragraph (2)(A) or (3) of section the enactment of this Act. graph (4) the following new paragraph: 6230(a)’’. SEC. 1239. PROVISIONS RELATING TO COURT JU- ‘‘(5) TREATMENT OF PREMATURE PETITIONS.— RISDICTION, ETC. If— (d) EFFECTIVE DATE.—The amendments (a) TAX COURT JURISDICTION TO ENJOIN ‘‘(A) a petition for a readjustment of part- made by this section shall take effect as if nership items for the taxable year involved included in the amendments made by section PREMATURE ASSESSMENTS OF DEFICIENCIES ATTRIBUTABLE TO PARTNERSHIP ITEMS.—Sub- is filed by a notice partner (or a 5-percent 402 of the Tax Equity and Fiscal Responsibil- group) during the 90-day period described in ity Act of 1982. section (b) of section 6225 is amended by striking ‘‘the proper court.’’ and inserting subsection (a), and SEC. 1238. DETERMINATION OF PENALTIES AT ‘‘the proper court, including the Tax Court. ‘‘(B) no action is brought under paragraph PARTNERSHIP LEVEL. The Tax Court shall have no jurisdiction to (1) during the 60-day period described therein (a) IN GENERAL.—Section 6221 (relating to enjoin any action or proceeding under this with respect to such taxable year which is tax treatment determined at partnership subsection unless a timely petition for a re- not dismissed, level) is amended by striking ‘‘item’’ and in- adjustment of the partnership items for the such petition shall be treated for purposes of serting ‘‘item (and the applicability of any taxable year has been filed and then only in paragraph (1) as filed on the last day of such penalty, addition to tax, or additional respect of the adjustments that are the sub- 60-day period.’’. amount which relates to an adjustment to a ject of such petition.’’. (b) EFFECTIVE DATE.—The amendment partnership item)’’. (b) JURISDICTION TO CONSIDER STATUTE OF made by this section shall apply to petitions filed after the date of the enactment of this (b) CONFORMING AMENDMENTS.— LIMITATIONS WITH RESPECT TO PARTNERS.— Act. (1) Subsection (f) of section 6226 is amend- Paragraph (1) of section 6226(d) is amended ed— by adding at the end the following new sen- SEC. 1241. BONDS IN CASE OF APPEALS FROM CERTAIN PROCEEDING. (A) by striking ‘‘relates and’’ and inserting tence: (a) IN GENERAL.—Subsection (b) of section ‘‘relates,’’, and ‘‘Notwithstanding subparagraph (B), any per- 7485 (relating to bonds to stay assessment of (B) by inserting before the period ‘‘, and son treated under subsection (c) as a party to collection) is amended— the applicability of any penalty, addition to an action shall be permitted to participate in (1) by inserting ‘‘penalties,’’ after ‘‘any in- tax, or additional amount which relates to such action (or file a readjustment petition terest,’’, and an adjustment to a partnership item’’. under subsection (b) or paragraph (2) of this (2) by striking ‘‘aggregate of such defi- (2) Clause (i) of section 6230(a)(2)(A) is subsection) solely for the purpose of assert- ciencies’’ and inserting ‘‘aggregate liability amended to read as follows: ing that the period of limitations for assess- of the parties to the action’’. ‘‘(i) affected items which require partner ing any tax attributable to partnership (b) EFFECTIVE DATE.—The amendment level determinations (other than penalties, items has expired with respect to such per- made by this section shall take effect as if additions to tax, and additional amounts son, and the court having jurisdiction of included in the amendments made by section that relate to adjustments to partnership such action shall have jurisdiction to con- 402 of the Tax Equity and Fiscal Responsibil- items), or’’. sider such assertion.’’. ity Act of 1982. (3)(A) Subparagraph (A) of section (c) TAX COURT JURISDICTION TO DETERMINE 6230(a)(3), as added by section 14317, is OVERPAYMENTS ATTRIBUTABLE TO AFFECTED SEC. 1242. SUSPENSION OF INTEREST WHERE DELAY IN COMPUTATIONAL ADJUST- amended by inserting ‘‘(including any liabil- ITEMS.— (1) Paragraph (6) of section 6230(d) is MENT RESULTING FROM CERTAIN ity for any penalty, addition to tax, or addi- SETTLEMENTS. amended by striking ‘‘(or an affected item)’’. tional amount relating to such adjustment)’’ (a) IN GENERAL.—Subsection (c) of section (2) Paragraph (3) of section 6512(b) is after ‘‘partnership item’’. 6601 (relating to interest on underpayment, amended by adding at the end the following (B) Subparagraph (B) of such section is nonpayment, or extension of time for pay- new sentence: amended by inserting ‘‘(and the applicability ment, of tax) is amended by adding at the of any penalties, additions to tax, or addi- ‘‘In the case of a credit or refund relating to end the following new sentence: ‘‘In the case tional amounts)’’ after ‘‘partnership items’’. an affected item (within the meaning of sec- of a settlement under section 6224(c) which (C) Subparagraph (A) of section 6230(c)(5), tion 6231(a)(5)), the preceding sentence shall results in the conversion of partnership as added by section 14317, is amended by in- be applied by substituting the periods under items to nonpartnership items pursuant to serting before the period ‘‘(including any li- sections 6229 and 6230(d) for the periods under section 6231(b)(1)(C), the preceding sentence ability for any penalties, additions to tax, or section 6511(b)(2), (c), and (d).’’. shall apply to a computational adjustment additional amounts relating to such adjust- (d) VENUE ON APPEAL.— resulting from such settlement in the same ment)’’. (1) Paragraph (1) of section 7482(b) is manner as if such adjustment were a defi- (D) Subparagraph (D) of section 6230(c)(5), amended by striking ‘‘or’’ at the end of sub- ciency and such settlement were a waiver re- as added by section 14317, is amended by in- paragraph (D), by striking the period at the ferred to in the preceding sentence.’’. serting ‘‘(and the applicability of any pen- end of subparagraph (E) and inserting ‘‘, or’’, (b) EFFECTIVE DATE.—The amendment alties, additions to tax, or additional and by inserting after subparagraph (E) the made by this section shall apply to adjust- amounts)’’ after ‘‘partnership items’’. following new subparagraph: ments with respect to partnership taxable (4) Paragraph (1) of section 6230(c) is ‘‘(F) in the case of a petition under section years beginning after the date of the enact- amended by striking ‘‘or’’ at the end of sub- 6234(c)— ment of this Act. paragraph (A), by striking the period at the ‘‘(i) the legal residence of the petitioner if SEC. 1243. SPECIAL RULES FOR ADMINISTRATIVE end of subparagraph (B) and inserting ‘‘, or’’, the petitioner is not a corporation, and ADJUSTMENT REQUESTS WITH RE- and by adding at the end the following new ‘‘(ii) the place or office applicable under SPECT TO BAD DEBTS OR WORTH- subparagraph: subparagraph (B) if the petitioner is a cor- LESS SECURITIES. ‘‘(C) the Secretary erroneously imposed poration.’’. (a) GENERAL RULE.—Section 6227 (relating any penalty, addition to tax, or additional (2) The last sentence of section 7482(b)(1) is to administrative adjustment requests) is amount which relates to an adjustment to a amended by striking ‘‘or 6228(a)’’ and insert- amended by adding at the end the following partnership item.’’. ing ‘‘, 6228(a), or 6234(c)’’. new subsection: June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4767

‘‘(e) REQUESTS WITH RESPECT TO BAD DEBTS with regulations prescribed by the Secretary ‘‘(C) EXCEPTIONS.—For purposes of subpara- OR WORTHLESS SECURITIES.—In the case of for the purposes of ascertaining the actual graph (A)— that portion of any request for an adminis- ownership of the outstanding shares, or cer- ‘‘(i) services furnished or rendered, or man- trative adjustment which relates to the de- tificates of beneficial interest, of such trust. agement or operation provided, through an ductibility by the partnership under section ‘‘(2) FAILURE TO COMPLY.— independent contractor from whom the trust 166 of a debt as a debt which became worth- ‘‘(A) IN GENERAL.—If a real estate invest- itself does not derive or receive any income less, or under section 165(g) of a loss from ment trust fails to comply with the require- shall not be treated as furnished, rendered, worthlessness of a security, the period pre- ments of paragraph (1) for a taxable year, or provided by the trust, and scribed in subsection (a)(1) shall be 7 years such trust shall pay (on notice and demand ‘‘(ii) there shall not be taken into account from the last day for filing the partnership by the Secretary and in the same manner as any amount which would be excluded from return for the year with respect to which tax) a penalty of $25,000. unrelated business taxable income under sec- such request is made (determined without re- ‘‘(B) INTENTIONAL DISREGARD.—If any fail- tion 512(b)(3) if received by an organization gard to extensions).’’. ure under paragraph (1) is due to intentional described in section 511(a)(2). (b) EFFECTIVE DATE.— disregard of the requirement under para- ‘‘(D) AMOUNT ATTRIBUTABLE TO IMPERMIS- (1) IN GENERAL.—The amendment made by graph (1), the penalty under subparagraph SIBLE SERVICES.—For purposes of subpara- subsection (a) shall take effect as if included (A) shall be $50,000. graph (A), the amount treated as received for in the amendments made by section 402 of ‘‘(C) FAILURE TO COMPLY AFTER NOTICE.— any service (or management or operation) the Tax Equity and Fiscal Responsibility The Secretary may require a real estate in- shall not be less than 150 percent of the di- Act of 1982. vestment trust to take such actions as the rect cost of the trust in furnishing or render- (2) TREATMENT OF REQUESTS FILED BEFORE Secretary determines appropriate to ascer- ing the service (or providing the manage- DATE OF ENACTMENT.—In the case of that por- tain actual ownership if the trust fails to ment or operation). tion of any request (filed before the date of meet the requirements of paragraph (1). If ‘‘(E) COORDINATION WITH LIMITATIONS.—For the enactment of this Act) for an adminis- the trust fails to take such actions, the trust purposes of paragraphs (2) and (3) of sub- trative adjustment which relates to the de- shall pay (on notice and demand by the Sec- section (c), amounts described in subpara- ductibility of a debt as a debt which became retary and in the same manner as tax) an ad- graph (A) shall be included in the gross in- worthless or the deductibility of a loss from ditional penalty equal to the penalty deter- come of the corporation, trust, or associa- the worthlessness of a security— mined under subparagraph (A) or (B), which- tion.’’. (A) paragraph (2) of section 6227(a) of the ever is applicable. SEC. 1253. ATTRIBUTION RULES APPLICABLE TO Internal Revenue Code of 1986 shall not ‘‘(D) REASONABLE CAUSE.—No penalty shall TENANT OWNERSHIP. apply, be imposed under this paragraph with re- Section 856(d)(5) (relating to constructive (B) the period for filing a petition under spect to any failure if it is shown that such ownership of stock) is amended by adding at section 6228 of the Internal Revenue Code of failure is due to reasonable cause and not to the end the following: ‘‘For purposes of para- 1986 with respect to such request shall not willful neglect.’’. graph (2)(B), section 318(a)(3)(A) shall be ap- expire before the date 6 months after the (b) COMPLIANCE WITH CLOSELY HELD PROHI- plied under the preceding sentence in the date of the enactment of this Act, and BITION.— case of a partnership by taking into account (C) such a petition may be filed without re- (1) IN GENERAL.—Section 856 (defining real only partners who own (directly or indi- gard to whether there was a notice of the be- estate investment trust) is amended by add- rectly) 25 percent or more of the capital in- ginning of an administrative proceeding or a ing at the end the following new subsection: terest, or the profits interest, in the partner- final partnership administrative adjustment. ‘‘(k) REQUIREMENT THAT ENTITY NOT BE ship.’’. PART III—PROVISION RELATING TO CLOS- CLOSELY HELD TREATED AS MET IN CERTAIN SEC. 1254. CREDIT FOR TAX PAID BY REIT ON RE- ING OF PARTNERSHIP TAXABLE YEAR CASES.—A corporation, trust, or associa- TAINED CAPITAL GAINS. WITH RESPECT TO DECEASED PART- tion— (a) GENERAL RULE.—Paragraph (3) of sec- NER, ETC. ‘‘(1) which for a taxable year meets the re- tion 857(b) (relating to capital gains) is quirements of section 857(f)(1), and SEC. 1246. CLOSING OF PARTNERSHIP TAXABLE amended by redesignating subparagraph (D) YEAR WITH RESPECT TO DECEASED ‘‘(2) which does not know, or exercising as subparagraph (E) and by inserting after PARTNER, ETC. reasonable diligence would not have known, subparagraph (C) the following new subpara- (a) GENERAL RULE.—Subparagraph (A) of whether the entity failed to meet the re- graph: section 706(c)(2) (relating to disposition of quirement of subsection (a)(6), ‘‘(D) TREATMENT BY SHAREHOLDERS OF UN- entire interest) is amended to read as fol- shall be treated as having met the require- DISTRIBUTED CAPITAL GAINS.— lows: ment of subsection (a)(6) for the taxable ‘‘(i) Every shareholder of a real estate in- ‘‘(A) DISPOSITION OF ENTIRE INTEREST.—The year.’’. vestment trust at the close of the trust’s taxable year of a partnership shall close with (2) CONFORMING AMENDMENT.—Paragraph taxable year shall include, in computing his respect to a partner whose entire interest in (6) of section 856(a) is amended by inserting long-term capital gains in his return for his the partnership terminates (whether by rea- ‘‘subject to the provisions of subsection (k),’’ taxable year in which the last day of the son of death, liquidation, or otherwise).’’. before ‘‘which is not’’. trust’s taxable year falls, such amount as (b) CLERICAL AMENDMENT.—The paragraph SEC. 1252. DE MINIMIS RULE FOR TENANT SERV- the trust shall designate in respect of such heading for paragraph (2) of section 706(c) is ICES INCOME. shares in a written notice mailed to its amended to read as follows: (a) IN GENERAL.—Paragraph (2) of section shareholders at any time prior to the expira- ‘‘(2) TREATMENT OF DISPOSITIONS.—’’. 856(d) (defining rents from real property) is tion of 60 days after the close of its taxable (c) EFFECTIVE DATE.—The amendments amended by striking subparagraph (C) and year (or mailed to its shareholders or holders made by this section shall apply to partner- the last sentence and inserting: of beneficial interests with its annual report ship taxable years beginning after December ‘‘(C) any impermissible tenant service in- for the taxable year), but the amount so in- 31, 1997. come (as defined in paragraph (7)).’’. cludible by any shareholder shall not exceed Subtitle D—Provisions Relating to Real (b) IMPERMISSIBLE TENANT SERVICE IN- that part of the amount subjected to tax in Estate Investment Trusts COME.—Section 856(d) is amended by adding subparagraph (A)(ii) which he would have re- SEC. 1251. CLARIFICATION OF LIMITATION ON at the end the following new paragraph: ceived if all of such amount had been distrib- MAXIMUM NUMBER OF SHAREHOLD- ‘‘(7) IMPERMISSIBLE TENANT SERVICE IN- uted as capital gain dividends by the trust to ERS. COME.—For purposes of paragraph (2)(C)— the holders of such shares at the close of its (a) RULES RELATING TO DETERMINATION OF ‘‘(A) IN GENERAL.—The term ‘impermissible taxable year. OWNERSHIP.— tenant service income’ means, with respect ‘‘(ii) For purposes of this title, every such (1) FAILURE TO ISSUE SHAREHOLDER DEMAND to any real or personal property, any amount shareholder shall be deemed to have paid, for LETTER NOT TO DISQUALIFY REIT.—Section received or accrued directly or indirectly by his taxable year under clause (i), the tax im- 857(a) (relating to requirements applicable to the real estate investment trust for— posed by subparagraph (A)(ii) on the real estate investment trusts) is amended by ‘‘(i) services furnished or rendered by the amounts required by this subparagraph to be striking paragraph (2) and by redesignating trust to the tenants of such property, or included in respect of such shares in comput- paragraph (3) as paragraph (2). ‘‘(ii) managing or operating such property. ing his long-term capital gains for that year; (2) SHAREHOLDER DEMAND LETTER REQUIRE- ‘‘(B) DISQUALIFICATION OF ALL AMOUNTS and such shareholders shall be allowed credit MENT; PENALTY.—Section 857 (relating to tax- WHERE MORE THAN DE MINIMIS AMOUNT.—If the or refund as the case may be, for the tax so ation of real estate investment trusts and amount described in subparagraph (A) with deemed to have been paid by him. their beneficiaries) is amended by redesig- respect to a property for any taxable year ‘‘(iii) The adjusted basis of such shares in nating subsection (f) as subsection (g) and by exceeds 1 percent of all amounts received or the hands of the holder shall be increased inserting after subsection (e) the following accrued during such taxable year directly or with respect to the amounts required by this new subsection: indirectly by the real estate investment subparagraph to be included in computing ‘‘(f) REAL ESTATE INVESTMENT TRUSTS TO trust with respect to such property, the im- his long-term capital gains, by the difference ASCERTAIN OWNERSHIP.— permissible tenant service income of the between the amount of such includible gains ‘‘(1) IN GENERAL.—Each real estate invest- trust with respect to the property shall in- and the tax deemed paid by such shareholder ment trust shall each taxable year comply clude all such amounts. in respect of such shares under clause (ii). H4768 CONGRESSIONAL RECORD — HOUSE June 26, 1997 ‘‘(iv) In the event of such designation, the tend the grace period beyond the close of the nating paragraph (4) as paragraph (5) and by tax imposed by subparagraph (A)(ii) shall be 3d taxable year following the last taxable inserting after paragraph (3) the following paid by the real estate investment trust year in the period under paragraph (2).’’. new paragraph: within 30 days after the close of its taxable (b) REVOCATION OF ELECTION.—Paragraph ‘‘(4) COORDINATION WITH 4-YEAR HOLDING PE- year. (5) of section 856(e) is amended by striking RIOD.— ‘‘(v) The earnings and profits of such real the last sentence and inserting: ‘‘A real es- ‘‘(A) IN GENERAL.—For purposes of section estate investment trust, and the earnings tate investment trust may revoke any such 857(b)(6)(C), if a real estate investment trust and profits of any such shareholder which is election for a taxable year by filing the rev- is treated as having sold secured property a corporation, shall be appropriately ad- ocation (in the manner provided by the Sec- under paragraph (3)(A), the trust shall be justed in accordance with regulations pre- retary) on or before the due date (including treated as having held such property for at scribed by the Secretary. any extension of time) for filing its return of least 4 years if— ‘‘(vi) As used in this subparagraph, the tax under this chapter for the taxable year. ‘‘(i) the secured property is sold or other- terms ‘shares’ and ‘shareholders’ shall in- If a trust revokes an election for any prop- wise disposed of pursuant to a case under clude beneficial interests and holders of ben- erty, no election may be made by the trust title 11 of the United States Code, eficial interests, respectively.’’. under this paragraph with respect to the ‘‘(ii) the seller is under the jurisdiction of (b) CONFORMING AMENDMENTS.— property for any subsequent taxable year.’’. the court in such case, and (1) Clause (i) of section 857(b)(7)(A) is (c) CERTAIN ACTIVITIES NOT TO DISQUALIFY ‘‘(iii) the disposition is required by the amended by striking ‘‘subparagraph (B)’’ and PROPERTY.—Paragraph (4) of section 856(e) is court or is pursuant to a plan approved by inserting ‘‘subparagraph (B) or (D)’’. amended by adding at the end the following the court. (2) Clause (iii) of section 852(b)(3)(D) is new flush sentence: ‘‘(B) EXCEPTION.—Subparagraph (A) shall amended by striking ‘‘by 65 percent’’ and all ‘‘For purposes of subparagraph (C), property not apply if— that follows and inserting ‘‘by the difference shall not be treated as used in a trade or ‘‘(i) the secured property was acquired by between the amount of such includible gains business by reason of any activities of the the trust with the intent to evict or fore- and the tax deemed paid by such shareholder real estate investment trust with respect to close, or in respect of such shares under clause (ii).’’. such property to the extent that such activi- ‘‘(ii) the trust knew or had reason to know SEC. 1255. REPEAL OF 30-PERCENT GROSS IN- ties would not result in amounts received or that default on the obligation described in COME REQUIREMENT. accrued, directly or indirectly, with respect paragraph (5)(A) would occur.’’. (a) GENERAL RULE.—Subsection (c) of sec- to such property being treated as other than (b) CLARIFICATION OF DEFINITION OF SHARED tion 856 (relating to limitations) is amend- rents from real property.’’. APPRECIATION PROVISION.—Clause (ii) of sec- ed— tion 856(j)(5)(A) is amended by inserting be- (1) by adding ‘‘and’’ at the end of paragraph SEC. 1258. PAYMENTS UNDER HEDGING INSTRU- MENTS. fore the period ‘‘or appreciation in value as (3), of any specified date’’. Section 856(c)(5)(G) (relating to treatment (2) by striking paragraphs (4) and (8), and SEC. 1262. WHOLLY OWNED SUBSIDIARIES. (3) by redesignating paragraphs (5), (6), and of certain interest rate agreements), as re- designated by section 1255, is amended to Section 856(i)(2) (defining qualified REIT (7) as paragraphs (4), (5), and (6), respec- subsidiary) is amended by striking ‘‘at all tively. read as follows: ‘‘(G) TREATMENT OF CERTAIN HEDGING IN- times during the period such corporation was (b) CONFORMING AMENDMENTS.— in existence’’. (1) Subparagraph (G) of section 856(c)(5), as STRUMENTS.—Except to the extent provided SEC. 1263. EFFECTIVE DATE. redesignated by subsection (a), is amended by regulations, any— The amendments made by this part shall by striking ‘‘and such agreement shall be ‘‘(i) payment to a real estate investment apply to taxable years beginning after the treated as a security for purposes of para- trust under an interest rate swap or cap date of the enactment of this Act. graph (4)(A)’’. agreement, option, futures contract, forward (2) Paragraph (5) of section 857(b) is amend- rate agreement, or any similar financial in- Subtitle E—Provisions Relating to Regulated ed by striking ‘‘section 856(c)(7)’’ and insert- strument, entered into by the trust in a Investment Companies ing ‘‘section 856(c)(6)’’. transaction to reduce the interest rate risks SEC. 1271. REPEAL OF 30-PERCENT GROSS IN- (3) Subparagraph (C) of section 857(b)(6) is with respect to any indebtedness incurred or COME LIMITATION. amended by striking ‘‘section 856(c)(6)(B)’’ to be incurred by the trust to acquire or (a) GENERAL RULE.—Subsection (b) of sec- and inserting ‘‘section 856(c)(5)(B)’’. carry real estate assets, and tion 851 (relating to limitations) is amended SEC. 1256. MODIFICATION OF EARNINGS AND ‘‘(ii) gain from the sale or other disposition by striking paragraph (3), by adding ‘‘and’’ PROFITS RULES FOR DETERMINING of any such investment, at the end of paragraph (2), and by redesig- WHETHER REIT HAS EARNINGS AND shall be treated as income qualifying under nating paragraph (4) as paragraph (3). PROFITS FROM NON-REIT YEAR. paragraph (2).’’. (b) TECHNICAL AMENDMENTS.— Subsection (d) of section 857 is amended by (1) The material following paragraph (3) of SEC. 1259. EXCESS NONCASH INCOME. adding at the end the following new para- section 851(b) (as redesignated by subsection Section 857(e)(2) (relating to determination graph: (a)) is amended— of amount of excess noncash income) is ‘‘(3) DISTRIBUTIONS TO MEET REQUIREMENTS (A) by striking out ‘‘paragraphs (2) and (3)’’ amended— OF SUBSECTION (a)(2)(B).—Any distribution and inserting ‘‘paragraph (2)’’, and (1) by striking subparagraph (B), which is made in order to comply with the (B) by striking out the last sentence there- (2) by striking the period at the end of sub- requirements of subsection (a)(2)(B)— of. paragraph (C) and inserting a comma, ‘‘(A) shall be treated for purposes of this (2) Subsection (c) of section 851 is amended (3) by redesignating subparagraph (C) (as subsection and subsection (a)(2)(B) as made by striking ‘‘subsection (b)(4)’’ each place it amended by paragraph (2)) as subparagraph from the earliest accumulated earnings and appears (including the heading) and inserting (B), and profits (other than earnings and profits to ‘‘subsection (b)(3)’’. (4) by adding at the end the following new which subsection (a)(2)(A) applies) rather (3) Subsection (d) of section 851 is amended subparagraphs: than the most recently accumulated earn- by striking ‘‘subsections (b)(4)’’ and insert- ‘‘(C) the amount (if any) by which— ings and profits, and ing ‘‘subsections (b)(3)’’. ‘‘(i) the amounts includible in gross income ‘‘(B) to the extent treated under subpara- (4) Paragraph (1) of section 851(e) is amend- with respect to instruments to which section graph (A) as made from accumulated earn- ed by striking ‘‘subsection (b)(4)’’ and insert- 860E(a) or 1272 applies, exceed ings and profits, shall not be treated as a dis- ing ‘‘subsection (b)(3)’’. ‘‘(ii) the amount of money and the fair tribution for purposes of subsection (5) Paragraph (4) of section 851(e) is amend- market value of other property received dur- (b)(2)(B).’’. ed by striking ‘‘subsections (b)(4)’’ and in- ing the taxable year under such instruments, SEC. 1257. TREATMENT OF FORECLOSURE PROP- serting ‘‘subsections (b)(3)’’. and ERTY. (6) Section 851 is amended by striking sub- ‘‘(D) amounts includible in income by rea- (a) GRACE PERIODS.— section (g) and redesignating subsection (h) son of cancellation of indebtedness.’’. (1) INITIAL PERIOD.—Paragraph (2) of sec- as subsection (g). tion 856(e) (relating to special rules for fore- SEC. 1260. PROHIBITED TRANSACTION SAFE HAR- (7) Subsection (g) of section 851 (as redesig- closure property) is amended by striking ‘‘on BOR. nated by paragraph (6)) is amended by strik- the date which is 2 years after the date the Clause (iii) of section 857(b)(6)(C) (relating ing paragraph (3). trust acquired such property’’ and inserting to certain sales not to constitute prohibited (8) Section 817(h)(2) is amended— ‘‘as of the close of the 3d taxable year follow- transactions) is amended by striking ‘‘(other (A) by striking ‘‘851(b)(4)’’ in subparagraph ing the taxable year in which the trust ac- than foreclosure property)’’ in subclauses (I) (A) and inserting ‘‘851(b)(3)’’, and quired such property’’. and (II) and inserting ‘‘(other than sales of (B) by striking ‘‘851(b)(4)(A)(i)’’ in subpara- (2) EXTENSION.—Paragraph (3) of section foreclosure property or sales to which sec- graph (B) and inserting ‘‘851(b)(3)(A)(i)’’. 856(e) is amended— tion 1033 applies)’’. (9) Section 1092(f)(2) is amended by striking (A) by striking ‘‘or more extensions’’ and SEC. 1261. SHARED APPRECIATION MORTGAGES. ‘‘Except for purposes of section 851(b)(3), inserting ‘‘extension’’, and (a) BANKRUPTCY SAFE HARBOR.—Section the’’ and inserting ‘‘The’’. (B) by striking the last sentence and in- 856(j) (relating to treatment of shared appre- (c) EFFECTIVE DATE.—The amendments serting: ‘‘Any such extension shall not ex- ciation mortgages) is amended by redesig- made by this section shall apply to taxable June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4769 years ending after the date of the enactment any person from whom the taxpayer has re- (a) shall, in addition to any other punish- of this Act. ceived an item of income, gain, loss, deduc- ment, be dismissed from office or discharged Subtitle F—Taxpayer Protections tion, or credit).’’. from employment. (b) EFFECTIVE DATE.—The amendment ‘‘(c) DEFINITIONS.—For purposes of this sec- SEC. 1281. REASONABLE CAUSE EXCEPTION FOR CERTAIN PENALTIES. made by this section shall apply to taxable tion, the terms ‘inspect’, ‘return’, and ‘re- years beginning after the date of the enact- turn information’ have the respective mean- (a) INFORMATION ON DEDUCTIBLE EMPLOYEE ment of this Act. ings given such terms by section 6103(b).’’. CONTRIBUTIONS.—Subsection (g) of section (b) TECHNICAL AMENDMENTS.— 6652 (relating to information required in con- SEC. 1285. AWARDING OF ADMINISTRATIVE (1) Paragraph (2) of section 7213(a) is nection with deductible employee contribu- COSTS. amended by inserting ‘‘(5),’’ after ‘‘(m)(2), tions) is amended by adding at the end the (a) RIGHT TO APPEAL TAX COURT DECI- (4),’’. following new sentence: ‘‘No penalty shall be SION.—Subsection (f) of section 7430 (relating (2) The table of sections for part I of sub- imposed under this subsection on any failure to right of appeal) is amended by adding at chapter A of chapter 75 is amended by insert- which is shown to be due to reasonable cause the end the following new paragraph: ing after the item relating to section 7213 the and not willful neglect.’’. ‘‘(3) APPEAL OF TAX COURT DECISION.—An following new item: (b) REPORTS ON STATUS AS QUALIFIED order of the Tax Court disposing of a petition SMALL BUSINESS.—Subsection (k) of section under paragraph (2) shall be reviewable in ‘‘Sec. 7213A. Unauthorized inspection of re- 6652 (relating to failure to make reports re- the same manner as a decision of the Tax turns or return information.’’. quired under section 1202) is amended by add- Court, but only with respect to the matters determined in such order.’’. (c) EFFECTIVE DATE.—The amendments ing at the end the following new sentence: made by this section shall apply to viola- ‘‘No penalty shall be imposed under this sub- (b) PERIOD FOR APPLYING TO IRS FOR COSTS.—Subsection (b) of section 7430 (relat- tions occurring on and after the date of the section on any failure which is shown to be enactment of this Act. due to reasonable cause and not willful ne- ing to limitations) is amended by adding at the end the following new paragraph: SEC. 1287. CIVIL DAMAGES FOR UNAUTHORIZED glect.’’. INSPECTION OF RETURNS AND RE- ‘‘(5) PERIOD FOR APPLYING TO IRS FOR AD- (c) RETURNS OF PERSONAL HOLDING COM- TURN INFORMATION; NOTIFICATION MINISTRATIVE COSTS PANY TAX BY FOREIGN CORPORATIONS.—Sec- .—An award may be made OF UNLAWFUL INSPECTION OR DIS- tion 6683 (relating to failure of foreign cor- under subsection (a) by the Internal Revenue CLOSURE. poration to file return of personal holding Service for reasonable administrative costs (a) CIVIL DAMAGES FOR UNAUTHORIZED IN- company tax) is amended by adding at the only if the prevailing party files an applica- SPECTION.—Subsection (a) of section 7431 is end the following new sentence: ‘‘No penalty tion with the Internal Revenue Service for amended— shall be imposed under this section on any such costs before the 91st day after the date (1) by striking ‘‘DISCLOSURE’’ in the head- failure which is shown to be due to reason- on which the final decision of the Internal ings for paragraphs (1) and (2) and inserting able cause and not willful neglect.’’. Revenue Service as to the determination of ‘‘INSPECTION OR DISCLOSURE’’, and (d) FAILURE TO MAKE REQUIRED PAY- the tax, interest, or penalty is mailed to (2) by striking ‘‘discloses’’ in paragraphs MENTS.—Subparagraph (A) of section such party.’’. (1) and (2) and inserting ‘‘inspects or dis- 7519(f)(4) is amended by adding at the end the (c) PERIOD FOR PETITIONING OF TAX COURT closes’’. following new sentence: ‘‘No penalty shall be FOR REVIEW OF DENIAL OF COSTS.—Paragraph (b) NOTIFICATION OF UNLAWFUL INSPECTION imposed under this subparagraph on any fail- (2) of section 7430(f) (relating to right of ap- OR DISCLOSURE.—Section 7431 is amended by ure which is shown to be due to reasonable peal) is amended— redesignating subsections (e) and (f) as sub- cause and not willful neglect.’’. (1) by striking ‘‘appeal to’’ and inserting sections (f) and (g), respectively, and by in- (e) EFFECTIVE DATE.—The amendments ‘‘the filing of a petition for review with’’, serting after subsection (d) the following new made by this section shall apply to taxable and subsection: years beginning after the date of the enact- (2) by adding at the end the following new ‘‘(e) NOTIFICATION OF UNLAWFUL INSPECTION ment of this Act. sentence: ‘‘If the Secretary sends by certified AND DISCLOSURE.—If any person is criminally SEC. 1282. CLARIFICATION OF PERIOD FOR FIL- or registered mail a notice of such decision charged by indictment or information with ING CLAIMS FOR REFUNDS. to the petitioner, no proceeding in the Tax inspection or disclosure of a taxpayer’s re- (a) IN GENERAL.—Paragraph (3) of section Court may be initiated under this paragraph turn or return information in violation of— 6512(b) (relating to overpayment determined unless such petition is filed before the 91st ‘‘(1) paragraph (1) or (2) of section 7213(a), by Tax Court) is amended by adding at the day after the date of such mailing.’’. ‘‘(2) section 7213A(a), or end the following flush sentence: (d) EFFECTIVE DATE.—The amendments ‘‘(3) subparagraph (B) of section 1030(a)(2) made by this section shall apply to civil ac- ‘‘In a case described in subparagraph (B) of title 18, United States Code, tions or proceedings commenced after the where the date of the mailing of the notice of the Secretary shall notify such taxpayer as date of the enactment of this Act. deficiency is during the third year after the soon as practicable of such inspection or dis- due date (with extensions) for filing the re- SEC. 1286. PENALTY FOR UNAUTHORIZED IN- closure.’’. SPECTION OF TAX RETURNS OR TAX turn of tax and no return was filed before (c) NO DAMAGES FOR INSPECTION REQUESTED RETURN INFORMATION. such date, the applicable period under sub- BY TAXPAYER.—Subsection (b) of section 7431 (a) IN GENERAL.—Part I of subchapter A of sections (a) and (b)(2) of section 6511 shall be is amended to read as follows: chapter 75 (relating to crimes, other offenses, 3 years.’’. ‘‘(b) EXCEPTIONS.—No liability shall arise and forfeitures) is amended by adding after (b) EFFECTIVE DATE.—The amendment under this section with respect to any in- section 7213 the following new section: made by subsection (a) shall apply to claims spection or disclosure— for credit or refund for taxable years ending ‘‘SEC. 7213A. UNAUTHORIZED INSPECTION OF RE- ‘‘(1) which results from a good faith, but after the date of the enactment of this Act. TURNS OR RETURN INFORMATION. erroneous, interpretation of section 6103, or ‘‘(a) PROHIBITIONS.— SEC. 1283. REPEAL OF AUTHORITY TO DISCLOSE ‘‘(2) which is requested by the taxpayer.’’. WHETHER PROSPECTIVE JUROR ‘‘(1) FEDERAL EMPLOYEES AND OTHER PER- (d) CONFORMING AMENDMENTS.— HAS BEEN AUDITED. SONS.—It shall be unlawful for— (1) Subsections (c)(1)(A), (c)(1)(B)(i), and (d) (a) IN GENERAL.—Subsection (h) of section ‘‘(A) any officer or employee of the United of section 7431 are each amended by inserting 6103 (relating to disclosure to certain Federal States, or ‘‘inspection or’’ before ‘‘disclosure’’. officers and employees for purposes of tax ‘‘(B) any person described in section 6103(n) (2) Clause (ii) of section 7431(c)(1)(B) is administration, etc.) is amended by striking or an officer or employee of any such person, amended by striking ‘‘willful disclosure or a paragraph (5) and by redesignating para- willfully to inspect, except as authorized in disclosure’’ and inserting ‘‘willful inspection graph (6) as paragraph (5). this title, any return or return information. or disclosure or an inspection or disclosure’’. (b) CONFORMING AMENDMENT.—Paragraph ‘‘(2) STATE AND OTHER EMPLOYEES.—It shall (3) Subsection (f) of section 7431, as redesig- (4) of section 6103(p) is amended by striking be unlawful for any person (not described in nated by subsection (b), is amended to read ‘‘(h)(6)’’ each place it appears and inserting paragraph (1)) willfully to inspect, except as as follows: ‘‘(h)(5)’’. authorized in this title, any return or return ‘‘(f) DEFINITIONS.—For purposes of this sec- (c) EFFECTIVE DATE.—The amendments information acquired by such person or an- tion, the terms ‘inspect’, ‘inspection’, ‘re- made by this section shall apply to judicial other person under a provision of section 6103 turn’, and ‘return information’ have the re- proceedings commenced after the date of the referred to in section 7213(a)(2). spective meanings given such terms by sec- enactment of this Act. ‘‘(b) PENALTY.— tion 6103(b).’’. SEC. 1284. CLARIFICATION OF STATUTE OF LIMI- ‘‘(1) IN GENERAL.—Any violation of sub- (4) The section heading for section 7431 is TATIONS. section (a) shall be punishable upon convic- amended by inserting ‘‘INSPECTION OR’’ be- (a) IN GENERAL.—Subsection (a) of section tion by a fine in any amount not exceeding fore ‘‘DISCLOSURE’’. 6501 (relating to limitations on assessment $1,000, or imprisonment of not more than 1 (5) The table of sections for subchapter B and collection) is amended by adding at the year, or both, together with the costs of of chapter 76 is amended by inserting ‘‘in- end thereof the following new sentence: ‘‘For prosecution. spection or’’ before ‘‘disclosure’’ in the item purposes of this chapter, the term ‘return’ ‘‘(2) FEDERAL OFFICERS OR EMPLOYEES.—An relating to section 7431. means the return required to be filed by the officer or employee of the United States who (6) Paragraph (2) of section 7431(g), as re- taxpayer (and does not include a return of is convicted of any violation of subsection designated by subsection (b), is amended by H4770 CONGRESSIONAL RECORD — HOUSE June 26, 1997

striking ‘‘any use’’ and inserting ‘‘any in- be treated as a transfer of such spouse’s in- ‘‘(c) ELECTION.—The election under sub- spection or use’’. terest in such property by reason of such section (a) shall be made not later than the (e) EFFECTIVE DATE.—The amendments spouse having an interest in such trust.’’. time prescribed for filing the return of tax made by this section shall apply to inspec- (c) DISCLAIMERS ARE EFFECTIVE FOR IN- imposed by this chapter for the first taxable tions and disclosures occurring on and after COME TAX PURPOSES.—Subsection (a) of sec- year of the estate (determined with regard to the date of the enactment of this Act. tion 2518 is amended by inserting ‘‘and sub- extensions) and, once made, shall be irrev- TITLE XIII—SIMPLIFICATION PROVISIONS title A’’ after ‘‘this subtitle’’ each place it ocable.’’. RELATING TO ESTATE AND GIFT TAXES appears. (b) COMPARABLE TREATMENT UNDER GEN- (d) EFFECTIVE DATE.—The amendments ERATION-SKIPPING TAX.—Paragraph (1) of sec- SEC. 1301. GIFTS TO CHARITIES EXEMPT FROM GIFT TAX FILING REQUIREMENTS. made by this section shall apply to transfers tion 2652(b) is amended by adding at the end (a) IN GENERAL.—Section 6019 is amended creating an interest in the person disclaim- the following new sentence: ‘‘Such term by striking ‘‘or’’ at the end of paragraph (1), ing, and disclaimers, made after the date of shall not include any trust during any period by adding ‘‘or’’ at the end of paragraph (2), the enactment of this Act. the trust is treated as part of an estate under and by inserting after paragraph (2) the fol- SEC. 1305. INCREASE OF AMOUNT OF LAPSE OF section 646.’’. lowing new paragraph: GENERAL POWER OF APPOINTMENT (c) CLERICAL AMENDMENT.—The table of NOT TREATED AS RELEASE FOR ‘‘(3) a transfer with respect to which a de- sections for such subpart A is amended by PURPOSES OF ESTATE AND GIFT adding at the end the following new item: duction is allowed under section 2522, except TAX (5 OR 5 POWER). that this paragraph shall apply with respect (a) ESTATE TAX.—Subparagraph (A) of sec- ‘‘Sec. 646. Certain revocable trusts treated as to a transfer of property (other than a trans- tion 2041(b)(2) (relating to lapse of power) is part of estate.’’. fer described in section 2522(d)) only if the amended by striking ‘‘$5,000’’ and inserting (d) EFFECTIVE DATE.—The amendments entire value of such property is allowed as a ‘‘$10,000’’. made by this section shall apply with respect deduction under section 2522,’’. (b) GIFT TAX.—Paragraph (1) of section to estates of decedents dying after the date (b) EFFECTIVE DATE.—The amendment 2514(e) (relating to lapse of power) is amend- of the enactment of this Act. made by this section shall apply to gifts ed by striking ‘‘$5,000’’ and inserting made after the date of the enactment of this SEC. 1308. DISTRIBUTIONS DURING FIRST 65 ‘‘$10,000’’. DAYS OF TAXABLE YEAR OF ESTATE. Act. (c) EFFECTIVE DATE.—The amendments (a) IN GENERAL.—Subsection (b) of section SEC. 1302. CLARIFICATION OF WAIVER OF CER- made by this section shall apply to taxable 663 (relating to distributions in first 65 days TAIN RIGHTS OF RECOVERY. years beginning after the date of the enact- of taxable year) is amended by inserting ‘‘an (a) AMENDMENT TO SECTION 2207A.—Para- ment of this Act. estate or’’ before ‘‘a trust’’ each place it ap- graph (2) of section 2207A(a) (relating to SEC. 1306. TREATMENT FOR ESTATE TAX PUR- pears. right of recovery in the case of certain mari- POSES OF SHORT-TERM OBLIGA- (b) CONFORMING AMENDMENT.—Paragraph tal deduction property) is amended to read TIONS HELD BY NONRESIDENT (2) of section 663(b) is amended by striking as follows: ALIENS. ‘‘the fiduciary of such trust’’ and inserting ‘‘(2) DECEDENT MAY OTHERWISE DIRECT.— (a) IN GENERAL.—Subsection (b) of section ‘‘the executor of such estate or the fiduciary Paragraph (1) shall not apply with respect to 2105 is amended by striking ‘‘and’’ at the end of such trust (as the case may be)’’. any property to the extent that the decedent of paragraph (2), by striking the period at (c) EFFECTIVE DATE.—The amendments in his will (or a revocable trust) specifically the end of paragraph (3) and inserting ‘‘, made by this section shall apply to taxable indicates an intent to waive any right of re- and’’, and by inserting after paragraph (3) years beginning after the date of the enact- covery under this subchapter with respect to the following new paragraph: ment of this Act. such property.’’. ‘‘(4) obligations which would be original SEC. 1309. SEPARATE SHARE RULES AVAILABLE (b) AMENDMENT TO SECTION 2207B.—Para- issue discount obligations as defined in sec- TO ESTATES. graph (2) of section 2207B(a) (relating to tion 871(g)(1) but for subparagraph (B)(i) (a) IN GENERAL.—Subsection (c) of section right of recovery where decedent retained in- thereof, if any interest thereon (were such 663 (relating to separate shares treated as terest) is amended to read as follows: interest received by the decedent at the time separate trusts) is amended— ‘‘(2) DECEDENT MAY OTHERWISE DIRECT.— of his death) would not be effectively con- (1) by inserting before the last sentence the Paragraph (1) shall not apply with respect to nected with the conduct of a trade or busi- following new sentence: ‘‘Rules similar to any property to the extent that the decedent ness within the United States.’’. the rules of the preceding provisions of this in his will (or a revocable trust) specifically FFECTIVE DATE.—The amendment (b) E subsection shall apply to treat substantially indicates an intent to waive any right of re- made by this section shall apply to estates of separate and independent shares of different covery under this subchapter with respect to decedents dying after the date of the enact- beneficiaries in an estate having more than 1 such property.’’. ment of this Act. beneficiary as separate estates.’’, and (c) EFFECTIVE DATE.—The amendments SEC. 1307. CERTAIN REVOCABLE TRUSTS TREAT- (2) by inserting ‘‘or estates’’ after ‘‘trusts’’ made by this section shall apply with respect ED AS PART OF ESTATE. to the estates of decedents dying after the in the last sentence. (a) IN GENERAL.—Subpart A of part I of (b) CONFORMING AMENDMENT.—The sub- date of the enactment of this Act. subchapter J (relating to estates, trusts, section heading of section 663(c) is amended SEC. 1303. TRANSITIONAL RULE UNDER SECTION beneficiaries, and decedents) is amended by by inserting ‘‘ESTATES OR’’ before ‘‘TRUSTS’’. 2056A. adding at the end the following new section: (c) EFFECTIVE DATE.—The amendments (a) GENERAL RULE.—In the case of any ‘‘SEC. 646. CERTAIN REVOCABLE TRUSTS TREAT- made by this section shall apply to estates of trust created under an instrument executed ED AS PART OF ESTATE. decedents dying after the date of the enact- before the date of the enactment of the Reve- ‘‘(a) GENERAL RULE.—For purposes of this ment of this Act. nue Reconciliation Act of 1990, such trust subtitle, if both the executor (if any) of an shall be treated as meeting the requirements SEC. 1310. EXECUTOR OF ESTATE AND BENE- estate and the trustee of a qualified rev- FICIARIES TREATED AS RELATED of paragraph (1) of section 2056A(a) of the In- ocable trust elect the treatment provided in PERSONS FOR DISALLOWANCE OF ternal Revenue Code of 1986 if the trust in- this section, such trust shall be treated and LOSSES, ETC. strument requires that all trustees of the taxed as part of such estate (and not as a (a) DISALLOWANCE OF LOSSES.—Subsection trust be individual citizens of the United separate trust) for all taxable years of the (b) of section 267 (relating to losses, ex- States or domestic corporations. estate ending after the date of the decedent’s penses, and interest with respect to trans- (b) EFFECTIVE DATE.—The provisions of death and before the applicable date. actions between related taxpayers) is amend- subsection (a) shall take effect as if included ‘‘(b) DEFINITIONS.—For purposes of sub- ed by striking ‘‘or’’ at the end of paragraph in the provisions of section 11702(g) of the section (a)— (11), by striking the period at the end of Revenue Reconciliation Act of 1990. ‘‘(1) QUALIFIED REVOCABLE TRUST.—The paragraph (12) and inserting ‘‘; or’’, and by SEC. 1304. CLARIFICATIONS RELATING TO DIS- term ‘qualified revocable trust’ means any adding at the end the following new para- CLAIMERS. trust (or portion thereof) which was treated graph: (a) PARTIAL TRANSFER-TYPE DISCLAIMERS under section 676 as owned by the decedent ‘‘(13) Except in the case of a sale or ex- PERMITTED.—Paragraph (3) of section 2518(c) of the estate referred to in subsection (a) by change in satisfaction of a pecuniary be- (relating to certain transfers treated as dis- reason of a power in the grantor (determined quest, an executor of an estate and a bene- claimers) is amended by inserting ‘‘(or an without regard to section 672(e)). ficiary of such estate.’’. undivided portion of such interest)’’ after ‘‘(2) APPLICABLE DATE.—The term ‘applica- (b) ORDINARY INCOME FROM GAIN FROM ‘‘entire interest in the property’’. ble date’ means— SALE OF DEPRECIABLE PROPERTY.—Sub- (b) RETENTION OF INTEREST BY DECEDENT’S ‘‘(A) if no return of tax imposed by chapter section (b) of section 1239 is amended by SPOUSE PERMITTED IN TRANSFER-TYPE DIS- 11 is required to be filed, the date which is 2 striking the period at the end of paragraph CLAIMERS.—Paragraph (3) of section 2518(c) is years after the date of the decedent’s death, (2) and inserting ‘‘, and’’ and by adding at amended by adding at the end the following and the end the following new paragraph: new flush sentence: ‘‘(B) if such a return is required to be filed, ‘‘(3) except in the case of a sale or ex- ‘‘For purposes of the preceding sentence, a the date which is 6 months after the date of change in satisfaction of a pecuniary be- written transfer by the spouse of the dece- the final determination of the liability for quest, an executor of an estate and a bene- dent of property to a trust shall not fail to tax imposed by chapter 11. ficiary of such estate.’’. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4771

(c) EFFECTIVE DATE.—The amendments ‘‘(C) the Secretary determines that treat- ‘‘(B) section 2032A (relating to special valu- made by this section shall apply to taxable ing such persons as related is necessary to ation of certain farms, etc., real property), years beginning after the date of the enact- prevent avoidance of the purposes of this sec- and ment of this Act. tion. ‘‘(C) subchapter C of chapter 64 (relating to SEC. 1311. LIMITATION ON TAXABLE YEAR OF ES- ‘‘(3) INFLATION ADJUSTMENT.—In the case of lien for taxes), TATES. any contract referred to in subsection (b)(1) the value of the gross estate shall include (a) IN GENERAL.—Section 645 (relating to which is entered into during any calendar the value of all property to the extent of any taxable year of trusts) is amended to read as year after 1998, the dollar amount referred to interest therein of which the decedent has at follows: paragraph (1) shall be increased by an any time made a transfer, by trust or other- ‘‘SEC. 645. TAXABLE YEAR OF ESTATES AND amount equal to— wise, during the 3-year period ending on the TRUSTS. ‘‘(A) such dollar amount, multiplied by date of the decedent’s death. ‘‘(a) ESTATES.—For purposes of this sub- ‘‘(B) the cost-of-living adjustment deter- ‘‘(2) COORDINATION WITH SECTION 6166.—An title, the taxable year of an estate shall be a mined under section 1(f)(3) for such calendar year ending on October 31, November 30, or estate shall be treated as meeting the 35 per- year, by substituting ‘calendar year 1997’ for cent of adjusted gross estate requirement of December 31. ‘calendar year 1992’ in subparagraph (B) ‘‘(b) TRUSTS.— section 6166(a)(1) only if the estate meets thereof. ‘‘(1) IN GENERAL.—For purposes of this sub- such requirement both with and without the title, the taxable year of any trust shall be If any dollar amount after being increased application of paragraph (1). the calendar year. under the preceding sentence is not a mul- ‘‘(3) MARITAL AND SMALL TRANSFERS.— ‘‘(2) EXCEPTION FOR TRUSTS EXEMPT FROM tiple of $100, such dollar amount shall be Paragraph (1) shall not apply to any transfer TAX AND CHARITABLE TRUSTS.—Paragraph (1) rounded to the nearest multiple of $100. (other than a transfer with respect to a life shall not apply to a trust exempt from tax- ‘‘(d) APPLICATION OF RATE SCHEDULE.—Sec- insurance policy) made during a calendar ation under section 501(a) or to a trust de- tion 1(e) shall be applied to each qualified fu- year to any donee if the decedent was not re- scribed in section 4947(a)(1).’’. neral trust by treating each beneficiary’s in- quired by section 6019 (other than by reason (b) CLERICAL AMENDMENT.—The table of terest in each such trust as a separate trust. of section 6019(2)) to file any gift tax return sections for subpart A of part I of subchapter ‘‘(e) TREATMENT OF AMOUNTS REFUNDED TO for such year with respect to transfers to J of chapter 1 is amended by striking the BENEFICIARY ON CANCELLATION.—No gain or such donee. item relating to section 645 and inserting the loss shall be recognized to a beneficiary de- ‘‘(d) EXCEPTION.—Subsection (a) shall not following new item: scribed in subsection (b)(3) of any qualified apply to any bona fide sale for an adequate funeral trust by reason of any payment from and full consideration in money or money’s ‘‘Sec. 645. Taxable year of estates and such trust to such beneficiary by reason of worth. trusts.’’. cancellation of a contract referred to in sub- ‘‘(e) TREATMENT OF CERTAIN TRANSFERS (c) EFFECTIVE DATE.—The amendments section (b)(1). If any payment referred to in FROM REVOCABLE TRUSTS.—For purposes of made by this section shall apply to estates of the preceding sentence consists of property this section and section 2038, any transfer decedents dying after the date of the enact- other than money, the basis of such property from any portion of a trust during any pe- ment of this Act. in the hands of such beneficiary shall be the riod that such portion was treated under sec- SEC. 1312. TREATMENT OF FUNERAL TRUSTS. same as the trust’s basis in such property tion 676 as owned by the decedent by reason (a) IN GENERAL.—Subpart F of part I of immediately before the payment. of a power in the grantor (determined with- subchapter J of chapter 1 is amended by add- ‘‘(f) SIMPLIFIED REPORTING.—The Secretary out regard to section 672(e)) shall be treated ing at the end the following new section: may prescribe rules for simplified reporting as a transfer made directly by the dece- ‘‘SEC. 684. TREATMENT OF FUNERAL TRUSTS. of all trusts having a single trustee.’’. dent.’’. ‘‘(a) IN GENERAL.—In the case of a qualified (b) CLERICAL AMENDMENT.—The table of (b) CLERICAL AMENDMENT.—The table of funeral trust— sections for subpart F of part I of subchapter sections for part III of subchapter A of chap- ‘‘(1) subparts B, C, D, and E shall not J of chapter 1 is amended by adding at the ter 11 is amended by striking ‘‘gifts’’ in the apply, and end the following new item: item relating to section 2035 and inserting ‘‘(2) no deduction shall be allowed by sec- ‘‘certain gifts’’. ‘‘Sec. 684. Treatment of funeral trusts.’’. tion 642(b). (c) EFFECTIVE DATE.—The amendments ‘‘(b) QUALIFIED FUNERAL TRUST.—For pur- (c) EFFECTIVE DATE.—The amendments made by this section shall apply to the es- poses of this subsection, the term ‘qualified made by this section shall apply to taxable tates of decedents dying after the date of the funeral trust’ means any trust (other than a years beginning after the date of the enact- enactment of this Act. foreign trust) if— ment of this Act. SEC. 1314. CLARIFICATION OF TREATMENT OF ‘‘(1) the trust arises as a result of a con- SEC. 1313. ADJUSTMENTS FOR GIFTS WITHIN 3 SURVIVOR ANNUITIES UNDER tract with a person engaged in the trade or YEARS OF DECEDENT’S DEATH. QUALIFIED TERMINABLE INTEREST RULES. business of providing funeral or burial serv- (a) GENERAL RULE.—Section 2035 is amend- (a) IN GENERAL.—Subparagraph (C) of sec- ices or property necessary to provide such ed to read as follows: tion 2056(b)(7) is amended by inserting ‘‘(or, services, ‘‘SEC. 2035. ADJUSTMENTS FOR CERTAIN GIFTS in the case of an interest in an annuity aris- ‘‘(2) the sole purpose of the trust is to hold, MADE WITHIN 3 YEARS OF DECE- ing under the community property laws of a invest, and reinvest funds in the trust and to DENT’S DEATH. State, included in the gross estate of the de- use such funds solely to make payments for ‘‘(a) INCLUSION OF CERTAIN PROPERTY IN cedent under section 2033)’’ after ‘‘section such services or property for the benefit of GROSS ESTATE.—If— 2039’’. the beneficiaries of the trust, ‘‘(1) the decedent made a transfer (by trust or otherwise) of an interest in any property, (b) EFFECTIVE DATE.—The amendment ‘‘(3) the only beneficiaries of such trust are made by this section shall apply to estates of individuals who have entered into contracts or relinquished a power with respect to any property, during the 3-year period ending on decedents dying after the date of the enact- described in paragraph (1) to have such serv- ment of this Act. ices or property provided at their death, the date of the decedent’s death, and SEC. 1315. TREATMENT UNDER QUALIFIED DO- ‘‘(4) the only contributions to the trust are ‘‘(2) the value of such property (or an inter- est therein) would have been included in the MESTIC TRUST RULES OF FORMS OF contributions by or for the benefit of such OWNERSHIP WHICH ARE NOT beneficiaries, decedent’s gross estate under section 2036, TRUSTS. ‘‘(5) the trustee elects the application of 2037, 2038, or 2042 if such transferred interest (a) IN GENERAL.—Subsection (c) of section this subsection, and or relinquished power had been retained by 2056A (defining qualified domestic trust) is ‘‘(6) the trust would (but for the election the decedent on the date of his death, amended by adding at the end the following described in paragraph (5)) be treated as the value of the gross estate shall include new paragraph: owned by the beneficiaries under subpart E. the value of any property (or interest there- ‘‘(3) TRUST.—To the extent provided in reg- ‘‘(c) DOLLAR LIMITATION ON CONTRIBU- in) which would have been so included. ulations prescribed by the Secretary, the TIONS.— ‘‘(b) INCLUSION OF GIFT TAX ON GIFTS MADE term ‘trust’ includes other arrangements ‘‘(1) IN GENERAL.—The term ‘qualified fu- DURING 3 YEARS BEFORE DECEDENT’S which have substantially the same effect as neral trust’ shall not include any trust which DEATH.—The amount of the gross estate (de- a trust.’’. accepts aggregate contributions by or for the termined without regard to this subsection) (b) EFFECTIVE DATE.—The amendment benefit of an individual in excess of $7,000. shall be increased by the amount of any tax made by this section shall apply to estates of ‘‘(2) RELATED TRUSTS.—For purposes of paid under chapter 12 by the decedent or his decedents dying after the date of the enact- paragraph (1), all trusts having trustees estate on any gift made by the decedent or ment of this Act. which are related persons shall be his spouse during the 3-year period ending on SEC. 1316. OPPORTUNITY TO CORRECT CERTAIN treated as 1 trust. For purposes of the pre- the date of the decedent’s death. FAILURES UNDER SECTION 2032A. ceding sentence, persons are related if— ‘‘(c) OTHER RULES RELATING TO TRANSFERS (a) GENERAL RULE.—Paragraph (3) of sec- ‘‘(A) the relationship between such persons WITHIN 3 YEARS OF DEATH.— tion 2032A(d) (relating to modification of is described in section 267 or 707(b), ‘‘(1) IN GENERAL.—For purposes of— election and agreement to be permitted) is ‘‘(B) such persons are treated as a single ‘‘(A) section 303(b) (relating to distribu- amended to read as follows: employer under subsection (a) or (b) of sec- tions in redemption of stock to pay death ‘‘(3) MODIFICATION OF ELECTION AND AGREE- tion 52, or taxes), MENT TO BE PERMITTED.—The Secretary shall H4772 CONGRESSIONAL RECORD — HOUSE June 26, 1997 prescribe procedures which provide that in begins at least 90 days after the date of the (2) Section 5681(c) is amended— any case in which the executor makes an enactment of this Act. (A) by striking ‘‘or wholesale liquor estab- election under paragraph (1) (and submits SEC. 1412. AUTHORITY TO CANCEL OR CREDIT lishment, on which no sign required by sec- the agreement referred to in paragraph (2)) EXPORT BONDS WITHOUT SUBMIS- tion 5115(a) or’’ and inserting ‘‘on which no within the time prescribed therefor, but— SION OF RECORDS. sign required by’’, and ‘‘(A) the notice of election, as filed, does (a) IN GENERAL.—Section 5175(c) (relating (B) by striking ‘‘or wholesale liquor estab- not contain all required information, or to cancellation of credit of export bonds) is lishment, or who’’ and inserting ‘‘or who’’. ‘‘(B) signatures of 1 or more persons re- amended by striking ‘‘on the submission of’’ (3) The table of sections for subpart D of quired to enter into the agreement described and all that follows and inserting ‘‘if there is part II of subchapter A of chapter 51 is in paragraph (2) are not included on the such proof of exportation as the Secretary amended by striking the item relating to agreement as filed, or the agreement does may by regulations require.’’. section 5115. not contain all required information, (b) EFFECTIVE DATE.—The amendment (c) EFFECTIVE DATE.—The amendments made by subsection (a) shall take effect on the executor will have a reasonable period of made by this section shall take effect on the the 1st day of the 1st calendar quarter that date of the enactment of this Act. time (not exceeding 90 days) after notifica- begins at least 90 days after the date of the SEC. 1416. REFUND OF TAX TO WINE RETURNED tion of such failures to provide such informa- enactment of this Act. tion or signatures.’’. TO BOND NOT LIMITED TO SEC. 1413. REPEAL OF REQUIRED MAINTENANCE UNMERCHANTABLE WINE. (b) EFFECTIVE DATE.—The amendment OF RECORDS ON PREMISES OF DIS- (a) IN GENERAL.—Section 5044(a) (relating made by subsection (a) shall apply to the es- TILLED SPIRITS PLANT. to refund of tax on unmerchantable wine) is tates of decedents dying after the date of the (a) IN GENERAL.—Section 5207(c) (relating amended by striking ‘‘as unmerchantable’’. enactment of this Act. to preservation and inspection) is amended (b) CONFORMING AMENDMENTS.— SEC. 1317. AUTHORITY TO WAIVE REQUIREMENT by striking ‘‘shall be kept on the premises (1) Section 5361 is amended by striking OF UNITED STATES TRUSTEE FOR where the operations covered by the record ‘‘unmerchantable’’. QUALIFIED DOMESTIC TRUSTS. are carried on and’’. (2) The section heading for section 5044 is (a) IN GENERAL.—Subparagraph (A) of sec- (b) EFFECTIVE DATE.—The amendment amended by striking ‘‘UNMERCHANTABLE’’. tion 2056A(a)(1) is amended by inserting ‘‘ex- made by subsection (a) shall take effect on (3) The item relating to section 5044 in the cept as provided in regulations prescribed by the 1st day of the 1st calendar quarter that table of sections for subpart C of part I of the Secretary,’’ before ‘‘requires’’. begins at least 90 days after the date of the subchapter A of chapter 51 is amended by (b) EFFECTIVE DATE.—The amendment enactment of this Act. striking ‘‘unmerchantable’’. made by this section shall apply to estates of SEC. 1414. FERMENTED MATERIAL FROM ANY (c) EFFECTIVE DATE.—The amendments decedents dying after the date of the enact- BREWERY MAY BE RECEIVED AT A made by this section shall take effect on the DISTILLED SPIRITS PLANT. ment of this Act. 1st day of the 1st calendar quarter that be- (a) IN GENERAL.—Section 5222(b)(2) (relat- TITLE XIV—SIMPLIFICATION PROVISIONS gins at least 90 days after the date of the en- ing to receipt) is amended to read as follows: RELATING TO EXCISE TAXES, TAX-EX- actment of this Act. EMPT BONDS, AND OTHER MATTERS ‘‘(2) beer conveyed without payment of tax from brewery premises, beer which has been SEC. 1417. USE OF ADDITIONAL AMELIORATING MATERIAL IN CERTAIN WINES. Subtitle A—Excise Tax Simplification lawfully removed from brewery premises (a) IN GENERAL.—Section 5384(b)(2)(D) (re- PART I—EXCISE TAXES ON HEAVY upon determination of tax, or’’. lating to ameliorated fruit and berry wines) TRUCKS AND LUXURY CARS (b) CLARIFICATION OF AUTHORITY TO PERMIT is amended by striking ‘‘loganberries, cur- REMOVAL OF BEER WITHOUT PAYMENT OF TAX SEC. 1401. INCREASE IN DE MINIMIS LIMIT FOR rants, or gooseberries,’’ and inserting ‘‘any AFTER-MARKET ALTERATIONS FOR FOR USE AS DISTILLING MATERIAL.—Section HEAVY TRUCKS AND LUXURY CARS. 5053 (relating to exemptions) is amended by fruit or berry with a natural fixed acid of 20 parts per thousand or more (before any cor- (a) IN GENERAL.—Sections 4003(a)(3)(C) and redesignating subsection (f) as subsection (i) 4051(b)(2)(B) (relating to exceptions) are each and by inserting after subsection (e) the fol- rection of such fruit or berry)’’. (b) EFFECTIVE DATE.—The amendment amended by striking ‘‘$200’’ and inserting lowing new subsection: made by this section shall take effect on the ‘‘$1,000’’. ‘‘(f) REMOVAL FOR USE AS DISTILLING MATE- 1st day of the 1st calendar quarter that be- (b) EFFECTIVE DATE.—The amendments RIAL.—Subject to such regulations as the gins at least 90 days after the date of the en- made by subsection (a) shall apply to instal- Secretary may prescribe, beer may be re- actment of this Act. lations on vehicles sold after the date of the moved from a brewery without payment of enactment of this Act. tax to any distilled spirits plant for use as SEC. 1418. DOMESTICALLY PRODUCED BEER MAY distilling material.’’. BE WITHDRAWN FREE OF TAX FOR SEC. 1402. CREDIT FOR TIRE TAX IN LIEU OF EX- USE OF FOREIGN EMBASSIES, LEGA- LARIFICATION OF EFUND AND REDIT CLUSION OF VALUE OF TIRES IN (c) C R C TIONS, ETC. COMPUTING PRICE. OF TAX.—Section 5056 (relating to refund and (a) IN GENERAL.—Section 5053 (relating to (a) IN GENERAL.—Subsection (e) of section credit of tax, or relief from liability) is exemptions), as amended by section 1414(b), 4051 is amended to read as follows: amended— is amended by inserting after subsection (f) ‘‘(e) CREDIT AGAINST TAX FOR TIRE TAX.— (1) by redesignating subsection (c) as sub- the following new subsection: If— section (d) and by inserting after subsection ‘‘(g) REMOVALS FOR USE OF FOREIGN EMBAS- ‘‘(1) tires are sold on or in connection with (b) the following new subsection: SIES, LEGATIONS, ETC.— ‘‘(c) BEER RECEIVED AT A DISTILLED SPIRITS the sale of any article, and ‘‘(1) IN GENERAL.—Subject to such regula- ‘‘(2) tax is imposed by this subchapter on PLANT.—Any tax paid by any brewer on beer tions as the Secretary may prescribe— the sale of such tires, produced in the United States may be re- ‘‘(A) beer may be withdrawn from the there shall be allowed as a credit against the funded or credited to the brewer, without in- brewery without payment of tax for transfer tax imposed by this subchapter an amount terest, or if the tax has not been paid, the to any customs bonded warehouse for entry equal to the tax (if any) imposed by section brewer may be relieved of liability therefor, pending withdrawal therefrom as provided in 4071 on such tires.’’. under regulations as the Secretary may pre- subparagraph (B), and scribe, if such beer is received on the bonded (b) CONFORMING AMENDMENT.—Subpara- ‘‘(B) beer entered into any customs bonded graph (B) of section 4052(b)(1) is amended by premises of a distilled spirits plant pursuant warehouse under subparagraph (A) may be striking clause (iii), by adding ‘‘and’’ at the to the provisions of section 5222(b)(2), for use withdrawn for consumption in the United end of clause (ii), and by redesignating in the production of distilled spirits.’’, and States by, and for the official and family use clause (iv) as clause (iii). (2) by striking ‘‘or rendering of, such foreign governments, organizations, unmerchantable’’ in subsection (d) (as so re- (c) EFFECTIVE DATE.—The amendments and individuals as are entitled to withdraw made by this section shall take effect on designated) and inserting ‘‘rendering imported beer from such warehouses free of January 1, 1998. unmerchantable, or receipt on the bonded tax. premises of a distilled spirits plant’’. PART II—PROVISIONS RELATED TO (d) EFFECTIVE DATE.—The amendments Beer transferred to any customs bonded DISTILLED SPIRITS, WINES, AND BEER made by this section shall take effect on the warehouse under subparagraph (A) shall be SEC. 1411. CREDIT OR REFUND FOR IMPORTED 1st day of the 1st calendar quarter that be- entered, stored, and accounted for in such BOTTLED DISTILLED SPIRITS RE- gins at least 90 days after the date of the en- warehouse under such regulations and bonds TURNED TO DISTILLED SPIRITS actment of this Act. as the Secretary may prescribe, and may be PLANT. SEC. 1415. REPEAL OF REQUIREMENT FOR withdrawn therefrom by such governments, (a) IN GENERAL.—Section 5008(c)(1) (relat- WHOLESALE DEALERS IN LIQUORS organizations, and individuals free of tax ing to distilled spirits returned to bonded TO POST SIGN. under the same conditions and procedures as premises) is amended by striking ‘‘with- (a) IN GENERAL.—Section 5115 (relating to imported beer. drawn from bonded premises on payment or sign required on premises) is hereby re- ‘‘(2) OTHER RULES TO APPLY.—Rules similar determination of tax’’ and inserting ‘‘on pealed. to the rules of paragraphs (2) and (3) of sec- which tax has been determined or paid’’. (b) CONFORMING AMENDMENTS.— tion 5362(e) shall apply for purposes of this (b) EFFECTIVE DATE.—The amendment (1) Section 5681(a) is amended by striking subsection.’’. made by subsection (a) shall take effect on ‘‘, and every wholesale dealer in liquors,’’ (b) EFFECTIVE DATE.—The amendment the 1st day of the 1st calendar quarter that and by striking ‘‘section 5115(a) or’’. made by subsection (a) shall take effect on June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4773 the 1st day of the 1st calendar quarter that States, shall thereupon be relieved of the li- Subtitle B—Tax-Exempt Bond Provisions begins at least 90 days after the date of the ability for such tax.’’. SEC. 1441. REPEAL OF $100,000 LIMITATION ON enactment of this Act. (b) CLERICAL AMENDMENT.—The table of UNSPENT PROCEEDS UNDER 1-YEAR SEC. 1419. BEER MAY BE WITHDRAWN FREE OF sections for such part II is amended by in- EXCEPTION FROM REBATE. TAX FOR DESTRUCTION. serting after the item relating to section 5363 Subclause (I) of section 148(f)(4)(B)(ii) (re- (a) IN GENERAL.—Section 5053 (relating to the following new item: lating to additional period for certain bonds) is amended by striking ‘‘the lesser of 5 per- exemptions), as amended by section 1418(a), ‘‘Sec. 5364. Wine imported in bulk.’’. is amended by inserting after subsection (g) cent of the proceeds of the issue or $100,000’’ the following new subsection: (c) EFFECTIVE DATE.—The amendments and inserting ‘‘5 percent of the proceeds of ‘‘(h) REMOVALS FOR DESTRUCTION.—Subject made by this section shall take effect on the the issue’’. to such regulations as the Secretary may 1st day of the 1st calendar quarter that be- SEC. 1442. EXCEPTION FROM REBATE FOR EARN- prescribe, beer may be removed from the gins at least 90 days after the date of the en- INGS ON BONA FIDE DEBT SERVICE actment of this Act. FUND UNDER CONSTRUCTION BOND brewery without payment of tax for destruc- RULES. PART III—OTHER EXCISE TAX tion.’’. Subparagraph (C) of section 148(f)(4) is (b) EFFECTIVE DATE.—The amendment PROVISIONS amended by adding at the end the following made by subsection (a) shall take effect on SEC. 1431. AUTHORITY TO GRANT EXEMPTIONS new clause: the 1st day of the 1st calendar quarter that FROM REGISTRATION REQUIRE- ‘‘(xvii) TREATMENT OF BONA FIDE DEBT MENTS. begins at least 90 days after the date of the SERVICE FUNDS.—If the spending require- enactment of this Act. (a) IN GENERAL.—Section 4222(b)(2) (relat- ments of clause (ii) are met with respect to SEC. 1420. AUTHORITY TO ALLOW DRAWBACK ON ing to export) is amended— the available construction proceeds of a con- EXPORTED BEER WITHOUT SUBMIS- (1) by striking ‘‘in the case of any sale or struction issue, then paragraph (2) shall not SION OF RECORDS. resale for export,’’, and apply to earnings on a bona fide debt service (a) IN GENERAL.—The first sentence of sec- (2) by striking ‘‘EXPORT’’ and inserting fund for such issue.’’. ‘‘UNDER REGULATIONS’’. tion 5055 (relating to drawback of tax on SEC. 1443. REPEAL OF DEBT SERVICE-BASED LIM- beer) is amended by striking ‘‘found to have (b) EFFECTIVE DATE.—The amendments ITATION ON INVESTMENT IN CER- been paid’’ and all that follows and inserting made by subsection (a) shall take effect on TAIN NONPURPOSE INVESTMENTS. ‘‘paid on such beer if there is such proof of the date of the enactment of this Act. Subsection (d) of section 148 (relating to exportation as the Secretary may by regula- SEC. 1432. REPEAL OF EXPIRED PROVISIONS. special rules for reasonably required reserve tions require.’’. (a) PIGGY-BACK TRAILERS.—Section 4051 or replacement fund) is amended by striking (b) EFFECTIVE DATE.—The amendment (relating to imposition of tax on heavy paragraph (3). made by subsection (a) shall take effect on trucks and trailers sold at retail) is amended SEC. 1444. REPEAL OF EXPIRED PROVISIONS. the 1st day of the 1st calendar quarter that by striking subsection (d) and by redesignat- (a) Paragraph (2) of section 148(c) is amend- begins at least 90 days after the date of the ing subsection (e) as subsection (d). ed by striking subparagraph (B) and by re- enactment of this Act. (b) DEEP SEABED MINING.— designating subparagraphs (C), (D), and (E) SEC. 1421. TRANSFER TO BREWERY OF BEER IM- (1) IN GENERAL.—Subchapter F of chapter as subparagraphs (B), (C), and (D), respec- PORTED IN BULK WITHOUT PAY- 36 (relating to tax on removal of hard min- tively. MENT OF TAX. eral resources from deep seabed) is hereby (b) Paragraph (4) of section 148(f) is amend- (a) IN GENERAL.—Part II of subchapter G of repealed. ed by striking subparagraph (E). chapter 51 is amended by adding at the end (2) CONFORMING AMENDMENT.—The table of SEC. 1445. EFFECTIVE DATE. the following new section: subchapters for chapter 36 is amended by The amendments made by this subtitle ‘‘SEC. 5418. BEER IMPORTED IN BULK. striking the item relating to subchapter F. shall apply to bonds issued after the date of ‘‘Beer imported or brought into the United (c) OZONE-DEPLETING CHEMICALS.— the enactment of this Act. States in bulk containers may, under such (1) Paragraph (1) of section 4681(b) is Subtitle C—Tax Court Procedures regulations as the Secretary may prescribe, amended by striking subparagraphs (B) and SEC. 1451. OVERPAYMENT DETERMINATIONS OF be withdrawn from customs custody and (C) and inserting the following new subpara- TAX COURT. transferred in such bulk containers to the graph: (a) APPEAL OF ORDER.—Paragraph (2) of premises of a brewery without payment of ‘‘(B) BASE TAX AMOUNT.—The base tax section 6512(b) (relating to jurisdiction to en- the internal revenue tax imposed on such amount for purposes of subparagraph (A) force) is amended by adding at the end the beer. The proprietor of a brewery to which with respect to any sale or use during any following new sentence: ‘‘An order of the Tax such beer is transferred shall become liable calendar year after 1995 shall be $5.35 in- Court disposing of a motion under this para- for the tax on the beer withdrawn from cus- creased by 45 cents for each year after 1995.’’. graph shall be reviewable in the same man- toms custody under this section upon release (2) Subsection (g) of section 4682 is amend- ner as a decision of the Tax Court, but only of the beer from customs custody, and the ed to read as follows: with respect to the matters determined in importer, or the person bringing such beer ‘‘(g) CHEMICALS USED AS PROPELLANTS IN such order.’’. (b) DENIAL OF JURISDICTION REGARDING into the United States, shall thereupon be METERED-DOSE INHALERS.— CERTAIN CREDITS AND REDUCTIONS.—Sub- relieved of the liability for such tax.’’. ‘‘(1) EXEMPTION FROM TAX.— section (b) of section 6512 (relating to over- (b) CLERICAL AMENDMENT.—The table of ‘‘(A) IN GENERAL.—No tax shall be imposed payment determined by Tax Court) is sections for such part II is amended by add- by section 4681 on— amended by adding at the end the following ing at the end the following new item: ‘‘(i) any use of any substance as a propel- lant in metered-dose inhalers, or new paragraph: ‘‘Sec. 5418. Beer imported in bulk.’’. ‘‘(ii) any qualified sale by the manufac- ‘‘(4) DENIAL OF JURISDICTION REGARDING CERTAIN CREDITS AND REDUCTIONS.—The Tax (c) EFFECTIVE DATE.—The amendments turer, producer, or importer of any sub- made by this section shall take effect on the stance. Court shall have no jurisdiction under this subsection to restrain or review any credit 1st day of the 1st calendar quarter that be- ‘‘(B) QUALIFIED SALE.—For purposes of sub- gins at least 90 days after the date of the en- paragraph (A), the term ‘qualified sale’ or reduction made by the Secretary under actment of this Act. means any sale by the manufacturer, pro- section 6402.’’. (c) EFFECTIVE DATE.—The amendments ducer, or importer of any substance— SEC. 1422. TRANSFER TO BONDED WINE CELLARS made by this section shall take effect on the ‘‘(i) for use by the purchaser as a propel- OF WINE IMPORTED IN BULK WITH- date of the enactment of this Act. OUT PAYMENT OF TAX. lant in metered dose inhalers, or SEC. 1452. REDETERMINATION OF INTEREST (a) IN GENERAL.—Part II of subchapter F of ‘‘(ii) for resale by the purchaser to a 2d PURSUANT TO MOTION. chapter 51 is amended by inserting after sec- purchaser for such use by the 2d purchaser. (a) IN GENERAL.—Subsection (c) of section tion 5363 the following new section: The preceding sentence shall apply only if 7481 (relating to jurisdiction over interest de- ‘‘SEC. 5364. WINE IMPORTED IN BULK. the manufacturer, producer, and importer, terminations) is amended to read as follows: ‘‘Wine imported or brought into the United and the 1st and 2d purchasers (if any) meet ‘‘(c) JURISDICTION OVER INTEREST DETER- States in bulk containers may, under such such registration requirements as may be MINATIONS.— regulations as the Secretary may prescribe, prescribed by the Secretary. ‘‘(1) IN GENERAL.—Notwithstanding sub- be withdrawn from customs custody and ‘‘(2) OVERPAYMENTS.—If any substance on section (a), if, within 1 year after the date transferred in such bulk containers to the which tax was paid under this subchapter is the decision of the Tax Court becomes final premises of a bonded wine cellar without used by any person as a propellant in me- under subsection (a) in a case to which this payment of the internal revenue tax imposed tered-dose inhalers, credit or refund without subsection applies, the taxpayer files a mo- on such wine. The proprietor of a bonded interest shall be allowed to such person in an tion in the Tax Court for a redetermination wine cellar to which such wine is transferred amount equal to the tax so paid. Amounts of the amount of interest involved, then the shall become liable for the tax on the wine payable under the preceding sentence with Tax Court may reopen the case solely to de- withdrawn from customs custody under this respect to uses during the taxable year shall termine whether the taxpayer has made an section upon release of the wine from cus- be treated as described in section 34(a) for overpayment of such interest or the Sec- toms custody, and the importer, or the per- such year unless claim thereof has been retary has made an underpayment of such son bringing such wine into the United timely filed under this paragraph.’’. interest and the amount thereof. H4774 CONGRESSIONAL RECORD — HOUSE June 26, 1997

‘‘(2) CASES TO WHICH THIS SUBSECTION AP- notice to the petitioner of a determination (c) EFFECTIVE DATE.—The amendments PLIES.—This subsection shall apply where— by the Secretary described in subsection (a), made by this section shall take effect on the ‘‘(A)(i) an assessment has been made by the no proceeding may be initiated under this date of the enactment of this Act. Secretary under section 6215 which includes section with respect to such determination Subtitle D—Other Provisions interest as imposed by this title, and unless the pleading is filed before the 91st SEC. 1461. EXTENSION OF DUE DATE OF FIRST ‘‘(ii) the taxpayer has paid the entire day after the date of such mailing. QUARTER ESTIMATED TAX PAYMENT amount of the deficiency plus interest ‘‘(3) NO ADVERSE INFERENCE FROM TREAT- BY PRIVATE FOUNDATIONS. claimed by the Secretary, and MENT WHILE ACTION IS PENDING.—If, during (a) IN GENERAL.—Paragraph (3) of section ‘‘(B) the Tax Court finds under section the pendency of any proceeding brought 6655(g) is amended by adding at the end the 6512(b) that the taxpayer has made an over- under this section, the petitioner changes his following new sentence: ‘‘In the case of a pri- payment. treatment for employment tax purposes of vate foundation, subsection (c)(2) shall be ap- ‘‘(3) SPECIAL RULES.—If the Tax Court de- any individual whose employment status as plied by substituting ‘May 15’ for ‘April 15’.’’. termines under this subsection that the tax- an employee is involved in such proceeding (b) EFFECTIVE DATE.—The amendment payer has made an overpayment of interest (or of any individual holding a substantially made by subsection (a) shall apply for pur- or that the Secretary has made an underpay- similar position) to treatment as an em- poses of determining underpayments of esti- ment of interest, then that determination ployee, such change shall not be taken into mated tax for taxable years beginning after shall be treated under section 6512(b)(1) as a account in the Tax Court’s determination the date of the enactment of this Act. determination of an overpayment of tax. An under this section. SEC. 1462. CLARIFICATION OF AUTHORITY TO order of the Tax Court redetermining inter- ‘‘(c) SMALL CASE PROCEDURES.— WITHHOLD PUERTO RICO INCOME est, when entered upon the records of the ‘‘(1) IN GENERAL.—At the option of the peti- TAXES FROM SALARIES OF FEDERAL court, shall be reviewable in the same man- tioner, concurred in by the Tax Court or a EMPLOYEES. ner as a decision of the Tax Court.’’. division thereof before the hearing of the (a) IN GENERAL.—Subsection (c) of section (b) EFFECTIVE DATE.—The amendment case, proceedings under this section may 5517 of title 5, United States Code, is amend- made by this section shall take effect on the (notwithstanding the provisions of section ed by striking ‘‘or territory or possession’’ date of the enactment of this Act. 7453) be conducted subject to the rules of evi- and inserting ‘‘, territory, possession, or SEC. 1453. APPLICATION OF NET WORTH RE- dence, practice, and procedure applicable commonwealth’’. QUIREMENT FOR AWARDS OF LITI- under section 7463 if the amount of employ- (b) EFFECTIVE DATE.—The amendment GATION COSTS. ment taxes placed in dispute is $10,000 or less made by subsection (a) shall take effect on (a) IN GENERAL.—Paragraph (4) of section for each calendar quarter involved. January 1, 1998. 7430(c) (defining prevailing party) is amended ‘‘(2) FINALITY OF DECISIONS.—A decision en- SEC. 1463. CERTAIN NOTICES DISREGARDED by adding at the end thereof the following tered in any proceeding conducted under this UNDER PROVISION INCREASING IN- new subparagraph: TEREST RATE ON LARGE COR- subsection shall not be reviewed in any other PORATE UNDERPAYMENTS. ‘‘(D) SPECIAL RULES FOR APPLYING NET court and shall not be treated as a precedent (a) GENERAL RULE.—Subparagraph (B) of WORTH REQUIREMENT.—In applying the re- for any other case not involving the same pe- section 6621(c)(2) (defining applicable date) is quirements of section 2412(d)(2)(B) of title 28, titioner and the same determinations. amended by adding at the end the following United States Code, for purposes of subpara- ‘‘(3) CERTAIN RULES TO APPLY.—Rules simi- new clause: graph (A)(iii) of this paragraph— lar to the rules of the last sentence of sub- ‘‘(iii) EXCEPTION FOR LETTERS OR NOTICES ‘‘(i) the net worth limitation in clause (i) section (a), and subsections (c), (d), and (e), INVOLVING SMALL AMOUNTS.—For purposes of of such section shall apply to— of section 7463 shall apply to proceedings this paragraph, any letter or notice shall be ‘‘(I) an estate but shall be determined as of conducted under this subsection. disregarded if the amount of the deficiency the date of the decedent’s death, and ‘‘(d) SPECIAL RULES.— or proposed deficiency (or the assessment or ‘‘(II) a trust but shall be determined as of ‘‘(1) RESTRICTIONS ON ASSESSMENT AND COL- proposed assessment) set forth in such letter the last day of the taxable year involved in LECTION PENDING ACTION, ETC.—The principles or notice is not greater than $100,000 (deter- the proceeding, and of subsections (a), (b), and (d) of section 6213, mined by not taking into account any inter- ‘‘(ii) individuals filing a joint return shall section 6214(a), section 6503(a), and section est, penalties, or additions to tax).’’. be treated as 1 individual for purposes of 6512 shall apply to proceedings brought under (b) EFFECTIVE DATE.—The amendment clause (i) of such section, except in the case this section in the same manner as if the made by subsection (a) shall apply for pur- of a spouse relieved of liability under section Secretary’s determination described in sub- poses of determining interest for periods 6013(e).’’. section (a) were a notice of deficiency. after December 31, 1997. (b) EFFECTIVE DATE.—The amendment ‘‘(2) AWARDING OF COSTS AND CERTAIN made by this section shall apply to proceed- TITLE XV—TECHNICAL AMENDMENTS RE- FEES.—Section 7430 shall apply to proceed- LATED TO SMALL BUSINESS JOB PRO- ings commenced after the date of the enact- ings brought under this section. ment of this Act. TECTION ACT OF 1996 AND OTHER LEG- ‘‘(e) EMPLOYMENT TAX.—The term ‘employ- ISLATION SEC. 1454. PROCEEDINGS FOR DETERMINATION ment tax’ means any tax imposed by subtitle OF EMPLOYMENT STATUS. SEC. 1501. AMENDMENTS RELATED TO SMALL C.’’. BUSINESS JOB PROTECTION ACT OF (a) IN GENERAL.—Subchapter B of chapter (b) CONFORMING AMENDMENTS.— 1996. 76 (relating to proceedings by taxpayers and (1) Subsection (d) of section 6511 is amend- (a) AMENDMENTS RELATED TO SUBTITLE A.— third parties) is amended by redesignating ed by adding at the end the following new (1) AMENDMENT RELATED TO SECTION 1116.— section 7435 as section 7436 and by inserting paragraph: Paragraph (1) of section 6050R(c) is amended after section 7434 the following new section: ‘‘(7) SPECIAL PERIOD OF LIMITATION WITH RE- by striking ‘‘name and address’’ and insert- ‘‘SEC. 7435. PROCEEDINGS FOR DETERMINATION SPECT TO SELF-EMPLOYMENT TAX IN CERTAIN ing ‘‘name, address, and phone number of the OF EMPLOYMENT STATUS. CASES.—If— information contact’’. ‘‘(a) CREATION OF REMEDY.—If, in connec- ‘‘(A) the claim for credit or refund relates (2) AMENDMENT TO SECTION 1116.—Para- tion with an audit of any person, there is an to an overpayment of the tax imposed by graphs (1) and (2)(C) of section 1116(b) of the actual controversy involving a determina- chapter 2 (relating to the tax on self-employ- Small Business Job Protection Act of 1996 tion by the Secretary as part of an examina- ment income) attributable to Tax Court de- shall each be applied as if the reference to tion that— termination in a proceeding under section chapter 68 were a reference to chapter 61. ‘‘(1) one or more individuals performing 7435, and (b) AMENDMENT RELATED TO SUBTITLE B.— services for such person are employees of ‘‘(B) the allowance of a credit or refund of Subsection (c) of section 52 is amended by such person for purposes of subtitle C, or such overpayment is otherwise prevented by striking ‘‘targeted jobs credit’’ and inserting ‘‘(2) such person is not entitled to the the operation of any law or rule of law other ‘‘work opportunity credit’’. treatment under subsection (a) of section 530 than section 7122 (relating to compromises), (c) AMENDMENTS RELATED TO SUBTITLE C.— of the Revenue Act of 1978 with respect to such credit or refund may be allowed or (1) AMENDMENT RELATED TO SECTION 1302.— such an individual, made if claim therefor is filed on or before Subparagraph (B) of section 1361(e)(1) is upon the filing of an appropriate pleading, the last day of the second year after the cal- amended by striking ‘‘and’’ at the end of the Tax Court may determine whether such endar year in which such determination be- clause (i), striking the period at the end of a determination by the Secretary is correct. comes final.’’. clause (ii) and inserting ‘‘, and’’, and adding Any such determination by the Tax Court (2) Sections 7453 and 7481(b) are each at the end the following new clause: shall have the force and effect of a decision amended by striking ‘‘section 7463’’ and in- ‘‘(iii) any charitable remainder annuity of the Tax Court and shall be reviewable as serting ‘‘section 7435(c) or 7463’’. trust or charitable remainder unitrust (as such. (3) The table of sections for subchapter B defined in section 664(d)).’’. ‘‘(b) LIMITATIONS.— of chapter 76 is amended by striking the last (2) EFFECTIVE DATE FOR SECTION 1307.— ‘‘(1) PETITIONER.—A pleading may be filed item and inserting the following: (A) Notwithstanding section 1317 of the under this section only by the person for Small Business Job Protection Act of 1996, whom the services are performed. ‘‘Sec. 7435. Proceedings for determination of the amendments made by subsections (a) and ‘‘(2) TIME FOR FILING ACTION.—If the Sec- employment status. (b) of section 1307 of such Act shall apply to retary sends by certified or registered mail ‘‘Sec. 7436. Cross references.’’. determinations made after December 31, 1996. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4775 (B) In no event shall the 120-day period re- (A) Clause (ii) of section 401(k)(11)(D) is (C) Paragraph (1) of section 55(c) is amend- ferred to in section 1377(b)(1)(B) of the Inter- amended by striking the period and inserting ed by striking ‘‘Puerto Rican’’ and inserting nal Revenue Code of 1986 (as added by such ‘‘if such plan allows only contributions re- ‘‘Puerto Rico’’. section 1307) expire before the end of the 120- quired under this paragraph.’’. (2) AMENDMENTS RELATED TO SECTION 1606.— day period beginning on the date of the en- (B) Paragraph (11) of section 401(k) is (A) Clause (ii) of section 9503(c)(2)(A) is actment of this Act. amended by adding at the end the following amended by striking ‘‘(or with respect to (3) AMENDMENT RELATED TO SECTION 1308.— new subparagraph: qualified diesel-powered highway vehicles Subparagraph (A) of section 1361(b)(3) is ‘‘(E) COST-OF-LIVING ADJUSTMENT.—The purchased before January 1, 1999)’’. amended by striking ‘‘For purposes of this Secretary shall adjust the $6,000 amount (B) Subparagraph (A) of section 9503(e)(5) is title’’ and inserting ‘‘Except as provided in under subparagraph (B)(i)(I) at the same amended by striking ‘‘; except that’’ and all regulations prescribed by the Secretary, for time and in the same manner as under sec- that follows and inserting a period. purposes of this title’’. tion 408(p)(2)(E).’’. (3) AMENDMENTS RELATED TO SECTION 1607.— (4) AMENDMENTS RELATED TO SECTION 1316.— (C) Subparagraph (A) of section 404(a)(3) is (A) Subsection (f) of section 4001 (relating (A) Paragraph (2) of section 512(e) is amended— to phasedown of tax on luxury passenger amended by striking ‘‘within the meaning of (i) in clause (i), by striking ‘‘not in excess automobiles) is amended— section 1012’’ and inserting ‘‘as defined in of’’ and all that follows and inserting the fol- (i) by inserting ‘‘and section 4003(a)’’ after section 1361(e)(1)(C)’’. lowing: ‘‘not in excess of the greater of— ‘‘subsection (a)’’, and (B) Paragraph (7) of section 1361(c) is redes- ‘‘(I) 15 percent of the compensation other- (ii) by inserting ‘‘, each place it appears,’’ ignated as paragraph (6). wise paid or accrued during the taxable year before ‘‘the percentage’’. (C) Subparagraph (B) of section 1361(b)(1) is to the beneficiaries under the stock bonus or (B) Subsection (g) of section 4001 (relating amended by striking ‘‘subsection (c)(7)’’ and profit-sharing plan, or to termination) is amended by striking ‘‘tax inserting ‘‘subsection (c)(6)’’. ‘‘(II) the amount such employer is required imposed by this section’’ and inserting (D) Paragraph (1) of section 512(e) is to contribute to such trust under section ‘‘taxes imposed by this section and section amended by striking ‘‘section 1361(c)(7)’’ and 401(k)(11) for such year.’’, and 4003’’ and by striking ‘‘or use’’ and inserting inserting ‘‘section 1361(e)(6)’’. (ii) in clause (ii), by striking ‘‘15 percent’’ ‘‘, use, or installation’’. (d) AMENDMENTS RELATED TO SUBTITLE D.— and all that follows and inserting the follow- (4) AMENDMENTS RELATED TO SECTION 1609.— (1) AMENDMENTS RELATED TO SECTION 1421.— ing ‘‘the amount described in subclause (I) or (A) Subsection (l) of section 4041 is amend- (A) Subsection (i) of section 408 is amended (II) of clause (i), whichever is greater, with ed— in the last sentence by striking ‘‘30 days’’ respect to such taxable year.’’. (i) by inserting ‘‘or a fixed-wing aircraft’’ and inserting ‘‘31 days’’. (D) Subparagraph (B) of section 401(k)(11) after ‘‘helicopter’’, and (B) Subparagraph (H) of section 408(k)(6) is is amended by adding at the end the follow- (ii) in the heading, by striking ‘‘HELI- amended by striking ‘‘if the terms of such ing new clause: COPTER’’. pension’’ and inserting ‘‘of an employer if (B) The last sentence of section 4041(a)(2) is ‘‘(iii) ADMINISTRATIVE REQUIREMENTS.— the terms of simplified employee pensions of amended by striking ‘‘section 4081(a)(2)(A)’’ ‘‘(I) IN GENERAL.—Rules similar to the such employer’’. rules of subparagraphs (B) and (C) of section and inserting ‘‘section 4081(a)(2)(A)(i)’’. (C)(i) Subparagraph (B) of section 408(l)(2) (C) Subsection (b) of section 4092 is amend- 408(p)(5) shall apply for purposes of this sub- is amended— ed by striking ‘‘section 4041(c)(4)’’ and insert- paragraph. (I) by inserting ‘‘and the issuer of an annu- ing ‘‘section 4041(c)(2)’’. ‘‘(II) NOTICE OF ELECTION PERIOD.—The re- ity established under such an arrangement’’ (D) Subsection (g) of section 4261 (as redes- quirements of this subparagraph shall not be after ‘‘under subsection (p)’’, and ignated by title X) is amended by inserting treated as met with respect to any year un- (II) in clause (i), by inserting ‘‘or issuer’’ ‘‘on that flight’’ after ‘‘dedicated’’. less the employer notifies each employee eli- after ‘‘trustee’’. (E) Paragraph (1) of section 1609(h) of such gible to participate, within a reasonable pe- (ii) Paragraph (2) of section 6693(c) is Act is amended by striking ‘‘paragraph riod of time before the 60th day before the amended— (3)(A)(i)’’ and inserting ‘‘paragraph (3)(A)’’. beginning of such year (and, for the first (I) by inserting ‘‘or issuer’’ after ‘‘trustee’’, (F) Paragraph (4) of section 1609(h) of such year the employee is so eligible, the 60th day and Act is amended by inserting before the pe- before the first day such employee is so eligi- (II) in the heading, by inserting ‘‘AND IS- riod ‘‘or exclusively for the use described in ble), of the rules similar to the rules of sec- SUER’’ after ‘‘trustee’’. section 4092(b) of such Code’’. tion 408(p)(5)(C) which apply by reason of (D) Subsection (p) of section 408 is amended (5) AMENDMENTS RELATED TO SECTION 1616.— by adding at the end the following new para- subclause (I).’’. (A) Subparagraph (A) of section 593(e)(1) is graph: (3) AMENDMENT RELATED TO SECTION 1433.— amended by inserting ‘‘(and, in the case of an ‘‘(8) COORDINATION WITH MAXIMUM LIMITA- The heading of paragraph (11) of section S corporation, the accumulated adjustments TION UNDER SUBSECTION (a).—In the case of 401(m) is amended by striking ‘‘ALTER- account, as defined in section 1368(e)(1))’’ any simple retirement account, subsections NATIVE’’ and inserting ‘‘ADDITIONAL ALTER- after ‘‘1951,’’. (a)(1) and (b)(2) shall be applied by substitut- NATIVE’’. (B) Paragraph (7) of section 1374(d) is ing ‘the sum of the dollar amount in effect (4) AMENDMENT RELATED TO SECTION 1462.— amended by adding at the end the following under paragraph (2)(A)(ii) of this subsection The paragraph (7) of section 414(q) added by new sentence: ‘‘For purposes of applying this and the employer contribution required section 1462 of the Small Business Job Pro- section to any amount includible in income under subparagraph (A)(iii) or (B)(i) of para- tection Act of 1996 is redesignated as para- by reason of section 593(e), the preceding sen- graph (2) of this subsection, whichever is ap- graph (9). tence shall be applied without regard to the plicable’ for ‘$2,000’.’’. (5) CLARIFICATION OF SECTION 1450.— phrase ‘10-year’.’’. (E) Clause (i) of section 408(p)(2)(D) is (A) Section 403(b)(11) of the Internal Reve- (6) AMENDMENTS RELATED TO SECTION 1621.— amended by adding at the end the following nue Code of 1986 shall not apply with respect (A) Subparagraph (A) of section 860L(b)(1) new sentence: ‘‘If only individuals other than to a distribution from a contract described is amended in the text preceding clause (i) by employees described in subparagraph (A) or in section 1450(b)(1) of such Act to the extent striking ‘‘after the startup date’’ and insert- (B) of section 410(b)(3) are eligible to partici- that such distribution is not includible in in- ing ‘‘on or after the startup date’’. pate in such arrangement, then the preced- come by reason of section 403(b)(8) of such (B) Paragraph (2) of section 860L(d) is ing sentence shall be applied without regard Code (determined after the application of amended by striking ‘‘section 860I(c)(2)’’ and to any qualified plan in which only employ- section 1450(b)(2) of such Act). inserting ‘‘section 860I(b)(2)’’. ees so described are eligible to participate.’’. (B) This paragraph shall apply as if in- (C) Subparagraph (B) of section 860L(e)(2) (F) Subparagraph (D) of section 408(p)(2) is cluded in section 1450 of the Small Business is amended by inserting ‘‘other than fore- amended by adding at the end the following Job Protection Act of 1996. closure property’’ after ‘‘any permitted new clause: (e) AMENDMENT RELATED TO SUBTITLE E.— asset’’. ‘‘(iii) GRACE PERIOD.—In the case of an em- Subparagraph (A) of section 956(b)(1) is (D) Subparagraph (A) of section 860L(e)(3) ployer who establishes and maintains a plan amended by inserting ‘‘to the extent such is amended by striking ‘‘if the FASIT’’ and under this subsection for 1 or more years and amount was accumulated in prior taxable all that follows and inserting the following who fails to meet the requirements of this years’’ after ‘‘section 316(a)(1)’’. new flush text after clause (ii): subparagraph for any subsequent year due to (f) AMENDMENTS RELATED TO SUBTITLE F.— ‘‘if the FASIT were treated as a REMIC and any acquisition, disposition, or similar (1) AMENDMENTS RELATED TO SECTION 1601.— permitted assets (other than cash or cash transaction involving another such em- (A) The heading of section 30A is amended equivalents) were treated as qualified mort- ployer, rules similar to the rules of section to read as follows: gages.’’. 410(b)(6)(C) shall apply for purposes of this ‘‘SEC. 30A. PUERTO RICO ECONOMIC ACTIVITY (E)(i) Paragraph (3) of section 860L(e) is subparagraph.’’. CREDIT.’’. amended by adding at the end the following (G) Paragraph (5) of section 408(p) is (B) The table of sections for subpart B of new subparagraph: amended in the text preceding subparagraph part IV of subchapter A of chapter 1 is ‘‘(D) INCOME FROM DISPOSITIONS OF FORMER (A) by striking ‘‘simplified’’ and inserting amended in the item relating to section 30A HEDGE ASSETS.—Paragraph (2)(A) shall not ‘‘simple’’. by striking ‘‘Puerto Rican’’ and inserting apply to income derived from the disposition (2) AMENDMENTS RELATED TO SECTION 1422.— ‘‘Puerto Rico’’. of— H4776 CONGRESSIONAL RECORD — HOUSE June 26, 1997

‘‘(i) an asset which was described in sub- the heading by striking ‘‘GRANTOR’’ and in- (b) AMENDMENT RELATED TO SECTION 321.— section (c)(1)(D) when first acquired by the serting ‘‘OWNER’’. Subparagraph (B) of section 7702B(c)(2) is FASIT but on the date of such disposition (2) AMENDMENTS RELATED TO SECTION 1903.— amended in the last sentence by inserting was no longer described in subsection Clauses (ii) and (iii) of section 679(a)(3)(C) ‘‘described in subparagraph (A)(i)’’ after (c)(1)(D)(ii), or are each amended by inserting ‘‘, owner,’’ ‘‘chronically ill individual’’. ‘‘(ii) a contract right to acquire an asset after ‘‘grantor’’. (c) AMENDMENT RELATED TO SECTION 322.— described in clause (i).’’. (3) AMENDMENTS RELATED TO SECTION 1907.— Subparagraph (B) of section 162(l)(2) is (ii) Subparagraph (A) of section 860L(e)(2) (A) Clause (ii) of section 7701(a)(30)(E) is amended by adding at the end the following is amended by inserting ‘‘except as provided amended by striking ‘‘fiduciaries’’ and in- new sentence: ‘‘The preceding sentence shall in paragraph (3),’’ before ‘‘the receipt’’. serting ‘‘persons’’. be applied separately with respect to— (g) AMENDMENTS RELATED TO SUBTITLE G.— (B) Subsection (b) of section 641 is amended ‘‘(i) plans which include coverage for quali- (1) EXTENSION OF PERIOD FOR CLAIMING RE- by adding at the end the following new sen- fied long-term care services (as defined in FUNDS FOR ALCOHOL FUELS.—Notwithstanding tence: ‘‘For purposes of this subsection, a section 7702B(c)) or are qualified long-term section 6427(i)(3)(C) of the Internal Revenue foreign trust or foreign estate shall be treat- care insurance contracts (as defined in sec- Code of 1986, a claim filed under section ed as a nonresident alien individual who is tion 7702B(b)), and 6427(f) of such Code for any period after Sep- not present in the United States at any ‘‘(ii) plans which do not include such cov- tember 30, 1995, and before October 1, 1996, time.’’. erage and are not such contracts.’’. shall be treated as timely filed if filed before (4) EFFECTIVE DATE RELATED TO SUBTITLE (d) AMENDMENTS RELATED TO SECTION 323.— the 60th day after the date of the enactment I.—The Secretary of the Treasury may by (1) Paragraph (1) of section 6050Q(b) is of this Act. regulations or other administrative guidance amended by inserting ‘‘, address, and phone (2) AMENDMENTS TO SECTIONS 1703 AND 1704.— provide that the amendments made by sec- number of the information contact’’ after Sections 1703(n)(8) and 1704(j)(4)(B) of the tion 1907(a) of the Small Business Job Pro- ‘‘name’’. Small Business Job Protection Act of 1996 tection Act of 1996 shall not apply to a trust (2)(A) Paragraph (2) of section 6724(d) is shall each be applied as if such sections re- with respect to a reasonable period begin- amended by striking so much as follows sub- ferred to section 1702 instead of section 1602. ning on the date of the enactment of such paragraph (Q) and precedes the last sentence, (h) AMENDMENTS RELATED TO SUBTITLE H.— Act, if— and inserting the following new subpara- (1) AMENDMENTS RELATED TO SECTION 1806.— (A) such trust is in existence on August 20, graphs: (A) Subparagraph (B) of section 529(e)(1) is 1996, and is a United States person for pur- ‘‘(R) section 6050R(c) (relating to returns amended by striking ‘‘subsection (c)(2)(C)’’ poses of the Internal Revenue Code of 1986 on relating to certain purchases of fish), and inserting ‘‘subsection (c)(3)(C)’’. such date (determined without regard to ‘‘(S) section 6051 (relating to receipts for (B) Subparagraph (C) of section 529(e)(1) is amended by inserting ‘‘(or agency or instru- such amendments), employees), mentality thereof)’’ after ‘‘local govern- (B) no election is in effect under section ‘‘(T) section 6052(b) (relating to returns re- ment’’. 1907(a)(3)(B) of such Act with respect to such garding payment of wages in the form of (C) Paragraph (2) of section 1806(c) of the trust, group-term life insurance), Small Business Job Protection Act of 1996 is (C) before the expiration of such reason- ‘‘(U) section 6053(b) or (c) (relating to re- amended by striking so much of the first able period, such trust makes the modifica- ports of tips), sentence as follows subparagraph (B)(ii) and tions necessary to be treated as a United ‘‘(V) section 6048(b)(1)(B) (relating to for- inserting the following: States person for purposes of such Code (de- eign trust reporting requirements), termined with regard to such amendments), ‘‘(W) section 4093(c)(4)(B) (relating to cer- ‘‘then such program (as in effect on August and tain purchasers of diesel and aviation fuels), 20, 1996) shall be treated as a qualified State (D) such trust meets such other conditions ‘‘(X) section 408(i) (relating to reports with tuition program with respect to contribu- as the Secretary may require. respect to individual retirement plans) to tions (and earnings allocable thereto) pursu- (j) EFFECTIVE DATE.— any person other than the Secretary with re- ant to contracts entered into under such pro- (1) IN GENERAL.—Except as provided in spect to the amount of payments made to gram before the first date on which such pro- paragraph (2), the amendments made by this such person, or gram meets such requirements (determined section shall take effect as if included in the ‘‘(Y) section 6047(d) (relating to reports by without regard to this paragraph) and the provisions of the Small Business Job Protec- plan administrators) to any person other provisions of such program (as so in effect) tion Act of 1996 to which they relate. than the Secretary with respect to the shall apply in lieu of section 529(b) of the In- (2) CERTAIN ADMINISTRATIVE REQUIREMENTS amount of payments made to such person.’’. ternal Revenue Code of 1986 with respect to WITH RESPECT TO CERTAIN PENSION PLANS.— (B) Subsection (e) of section 6652 is amend- such contributions and earnings.’’. The amendment made by subsection (d)(2)(D) ed in the last sentence by striking ‘‘section (2) AMENDMENTS RELATED TO SECTION 1807.— (A) Paragraph (2) of section 23(a) is amend- shall apply to calendar years beginning after 6724(d)(2)(X)’’ and inserting ‘‘section ed to read as follows: the date of the enactment of this Act. 6724(d)(2)(Y)’’. (e) AMENDMENT RELATED TO SECTION 325.— ‘‘(2) YEAR CREDIT ALLOWED.—The credit SEC. 1502. AMENDMENTS RELATED TO HEALTH under paragraph (1) with respect to any ex- INSURANCE PORTABILITY AND AC- Clauses (ii) and (iii) of section 7702B(g)(4)(B) pense shall be allowed— COUNTABILITY ACT OF 1996. are each amended by striking ‘‘Secretary’’ ‘‘(A) in the case of any expense paid or in- (a) AMENDMENTS RELATED TO SECTION 301.— and inserting ‘‘appropriate State regulatory curred before the taxable year in which such (1) Paragraph (2) of section 26(b) is amend- agency’’. adoption becomes final, for the taxable year ed by striking ‘‘and’’ at the end of subpara- (f) AMENDMENTS RELATED TO SECTION 501.— following the taxable year during which such graph (N), by striking the period at the end (1) Paragraph (4) of section 264(a) is amend- expense is paid or incurred, and of subparagraph (O) and inserting ‘‘, and’’, ed by striking subparagraph (A) and all that ‘‘(B) in the case of an expense paid or in- and by adding at the end the following new follows through ‘‘by the taxpayer.’’ and in- curred during or after the taxable year in subparagraph: serting the following: which such adoption becomes final, for the ‘‘(P) section 220(f)(4) (relating to additional ‘‘(A) is or was an officer or employee, or taxable year in which such expense is paid or tax on medical savings account distributions ‘‘(B) is or was financially interested in, incurred.’’. not used for qualified medical expenses).’’. any trade or business carried on (currently (B) Subparagraph (B) of section 23(b)(2) is (2) Paragraph (3) of section 220(c) is amend- or formerly) by the taxpayer.’’. amended by striking ‘‘determined—’’ and all ed by striking subparagraph (A) and redesig- (2) The last 2 sentences of section that follows and inserting the following: ‘‘de- nating subparagraphs (B) through (D) as sub- 264(d)(2)(B)(ii) are amended to read as fol- termined without regard to sections 911, 931, paragraphs (A) through (C), respectively. lows: and 933.’’. (3) Subparagraph (C) of section 220(d)(2) is ‘‘For purposes of subclause (II), the term ‘ap- (C) Paragraph (1) of section 137(b) (relating amended by striking ‘‘an eligible individual’’ plicable period’ means the 12-month period to adoption assistance programs) is amended and inserting ‘‘described in clauses (i) and beginning on the date the policy is issued by striking ‘‘amount excludable from gross (ii) of subsection (c)(1)(A)’’. (and each successive 12-month period there- income’’ and inserting ‘‘of the amounts paid (4) Subsection (a) of section 6693 is amend- after) unless the taxpayer elects a number of or expenses incurred which may be taken ed by adding at the end the following new months (not greater than 12) other than such into account’’. sentence: 12-month period to be its applicable period. (D)(i) Subparagraph (C) of section 414(n)(3) ‘‘This subsection shall not apply to any re- Such an election shall be made not later is amended by inserting ‘‘137,’’ after ‘‘132,’’. port which is an information return de- than the 90th day after the date of the enact- (ii) Paragraph (2) of section 414(t) is scribed in section 6724(d)(1)(C)(i) or a payee ment of this sentence and, if made, shall amended by inserting ‘‘137,’’ after ‘‘132,’’. statement described in section apply to the taxpayer’s first taxable year (iii) Paragraph (1) of section 6039D(d) is 6724(d)(2)(X).’’. ending on or after October 13, 1995, and all amended by striking ‘‘or 129’’ and inserting (5) Paragraph (4) of section 4975(d) is subsequent taxable years unless revoked ‘‘129, or 137’’. amended by striking ‘‘if, with respect to with the consent of the Secretary.’’. (i) AMENDMENTS RELATED TO SUBTITLE I.— such transaction’’ and all that follows and (3) Subparagraph (B) of section 264(d)(4) is (1) AMENDMENT RELATED TO SECTION 1901.— inserting the following: ‘‘if section 220(e)(2) amended by striking ‘‘the employer’’ and in- Subsection (b) of section 6048 is amended in applies to such transaction.’’. serting ‘‘the taxpayer’’. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4777 (4) Subsection (c) of section 501 of the SEC. 1503. AMENDMENTS RELATED TO TAXPAYER ‘‘(except that’’ and all that follows through Health Insurance Portability and Account- BILL OF RIGHTS 2. ‘‘into account)’’. ability Act of 1996 is amended by striking (a) AMENDMENT RELATED TO SECTION 1311.— (4) The amendments made by this sub- paragraph (3). Subsection (b) of section 4962 is amended by section shall take effect as if included in the (5) Paragraph (2) of section 501(d) of such striking ‘‘subchapter A or C’’ and inserting sections of the Uruguay Round Agreements Act is amended by striking ‘‘no additional ‘‘subchapter A, C, or D’’. Act to which they relate. premiums’’ and all that follows and inserting (b) AMENDMENTS RELATED TO SECTION (c) AMENDMENT RELATED TO OMNIBUS BUDG- the following: ‘‘a lapse occurring by reason 1312.— ET RECONCILIATION ACT OF 1993.— of no additional premiums being received (1)(A) Paragraph (10) of section 6033(b) is (1) Paragraph (6) of section 168(j) (defining under the contract after October 13, 1995.’’. amended by striking all that precedes sub- Indian reservation) is amended by adding at paragraph (A) and inserting the following: the end the following new flush sentence: (g) AMENDMENTS RELATED TO SECTION 511.— ‘‘(10) the respective amounts (if any) of the (1) Subparagraph (B) of section 877(d)(2) is ‘‘For purposes of the preceding sentence, taxes imposed on the organization, or any such section 3(d) shall be applied by treating amended by striking ‘‘the 10-year period de- organization manager of the organization, scribed in subsection (a)’’ and inserting ‘‘the the term ‘former Indian reservations in during the taxable year under any of the fol- Oklahoma’ as including only lands which are 10-year period beginning on the date the in- lowing provisions (and the respective dividual loses United States citizenship’’. within the jurisdictional area of an Okla- amounts (if any) of reimbursements paid by homa Indian tribe (as determined by the Sec- (2) Subparagraph (D) of section 877(d)(2) is the organization during the taxable year retary of the Interior) and are recognized by amended by adding at the end the following with respect to taxes imposed on any such such Secretary as eligible for trust land sta- new sentence: ‘‘In the case of any exchange organization manager under any of such pro- tus under 25 CFR Part 151 (as in effect on the occurring during such 5 years, any gain rec- visions):’’. date of the enactment of this sentence).’’. ognized under this subparagraph shall be rec- (B) Subparagraph (C) of section 6033(b)(10) (2) The amendment made by paragraph (1) ognized immediately after such loss of citi- is amended by adding at the end the follow- shall apply as if included in the amendments zenship.’’. ing: ‘‘except to the extent that, by reason of made by section 13321 of the Omnibus Budget (3) Paragraph (3) of section 877(d) is amend- section 4962, the taxes imposed under such Reconciliation Act of 1993, except that such ed by inserting ‘‘and the period applicable section are not required to be paid or are amendment shall not apply— under paragraph (2)’’ after ‘‘subsection (a)’’. credited or refunded,’’. (A) with respect to property (with an appli- (4) Subparagraph (A) of section 877(d)(4) is (2) Paragraph (11) of section 6033(b) is cable recovery period under section 168(j) of amended— amended to read as follows: the Internal Revenue Code of 1986 of 6 years (A) by inserting ‘‘during the 10-year period ‘‘(11) the respective amounts (if any) of— or less) held by the taxpayer if the taxpayer beginning on the date the individual loses ‘‘(A) the taxes imposed with respect to the claimed the benefits of section 168(j) of such United States citizenship’’ after ‘‘contrib- organization on any organization manager, Code with respect to such property on a re- utes property’’ in clause (i), or any disqualified person, during the tax- turn filed before March 18, 1997, but only if (B) by inserting ‘‘immediately before such able year under section 4958 (relating to such return is the first return of tax filed for contribution’’ after ‘‘from such property’’, taxes on private excess benefit from certain the taxable year in which such property was and charitable organizations), and placed in service, or (C) by striking ‘‘during the 10-year period ‘‘(B) reimbursements paid by the organiza- (B) with respect to wages for which the referred to in subsection (a),’’. tion during the taxable year with respect to taxpayer claimed the benefits of section 45A (5) Subparagraph (C) of section 2501(a)(3) is taxes imposed under such section, of such Code for a taxable year on a return amended by striking ‘‘decedent’’ and insert- except to the extent that, by reason of sec- filed before March 18, 1997, but only if such ing ‘‘donor’’. tion 4962, the taxes imposed under such sec- return was the first return of tax filed for (6)(A) Clause (i) of section 2107(c)(2)(A) is tion are not required to be paid or are cred- such taxable year. amended by striking ‘‘such foreign country ited or refunded,’’. (d) AMENDMENT RELATED TO TAX REFORM in respect of property included in the gross (c) EFFECTIVE DATE.—The amendments ACT OF 1986.—Paragraph (3) of section 1059(d) estate’’ and inserting ‘‘such foreign coun- made by this section shall take effect as if is amended by striking ‘‘subsection (a)(2)’’ try’’. included in the provisions of the Taxpayer and inserting ‘‘subsection (a)’’. (B) Subparagraph (C) of section 2107(c)(2) is Bill of Rights 2 to which such amendments (e) AMENDMENT RELATED TO TAX REFORM amended to read as follows: relate. ACT OF 1984.— ‘‘(C) PROPORTIONATE SHARE.—In the case of SEC. 1504. MISCELLANEOUS PROVISIONS. (1) Section 267(f) is amended by adding at property which is included in the gross es- the end the following new paragraph: (a) AMENDMENTS RELATED TO ENERGY POL- tate solely by reason of subsection (b), such ‘‘(4) DETERMINATION OF RELATIONSHIP RE- ICY ACT OF 1992.— property’s proportionate share is the per- (1) Paragraph (1) of section 263(a) is amend- SULTING IN DISALLOWANCE OF LOSS, FOR PUR- centage which the value of such property ed by striking ‘‘or’’ at the end of subpara- POSES OF OTHER PROVISIONS.—For purposes of bears to the total value of all property in- graph (F), by striking the period at the end any other section of this title which refers to cluded in the gross estate solely by reason of of subparagraph (G) and inserting ‘‘; or’’, and a relationship which would result in a dis- subsection (b).’’. by adding at the end the following new sub- allowance of losses under this section, defer- (h) AMENDMENTS RELATED TO SECTION 512.— paragraph: ral under paragraph (2) shall be treated as (1) Subpart A of part III of subchapter A of ‘‘(H) expenditures for which a deduction is disallowance.’’. chapter 61 is amended by redesignating the allowed under section 179A.’’. (2) EFFECTIVE DATE.—The amendment section 6039F added by section 512 of the (2) Subparagraph (B) of section 312(k)(3) is made by paragraph (1) shall take effect as if Health Insurance Portability and Account- amended— included in section 174(b) of the Tax Reform ability Act of 1996 as section 6039G and by (A) by striking ‘‘179’’ in the heading and Act of 1984. (f) CLERICAL AMENDMENTS.— moving such section 6039G to immediately the first place it appears in the text and in- (1) Clause (iii) of section 163(j)(2)(B) is after the section 6039F added by section 1905 serting ‘‘179 or 179A’’, and amended by striking ‘‘clause (i)’’ and insert- of the Small Business Job Protection Act of (B) by striking ‘‘179’’ the last place it ap- ing ‘‘clause (ii)’’. 1996. pears and inserting ‘‘179 or 179A, as the case (2) Paragraph (1) of section 665(d) is amend- (2) The table of sections for subpart A of may be’’. ed in the last sentence by striking ‘‘or 669(d) part III of subchapter A of chapter 61 is (3) Paragraphs (2)(C) and (3)(C) of section and (e)’’. amended by striking the item relating to the 1245(a) are each amended by inserting (3) Subsection (g) of section 1441 (relating section 6039F related to information on indi- ‘‘179A,’’ after ‘‘179,’’. to cross reference) is amended by striking viduals losing United States citizenship and (4) The amendments made by this sub- ‘‘one-half’’ and inserting ‘‘85 percent’’. inserting after the item relating to the sec- section shall take effect as if included in the (4) Paragraph (1) of section 2523(g) is tion 6039F related to notice of large gifts re- amendments made by section 1913 of the En- amended by striking ‘‘qualified remainder ceived from foreign persons the following ergy Policy Act of 1992. trust’’ and inserting ‘‘qualified charitable re- new item: (b) AMENDMENTS RELATED TO URUGUAY mainder trust’’. ROUND AGREEMENTS ACT.— (5) Subsection (d) of section 9502 is amend- ‘‘Sec. 6039G. Information on individuals los- (1) Paragraph (1) of section 6621(a) is ed by redesignating the paragraph added by ing United States citizenship.’’. amended in the last sentence by striking section 806 of the Federal Aviation Reau- ‘‘subsection (c)(3))’’ and inserting ‘‘sub- (3) Paragraph (1) of section 877(e) is amend- thorization Act of 1996 as paragraph (6). ed by striking ‘‘6039F’’ and inserting section (c)(3), applied by substituting ‘over- ‘‘6039G’’. payment’ for ‘underpayment’)’’. The CHAIRMAN pro tempore. No (2) Subclause (II) of section 412(m)(5)(E)(ii) other amendment is in order except the (i) EFFECTIVE DATE.—The amendments is amended by striking ‘‘clause (i)’’ and in- made by this section shall take effect as if serting ‘‘subclause (I)’’. further amendment numbered 1 in the included in the provisions of the Health In- (3) Subparagraph (A) of section 767(d)(3) of CONGRESSIONAL RECORD. That amend- surance Portability and Accountability Act the Uruguay Round Agreements Act is ment may be offered only by the gen- of 1996 to which such amendments relate. amended in the last sentence by striking tleman from New York [Mr. RANGEL] or H4778 CONGRESSIONAL RECORD — HOUSE June 26, 1997 his designee, shall be considered as Sec. 704. Modifications to enterprise zone fa- Sec. 1035. Returns of beneficiaries of estates read, shall be debatable for 1 hour, cility bond rules for all and trusts required to file re- equally divided and controlled by the empowerment zones and enter- turns consistent with estate or proponent and an opponent, shall not prise communities. trust return or to notify Sec- Sec. 705. Modifications to enterprise zone retary of inconsistency. be subject to amendment, and shall not business definition for all be subject to a demand for a division of Subtitle E—Excise and Employment Tax empowerment zones and enter- Provisions the question. prise communities. Sec. 1041. Extension and modification of Air- AMENDMENT IN THE NATURE OF A SUBSTITUTE Subtitle B—Brownfields port and Airway Trust Fund OFFERED BY MR. RANGEL Sec. 711. Expensing of environmental reme- taxes. Mr. RANGEL. Mr. Chairman, I offer diation costs. Sec. 1042. Credit for tire tax in lieu of exclu- an amendment in the nature of a sub- Sec. 712. Use of redevelopment bonds for en- sion of value of tires in comput- stitute No. 1, pursuant to the rule. vironmental remediation. ing price. Sec. 1043. Restoration of Leaking Under- The CHAIRMAN pro tempore. The Subtitle C—Welfare to Work Credit ground Storage Tank Trust Clerk will designate the amendment in Sec. 721. Welfare to work credit. the nature of a substitute. Fund taxes. Sec. 1044. Reinstatement of Oil Spill Liabil- The text of the amendment in the na- Subtitle D—Community Development Financial Institutions ity Trust Fund tax. ture of a substitute is as follows: Sec. 731. Credit for qualified equity invest- Sec. 1045. Extension of Federal unemploy- Amendment in the nature of a substitute ments in community develop- ment surtax. No. 1 offered by Mr. RANGEL: ment financial institutions. Subtitle F—Provisions Relating to Tax- Strike all after enacting clause, and insert Exempt Entities the following: TITLE VIII—OTHER TAX RELIEF Sec. 1051. Expansion of look-thru rule for in- Sec. 801. Suspension of statute of limita- SECTION 1. SHORT TITLE; AMENDMENT OF 1986 terest, annuities, royalties, and CODE. tions on filing refund claims rents derived by subsidiaries of (a) SHORT TITLE.—This Act may be cited as during periods of disability. tax-exempt organizations. the ‘‘Revenue Reconciliation Act of 1997’’. Sec. 802. Modifications of Puerto Rico eco- (b) AMENDMENT OF 1986 CODE.—Except as nomic activity credit. Subtitle G—Foreign-Related Provisions otherwise expressly provided, whenever in Sec. 803. Treatment of software as FSC ex- Sec. 1061. Definition of foreign personal this Act an amendment or repeal is ex- port property. holding company income. pressed in terms of an amendment to, or re- TITLE IX—INCENTIVES FOR THE Sec. 1062. Personal property used predomi- peal of, a section or other provision, the ref- DISTRICT OF COLUMBIA nantly in the United States erence shall be considered to be made to a treated as not property of a like section or other provision of the Internal Sec. 901. Tax incentives for revitalization of kind with respect to property Revenue Code of 1986. the District of Columbia. used predominantly outside the (c) TABLE OF CONTENTS.— TITLE X—REVENUES United States. Sec. 1. Short title; amendment of 1986 Code. Subtitle A—Financial Products Sec. 1063. Holding period requirement for certain foreign taxes. Sec. 2. Modifications of certain require- Sec. 1001. Constructive sales treatment for Sec. 1064. Penalties for failure to disclose ments. appreciated financial positions. position that certain inter- TITLE I—TAX INCENTIVES FOR HIGHER Sec. 1002. Limitation on exception for in- national transportation income EDUCATION vestment companies under sec- is not includible in gross in- Sec. 101. Hope scholarship credits. tion 351. Sec. 102. Employer-provided educational as- come. Sec. 1003. Modification of rules for allocat- Sec. 1065. Interest on underpayments not re- sistance programs. ing interest expense to tax-ex- duced by foreign tax credit TITLE II—PUBLIC-PRIVATE EDUCATION empt interest. carrybacks. PARTNERSHIPS Sec. 1004. Gains and losses from certain ter- Subtitle H—Other Revenue Provisions Sec. 201. Purpose. minations with respect to prop- Sec. 202. Incentives for education zones. erty. Sec. 1071. Termination of suspense accounts for family corporations re- TITLE III—FAMILY TAX RELIEF Sec. 1005. Determination of original issue discount where pooled debt ob- quired to use accrual method of Sec. 301. Credit for families with young chil- ligations subject to accelera- accounting. dren. tion. Sec. 1072. Allocation of basis among prop- TITLE IV—CAPITAL GAINS RELIEF Sec. 1006. Denial of interest deductions on erties distributed by partner- Subtitle A—Exemption From Tax for Gain certain debt instruments. ship. Sec. 1073. Repeal of requirement that inven- on Sale of Principal Residence Subtitle B—Corporate Organizations and tory be substantially appre- Sec. 401. Exemption from tax for gain on Reorganizations ciated. sale of principal residence. Sec. 1011. Tax treatment of certain extraor- Sec. 402. Capital loss deduction allowed with Sec. 1074. Extension of time for taxing dinary dividends. precontribution gain. respect to sale or exchange of Sec. 1012. Application of section 355 to dis- principal residence. Sec. 1075. Limitation on property for which tributions followed by acquisi- income forecast method may be Subtitle B—Lifetime Capital Gains Rate tions and to intragroup trans- used. Reduction for Nontradable Property actions. Sec. 1076. Repeal of special rule for rental Sec. 411. Lifetime capital gains rate reduc- Sec. 1013. Tax treatment of redemptions in- use of vacation homes, etc., for tion for nontradable property. volving related corporations. less than 15 days. TITLE V—ESTATE TAX RELIEF Sec. 1014. Modification of holding period ap- Sec. 1077. Expansion of requirement that in- Sec. 501. Family-owned business exclusion. plicable to dividends received voluntarily converted property deduction. be replaced with property ac- TITLE VI—EXTENSION OF EXPIRING quired from an unrelated per- PROVISIONS Subtitle C—Other Corporate Provisions son. Sec. 1021. Registration and other provisions Sec. 601. Research credit. Sec. 1078. Treatment of exception from in- relating to confidential cor- Sec. 602. Orphan drug credit made perma- stallment sales rules for sales porate tax shelters. nent. of property by a manufacturer Sec. 1022. Certain preferred stock treated as Sec. 603. Contributions of appreciated stock. to a dealer. Sec. 604. Extension and modification of work boot. opportunity credit. SEC. 2. MODIFICATIONS OF CERTAIN REQUIRE- Subtitle D—Administrative Provisions MENTS. TITLE VII—EMPOWERMENT ZONES, ETC. Sec. 1031. Reporting of certain payments (a) MODIFICATION OF DEPOSIT OF AIRLINE Subtitle A—Empowerment Zones made to attorneys. TICKET TAX REVENUES.—Deposits of taxes Sec. 701. Additional empowerment zones Sec. 1032. Decrease of threshold for report- imposed by section 4261 of the Internal Reve- with current law benefits. ing payments to corporations nue Code of 1986 which (but for this sub- Sec. 702. Designation of additional performing services for Federal section) would be required to be made on or empowerment zones and enter- agencies. after July 1, 2001, and before October 1, 2001, prise communities. Sec. 1033. Disclosure of return information shall be made on October 10, 2001. Sec. 703. Volume cap not to apply to enter- for administration of certain (b) MODIFICATION OF ESTIMATED TAX PROVI- prise zone facility bonds with veterans programs. SIONS.—Subparagraph (C) of section 6654(d)(1) respect to new empowerment Sec. 1034. Continuous levy on certain pay- of the Internal Revenue Code of 1986 shall zones. ments. not apply in determining the amount of any June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4779

required installment for a taxable year be- ‘‘(3) CREDIT ALLOWED FOR YEAR ONLY IF IN- poses of this section as paid by such other ginning in calendar year 2001. DIVIDUAL IS AT LEAST 1⁄2 TIME STUDENT FOR taxpayer. TITLE I—TAX INCENTIVES FOR HIGHER PORTION OF YEAR.—No credit shall be allowed ‘‘(f) TREATMENT OF CERTAIN PREPAY- EDUCATION under subsection (a) for a taxable year with MENTS.—If qualified higher education ex- penses are paid by the taxpayer during a tax- SEC. 101. HOPE SCHOLARSHIP CREDITS. respect to the qualified higher education ex- able year for an academic period which be- (a) IN GENERAL.—Subpart A of part IV of penses of an individual unless such individ- gins during the first 3 months following such subchapter A of chapter 1 (relating to non- ual is an eligible student for at least one aca- taxable year, such academic period shall be refundable personal credits) is amended by demic period which begins during such year. treated for purposes of this section as begin- inserting after section 23 the following new ‘‘(c) LIMITATION BASED ON MODIFIED AD- JUSTED GROSS INCOME.— ning during such taxable year. section: ‘‘(g) SPECIAL RULES.— ‘‘SEC. 24. HOPE SCHOLARSHIP CREDITS. ‘‘(1) IN GENERAL.—The amount which would (but for this section) be allowed as a credit ‘‘(1) DENIAL OF CREDIT IF INDIVIDUAL CON- ‘‘(a) ALLOWANCE OF CREDIT.—In the case of VICTED OF DRUG OFFENSE.—No credit shall be an individual, there shall be allowed as a under subsection (a) for the taxable year shall be reduced (but not below zero) by the allowed under subsection (a) with respect to credit against the tax imposed by this chap- the qualified higher education expenses of an amount determined under paragraph (2). ter for the taxable year the amount equal to individual for any taxable year if the indi- ‘‘(2) AMOUNT OF REDUCTION.—The amount the sum of— vidual has been convicted before the end of determined under this paragraph is the ‘‘(1) the 100-Percent Hope Scholarship such year of a Federal or State felony of- amount which bears the same ratio to the Credit, and fense consisting of the possession or distribu- credit which would be so allowed as— ‘‘(2) the 20-Percent Hope Scholarship Cred- tion of a controlled substance. ‘‘(A) the excess of— it. ‘‘(2) DENIAL OF CREDIT IF INDIVIDUAL FAILS ‘‘(i) the taxpayer’s modified adjusted gross ‘‘(b) AMOUNT OF CREDITS.—For purposes of TO MAKE SATISFACTORY ACADEMIC PROGRESS.— income for such taxable year, over this section— If— ‘‘(ii) $50,000 ($80,000 in the case of a joint re- ‘‘(1) HOPE CREDIT.— ‘‘(A) if a credit is allowable under this sec- ‘‘(A) IN GENERAL.—The 100-Percent Hope turn), bears to tion with respect to the qualified higher edu- Scholarship Credit is the amount of the ‘‘(B) $20,000. cation expenses of an individual for any tax- qualified higher education expenses paid by ‘‘(3) MODIFIED ADJUSTED GROSS INCOME.— able year, and the taxpayer during the taxable year for edu- The term ‘modified adjusted gross income’ ‘‘(B) such individual failed to make satis- cation furnished to an individual during any means the adjusted gross income of the tax- factory academic progress described in sec- academic period beginning in such taxable payer for the taxable year increased by any tion 484(c) of the Higher Education Act of year, but only if this paragraph applies to amount excluded from gross income under 1965 during such year, section 911, 931, or 933. such individual for such taxable year. no credit shall be allowed under subsection ‘‘(B) DOLLAR LIMITATION.—The amount of ‘‘(d) DEFINITIONS.—For purposes of this sec- tion— (a) with respect to qualified higher education the 100-Percent Hope Scholarship Credit de- expenses of such individual for a succeeding ‘‘(1) QUALIFIED HIGHER EDUCATION EX- termined under this paragraph with respect taxable year. PENSES.— to any individual shall not exceed— ‘‘(3) NO DOUBLE BENEFIT.—No credit shall ‘‘(A) IN GENERAL.—The term ‘qualified ‘‘(i) $1,100 for taxable years beginning in be allowed under subsection (a) for any tax- higher education expenses’ means tuition 1997, 1998, or 1999, able year for any expense for which a deduc- and fees required for the enrollment or at- ‘‘(ii) $1,200 for taxable years beginning in tion is allowed under any other provision of tendance of— 2000, or this chapter. ‘‘(i) the taxpayer, ‘‘(iii) $1,500 for taxable years beginning in ‘‘(4) IDENTIFICATION REQUIREMENT.—No ‘‘(ii) the taxpayer’s spouse, or 2001 or thereafter. credit shall be allowed under subsection (a) ‘‘(iii) any dependent of the taxpayer with ‘‘(C) 100-PERCENT HOPE SCHOLARSHIP CREDIT to a taxpayer with respect to the qualified respect to whom the taxpayer is allowed a ALLOWED FOR ONLY 2 TAXABLE YEARS.—This higher education expenses of an individual paragraph shall apply for a taxable year with deduction under section 151, unless the taxpayer includes the name and respect to the qualified higher education ex- at an institution of higher education. taxpayer identification number of such indi- penses of an individual only if the taxpayer ‘‘(B) EXCEPTION FOR EDUCATION INVOLVING vidual on the return of tax for the taxable elects to have this section apply with respect SPORTS, ETC.—Such term does not include ex- year. to such individual for such year. An election penses with respect to any course or other ‘‘(5) ADJUSTMENT FOR CERTAIN SCHOLAR- under this subparagraph shall not take effect education involving sports, games, or hob- SHIPS.—The amount of qualified higher edu- with respect to an individual for any taxable bies, unless such course or other education is cation expenses otherwise taken into ac- year if an election under this subparagraph part of the individual’s degree program. count under subsection (b) with respect to an (by the taxpayer or any other individual) is ‘‘(C) EXCEPTION FOR NONACADEMIC FEES.— individual for an academic period shall be re- in effect with respect to such individual for Such term does not include student activity duced (before the application of any dollar any 2 prior taxable years. fees, athletic fees, insurance expenses, or limitation under this section) by the sum ‘‘(D) 100-PERCENT HOPE SCHOLARSHIP CREDIT other expenses unrelated to an individual’s of— ALLOWED ONLY FOR FIRST 2 YEARS OF POST- academic course of instruction. ‘‘(A) any amounts paid for the benefit of SECONDARY EDUCATION.—This paragraph shall ‘‘(2) INSTITUTION OF HIGHER EDUCATION.— such individual which are allocable to such not apply for a taxable year with respect to The term ‘institution of higher education’ period as— the qualified higher education expenses of an means an institution— ‘‘(i) a qualified scholarship which is exclud- individual if the individual has completed ‘‘(A) which is described in section 481 of the able from gross income under section 117, (before the beginning of such taxable year) Higher Education Act of 1965 (20 U.S.C. 1088), ‘‘(ii) an educational assistance allowance the first 2 years of postsecondary education as in effect on the date of the enactment of under chapter 30, 31, 32, 34, or 35 of title 38, at an institution of higher education. this section, and United States Code, or under chapter 1606 of ‘‘(2) 20-PERCENT HOPE SCHOLARSHIP CRED- ‘‘(B) which is eligible to participate in a title 10, United States Code, IT.— program under title IV of such Act. ‘‘(iii) a payment which is excludable from ‘‘(A) IN GENERAL.—The 20-Percent Hope ‘‘(3) ELIGIBLE STUDENT.—The term ‘eligible gross income under section 127, or Scholarship Credit is 20 percent of the quali- student’ means, with respect to any aca- ‘‘(iv) a payment (other than a gift, bequest, fied higher education expenses paid by the demic period, a student who— devise, or inheritance within the meaning of taxpayer during the taxable year for edu- ‘‘(A) meets the requirements of section section 102(a)) for such individual’s edu- cation furnished to an individual during any 484(a)(1) of the Higher Education Act of 1965 cational expenses, or attributable to such in- academic period beginning in such taxable (20 U.S.C. 1091(a)(1)), as in effect on the date dividual’s enrollment at an institution of year. Education expenses with respect to an of the enactment of this section, and higher education, which is excludable from individual for whom a Hope credit is deter- ‘‘(B) is carrying at least 1⁄2 the normal full- gross income under any law of the United mined for the taxable year shall not be taken time work load for the course of study the States, and into account under this paragraph. student is pursuing. ‘‘(B) the amount excludable from gross in- ‘‘(B) DOLLAR LIMITATION.—The amount of ‘‘(e) TREATMENT OF EXPENSES PAID BY DE- come under section 135 which is allocable to qualified higher education expenses taken PENDENT.—If a deduction under section 151 such expenses with respect to such individ- into account under subparagraph (A) for any with respect to an individual is allowed to ual for such period. taxable year shall not exceed— another taxpayer for a taxable year begin- ‘‘(6) NO CREDIT FOR MARRIED INDIVIDUALS ‘‘(i) $4,000 for taxable years beginning in ning in the calendar year in which such indi- FILING SEPARATE RETURNS.—If the taxpayer 1997, 1998, or 1999, vidual’s taxable year begins— is a married individual (within the meaning ‘‘(ii) $5,000 for taxable years beginning in ‘‘(1) no credit shall be allowed under sub- of section 7703), this section shall apply only 2000, section (a) to such individual for such indi- if the taxpayer and the taxpayer’s spouse file ‘‘(iii) $7,500 for taxable years beginning in vidual’s taxable year, and a joint return for the taxable year. 2001, or ‘‘(2) qualified higher education expenses ‘‘(7) NONRESIDENT ALIENS.—If the taxpayer ‘‘(iv) $10,000 for taxable years beginning in paid by such individual during such individ- is a nonresident alien individual for any por- 2002 or thereafter. ual’s taxable year shall be treated for pur- tion of the taxable year, this section shall H4780 CONGRESSIONAL RECORD — HOUSE June 26, 1997

apply only if such individual is treated as a ‘‘(b) FORM AND MANNER OF RETURNS.—A re- striking the period at the end of the last sub- resident alien of the United States for pur- turn is described in this subsection if such paragraph and inserting ‘‘, or’’, and by add- poses of this chapter by reason of an election return— ing at the end the following new subpara- under subsection (g) or (h) of section 6013. ‘‘(1) is in such form as the Secretary may graph: ‘‘(h) INFLATION ADJUSTMENTS.— prescribe, ‘‘(Z) section 6050S(d) (relating to returns ‘‘(1) DOLLAR LIMITATION ON AMOUNT OF ‘‘(2) contains— relating to qualified higher education ex- CREDIT.— ‘‘(A) the name, address, and TIN of the in- penses).’’ ‘‘(A) IN GENERAL.—In the case of a taxable dividual with respect to whom payments de- (3) CLERICAL AMENDMENT.—The table of year beginning after 2001, each applicable scribed in subsection (a) were received from sections for subpart B of part III of sub- dollar amount contained in subsection (b) (or were paid to), chapter A of chapter 61 is amended by insert- shall be increased by an amount equal to— ‘‘(B) the name, address, and TIN of any in- ing after the item relating to section 6050R ‘‘(i) such dollar amount, multiplied by dividual certified by the individual described the following new item: ‘‘(ii) the cost-of-living adjustment deter- in subparagraph (A) as the taxpayer who will ‘‘Sec. 6050S. Returns relating to higher edu- mined under section 1(f)(3) for the calendar claim the individual as a dependent for pur- cation expenses.’’ year in which the taxable year begins, deter- poses of the deduction allowable under sec- tion 151 for any taxable year ending with or (d) CONFORMING AMENDMENT.—The table of mined by substituting ‘calendar year 2000’ sections for subpart A of part IV of sub- within the calendar year, for ‘calendar year 1992’ in subparagraph (B) chapter A of chapter 1 is amended by insert- ‘‘(C) the— thereof. ing after the item relating to section 23 the ‘‘(i) aggregate amount of payments for ‘‘(B) ROUNDING.—If any amount as adjusted following new item: under subparagraph (A) is not a multiple of qualified higher education expenses received $50, such amount shall be rounded to the with respect to the individual described in ‘‘Sec. 24. Hope scholarship credits.’’ next lowest multiple of $50. subparagraph (A) during the calendar year, (e) CREDIT ALLOWED AGAINST MINIMUM ‘‘(2) INCOME LIMITS.— and TAX.—Section 26 is amended by adding at the ‘‘(A) IN GENERAL.—In the case of a taxable ‘‘(ii) aggregate amount of reimbursements end the following new subsection: year beginning after 2000, the $50,000 and or refunds (or similar amounts) paid to such ‘‘(c) SCHOLARSHIP CREDITS ALLOWED $80,000 amounts in subsection (c)(2) shall individual during the calendar year, and AGAINST MINIMUM TAX.—Subsection (a) shall each be increased by an amount equal to— ‘‘(D) such other information as the Sec- not apply to the credit allowable under sec- ‘‘(i) such dollar amount, multiplied by retary may prescribe. tion 24, but the amount of the credit allowed ‘‘(ii) the cost-of-living adjustment deter- ‘‘(c) APPLICATION TO GOVERNMENTAL by that section shall not exceed the sum of— mined under section 1(f)(3) for the calendar UNITS.—For purposes of this section— ‘‘(1) the regular tax liability for the tax- year in which the taxable year begins, deter- ‘‘(1) a governmental unit or any agency or able year reduced by the sum of the credits mined by substituting ‘calendar year 1999’ instrumentality thereof shall be treated as a allowable under this subpart (other than sec- for ‘calendar year 1992’ in subparagraph (B) person, and tion 24), and thereof. ‘‘(2) any return required under subsection ‘‘(2) the minimum tax imposed by section ‘‘(B) ROUNDING.—If any amount as adjusted (a) by such governmental entity shall be 55.’’ FFECTIVE DATE.—The amendments under subparagraph (A) is not a multiple of made by the officer or employee appro- (f) E made by this section shall apply to expenses $5,000, such amount shall be rounded to the priately designated for the purpose of mak- paid after December 31, 1996 (in taxable years next lowest multiple of $5,000. ing such return. ‘‘(d) STATEMENTS TO BE FURNISHED TO INDI- ending after such date), for education fur- ‘‘(i) REGULATIONS.—The Secretary may VIDUALS WITH RESPECT TO WHOM INFORMA- nished in academic periods beginning after prescribe such regulations as may be nec- TION IS REQUIRED.—Every person required to June 30, 1997. essary or appropriate to carry out this sec- make a return under subsection (a) shall fur- SEC. 102. EMPLOYER-PROVIDED EDUCATIONAL tion, including regulations providing for a nish to each individual whose name is re- ASSISTANCE PROGRAMS. recapture of credit allowed under this sec- quired to be set forth in such return under (a) PERMANENT EXTENSION.—Section 127 tion in cases where there is a refund in a sub- subparagraph (A) or (B) of subsection (b)(2) a (relating to exclusion for educational assist- sequent taxable year of any amount which written statement showing— ance programs) is amended by striking sub- was taken into account in determining the ‘‘(1) the name, address, and phone number section (d) and by redesignating subsection amount of such credit.’’ of the information contact of the person re- (e) as subsection (d). (b) EXTENSION OF PROCEDURES APPLICABLE quired to make such return, and (b) REPEAL OF LIMITATION ON GRADUATE TO MATHEMATICAL OR CLERICAL ERRORS.— ‘‘(2) the aggregate amounts described in EDUCATION.—The last sentence of section 127(c)(1) is amended by striking ‘‘, and such Paragraph (2) of section 6213(g) (relating to subparagraph (C) of subsection (b)(2). the definition of mathematical or clerical er- term also does not include any payment for, The written statement required under the rors) is amended by striking ‘‘and’’ at the or the provision of any benefits with respect preceding sentence shall be furnished on or to, any graduate level course of a kind nor- end of subparagraph (G), by striking the pe- before January 31 of the year following the riod at the end of subparagraph (H) and in- mally taken by an individual pursuing a pro- calendar year for which the return under gram leading to a law, business, medical, or serting ‘‘, and’’, and by inserting after sub- subsection (a) was required to be made. paragraph (H) the following new subpara- other advanced academic or professional de- ‘‘(e) DEFINITIONS.—For purposes of this sec- gree’’. graph: tion, the terms ‘institution of higher edu- ‘‘(I) an omission of a correct TIN required (c) EFFECTIVE DATES.— cation’ and ‘qualified higher education ex- (1) EXTENSION.—The amendment made by under section 24(g)(4) (relating to higher edu- penses’ have the respective meanings given cation tuition and fees) to be included on a subsection (a) shall apply to taxable years such terms by section 24. beginning after December 31, 1996. return.’’ ‘‘(f) RETURNS WHICH WOULD BE REQUIRED (2) GRADUATE EDUCATION.—The amendment (c) RETURNS RELATING TO HIGHER EDU- TO BE MADE BY 2 OR MORE PERSONS.—Except made by subsection (b) shall apply with re- CATION EXPENSES.— to the extent provided in regulations pre- spect to expenses relating to courses begin- (1) IN GENERAL.—Subpart B of part III of scribed by the Secretary, in the case of any ning after June 30, 1997. subchapter A of chapter 61 (relating to infor- amount received by any person on behalf of mation concerning transactions with other another person, only the person first receiv- TITLE II—PUBLIC-PRIVATE EDUCATION persons) is amended by inserting after sec- ing such amount shall be required to make PARTNERSHIPS tion 6050R the following new section: the return under subsection (a). SEC. 201. PURPOSE. ‘‘(g) REGULATIONS.—The Secretary shall The purpose of this title is to facilitate the ‘‘SEC. 6050S. RETURNS RELATING TO HIGHER establishment of working partnerships of EDUCATION EXPENSES. prescribe such regulations as may be nec- essary to carry out the provisions of this sec- public school educators, businesses, labor, ‘‘(a) IN GENERAL.—Any person— tion. No penalties shall be imposed under and community groups to— ‘‘(1) which is an institution of higher edu- section 6724 with respect to any return or (1) enhance the academic curriculum for cation which receives payments for qualified statement required under this section until education and training below the postsecond- higher education expenses with respect to such time as such regulations are issued.’’ ary level, any individual for any calendar year, or (2) ASSESSABLE PENALTIES.—Section 6724(d) (2) increase graduation and employment ‘‘(2) which is engaged in a trade or business (relating to definitions) is amended— rates, which, in the course of such trade or business (A) in paragraph (1)(B) by redesignating (3) better prepare students for the rigors of makes payments during any calendar year to clauses (x) through (xv) as clauses (xi) college and the increasingly complex any individual which constitute reimburse- through (xvi), respectively, and by inserting workforce, and ments or refunds (or similar amounts) of after clause (ix) of such paragraph the fol- (4) promote the global leadership position qualified higher education expenses of such lowing new clause: of the United States economy, individual, ‘‘(x) section 6050S (relating to returns re- by providing a no-cost source of capital to el- shall make the return described in sub- lating to payments for qualified higher edu- igible local education agencies for the cost of section (b) with respect to the individual at cation expenses),’’, and establishing specialized academies in dis- such time as the Secretary may by regula- (B) in paragraph (2) by striking ‘‘or’’ at the tressed areas (referred to as ‘‘education tions prescribe. end of the next to last subparagraph, by zones’’). June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4781

SEC. 202. INCENTIVES FOR EDUCATION ZONES. fied contribution’ means any contribution ‘‘(e) LIMITATION ON AMOUNT OF BONDS DES- (a) IN GENERAL.—Part III of subchapter U (of a type and quality acceptable to the eligi- IGNATED.— of chapter 1 (relating to additional incen- ble local education agency) of— ‘‘(1) NATIONAL LIMITATION.—There is a na- tives for empowerment zones), as amended ‘‘(i) equipment for use in the qualified zone tional zone academy bond limitation for by subsection (b), is amended by inserting academy (including state-of-the-art tech- each calendar year. Such limitation is after subpart B the following new subpart: nology and vocational equipment), $10,000,000,000 for 1998, 1999, 2000, 2001, and ‘‘Subpart C—Incentives for Education Zones ‘‘(ii) technical assistance in developing 2002, and zero thereafter. ‘‘Sec. 1397B. Credit to holders of qualified curriculum or in training teachers in order ‘‘(2) ALLOCATION OF LIMITATION.—The na- zone academy bonds.’’ to promote appropriate market driven tech- tional zone academy bond limitation for a ‘‘SEC. 1397B. CREDIT TO HOLDERS OF QUALIFIED nology in the classroom, calendar year shall be allocated by the Sec- ZONE ACADEMY BONDS. ‘‘(iii) services of employees as volunteer retary among the States on the basis of their ‘‘(a) ALLOWANCE OF CREDIT.—In the case of mentors, respective populations of individuals below a taxpayer who holds a qualified zone acad- ‘‘(iv) internships, field trips, or other edu- the poverty line (as defined by the Office of emy bond on the credit allowance date of cational opportunities outside the academy Management and Budget). The limitation such bond which occurs during the taxable for students, or amount allocated to a State under the pre- year, there shall be allowed as a credit ‘‘(v) any other property or service specified ceding sentence shall be allocated by the against the tax imposed by this chapter for by the eligible local education agency. State education agency to qualified zone such taxable year the amount determined ‘‘(3) TERM REQUIREMENT.—During each cal- academies within such State. under subsection (b). endar month, the Secretary shall determine ‘‘(3) DESIGNATION SUBJECT TO LIMITATION ‘‘(b) AMOUNT OF CREDIT.— the maximum term permitted under this AMOUNT.—The maximum aggregate face ‘‘(1) IN GENERAL.—The amount of the credit paragraph for bonds issued during the follow- amount of bonds issued during any calendar determined under this subsection with re- ing calendar month. Such maximum term year which may be designated under sub- spect to any qualified zone academy bond is shall be the term which the Secretary esti- section (d)(1) with respect to any qualified the amount equal to the product of— mates will result in the present value of the zone academy shall not exceed the limita- ‘‘(A) the credit rate determined by the Sec- tion amount allocated to such academy retary under paragraph (2) for the month in obligation to repay the principal on the bond being equal to 50 percent of the face amount under paragraph (2) for such calendar year. which such bond was issued, multiplied by ‘‘(4) CARRYOVER OF USED LIMITATION.—If for ‘‘(B) the face amount of the bond held by of the bond. Such present value shall be de- termined using as a discount rate the aver- any calendar year— the taxpayer on the credit allowance date. ‘‘(A) the limitation amount for any State, ‘‘(2) DETERMINATION.—During each cal- age annual interest rate of tax-exempt obli- gations having a term of 10 years or more exceeds endar month, the Secretary shall determine ‘‘(B) the amount of bonds issued during a credit rate which shall apply to bonds is- which are issued during the month. If the term as so determined is not a multiple of a such year which are designated under sub- sued during the following calendar month. section (d)(1) with respect to qualified zone The credit rate for any month is the percent- whole year, such term shall be rounded to academies within such State, age which the Secretary estimates will per- the next highest whole year. mit the issuance of qualified zone academy ‘‘(4) QUALIFIED ZONE ACADEMY.— the limitation amount for such State for the bonds without discount and without interest ‘‘(A) IN GENERAL.—The term ‘qualified zone following calendar year shall be increased by cost to the issuer. academy’ means any public school (or aca- the amount of such excess. ‘‘(c) LIMITATION BASED ON AMOUNT OF demic program within a public school) which ‘‘(f) OTHER DEFINITIONS.—For purposes of TAX.—The credit allowed under subsection is established by and operated under the su- this section— (a) for any taxable year shall not exceed the pervision of an eligible local education agen- ‘‘(1) CREDIT ALLOWANCE DATE.—The term excess of— cy to provide education or training below the ‘credit allowance date’ means, with respect ‘‘(1) the sum of the regular tax liability (as postsecondary level if— to any issue, the last day of the 1-year period defined in section 26(b)) plus the tax imposed ‘‘(i) such public school or program (as the beginning on the date of issuance of such by section 55, over case may be) is designed in cooperation with issue and the last day of each successive 1- ‘‘(2) the sum of the credits allowable under business to enhance the academic curricu- year period thereafter. part IV of subchapter A (other than subpart lum, increase graduation and employment ‘‘(2) BOND.—The term ‘bond’ includes any C thereof, relating to refundable credits). rates, and better prepare students for the obligation. ‘‘(d) QUALIFIED ZONE ACADEMY BOND.—For rigors of college and the increasingly com- ‘‘(3) STATE.—The term ‘State’ includes the purposes of this section— plex workforce, District of Columbia and any possession of ‘‘(1) IN GENERAL.—The term ‘qualified zone ‘‘(ii) students in such public school or pro- the United States. academy bond’ means any bond issued as gram (as the case may be) will be subject to ‘‘(g) CREDIT INCLUDED IN GROSS INCOME.— part of an issue if— the same academic standards and assess- Gross income includes the amount of the ‘‘(A) 95 percent or more of the proceeds of ments as other students educated by the eli- credit allowed to the taxpayer under this such issue are to be used for a qualified pur- gible local education agency, section.’’ pose with respect to a qualified zone acad- ‘‘(iii) the comprehensive education plan of (b) CONFORMING AMENDMENTS.— emy established by an eligible local edu- such public school or program is approved by (1) Subchapter U of chapter 1 (as in effect cation agency, the eligible local education agency, and before the amendment made by subsection ‘‘(B) the bond is issued by a State or local ‘‘(iv)(I) such public school is located in an (a)) is amended by redesignating subpart C as government within the jurisdiction of which empowerment zone or enterprise community subpart D, and by redesignating sections such academy is located, (including any such zone or community des- 1397B, 1397C, and 1397D as sections 1397D, ‘‘(C) the issuer— ignated after the date of the enactment of 1397E, and 1397F, respectively. ‘‘(i) designates such bond for purposes of this section), or (2) Subsection (b) of section 1394 is amend- this section, ‘‘(II) there is a reasonable expectation (as ed— ‘‘(ii) certifies that it has written assur- of the date of issuance of the bonds) that at (A) by striking ‘‘section 1397C’’ in para- ances that the private business contribution least 35 percent of the students attending graph (2) and inserting ‘‘section 1397E’’, and requirement of paragraph (2) will be met such school or participating in such program (B) by striking ‘‘section 1397B’’ in para- with respect to such academy, and (as the case may be) will be eligible for free graph (3) and inserting ‘‘section 1397D’’. ‘‘(iii) certifies that it has the written ap- or reduced-cost lunches under the school (3) The table of subparts for part III of sub- proval of the eligible local education agency lunch program established under the Na- chapter U of chapter 1 is amended by strik- for such bond issuance, and tional School Lunch Act. ing the last item and inserting the following: ‘‘(D) the term of each bond which is part of ‘‘(B) ELIGIBLE LOCAL EDUCATION AGENCY.— such issue does not exceed the maximum The term ‘eligible local education agency’ ‘‘Subpart C. Incentives for education zones. term permitted under paragraph (3). means any local education agency as defined ‘‘Subpart D. General provisions.’’ ‘‘(2) PRIVATE BUSINESS CONTRIBUTION RE- in section 14101 of the Elementary and Sec- QUIREMENT.— ondary Education Act of 1965. (4) The table of sections for subpart D of ‘‘(A) IN GENERAL.—For purposes of para- ‘‘(5) QUALIFIED PURPOSE.—The term ‘quali- such part III, as so redesignated, is amended graph (1), the private business contribution fied purpose’ means, with respect to any to read as follows: requirement of this paragraph is met with qualified zone academy— respect to any issue if the eligible local edu- ‘‘(A) constructing or renovating the public ‘‘Sec. 1397D. Enterprise zone business de- cation agency that established the qualified school facility in which the academy is es- fined. zone academy has written commitments tablished, ‘‘Sec. 1397E. Qualified zone property de- from private entities to make qualified con- ‘‘(B) providing equipment for use at such fined.’’ tributions having a present value (as of the academy, (5) The table of sections for part IV of sub- date of issuance of the issue) of not less than ‘‘(C) developing course materials for edu- chapter U of chapter 1 is amended to read as 10 percent of the proceeds of the issue. cation to be provided at such academy, and follows: ‘‘(B) QUALIFIED CONTRIBUTIONS.—For pur- ‘‘(D) training teachers and other school poses of subparagraph (A), the term ‘quali- personnel in such academy. ‘‘Sec. 1397F. Regulations.’’ H4782 CONGRESSIONAL RECORD — HOUSE June 26, 1997

(c) EFFECTIVE DATE.—The amendments ‘‘(B) COORDINATION WITH SPECIAL REFUND OF ‘‘(2) APPLICATION TO ONLY 1 SALE OR EX- made by this section shall apply to obliga- SOCIAL SECURITY TAXES.—The term ‘social se- CHANGE EVERY 2 YEARS.— tions issued after December 31, 1997. curity taxes’ shall not include any taxes to ‘‘(A) IN GENERAL.—Subsection (a) shall not TITLE III—FAMILY TAX RELIEF the extent the taxpayer is entitled to a spe- apply to any sale or exchange by the tax- cial refund of such taxes under section SEC. 301. CREDIT FOR FAMILIES WITH YOUNG payer if, during the 2-year period ending on CHILDREN. 6413(c). the date of such sale or exchange, there was (a) IN GENERAL.—Subpart C of part IV of ‘‘(C) SPECIAL RULE.—Any amounts paid any other sale or exchange by the taxpayer subchapter A of chapter 1 (relating to re- pursuant to an agreement under section to which subsection (a) applied. fundable credits) is amended by inserting 3121(l) (relating to agreements entered into ‘‘(B) PRIOR SALES BY SPOUSE NOT TAKEN after section 34 the following new section: by American employers with respect to for- INTO ACCOUNT.—If, but for this subparagraph, eign affiliates) which are equivalent to the ‘‘SEC. 34A. FAMILIES WITH YOUNG CHILDREN. subsection (a) would not apply to a sale or taxes referred to in subparagraph (A)(i) shall ‘‘(a) ALLOWANCE OF CREDIT.— exchange by a married individual filing a be treated as taxes referred to in such sub- ‘‘(1) IN GENERAL.—In the case of an individ- joint return solely by reason of a prior sale ual, there shall be allowed as a credit against paragraph. or exchange by such individual’s spouse— ‘‘(e) INFLATION ADJUSTMENTS.—In the case the tax imposed by this subtitle for the tax- ‘‘(i) subparagraph (A) shall be applied with- of a taxable year beginning in a calendar able year an amount equal to $500 multiplied out regard to the sale or exchange by such year after 2000— by the number of eligible children of the tax- individual’s spouse or any ownership or use ‘‘(1) IN GENERAL.—The $500 and $60,000 payer for the taxable year. by such spouse, but amounts contained in subsections (a)(1) and ‘‘(2) PHASE-IN OF CREDIT.—In the case of ‘‘(ii) the amount of gain excluded from (b)(2) shall each be increased by an amount taxable years beginning before January 1, gross income under subsection (a) with re- equal to— 2001, paragraph (1) shall be applied by sub- spect to the sale or exchange by such indi- ‘‘(A) such dollar amount, multiplied by stituting ‘$300’ for ‘$500’. vidual shall not exceed $250,000. ‘‘(B) the cost-of-living adjustment deter- ‘‘(b) PHASEOUT OF CREDIT.— ‘‘(C) PRE-EFFECTIVE DATE SALES NOT TAKEN mined under section 1(f)(3) for the calendar ‘‘(1) IN GENERAL.—The amount of the credit INTO ACCOUNT.—Subparagraph (A) shall be allowed under subsection (a) shall be reduced year in which the taxable year begins, deter- applied without regard to any sale or ex- (but not below zero) by the amount deter- mined by substituting ‘calendar year 1999’ change before May 7, 1997. for ‘calendar year 1992’ in subparagraph (B) mined under paragraph (2). ‘‘(c) EXCLUSION FOR TAXPAYERS FAILING TO thereof. ‘‘(2) AMOUNT OF REDUCTION.—The amount MEET CERTAIN REQUIREMENTS.— determined under this paragraph equals the ‘‘(2) INCREASE IN PHASEOUT RANGE.—If the dollar amount in effect under subsection ‘‘(1) IN GENERAL.—In the case of a sale or amount which bears the same ratio to the exchange to which this subsection applies, credit (determined without regard to this (a)(1) for any taxable year exceeds $500, sub- section (b)(2)(B) shall be applied by sub- the ownership and use requirements of sub- subsection) as— section (a) shall not apply and subsection ‘‘(A) the excess of— stituting an amount equal to 30 times such dollar amount for ‘$15,000’. (b)(2) shall not apply; but the amount of gain ‘‘(i) the taxpayer’s adjusted gross income excluded from gross income under subsection for such taxable year, over ‘‘(3) ROUNDING.—If any amount as adjusted under paragraph (1) is not a multiple of $100, (a) with respect to such sale of exchange ‘‘(ii) $60,000, bears to shall not exceed— ‘‘(B) $15,000. such amount shall be rounded to the next lowest multiple of $100. ‘‘(A) the amount which bears the same Any amount determined under this para- ratio to the amount which would be so ex- ‘‘(f) SPECIAL RULES.— graph which is not a multiple of $10 shall be cluded if such requirements had been met, as ‘‘(1) AMOUNT OF CREDIT MAY BE DETERMINED rounded to the next lowest $10. ‘‘(B) the shorter of— UNDER TABLES.—The amount of the credit al- ‘‘(3) ADJUSTED GROSS INCOME.—For pur- ‘‘(i) the aggregate periods, during the 5- poses of this subsection, adjusted gross in- lowed by this section may be determined under tables prescribed by the Secretary. year period ending on the date of such sale come of any taxpayer shall be increased by or exchange, such property has been owned ‘‘(2) CERTAIN OTHER RULES APPLY.—Rules any amount excluded from gross income and used by the taxpayer as the taxpayer’s under section 911, 931, or 933. similar to the rules of subsections (c)(1)(E) and (F), (d), and (e) of section 32 shall apply principal residence, or ‘‘(c) ELIGIBLE CHILD.—For purposes of this ‘‘(ii) the period after the date of the most section, the term ‘eligible child’ means any for purposes of this section.’’ (b) CLERICAL AMENDMENT.—The table of recent prior sale or exchange by the tax- child (as defined in section 151(c)(3)) of the payer or his spouse to which subsection (a) taxpayer— sections for subpart C of part IV of sub- chapter A of chapter 1 is amended by insert- applied and before the date of such sale or ‘‘(1) who has not attained age 18 as of the exchange, close of the calendar year in which the tax- ing after the item relating to section 34 the bears to 2 years. able year of the taxpayer begins, following new item: ‘‘(2) SALES AND EXCHANGES TO WHICH SUB- ‘‘(2) who is a dependent of the taxpayer ‘‘Sec. 34A. Families with young children.’’ SECTION APPLIES.—This subsection shall with respect to whom the taxpayer is al- (c) CONFORMING AMENDMENT.—Paragraph apply to any sale or exchange if— lowed a deduction under section 151 for such (2) of section 1324(b) of title 31, United States ‘‘(A) subsection (a) would not (but for this taxable year, and Code, is amended by inserting before the pe- subsection) apply to such sale or exchange ‘‘(3) whose TIN is included on the tax- riod ‘‘, or from section 34A of such Code’’. by reason of— payer’s return for such taxable year. (d) EFFECTIVE DATE.—The amendments ‘‘(i) a failure to meet the ownership and ‘‘(d) LIMITATION BASED ON AMOUNT OF made by this section shall apply to taxable use requirements of subsection (a), or TAX.— years beginning after December 31, 1997. ‘‘(ii) subsection (b)(2), and ‘‘(1) IN GENERAL.—The credit allowed by TITLE IV—CAPITAL GAINS RELIEF subsection (a) for the taxable year shall not ‘‘(B) such sale or exchange is by reason of exceed the sum of— Subtitle A—Exemption From Tax for Gain on a change in place of employment, health, or ‘‘(A) the tax imposed by this chapter for Sale of Principal Residence other unforeseen circumstances. the taxable year (reduced by the sum of the SEC. 401. EXEMPTION FROM TAX FOR GAIN ON ‘‘(d) SPECIAL RULES.— other credits allowable under this part SALE OF PRINCIPAL RESIDENCE. ‘‘(1) JOINT RETURNS.—For purposes of this against such tax other than under this sub- (a) IN GENERAL.—Section 121 (relating to section, if a husband and wife make a joint part, relating to refundable credits), and one-time exclusion of gain from sale of prin- return for the taxable year of the sale or ex- ‘‘(B) the taxpayer’s social security taxes cipal residence by individual who has at- change of property, both spouses shall be for such taxable year. tained age 55) is amended to read as follows: treated as meeting the ownership require- ‘‘(2) SOCIAL SECURITY TAXES.—For purposes ‘‘SEC. 121. EXCLUSION OF GAIN FROM SALE OF ment of subsection (a) with respect to such of paragraph (1)— PRINCIPAL RESIDENCE. property if either spouse meets such require- ‘‘(A) IN GENERAL.—The term ‘social secu- ‘‘(a) EXCLUSION.—Gross income shall not ment. rity taxes’ means, with respect to any tax- include gain from the sale or exchange of ‘‘(2) PROPERTY OF DECEASED SPOUSE.—For payer for any taxable year— property if, during the 5-year period ending purposes of this section, in the case of an un- ‘‘(i) the amount of the taxes imposed by on the date of the sale or exchange, such married individual whose spouse is deceased sections 3101 and 3201(a) on amounts received property has been owned and used by the on the date of the sale or exchange of prop- by the taxpayer during the calendar year in taxpayer as the taxpayer’s principal resi- erty, the period such unmarried individual which the taxable year begins, dence for periods aggregating 2 years or owned such property shall include the period ‘‘(ii) 1⁄2 of the amount of the taxes imposed more. such deceased spouse held such property be- by section 1401 on the self-employment in- ‘‘(b) LIMITATIONS.— fore death. come of the taxpayer for the taxable year, ‘‘(1) DOLLAR LIMITATION.—The amount of ‘‘(3) TENANT-STOCKHOLDER IN COOPERATIVE and gain excluded from gross income under sub- HOUSING CORPORATION.—For purposes of this ‘‘(iii) 1⁄2 of the amount of the taxes imposed section (a) with respect to any sale or ex- section, if the taxpayer holds stock as a ten- by section 3211(a)(1) on amounts received by change shall not exceed $250,000 ($500,000 in ant-stockholder (as defined in section 216) in the taxpayer during the calendar year in the case of a joint return where both spouses a cooperative housing corporation (as de- which the taxable year begins. meet the use requirement of subsection (a)). fined in such section), then— June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4783

‘‘(A) the holding requirements of sub- (b) REPEAL OF NONRECOGNITION OF GAIN ON ‘‘Sec. 121. Exclusion of gain from sale of prin- section (a) shall be applied to the holding of ROLLOVER OF PRINCIPAL RESIDENCE.—Section cipal residence.’’ such stock, and 1034 (relating to rollover of gain on sale of (14) The table of sections for part III of ‘‘(B) the use requirements of subsection (a) principal residence) is hereby repealed. subchapter O of chapter 1 is amended by shall be applied to the house or apartment (c) CONFORMING AMENDMENTS.— striking the item relating to section 1034. which the taxpayer was entitled to occupy as (1) The following provisions of the Internal (d) EFFECTIVE DATE.— such stockholder. Revenue Code of 1986 are each amended by (1) IN GENERAL.—The amendments made by ‘‘(4) INVOLUNTARY CONVERSIONS.— striking ‘‘section 1034’’ and inserting ‘‘sec- this section shall apply to sales and ex- ‘‘(A) IN GENERAL.—For purposes of this sec- tion 121’’: sections 25(e)(7), 56(e)(1)(A), changes on or after May 7, 1997. tion, the destruction, theft, seizure, requisi- 56(e)(3)(B)(i), 143(i)(1)(C)(i)(I), (2) TRANSITIONAL RULE.—At the election of tion, or condemnation of property shall be 163(h)(4)(A)(i)(I), 280A(d)(4)(A), 464(f)(3)(B)(i), the taxpayer, the amendments made by this treated as the sale of such property. 1033(k)(3), 1274(c)(3)(B), 6334(a)(13), and section shall not apply to— ‘‘(B) APPLICATION OF SECTION 1033.—In ap- 7872(f)(11)(A). (A) a sale or exchange on or before the date plying section 1033 (relating to involuntary (2) Paragraph (4) of section 32(c) is amend- of the enactment of this Act, or conversions), the amount realized from the ed by striking ‘‘(as defined in section (B) a sale or exchange after such date of sale or exchange of property shall be treated 1034(h)(3))’’ and by adding at the end the fol- enactment, if— as being the amount determined without re- lowing new sentence: ‘‘For purposes of the (i) such sale or exchange is pursuant to a gard to this section, reduced by the amount preceding sentence, the term ‘extended ac- contract which was binding on such date, of gain not included in gross income pursu- tive duty’ means any period of active duty and at all times thereafter before such sale ant to this section. pursuant to a call or order to such duty for or exchange, or ‘‘(C) PROPERTY ACQUIRED AFTER INVOLUN- a period in excess of 90 days or for an indefi- (ii) without regard to such amendments, TARY CONVERSION.—If the basis of the prop- nite period.’’ gain would not be recognized under section erty sold or exchanged is determined (in (3) Subparagraph (A) of 143(m)(6) is amend- 1034 of the Internal Revenue Code of 1986 (as whole or in part) under section 1033(b) (relat- ed by inserting ‘‘(as in effect on the day be- in effect on the day before the date of the en- ing to basis of property acquired through in- fore the date of the enactment of the Reve- actment of this Act) on such sale or ex- voluntary conversion), then the holding and nue Reconciliation Act of 1997)’’ after change by reason of a new residence acquired use by the taxpayer of the converted prop- ‘‘1034(e)’’. on or before such date. erty shall be treated for purposes of this sec- (4) Subsection (e) of section 216 is amended tion as holding and use by the taxpayer of by striking ‘‘such exchange qualifies for non- SEC. 402. CAPITAL LOSS DEDUCTION ALLOWED WITH RESPECT TO SALE OR EX- the property sold or exchanged. recognition of gain under section 1034(f)’’ and CHANGE OF PRINCIPAL RESIDENCE. ‘‘(5) RECOGNITION OF GAIN ATTRIBUTABLE TO inserting ‘‘such dwelling unit is used as his (a) IN GENERAL.—Subsection (c) of section DEPRECIATION.—Subsection (a) shall not principal residence (within the meaning of 165 (relating to limitation on losses of indi- apply to so much of the gain from the sale of section 121)’’. viduals) is amended by striking ‘‘and’’ at the any property as does not exceed the portion (5) Section 512(a)(3)(D) is amended by in- end of paragraph (2), by striking the period of the depreciation adjustments (as defined serting ‘‘(as in effect on the day before the at the end of paragraph (3) and inserting ‘‘; in section 1250(b)(3)) attributable to periods date of the enactment of the Revenue Rec- and’’, and by adding at the end the following after December 31, 1996, in respect of such onciliation Act of 1997)’’ after ‘‘1034’’. new paragraph: property. (6) Paragraph (7) of section 1016(a) is ‘‘(4) losses (not in excess of $250,000) arising ‘‘(6) DETERMINATION OF USE DURING PERIODS amended by inserting ‘‘(as in effect on the from the sale or exchange of the principal OF OUT-OF-RESIDENCE CARE.—In the case of a day before the date of the enactment of the residence (within the meaning of section 121) taxpayer who— Revenue Reconciliation Act of 1997)’’ after of the taxpayer.’’ ‘‘(A) becomes physically or mentally in- ‘‘1034’’ and by inserting ‘‘(as so in effect)’’ (b) EFFECTIVE DATE.—The amendment capable of self-care, and after ‘‘1034(e)’’. made by subsection (a) shall apply to sales ‘‘(B) owns property and uses such property (7) Paragraph (3) of section 1033(k) is and exchanges on or after May 7, 1997, in tax- as the taxpayer’s principal residence during amended to read as follows: able years ending after such date. the 5-year period described in subsection (a) ‘‘(3) For exclusion from gross income of for periods aggregating at least 1 year, gain from involuntary conversion of prin- Subtitle B—Lifetime Capital Gains Rate then the taxpayer shall be treated as using cipal residence, see section 121.’’ Reduction for Nontradable Property such property as the taxpayer’s principal (8) Subsection (e) of section 1038 is amend- SEC. 411. LIFETIME CAPITAL GAINS RATE REDUC- residence during any time during such 5-year ed to read as follows: TION FOR NONTRADABLE PROP- period in which the taxpayer owns the prop- ‘‘(e) PRINCIPAL RESIDENCES.—If— ERTY. erty and resides in any facility (including a ‘‘(1) subsection (a) applies to a reacquisi- (a) IN GENERAL.—Subsection (h) of section nursing home) licensed by a State or politi- tion of real property with respect to the sale 1 (relating to maximum capital gains rate) is cal subdivision to care for an individual in of which gain was not recognized under sec- amended to read as follows: the taxpayer’s condition. tion 121 (relating to gain on sale of principal ‘‘(h) MAXIMUM CAPITAL GAINS RATE.—If a ‘‘(7) DETERMINATION OF MARITAL STATUS.— residence), and taxpayer has a net capital gain for any tax- In the case of any sale or exchange, for pur- ‘‘(2) within 1 year after the date of the re- able year, the tax imposed by this section for poses of this section— acquisition of such property by the seller, such taxable year shall not exceed the sum ‘‘(A) the determination of whether an indi- such property is resold by him, of— vidual is married shall be made as of the then, under regulations prescribed by the ‘‘(1) a tax computed at the rates and in the date of the sale or exchange, and Secretary, subsections (b), (c), and (d) of this manner as if this subsection had not been en- ‘‘(B) an individual legally separated from section shall not apply to the reacquisition acted on the greater of— his spouse under a decree of divorce or of of such property and, for purposes of apply- ‘‘(A) taxable income reduced by the separate maintenance shall not be consid- ing section 121, the resale of such property amount of the net capital gain, or ered as married. shall be treated as a part of the transaction ‘‘(B) the amount of taxable income taxed ‘‘(e) ELECTION TO HAVE SECTION NOT constituting the original sale of such prop- at a rate below 18 percent, plus APPLY.—This section shall not apply to any erty.’’ ‘‘(2) the sum of— sale or exchange with respect to which the (9) Paragraph (7) of section 1223 is amended ‘‘(A) 18 percent of the lifetime qualified net taxpayer elects not to have this section by inserting ‘‘(as in effect on the day before capital gain (or if lesser, the amount of tax- apply. the date of the enactment of the Revenue able income in excess of the amount taxed ‘‘(f) RESIDENCES ACQUIRED IN ROLLOVERS Reconciliation Act of 1997)’’ after ‘‘1034’’. under paragraph (1)), plus UNDER SECTION 1034.—For purposes of this (10) Section 1250(d)(7) is amended to read as ‘‘(B) 28 percent of the excess of the net cap- section, in the case of property the acquisi- follows: ital gain (or if lesser, the amount of taxable tion of which by the taxpayer resulted under ‘‘(7) PRINCIPAL RESIDENCE.—Subsection (a) income in excess of the amount taxed under section 1034 (as in effect on the day before shall not apply to a disposition to the extent paragraph (1)) over the lifetime qualified net the date of the enactment of this sentence) that gain from the disposition is excluded capital gain for the taxable year. in the nonrecognition of any part of the gain from gross income under section 121.’’ For purposes of the preceding sentence, the realized on the sale or exchange of another (11) Paragraph (2) of section 6212(c) is net capital gain for any taxable year shall be residence, in determining the period for amended by striking subparagraph (C) and reduced (but not below zero) by the amount which the taxpayer has owned and used such by redesignating the succeeding subpara- which the taxpayer elects to take into ac- property as the taxpayer’s principal resi- graphs accordingly. count as investment income for the taxable dence, there shall be included the aggregate (12) Section 6504 is amended by striking year under section 163(d)(4)(B)(iii). In the periods for which such other residence (and paragraph (4) and by redesignating the suc- case of a taxpayer only subject to tax under each prior residence taken into account ceeding paragraphs accordingly. this section at the 15 percent rate, the under section 1223(7) in determining the (13) The item relating to section 121 in the amount of the tax under paragraph (1)(B) on holding period of such property) had been so table of sections for part III of subchapter B net capital gain shall be determined at a rate owned and used.’’ of chapter 1 is amended to read as follows: of 7.5 percent.’’ H4784 CONGRESSIONAL RECORD — HOUSE June 26, 1997

(b) DEFINITION.—Section 1 is amended by or exchange of a qualified asset if interests ‘‘SEC. 2033A. FAMILY-OWNED BUSINESS EXCLU- adding at the end thereof the following new in such entity are described in subparagraph SION. subsection: (A) or (B) of paragraph (4). ‘‘(a) IN GENERAL.—In the case of an estate ‘‘(i) LIFETIME QUALIFIED NET CAPITAL GAIN ‘‘(ii) PASS-THRU ENTITY DEFINED.—For pur- of a decedent to which this section applies, ‘‘(1) IN GENERAL.—For purposes of sub- poses of clause (i), the term ‘pass-thru-en- the value of the gross estate shall not in- section (h), the lifetime qualified net capital tity’ means— clude the lesser of— gain is the qualified net gain for the taxable ‘‘(I) a regulated investment company, ‘‘(1) the adjusted value of the qualified year. ‘‘(II) a real estate investment trust, family-owned business interests of the dece- ‘‘(2) LIMITATION.— ‘‘(III) an S corporation, dent otherwise includible in the estate, or ‘‘(A) IN GENERAL.—The amount of the ‘‘(IV) a partnership, ‘‘(2) $400,000, increased by the amount (if qualified net gain taken into account under ‘‘(V) an estate or trust, and any) of the limitation under this paragraph paragraph (1) for any taxable year shall not ‘‘(VI) a common trust fund.’’ not claimed by the estate of a previously de- exceed $600,000 reduced by the aggregate (c) TREATMENT OF COLLECTIBLES.— ceased spouse of the decedent. amount of the qualified net gain taken into (1) IN GENERAL.—Section 1222 is amended account under this subsection by the tax- ‘‘(b) ESTATES TO WHICH SECTION APPLIES.— by inserting after paragraph (11) the follow- payer for prior taxable years. ‘‘(1) IN GENERAL.—This section shall apply ing new paragraph: ‘‘(B) SPECIAL RULE FOR JOINT RETURNS.— to an estate if— ‘‘(12) SPECIAL RULE FOR COLLECTIBLES.— The amount of the qualified net gain taken ‘‘(A) the decedent was (at the date of the ‘‘(A) IN GENERAL.—Any gain or loss from into account under this subsection on a joint decedent’s death) a citizen or resident of the the sale or exchange of a collectible shall be return for any taxable year shall be allo- United States, treated as a short-term capital gain or loss cated equally between the spouses for pur- ‘‘(B) the sum of— (as the case may be), without regard to the poses of determining the limitation under ‘‘(i) the adjusted value of the qualified period such asset was held. The preceding subparagraph (A) for any succeeding taxable family-owned business interests described in sentence shall apply only to the extent the year. paragraph (2), plus gain or loss is taken into account in comput- ‘‘(3) QUALIFIED NET GAIN.—For purposes of ‘‘(ii) the amount of the gifts of such inter- ing taxable income. paragraph (1), the term ‘qualified net gain’ ests determined under paragraph (3), ‘‘(B) TREATMENT OF CERTAIN SALES OF IN- means the lesser of— exceeds 50 percent of the adjusted gross es- TERESTS IN PARTNERSHIPS, ETC.—For purposes ‘‘(A) the net capital gain for the taxable tate, and of subparagraph (A), any gain from the sale year, or ‘‘(C) during the 8-year period ending on the or exchange of an interest in a partnership, ‘‘(B) the net capital gain for the taxable date of the decedent’s death there have been S corporation, or trust which is attributable year determined by only taking into account periods aggregating 5 years or more during to unrealized appreciation in the value of gains and losses from sales and exchanges on which— collectibles held by such entity shall be or after May 7, 1997, of qualified assets. ‘‘(i) such interests were owned by the dece- treated as gain from the sale or exchange of dent or a member of the decedent’s family, A taxpayer may elect for any taxable year a collectible. Rules similar to the rules of and not to take into account under this sub- section 751(f) shall apply for purposes of the ‘‘(ii) there was material participation section all (or any portion) of the qualified preceding sentence. (within the meaning of section 2032A(e)(6)) net gain for such taxable year. Such an elec- ‘‘(C) COLLECTIBLE.—For purposes of this by the decedent or a member of the dece- tion, once made, shall be irrevocable. paragraph, the term ‘collectible’ means any dent’s family in the operation of the business ‘‘(4) QUALIFIED ASSETS.—For purposes of capital asset which is a collectible (as de- to which such interests relate. this subsection, the term ‘qualified assets’ fined in section 408(m) without regard to ‘‘(2) INCLUDIBLE QUALIFIED FAMILY-OWNED means any property held for more than 3 paragraph (3) thereof).’’ BUSINESS INTERESTS.—The qualified family- years other than— (2) CHARITABLE DEDUCTION NOT AFFECTED.— owned business interests described in this ‘‘(A) stock or securities for which there is (A) Paragraph (1) of section 170(e) is paragraph are the interests which— a market on an established securities mar- amended by adding at the end thereof the ‘‘(A) are included in determining the value ket or otherwise, and following new sentence: ‘‘For purposes of of the gross estate (without regard to this ‘‘(B) property (other than stock or securi- this paragraph, section 1222 shall be applied section), and ties) of a kind regularly traded on an estab- without regard to paragraph (12) thereof (re- ‘‘(B) are acquired by any qualified heir lished market. lating to special rule for collectibles).’’ from, or passed to any qualified heir from, Such term shall not include any qualified (B) Clause (iv) of section 170(b)(1)(C) is the decedent (within the meaning of section small business stock (as defined in section amended by inserting before the period at 2032A(e)(9)). 1202) nor the principal residence of the tax- the end thereof the following: ‘‘and section ‘‘(3) INCLUDIBLE GIFTS OF INTERESTS.—The payer. 1222 shall be applied without regard to para- amount of the gifts of qualified family- ‘‘(5) SUBSECTION NOT TO APPLY TO CERTAIN graph (12) thereof (relating to special rule for owned business interests determined under INDIVIDUALS.—This subsection shall not collectibles)’’. this paragraph is the excess of— apply to any individual who has not attained (d) MINIMUM TAX TREATMENT.—Clause (i) of ‘‘(A) the sum of— age 25 before the close of the taxable year. section 55(b)(1)(A) is amended to read as fol- ‘‘(i) the amount of such gifts from the de- ‘‘(6) SUBSECTION NOT TO APPLY TO CERTAIN lows: cedent to members of the decedent’s family TAXPAYERS.—This subsection shall not apply ‘‘(i) IN GENERAL.—In the case of a taxpayer taken into account under subsection to— other than a corporation, the tentative mini- 2001(b)(1)(B), plus ‘‘(A) a married individual (within the mum tax for the taxable year is the sum of— ‘‘(ii) the amount of such gifts otherwise ex- meaning of section 7703) filing a separate re- ‘‘(I) 18 percent of so much of the taxable cluded under section 2503(b), turn for the taxable year, or excess as does not exceed the lifetime quali- to the extent such interests are continuously ‘‘(B) an estate or trust. fied net capital gain for the taxable year, held by members of such family (other than ‘‘(7) SPECIAL RULES.— ‘‘(II) 26 percent of so much of the ordinary the decedent’s spouse) between the date of ‘‘(A) TREATMENT OF CERTAIN SALES OF IN- taxable excess as does not exceed $175,000, the gift and the date of the decedent’s death, TERESTS IN PARTNERSHIPS, ETC.—For purposes plus over of this subsection, any gain from the sale or ‘‘(III) 28 percent of so much of the ordinary ‘‘(B) the amount of such gifts from the de- exchange of a qualified asset which is an in- taxable excess as exceeds $175,000. terest in a partnership, S corporation, or cedent to members of the decedent’s family For purposes of the preceding sentence, the trust shall not be treated as gain from the otherwise included in the gross estate. term ‘ordinary taxable excess’ means the sale or exchange of a qualified asset to the ‘‘(c) ADJUSTED GROSS ESTATE.—For pur- taxable excess reduced by the lifetime quali- extent such gain is attributable to unreal- poses of this section, the term ‘adjusted fied net capital gain. The amount deter- ized appreciation in the value of property de- gross estate’ means the value of the gross es- mined under this clause shall be reduced by scribed in subparagraph (A) or (B) of para- tate (determined without regard to this sec- the alternative minimum tax foreign tax graph (4) which is held by such entity. Rules tion)— credit for the taxable year.’’ similar to the rules of section 751(f) shall ‘‘(1) reduced by any amount deductible apply for purposes of the preceding sentence. (e) EFFECTIVE DATE.—Except as provided in under paragraph (3) or (4) of section 2053(a), ‘‘(B) SPECIAL RULE FOR PASS-THRU ENTI- paragraph (2), the amendments made by this and TIES.— section shall apply to taxable years ending ‘‘(2) increased by the excess of— ‘‘(i) IN GENERAL.—In applying this sub- on or after May 7, 1997. ‘‘(A) the sum of— section with respect to any pass-thru en- TITLE V—ESTATE TAX RELIEF ‘‘(i) the amount of gifts determined under tity— subsection (b)(3), ‘‘(I) the determination of when the sale or SEC. 501. FAMILY-OWNED BUSINESS EXCLUSION. ‘‘(ii) the amount (if more than de minimis) exchange occurs shall be made at the entity (a) IN GENERAL.—Part III of subchapter A of other transfers from the decedent to the level, and of chapter 11 (relating to gross estate) is decedent’s spouse (at the time of the trans- ‘‘(II) any gain attributable to such entity amended by inserting after section 2033 the fer) within 10 years of the date of the dece- shall in no event be treated as gain from sale following new section: dent’s death, plus June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4785 ‘‘(iii) the amount of other gifts (not in- conduct of a trade or business described in was due under this chapter and ending on the cluded under clause (i) or (ii)) from the dece- section 542(c)(2)), the income of which is de- date such additional estate tax is due. dent within 3 years of such date, other than scribed in section 543(a) or in subparagraph ‘‘(B) APPLICABLE PERCENTAGE.—For pur- gifts to members of the decedent’s family (B), (C), (D), or (E) of section 954(c)(1) (deter- poses of this paragraph, the applicable per- otherwise excluded under section 2503(b), mined by substituting ‘trade or business’ for centage shall be determined under the fol- over ‘controlled foreign corporation’). lowing table: ‘‘(B) the sum of the amounts described in ‘‘(3) RULES REGARDING OWNERSHIP.— ‘‘If the event described in clauses (i), (ii), and (iii) of subparagraph (A) ‘‘(A) OWNERSHIP OF ENTITIES.—For purposes paragraph (1) occurs in which are otherwise includible in the gross of paragraph (1)(B)— the following year of The applicable estate. ‘‘(i) CORPORATIONS.—Ownership of a cor- material participation: percentage is: For purposes of the preceding sentence, the poration shall be determined by the holding Secretary may provide that de minimis gifts of stock possessing the appropriate percent- 1 through 6 ...... 100 to persons other than members of the dece- age of the total combined voting power of all 7 ...... 80 dent’s family shall not be taken into ac- classes of stock entitled to vote and the ap- 8 ...... 60 count. propriate percentage of the total value of 9 ...... 40 ‘‘(d) ADJUSTED VALUE OF THE QUALIFIED shares of all classes of stock. 10 ...... 20. FAMILY-OWNED BUSINESS INTERESTS.—For ‘‘(ii) PARTNERSHIPS.—Ownership of a part- ‘‘(g) SECURITY REQUIREMENTS FOR NONCITI- purposes of this section, the adjusted value nership shall be determined by the owning of ZEN QUALIFIED HEIRS.— of any qualified family-owned business inter- the appropriate percentage of the capital in- ‘‘(1) IN GENERAL.—Except upon the applica- est is the value of such interest for purposes terest in such partnership. tion of subparagraph (F) or (M) of subsection of this chapter (determined without regard ‘‘(B) OWNERSHIP OF TIERED ENTITIES.—For (h)(3), if a qualified heir is not a citizen of to this section), reduced by the excess of— purposes of this section, if by reason of hold- the United States, any interest under this ‘‘(1) any amount deductible under para- ing an interest in a trade or business, a dece- section passing to or acquired by such heir graph (3) or (4) of section 2053(a), over dent, any member of the decedent’s family, (including any interest held by such heir at ‘‘(2) the sum of— any qualified heir, or any member of any a time described in subsection (f)(1)(C)) shall ‘‘(A) any indebtedness on any qualified res- qualified heir’s family is treated as holding be treated as a qualified family-owned busi- idence of the decedent the interest on which an interest in any other trade or business— is deductible under section 163(h)(3), ness interest only if the interest passes or is ‘‘(i) such ownership interest in the other acquired (or is held) in a qualified trust. ‘‘(B) any indebtedness to the extent the trade or business shall be disregarded in de- taxpayer establishes that the proceeds of ‘‘(2) QUALIFIED TRUST.—The term ‘qualified termining if the ownership interest in the trust’ means a trust— such indebtedness were used for the payment first trade or business is a qualified family- of educational and medical expenses of the ‘‘(A) which is organized under, and gov- owned business interest, and decedent, the decedent’s spouse, or the dece- erned by, the laws of the United States or a ‘‘(ii) this section shall be applied sepa- dent’s dependents (within the meaning of State, and rately in determining if such interest in any section 152), plus ‘‘(B) except as otherwise provided in regu- other trade or business is a qualified family- ‘‘(C) any indebtedness not described in lations, with respect to which the trust in- owned business interest. clause (i) or (ii), to the extent such indebted- strument requires that at least 1 trustee of ‘‘(C) INDIVIDUAL OWNERSHIP RULES.—For ness does not exceed $10,000. the trust be an individual citizen of the Unit- purposes of this section, an interest owned, ‘‘(e) QUALIFIED FAMILY-OWNED BUSINESS IN- ed States or a domestic corporation. TEREST.— directly or indirectly, by or for an entity de- ‘‘(h) OTHER DEFINITIONS AND APPLICABLE ‘‘(1) IN GENERAL.—For purposes of this sec- scribed in paragraph (1)(B) shall be consid- RULES.—For purposes of this section— tion, the term ‘qualified family-owned busi- ered as being owned proportionately by or ‘‘(1) QUALIFIED HEIR.—The term ‘qualified ness interest’ means— for the entity’s shareholders, partners, or heir’— ‘‘(A) an interest as a proprietor in a trade beneficiaries. A person shall be treated as a ‘‘(A) has the meaning given to such term or business carried on as a proprietorship, or beneficiary of any trust only if such person by section 2032A(e)(1), and ‘‘(B) an interest in an entity carrying on a has a present interest in such trust. ‘‘(B) includes any active employee of the trade or business, if— ‘‘(f) TAX TREATMENT OF FAILURE TO MATE- trade or business to which the qualified fam- ‘‘(i) at least— RIALLY PARTICIPATE IN BUSINESS OR DISPOSI- ily-owned business interest relates if such ‘‘(I) 50 percent of such entity is owned (di- TIONS OF INTERESTS.— employee has been employed by such trade rectly or indirectly) by the decedent and ‘‘(1) IN GENERAL.—There is imposed an ad- or business for a period of at least 10 years members of the decedent’s family, ditional estate tax if, within 10 years after before the date of the decedent’s death. ‘‘(II) 70 percent of such entity is so owned the date of the decedent’s death and before ‘‘(2) MEMBER OF THE FAMILY.—The term by members of 2 families, or the date of the qualified heir’s death— ‘member of the family’ has the meaning ‘‘(III) 90 percent of such entity is so owned ‘‘(A) the material participation require- given to such term by section 2032A(e)(2). by members of 3 families, and ments described in section 2032A(c)(6)(B) are ‘‘(3) APPLICABLE RULES.—Rules similar to ‘‘(ii) for purposes of subclause (II) or (III) of not met with respect to the qualified family- the following rules shall apply: clause (i), at least 30 percent of such entity owned business interest which was acquired ‘‘(A) Section 2032A(b)(4) (relating to dece- is so owned by the decedent and members of (or passed) from the decedent, dents who are retired or disabled). the decedent’s family. ‘‘(B) the qualified heir disposes of any por- ‘‘(B) Section 2032A(b)(5) (relating to special ‘‘(2) LIMITATION.—Such term shall not in- tion of a qualified family-owned business in- rules for surviving spouses). clude— terest (other than by a disposition to a mem- ‘‘(C) Section 2032A(c)(2)(D) (relating to par- ‘‘(A) any interest in a trade or business the ber of the qualified heir’s family or through tial dispositions). principal place of business of which is not lo- a qualified conservation contribution under ‘‘(D) Section 2032A(c)(3) (relating to only 1 cated in the United States, section 170(h)), additional tax imposed with respect to any 1 ‘‘(B) any interest in an entity, if the stock ‘‘(C) the qualified heir loses United States portion). or debt of such entity or a controlled group citizenship (within the meaning of section ‘‘(E) Section 2032A(c)(4) (relating to due (as defined in section 267(f)(1)) of which such 877) or with respect to whom an event de- date). entity was a member was readily tradable on scribed in subparagraph (A) or (B) of section ‘‘(F) Section 2032A(c)(5) (relating to liabil- an established securities market or second- 877(e)(1) occurs, and such heir does not com- ity for tax; furnishing of bond). ary market (as defined by the Secretary) at ply with the requirements of subsection (g), ‘‘(G) Section 2032A(c)(7) (relating to no tax any time within 3 years of the date of the de- or if use begins within 2 years; active manage- cedent’s death, ‘‘(D) the principal place of business of a ment by eligible qualified heir treated as ‘‘(C) any interest in a trade or business not trade or business of the qualified family- material participation). described in section 542(c)(2), if more than 35 owned business interest ceases to be located ‘‘(H) Section 2032A(e)(10) (relating to com- percent of the adjusted ordinary gross in- in the United States. munity property). come of such trade or business for the tax- ‘‘(2) ADDITIONAL ESTATE TAX.— ‘‘(I) Section 2032A(e)(14) (relating to treat- able year which includes the date of the de- ‘‘(A) IN GENERAL.—The amount of the addi- ment of replacement property acquired in cedent’s death would qualify as personal tional estate tax imposed by paragraph (1) section 1031 or 1033 transactions). holding company income (as defined in sec- shall be equal to— ‘‘(J) Section 2032A(f) (relating to statute of tion 543(a)), or ‘‘(i) the applicable percentage of the ad- limitations). ‘‘(D) that portion of an interest in a trade justed tax difference attributable to the ‘‘(K) Section 6166(b)(3) (relating to farm- or business that is attributable to— qualified family-owned business interest (as houses and certain other structures taken ‘‘(i) cash or marketable securities, or both, determined under rules similar to the rules into account). in excess of the reasonably expected day-to- of section 2032A(c)(2)(B)), plus ‘‘(L) Subparagraphs (B), (C), and (D) of sec- day working capital needs of such trade or ‘‘(ii) interest on the amount determined tion 6166(g)(1) (relating to acceleration of business, and under clause (i) at the underpayment rate es- payment). ‘‘(ii) any other assets of the trade or busi- tablished under section 6621 for the period ‘‘(M) Section 6324B (relating to special lien ness (other than assets used in the active beginning on the date the estate tax liability for additional estate tax).’’ H4786 CONGRESSIONAL RECORD — HOUSE June 26, 1997

(b) CLERICAL AMENDMENT.—The table of ‘‘(i) as having attained age 18 but not age ‘‘(A) POVERTY RATE REQUIREMENT.— sections for part III of subchapter A of chap- 25 on the hiring date, and ‘‘(i) IN GENERAL.—A nominated area shall ter 11 is amended by inserting after the item ‘‘(ii) as being a member of a family receiv- be eligible for designation under this sub- relating to section 2033 the following new ing assistance under a food stamp program section only if the poverty rate for each pop- item: under the Food Stamp Act of 1977 for the 6- ulation census tract within the nominated ‘‘Sec. 2033A. Family-owned business exclu- month period ending on the hiring date. area is not less than 20 percent and the pov- sion.’’ ‘‘(B) CERTAIN OLDER RECIPIENTS.—The term erty rate for at least 90 percent of the popu- ‘qualified food stamp recipient’ includes any lation census tracts within the nominated (c) EFFECTIVE DATE.—The amendments individual who is certified by the designated area is not less than 25 percent. made by this section shall apply to estates of local agency— ‘‘(ii) TREATMENT OF CENSUS TRACTS WITH decedents dying after December 31, 1997. ‘‘(i) as having attained age 18 but not age SMALL POPULATIONS.—A population census TITLE VI—EXTENSION OF EXPIRING 50 on the hiring date, tract with a population of less than 2,000 PROVISIONS ‘‘(ii) as being a recipient of benefits under shall be treated as having a poverty rate of SEC. 601. RESEARCH CREDIT. the food stamp program who is affected by not less than 25 percent if— (a) IN GENERAL.—Section 41(h)(1) is amend- section 6(o) of the Food Stamp Act of 1977 ‘‘(I) more than 75 percent of such tract is ed— but who has not been made ineligible for re- zoned for commercial or industrial use, and (1) by striking ‘‘May 31, 1997’’ and inserting fusing to work in accordance with section ‘‘(II) such tract is contiguous to 1 or more ‘‘May 31, 1998’’, and 6(o)(2)(A) of such Act, or failing to comply other population census tracts which have a (2) by striking the last sentence. with the requirements of a work program poverty rate of not less than 25 percent (de- (b) CONFORMING AMENDMENT.—Section under subparagraph (B), (C), or (D) of section termined without regard to this clause). 45C(b)(1)(D) is amended by striking ‘‘1997’’ 6(o)(2)(A) of such Act, and ‘‘(iii) EXCEPTION FOR DEVELOPABLE SITES.— and inserting ‘‘1998’’. ‘‘(iii) as having a hiring date which is not Clause (i) shall not apply to up to 3 non- (c) EFFECTIVE DATE.—The amendment more than 1 year after the date of such ces- contiguous parcels in a nominated area made by subsection (a) shall apply to taxable sation. which may be developed for commercial or years ending after May 31, 1997. ‘‘(C) TERMINATION.—In lieu of applying sub- industrial purposes. The aggregate area of SEC. 602. ORPHAN DRUG CREDIT MADE PERMA- section (c)(4), this subsection shall not apply noncontiguous parcels to which the preced- NENT. to amounts paid or incurred with respect to ing sentence applies with respect to any (a) IN GENERAL.—Subsection (e) of section nominated area shall not exceed 1,000 acres 45C is hereby repealed. an individual who begins work for the em- ployer after September 30, 2000.’’ (2,000 acres in the case of an empowerment (b) EFFECTIVE DATE.—The amendment zone). made by subsection (a) shall apply to (e) EFFECTIVE DATE.—The amendments made by this section shall apply to individ- ‘‘(iv) CERTAIN PROVISIONS NOT TO APPLY.— amounts paid or incurred in taxable years Section 1392(a)(4) (and so much of paragraphs ending after May 31, 1997. uals who begin work for the employer after the date of the enactment of this Act. (1) and (2) of section 1392(b) as relate to sec- SEC. 603. CONTRIBUTIONS OF APPRECIATED tion 1392(a)(4)) shall not apply to an area STOCK. TITLE VII—EMPOWERMENT ZONES, ETC. nominated for designation under this sub- (a) IN GENERAL.—Clause (ii) of section Subtitle A—Empowerment Zones section. 170(e)(5)(D) is amended by striking ‘‘May 31, SEC. 701. ADDITIONAL EMPOWERMENT ZONES ‘‘(v) SPECIAL RULE FOR RURAL 1997’’ and inserting ‘‘May 31, 1998’’. WITH CURRENT LAW BENEFITS. EMPOWERMENT ZONES AND ENTERPRISE COMMU- (b) EFFECTIVE DATE.—The amendment (a) IN GENERAL.—Paragraph (2) of section NITIES.—The Secretary of Agriculture may made by subsection (a) shall apply to con- 1391(b) (relating to designations of designate not more than 1 empowerment tributions made after May 31, 1997. empowerment zones and enterprise commu- zone, and not more than 5 enterprise commu- SEC. 604. EXTENSION AND MODIFICATION OF nities) is amended— nities, in rural areas without regard to WORK OPPORTUNITY CREDIT. (1) by striking ‘‘9’’ and inserting ‘‘11’’, clause (i) if such areas satisfy emigration (a) EXTENSION OF CREDIT.—Subparagraph (B) of section 51(c)(4) (relating to termi- (2) by striking ‘‘6’’ and inserting ‘‘8’’, and criteria specified by the Secretary of Agri- nation) is amended by striking ‘‘September (3) by striking ‘‘750,000’’ and inserting culture. 30, 1997’’ and inserting ‘‘September 30, 1998’’. ‘‘1,000,000’’. ‘‘(B) SIZE LIMITATION.— (b) PERCENTAGE OF WAGES ALLOWED AS (b) EFFECTIVE DATE.—The amendments ‘‘(i) IN GENERAL.—The parcels described in CREDIT.— made by this section shall take effect on the subparagraph (A)(iii) shall not be taken into (1) IN GENERAL.—Subsection (a) of section date of the enactment of this Act, except account in determining whether the require- 51 (relating to determination of amount) is that designations of new empowerment zones ment of subparagraph (A) or (B) of section amended by striking ‘‘35 percent’’ and insert- made pursuant to such amendments shall be 1392(a)(3) is met. ing ‘‘40 percent’’. made during the 180-day period beginning on ‘‘(ii) SPECIAL RULE FOR RURAL AREAS.—If a (2) APPLICATION OF CREDIT FOR INDIVIDUALS the date of the enactment of this Act. population census tract (or equivalent divi- PERFORMING FEWER THAN 400 HOURS OF SERV- SEC. 702. DESIGNATION OF ADDITIONAL sion under section 1392(b)(4)) in a rural area ICES.—Paragraph (3) of section 51(i) is EMPOWERMENT ZONES AND ENTER- exceeds 1,000 square miles or includes a sub- amended to read as follows: PRISE COMMUNITIES. stantial amount of land owned by the Fed- (a) IN GENERAL.—Section 1391 (relating to ‘‘(3) INDIVIDUALS NOT MEETING MINIMUM EM- eral, State, or local government, the nomi- designation procedure for empowerment PLOYMENT PERIODS.— nated area may exclude such excess square zones and enterprise communities) is amend- ‘‘(A) REDUCTION OF CREDIT FOR INDIVIDUALS mileage or governmentally owned land and ed by adding at the end the following new PERFORMING FEWER THAN 400 HOURS OF SERV- the exclusion of that area will not be treated subsection: ICES.—In the case of an individual who has as violating the continuous boundary re- ‘‘(g) ADDITIONAL DESIGNATIONS PER- completed at least 120 hours, but less than quirement of section 1392(a)(3)(B). MITTED.— 400 hours, of services performed for the em- ‘‘(C) AGGREGATE POPULATION LIMITATION.— ‘‘(1) IN GENERAL.—In addition to the areas ployer, subsection (a) shall be applied by sub- The aggregate population limitation under designated under subsection (a)— stituting ‘25 percent’ for ‘40 percent’. the last sentence of subsection (b)(2) shall ‘‘(A) ENTERPRISE COMMUNITIES.—The appro- ‘‘(B) DENIAL OF CREDIT FOR INDIVIDUALS not apply to a designation under paragraph priate Secretaries may designate in the ag- PERFORMING FEWER THAN 120 HOURS OF SERV- (1)(B). gregate an additional 80 nominated areas as ICES.—No wages shall be taken into account ‘‘(D) PREVIOUSLY DESIGNATED ENTERPRISE enterprise communities under this section, under subsection (a) with respect to any in- COMMUNITIES MAY BE INCLUDED.—Subsection subject to the availability of eligible nomi- dividual unless such individual has com- (e)(5) shall not apply to any enterprise com- nated areas. Of that number, not more than pleted at least 120 hours of services per- munity designated under subsection (a) that 50 may be designated in urban areas and not formed for the employer.’’ is also nominated for designation under this (c) MODIFICATION OF ELIGIBILITY REQUIRE- more than 30 may be designated in rural subsection. MENT BASED ON PERIOD ON WELFARE.—Sub- areas. ‘‘(E) INDIAN RESERVATIONS MAY BE NOMI- paragraph (A) of section 51(d)(2) (defining ‘‘(B) EMPOWERMENT ZONES.—The appro- NATED.— qualified IV–A recipient) is amended by priate Secretaries may designate in the ag- ‘‘(i) IN GENERAL.—Section 1393(a)(4) shall striking all that follows ‘‘a IV–A program’’ gregate an additional 20 nominated areas as not apply to an area nominated for designa- and inserting ‘‘for any 9 months during the empowerment zones under this section, sub- tion under this subsection. 18-month period ending on the hiring date.’’ ject to the availability of eligible nominated ‘‘(ii) SPECIAL RULE.—An area in an Indian (d) CERTAIN OLDER FOOD STAMP RECIPIENTS areas. Of that number, not more than 15 may reservation shall be treated as nominated by TREATED AS MEMBERS OF TARGETED GROUP.— be designated in urban areas and not more a State and a local government if it is nomi- Paragraph (8) of section 51(d) (defining quali- than 5 may be designated in rural areas. nated by the reservation governing body (as fied food stamp recipient) is amended to read ‘‘(2) PERIOD DESIGNATIONS MAY BE MADE.—A determined by the Secretary of Interior).’’ as follows: designation may be made under this sub- (b) EMPLOYMENT CREDIT NOT TO APPLY TO ‘‘(8) QUALIFIED FOOD STAMP RECIPIENT.— section after the date of the enactment of NEW EMPOWERMENT ZONES.—Section 1396 (re- ‘‘(A) IN GENERAL.—The term ‘qualified food this subsection and before January 1, 1999. lating to empowerment zone employment stamp recipient’ means any individual who is ‘‘(3) MODIFICATIONS TO ELIGIBILITY CRI- credit) is amended by adding at the end the certified by the designated local agency— TERIA, ETC.— following new subsection: June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4787

‘‘(e) CREDIT NOT TO APPLY TO ‘‘(A) IN GENERAL.—Paragraph (1) shall 1397B if at least 35 percent of the employees EMPOWERMENT ZONES DESIGNATED UNDER apply to a new empowerment zone facility of such business for such year are residents SECTION 1391(g).—This section shall be ap- bond only if such bond is designated for pur- of an empowerment zone or an enterprise plied without regard to any empowerment poses of this subsection by the local govern- community. The preceding sentence shall zone designated under section 1391(g).’’ ment which nominated the area to which not apply to any business which is not a (c) INCREASED EXPENSING UNDER SECTION such bond relates. qualified business by reason of paragraph (1), 179 NOT TO APPLY IN DEVELOPABLE SITES.— ‘‘(B) LIMITATION ON BONDS DESIGNATED.— (4), or (5) of section 1397B(d). Section 1397A (relating to increase in The aggregate face amount of bonds which ‘‘(C) DEFINITIONS RELATING TO SUBPARA- expensing under section 179) is amended by may be designated under subparagraph (A) GRAPH (B).—For purposes of subparagraph adding at the end the following new sub- with respect to any empowerment zone shall (B)— section: not exceed— ‘‘(i) STARTUP PERIOD.—The term ‘startup ‘‘(c) LIMITATION.—For purposes of this sec- ‘‘(i) $60,000,000 if such zone is in a rural period’ means, with respect to any property tion, qualified zone property shall not in- area, being provided for any business, the period clude any property substantially all of the ‘‘(ii) $130,000,000 if such zone is in an urban before the first taxable year beginning more use of which is in any parcel described in sec- area and the zone has a population of less than 2 years after the later of— tion 1391(g)(3)(A)(iii).’’ than 100,000, and ‘‘(I) the date of issuance of the issue pro- (d) SET ASIDE FOR AREAS WITH EMPLOY- ‘‘(iii) $230,000,000 if such zone is in an urban viding such property, or MENT LOSSES IN FINANCIAL SERVICE INDUS- area and the zone has a population of at ‘‘(II) the date such property is first placed TRIES.—Section 1391 is amended by adding at least 100,000. in service after such issuance (or, if earlier, the end the following new subsection: ‘‘(C) SPECIAL RULES.— the date which is 3 years after the date de- ‘‘(g) SET ASIDE FOR AREAS WITH EMPLOY- ‘‘(i) COORDINATION WITH LIMITATION IN SUB- scribed in subclause (I)). MENT LOSSES IN FINANCIAL SERVICE INDUS- SECTION (c).—Bonds to which paragraph (1) ‘‘(ii) TESTING PERIOD.—The term ‘testing TRIES.— applies shall not be taken into account in ap- period’ means the first 3 taxable years begin- ‘‘(1) IN GENERAL.—At least 3 of the addi- plying the limitation of subsection (c) to ning after the startup period. tional empowerment zones authorized under other bonds. ‘‘(D) PORTIONS OF BUSINESS MAY BE ENTER- this section by reason of the enactment of ‘‘(ii) CURRENT REFUNDING NOT TAKEN INTO PRISE ZONE BUSINESS.—The term ‘enterprise the Revenue Reconciliation Act of 1997 shall ACCOUNT.—In the case of a refunding (or se- zone business’ includes any trades or busi- be nominated areas described in paragraph ries of refundings) of a bond designated nesses which would qualify as an enterprise (2). under this paragraph, the refunding obliga- zone business (determined after the modi- ‘‘(2) DESCRIPTION.—A nominated area is de- tion shall be treated as designated under this fications of subparagraph (B)) if such trades scribed in this paragraph if— paragraph (and shall not be taken into ac- or businesses were separately incorporated.’’ ‘‘(A) at least 12 percent of the wages attrib- count in applying subparagraph (B)) if— (b) MODIFICATIONS RELATING TO QUALIFIED utable to private, nonagricultural employ- ‘‘(I) the amount of the refunding bond does ZONE PROPERTY.—Paragraph (2) of section ment in the area during 1989, and subject to not exceed the outstanding amount of the re- 1394(b) (defining qualified zone property) is tax under section 3301 during such year, were funded bond, and amended to read as follows: in the financial institution and real estate ‘‘(II) the refunded bond is redeemed not ‘‘(2) QUALIFIED ZONE PROPERTY.—The term sectors, and later than 90 days after the date of issuance ‘qualified zone property’ has the meaning ‘‘(B) the employment in such area in such of the refunding bond. given such term by section 1397C; except sectors for the calendar year preceding the ‘‘(3) NEW EMPOWERMENT ZONE FACILITY that— calendar year in which such area is nomi- BOND.—For purposes of this subsection, the ‘‘(A) the references to empowerment zones nated for designation is 10 percent (or, if term ‘new empowerment zone facility bond’ shall be treated as including references to lesser, 5,000 full-time equivalent jobs) less means any bond which would be described in enterprise communities, and than such employment during 1989. subsection (a) if only empowerment zones ‘‘(B) section 1397C(a)(2) shall be applied by The requirement of subparagraph (B) shall designated under section 1391(g) were taken substituting ‘an amount equal to 15 percent not be met if substantially all of such de- into account under sections 1397B and of the adjusted basis’ for ‘an amount equal to cline in employment is attributable to 1 em- 1397C.’’ the adjusted basis’.’’ ployer. Data for the labor market area which (b) EFFECTIVE DATE.—The amendment (c) EFFECTIVE DATE.—The amendments includes the nominated area may be used for made by this section shall apply to obliga- made by this section shall apply to obliga- purposes of this paragraph if data is not sep- tions issued after the date of the enactment tions issued after the date of the enactment arately available for the nominated area. of this Act. of this Act. ‘‘(3) CENTRAL BUSINESS DISTRICT ELIGIBLE.— SEC. 704. MODIFICATIONS TO ENTERPRISE ZONE FACILITY BOND RULES FOR ALL SEC. 705. MODIFICATIONS TO ENTERPRISE ZONE Subparagraph (D) of section 1392(a)(3) shall BUSINESS DEFINITION FOR ALL not apply to a nominated area described in EMPOWERMENT ZONES AND ENTER- PRISE COMMUNITIES. EMPOWERMENT ZONES AND ENTER- paragraph (2). PRISE COMMUNITIES. (a) MODIFICATIONS RELATING TO ENTERPRISE ‘‘(4) FINANCIAL SERVICES BUSINESSES ELIGI- ZONE BUSINESS.—Paragraph (3) of section (a) IN GENERAL.—Section 1397B (defining BLE.—For purposes of this part, the term ‘en- 1394(b) (defining enterprise zone business) is enterprise zone business) is amended— terprise zone business’ includes any entity amended to read as follows: (1) by striking ‘‘80 percent’’ in subsections (or portion of an entity) if substantially all ‘‘(3) ENTERPRISE ZONE BUSINESS.— (b)(2) and (c)(1) and inserting ‘‘50 percent’’, the activities of such entity (or portion ‘‘(A) IN GENERAL.—Except as modified in (2) by striking ‘‘substantially all’’ each thereof) consists of engaging in a banking, this paragraph, the term ‘enterprise zone place it appears in subsections (b) and (c) and insurance, financing, or similar business in business’ has the meaning given such term inserting ‘‘a substantial portion’’, an empowerment zone designated by reason by section 1397B. (3) by striking ‘‘, and exclusively related of this subsection.’’ ‘‘(B) MODIFICATIONS.—In applying section to,’’ in subsections (b)(4) and (c)(3), (e) CONFORMING AMENDMENTS.— 1397B for purposes of this section— (4) by adding at the end of subsection (d)(2) (1) Subsections (e) and (f) of section 1391 the following new flush sentence: are each amended by striking ‘‘subsection ‘‘(i) BUSINESSES IN ENTERPRISE COMMU- NITIES ELIGIBLE ‘‘For purposes of subparagraph (B), the lessor (a)’’ and inserting ‘‘this section’’. .—References in section 1397B of the property may rely on a lessee’s certifi- (2) Section 1391(c) is amended by striking to empowerment zones shall be treated as in- cation that such lessee is an enterprise zone ‘‘this section’’ and inserting ‘‘subsection cluding references to enterprise commu- business.’’, (a)’’. nities. ‘‘(ii) WAIVER OF REQUIREMENTS DURING (5) by striking ‘‘substantially all’’ in sub- SEC. 703. VOLUME CAP NOT TO APPLY TO ENTER- PRISE ZONE FACILITY BONDS WITH STARTUP PERIOD.—A business shall not fail to section (d)(3) and inserting ‘‘at least 50 per- RESPECT TO NEW EMPOWERMENT be treated as an enterprise zone business cent’’, and ZONES. during the startup period if— (6) by adding at the end the following new (a) IN GENERAL.—Section 1394 (relating to ‘‘(I) as of the beginning of the startup pe- subsection: tax-exempt enterprise zone facility bonds) is riod, it is reasonably expected that such ‘‘(f) TREATMENT OF BUSINESSES STRADDLING amended by adding at the end the following business will be an enterprise zone business CENSUS TRACT LINES.—For purposes of this new subsection: (as defined in section 1397B as modified by section, if— ‘‘(f) BONDS FOR EMPOWERMENT ZONES DES- this paragraph) at the end of such period, ‘‘(1) a business entity or proprietorship IGNATED UNDER SECTION 1391(g).— and uses real property located within an ‘‘(1) IN GENERAL.—In the case of a new ‘‘(II) such business makes bona fide efforts empowerment zone, empowerment zone facility bond— to be such a business. ‘‘(2) the business entity or proprietorship ‘‘(A) such bond shall not be treated as a ‘‘(iii) REDUCED REQUIREMENTS AFTER TEST- also uses real property located outside the private activity bond for purposes of section ING PERIOD.—A business shall not fail to be empowerment zone, 146, and treated as an enterprise zone business for ‘‘(3) the amount of real property described ‘‘(B) subsection (c) of this section shall not any taxable year beginning after the testing in paragraph (1) is substantial compared to apply. period by reason of failing to meet any re- the amount of real property described in ‘‘(2) LIMITATION ON AMOUNT OF BONDS.— quirement of subsection (b) or (c) of section paragraph (2), and H4788 CONGRESSIONAL RECORD — HOUSE June 26, 1997 ‘‘(4) the real property described in para- priate agency of a State is the agency des- SEC. 712. USE OF REDEVELOPMENT BONDS FOR graph (2) is contiguous to part or all of the ignated by the Administrator of the Environ- ENVIRONMENTAL REMEDIATION. real property described in paragraph (1), mental Protection Agency for purposes of (a) ENVIRONMENTAL REMEDIATION INCLUDED then all the services performed by employ- this section. If no agency of a State is des- AS REDEVELOPMENT PURPOSE.—Subparagraph (A) of section 144(c)(3) (relating to redevelop- ees, all business activities, all tangible prop- ignated under the preceding sentence, the ment purposes) is amended by striking erty, and all intangible property of the busi- appropriate agency for such State shall be ‘‘and’’ at the end of clause (iii), by striking ness entity or proprietorship that occur in or the Environmental Protection Agency. the period at the end of clause (iv) and in- is located on the real property described in ‘‘(2) TARGETED AREA.— serting ‘‘, and’’, and by adding at the end the ‘‘(A) IN GENERAL.—The term ‘targeted area’ paragraphs (1) and (2) shall be treated as oc- following new clause: curring or situated in an empowerment means— ‘‘(i) any population census tract with a ‘‘(v) costs incurred in connection with zone.’’ abatement or control of hazardous sub- (b) EFFECTIVE DATES.— poverty rate of not less than 20 percent, stances at a qualified contaminated site (as (1) IN GENERAL.—The amendments made by ‘‘(ii) a population census tract with a popu- defined in section 198(c)) if such costs are in- this section shall apply to taxable years be- lation of less than 2,000 if— curred pursuant to an environmental remedi- ginning on or after the date of the enact- ‘‘(I) more than 75 percent of such tract is ation plan which was approved by the Ad- ment of this Act. zoned for commercial or industrial use, and ministrator of the Environmental Protection (2) SPECIAL RULE FOR ENTERPRISE ZONE FA- ‘‘(II) such tract is contiguous to 1 or more Agency or by the head of any State or local CILITY BONDS.—For purposes of section other population census tracts which meet government agency designated by the Ad- 1394(b) of the Internal Revenue Code of 1986, the requirement of clause (i) without regard ministrator to carry out the Administrator’s the amendments made by this section shall to this clause, functions under this clause.’’ apply to obligations issued after the date of ‘‘(iii) any empowerment zone or enterprise (b) CERTAIN REQUIREMENTS NOT TO APPLY the enactment of this Act. community (and any supplemental zone des- TO REDEVELOPMENT BONDS FOR ENVIRON- ignated on December 21, 1994), and Subtitle B—Brownfields MENTAL REMEDIATION.—Subsection (c) of sec- ‘‘(iv) any site announced before February 1, SEC. 711. EXPENSING OF ENVIRONMENTAL REME- tion 144 is amended by adding at the end the DIATION COSTS. 1997, as being included as a brownfields pilot following new paragraph: project of the Environmental Protection (a) IN GENERAL.—Part VI of subchapter B ‘‘(9) CERTAIN REQUIREMENTS NOT TO APPLY Agency. of chapter 1 is amended by adding at the end TO REDEVELOPMENT BONDS FOR ENVIRON- ‘‘(B) NATIONAL PRIORITIES LISTED SITES NOT the following new section: MENTAL REMEDIATION.—In the case of any INCLUDED.—Such term shall not include any ‘‘SEC. 198. EXPENSING OF ENVIRONMENTAL RE- bond issued as part of an issue 95 percent or MEDIATION COSTS. site which is on, or proposed for, the na- more of the proceeds of which are to finance tional priorities list under section ‘‘(a) IN GENERAL.—A taxpayer may elect to costs referred to in paragraph (3)(A)(v)— treat any qualified environmental remedi- 105(a)(8)(B) of the Comprehensive Environ- ‘‘(A) paragraph (2)(A)(i) shall not apply, ation expenditure which is paid or incurred mental Response, Compensation, and Liabil- ‘‘(B) paragraph (2)(A)(ii) shall not apply to by the taxpayer as an expense which is not ity Act of 1980 (as in effect on the date of the any issue issued by the governing body de- chargeable to capital account. Any expendi- enactment of this section). scribed in paragraph (4)(A) with respect to ture which is so treated shall be allowed as ‘‘(C) CERTAIN RULES TO APPLY.—For pur- the area which includes the site, a deduction for the taxable year in which it poses of this paragraph the rules of sections ‘‘(C) the requirement of paragraph (2)(B)(ii) is paid or incurred. 1392(b)(4) and 1393(a)(9) shall apply. shall be treated as met if— ‘‘(b) QUALIFIED ENVIRONMENTAL REMEDI- ‘‘(d) HAZARDOUS SUBSTANCE.—For purposes ‘‘(i) the payment of the principal and inter- ATION EXPENDITURE.—For purposes of this of this section— est on such issue is secured by taxes imposed section— ‘‘(1) IN GENERAL.—The term ‘hazardous sub- by a governmental unit, or ‘‘(1) IN GENERAL.—The term ‘qualified envi- stance’ means— ‘‘(ii) such issue is approved by the applica- ronmental remediation expenditure’ means ‘‘(A) any substance which is a hazardous ble elected representative (as defined in sec- any expenditure— substance as defined in section 101(14) of the tion 147(f)(2)(E)) of the governmental unit ‘‘(A) which is otherwise chargeable to cap- Comprehensive Environmental Response, which issued such issue (or on behalf of ital account, and Compensation, and Liability Act of 1980, and which such issue was issued), ‘‘(B) which is paid or incurred in connec- ‘‘(B) any substance which is designated as ‘‘(D) subparagraphs (C) and (D) of para- tion with the abatement or control of haz- a hazardous substance under section 102 of graph (2) shall not apply, ardous substances at a qualified contami- such Act. ‘‘(E) subparagraphs (C) and (D) of para- nated site. ‘‘(2) EXCEPTION.—Such term shall not in- graph (4) shall not apply, and ‘‘(2) SPECIAL RULE FOR EXPENDITURES FOR clude any substance with respect to which a ‘‘(F) if the real property referred to in DEPRECIABLE PROPERTY.—Such term shall removal or remedial action is not permitted clause (iii) of paragraph (3)(A) is 1 or more not include any expenditure for the acquisi- under section 104 of such Act by reason of dwelling units, such clause shall apply only tion of property of a character subject to the subsection (a)(3) thereof. if the requirements of section 142(d) or 143 allowance for depreciation which is used in ‘‘(e) DEDUCTION RECAPTURED AS ORDINARY (as the case may be) are met with respect to connection with the abatement or control of INCOME ON SALE, ETC.—Solely for purposes of such units.’’ hazardous substances at a qualified contami- section 1245, in the case of property to which (c) PENALTY FOR FAILURE TO SATISFAC- nated site; except that the portion of the al- a qualified environmental remediation ex- TORILY COMPLETE REMEDIATION PLAN.—Sub- lowance under section 167 for such property penditure would have been capitalized but section (b) of section 150 is amended by add- which is otherwise allocated to such site for this section— ing at the end thereof the following new shall be treated as a qualified environmental ‘‘(1) the deduction allowed by this section paragraph: remediation expenditure. for such expenditure shall be treated as a de- ‘‘(7) QUALIFIED CONTAMINATED SITE REMEDI- ‘‘(c) QUALIFIED CONTAMINATED SITE.—For duction for depreciation, and ATION BONDS.—In the case of financing pro- purposes of this section— ‘‘(2) such property (if not otherwise section vided for costs described in section ‘‘(1) QUALIFIED CONTAMINATED SITE.— 1245 property) shall be treated as section 1245 144(c)(3)(A)(v), no deduction shall be allowed ‘‘(A) IN GENERAL.—The term ‘qualified con- property solely for purposes of applying sec- under this chapter for interest on such fi- taminated site’ means any area— tion 1245 to such deduction. nancing during any period during which ‘‘(i) which is held by the taxpayer for use ‘‘(f) COORDINATION WITH OTHER PROVI- there is a determination by the Adminis- in a trade or business or for the production SIONS.—Sections 280B and 468 shall not apply trator of the Environmental Protection of income, or which is property described in to amounts which are treated as expenses Agency (or by the head of any State or local section 1221(1) in the hands of the taxpayer, under this section. government agency designated by the Ad- ‘‘(ii) which is within a targeted area, and ‘‘(g) REGULATIONS.—The Secretary shall ministrator to carry out the Administrator’s ‘‘(iii) at or on which there has been a re- prescribe such regulations as may be nec- functions under this paragraph) that the re- lease (or threat of release) or disposal of any essary or appropriate to carry out the pur- mediation plan under which such costs were hazardous substance. poses of this section.’’ incurred was not satisfactorily completed.’’ ‘‘(B) TAXPAYER MUST RECEIVE STATEMENT (b) CLERICAL AMENDMENT.—The table of (d) EFFECTIVE DATE.—The amendments FROM STATE ENVIRONMENTAL AGENCY.—An sections for part VI of subchapter B of chap- made by this section shall apply to bonds is- area shall be treated as a qualified contami- ter 1 is amended by adding at the end the fol- sued after the date of the enactment of this nated site with respect to expenditures paid lowing new item: Act. or incurred during any taxable year only if Subtitle C—Welfare to Work Credit the taxpayer receives a statement from the ‘‘Sec. 198. Expensing of environmental reme- diation costs.’’ SEC. 721. WELFARE TO WORK CREDIT. appropriate agency of the State in which (a) ADDITIONAL TEMPORARY INCENTIVES FOR such area is located that such area meets the (c) EFFECTIVE DATE.—The amendments EMPLOYING LONG-TERM FAMILY ASSISTANCE requirements of clauses (ii) and (iii) of sub- made by this section shall apply to expendi- RECIPIENTS.—Section 51 (relating to amount paragraph (A). tures paid or incurred after the date of the of work opportunity credit) is amended by ‘‘(C) APPROPRIATE STATE AGENCY.— For enactment of this Act, in taxable years end- inserting after subsection (d) the following purposes of subparagraph (B), the appro- ing after such date. new subsection: June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4789

‘‘(e) ADDITIONAL TEMPORARY INCENTIVES ‘‘(5) QUALIFIED SECOND-YEAR WAGES.—For credit was determined under subsection (a) FOR EMPLOYING LONG-TERM FAMILY ASSIST- purposes of this subsection, the term ‘quali- (or any other property the basis of which is ANCE RECIPIENTS.— fied second-year wages’ means, with respect determined in whole or in part by reference ‘‘(1) TREATMENT AS MEMBER OF TARGETED to any individual, the qualified wages attrib- to the adjusted basis of such investment) be- GROUP.—A long-term family assistance recip- utable to service rendered during the 1-year fore the end of the 5-year period beginning ient shall be treated for purposes of this sec- period beginning on the day after the last on the date such investment was made, the tion as a member of a targeted group. day of the 1-year period with respect to such tax imposed by this chapter for the taxable ‘‘(2) MODIFICATION TO PERCENTAGE AND individual determined under subsection year in which such disposition occurs shall YEARS OF CREDIT.—In the case of a long-term (b)(2).’’ be increased by the aggregate decrease in tax family assistance recipient, the amount of (b) EFFECTIVE DATE.—The amendment of the taxpayer resulting from the credit de- the work opportunity credit determined made by subsection (a) shall apply with re- termined under this subsection (a) with re- under this section for the taxable year shall spect to individuals who begin work for the spect to such investment. be equal to the sum of— employer after the date of the enactment of ‘‘(2) EXCEPTIONS.—Paragraph (1) shall not ‘‘(A) 50 percent of the qualified first-year this Act. apply to any gift, transfer, or transaction de- wages, and Subtitle D—Community Development scribed in paragraph (1), (2), or (3) of section ‘‘(B) 50 percent of the qualified second-year Financial Institutions 1245(b). wages. ‘‘(3) SPECIAL RULE.—Any increase in tax SEC. 731. CREDIT FOR QUALIFIED EQUITY IN- ‘‘(3) MODIFICATION TO AMOUNT OF WAGES VESTMENTS IN COMMUNITY DEVEL- under paragraph (1) shall not be treated as a TAKEN INTO ACCOUNT.—In the case of a long- OPMENT FINANCIAL INSTITUTIONS. tax imposed by this chapter for purposes of— term family assistance recipient— (a) IN GENERAL.—Subpart D of part IV of ‘‘(A) determining the amount of any credit ‘‘(A) $10,000 OF WAGES MAY BE TAKEN INTO subchapter A of chapter 1 (relating to busi- allowable under this chapter, and ACCOUNT.—In lieu of applying subsection ness-related credits) is amended by adding at ‘‘(B) determining the amount of the tax (b)(3), the amount of the qualified first-year the end the following new section: imposed by section 55. wages, and the amount of qualified second- ‘‘SEC. 45E. QUALIFIED EQUITY INVESTMENTS IN ‘‘(f) BASIS REDUCTION.—The basis of any year wages, which may be taken into ac- COMMUNITY DEVELOPMENT FINAN- qualified equity investment shall be reduced count with respect to any individual shall CIAL INSTITUTIONS. by the amount of any credit determined not exceed $10,000 per year. ‘‘(a) GENERAL RULE.—For purposes of sec- under this section with respect to such in- ‘‘(B) CERTAIN AMOUNTS TREATED AS tion 38, the community development finan- vestment. WAGES.—The term ‘wages’ includes amounts cial institution investment credit for any paid or incurred by the employer which are taxable year is an amount equal to the appli- ‘‘(g) REGULATIONS.—The Secretary shall excludable from such recipient’s gross in- cable percentage of the qualified equity in- prescribe such regulations as may be appro- come under— vestment made by the taxpayer during the priate to carry out this section. Such regula- ‘‘(i) section 105 (relating to amounts re- taxable year. tions may provide for the recapture of the ceived under accident and health plans), ‘‘(b) APPLICABLE PERCENTAGE.—For pur- credit under this section with respect to in- ‘‘(ii) section 106 (relating to contributions poses of subsection (a), the term ‘applicable vestments in institutions which cease to sat- by employer to accident and health plans), percentage’ means, with respect to any in- isfy the criteria established by the CDFI ‘‘(iii) section 127 (relating to educational vestment, 25 percent, or, if the CDFI Fund Fund for designation under subsection assistance programs) or would be so exclud- establishes a lower percentage with respect (c)(1)(A). able but for section 127(d), but only to the to such investment for purposes of this sec- ‘‘(h) TERMINATION.—This section shall not extent paid or incurred to a person not relat- tion, such lower percentage. apply to any investment made after Decem- ed to the employer, or ‘‘(c) QUALIFIED EQUITY INVESTMENT.—For ber 31, 2006.’’ ‘‘(iv) section 129 (relating to dependent purposes of this section— care assistance programs). ‘‘(1) IN GENERAL.—The term ‘qualified eq- (b) CREDIT MADE PART OF GENERAL BUSI- NESS CREDIT.—Subsection (b) of section 38 is The amount treated as wages by clause (i) or uity investment’ means any stock or part- amended by striking ‘‘plus’’ at the end of (ii) for any period shall be based on the rea- nership interest in a community develop- paragraph (11), by striking the period at the sonable cost of coverage for the period, but ment financial institution (as defined in sec- shall not exceed the applicable premium for tion 103 of the Community Development end of paragraph (12) and inserting ‘‘, plus’’, the period under section 4980B(f)(4). Banking and Financial Institutions Act of and by adding at the end the following new paragraph: ‘‘(C) SPECIAL RULES FOR AGRICULTURAL AND 1994 (12 U.S.C. 4702))— ‘‘(13) the community development finan- RAILWAY LABOR.—If such recipient is an em- ‘‘(A) if such institution is designated for ployee to which subparagraph (A) or (B) of purposes of this section by the CDFI Fund, cial institution investment credit deter- subsection (h)(1) applies— ‘‘(B) if such stock or partnership interest is mined under section 45E(a).’’ ‘‘(i) such subparagraph (A) shall be applied acquired by the taxpayer at its original issue (c) CREDIT ALLOWED AGAINST REGULAR AND by substituting ‘$10,000’ for ‘$6,000’, and from the institution (directly or through an MINIMUM TAX.— ‘‘(ii) such subparagraph (B) shall be applied underwriter) in exchange for money or other (1) IN GENERAL.—Subsection (c) of section by substituting ‘$825’ for ‘$500’. property, and 38 (relating to limitation based on amount of ‘‘(D) TERMINATION.—In lieu of applying ‘‘(C) to the extent the amount of such in- tax) is amended by redesignating paragraph subsection (c)(4), this subsection shall not vestment is designated for such purposes by (3) as paragraph (4) and by inserting after apply to amounts paid or incurred with re- such Fund. paragraph (2) the following new paragraph: spect to an individual who begins work for Rules similar to the rules of section 1202(c)(3) ‘‘(3) SPECIAL RULES FOR COMMUNITY DEVEL- the employer after September 30, 2000. shall apply for purposes of subparagraph (B). OPMENT FINANCIAL INSTITUTION INVESTMENT ‘‘(4) LONG-TERM FAMILY ASSISTANCE RECIPI- ‘‘(2) CRITERIA FOR DESIGNATING INSTITU- CREDIT.— ENT.—For purposes of this subsection, the TIONS.—Designations under paragraph (1)(A) ‘‘(A) IN GENERAL.—In the case of the com- term ‘long-term family assistance recipient’ shall be made in accordance with criteria es- munity development financial institution in- means any individual who is certified by the tablished by the CDFI Fund. In establishing vestment credit— designated local agency— such criteria, the CDFI Fund shall take into ‘‘(i) this section and section 39 shall be ap- ‘‘(A) as being a member of a family receiv- account the requirements and criteria set plied separately with respect to the credit, ing assistance under a IV-A program (as de- forth in sections 105(b) and 107 of such Act. and fined in subsection (d)(2)(B)) for at least the ‘‘(3) CDFI FUND.—The term ‘CDFI Fund’ ‘‘(ii) in applying paragraph (1) to the cred- 18-month period ending on the hiring date, means the Community Development Finan- it— ‘‘(B)(i) as being a member of a family re- cial Institutions Fund established by section ‘‘(I) 75 percent of the tentative minimum ceiving such assistance for any 18-month pe- 104 of such Act. tax shall be substituted for the tentative riod beginning after the date of the enact- ‘‘(d) LIMITATION ON AMOUNT OF CREDIT.— minimum tax under subparagraph (A) there- ment of this subsection, and ‘‘(1) IN GENERAL.—The amount of credit de- of, and ‘‘(ii) as having a hiring date which is not termined under this section for any qualified ‘‘(II) the limitation under paragraph (1) (as more than 2 years after the end of the earli- equity investment shall not exceed the cred- modified by subclause (I)) shall be reduced est such 18-month period, or it amount allocated to such investment by by the credit allowed under subsection (a) for ‘‘(C)(i) as being a member of a family the CDFI Fund. the taxable year (other than the community which ceased to be eligible after the date of ‘‘(2) OVERALL LIMITATION.—The aggregate development financial institution invest- the enactment of this subsection for such as- credit amount which may be allocated by the ment credit). sistance by reason of any limitation imposed CDFI Fund under this section shall not ex- ‘‘(B) COMMUNITY DEVELOPMENT FINANCIAL by Federal or State law on the maximum pe- ceed $100,000,000. INSTITUTION INVESTMENT CREDIT.—For pur- riod such assistance is payable to a family, ‘‘(e) RECAPTURE OF CREDIT WHERE DISPOSI- poses of this subsection, the term ‘commu- and TION OF EQUITY INVESTMENT WITHIN 5 nity development financial institution in- ‘‘(ii) as having a hiring date which is not YEARS.— vestment credit’ means the credit allowable more than 2 years after the date of such ces- ‘‘(1) IN GENERAL.—If the taxpayer disposes under subsection (a) by reason of section sation. of any investment with respect to which a 45E(a).’’ H4790 CONGRESSIONAL RECORD — HOUSE June 26, 1997

(2) CONFORMING AMENDMENT.—Subclause ‘‘(2) QUALIFIED DOMESTIC CORPORATION.— year wages which may be taken into account (II) of section 38(c)(2)(A)(ii) is amended by in- For purposes of paragraph (1), the term with respect to any individual for all taxable serting ‘‘and the community development fi- ‘qualified domestic corporation’ means a do- years of an employer shall not exceed $10,000. nancial institution investment credit’’ after mestic corporation with respect to which ‘‘(3) COORDINATION WITH WORK OPPORTUNITY ‘‘employment credit’’. section 936(a)(4)(B) does not apply for the CREDIT.—The amount of the credit deter- (d) LIMITATION ON CARRYBACK.—Subsection taxable year.’’ mined under this section with respect to (d) of section 39 is amended by adding at the (c) REPEAL OF BASE PERIOD CAP.—Section qualified first-year wages of an individual end the following new paragraph: 30A(a)(1) is amended by striking the last sen- shall be reduced by the amount of the work ‘‘(9) NO CARRYBACK OF COMMUNITY DEVELOP- tence. opportunity credit determined under section MENT FINANCIAL INSTITUTION INVESTMENT (d) CONFORMING AMENDMENTS.— 51 with respect to such wages. CREDIT BEFORE EFFECTIVE DATE.—No portion (1) Section 30A(a)(3) is amended to read as ‘‘(c) QUALIFIED DISTRICT EMPLOYEE.—For of the unused business credit for any taxable follows: purposes of this section— year which is attributable to the credit ‘‘(3) SEPARATE APPLICATION.—For purposes ‘‘(1) IN GENERAL.—Except as otherwise pro- under section 45E may be carried back to a of determining the amount of the credit al- vided in this subsection, the term ‘qualified taxable year ending before the date of the lowed under this section, this section (and so District employee’ means any employee of enactment of section 45E.’’ much of section 936 as relates to this section) an employer if— (e) DEDUCTION FOR UNUSED CREDIT.—Sub- shall be applied separately with respect to ‘‘(A) the principal place of abode of such section (c) of section 196 is amended by strik- Puerto Rico.’’ employee throughout the 1-year period de- ing ‘‘and’’ at the end of paragraph (6), by (2) Section 30A(e)(1) is amended by insert- scribed in subsection (b)(1)(A)— striking the period at the end of paragraph ing ‘‘but not including subsection (j) there- ‘‘(i) is within the District of Columbia, and (7) and inserting ‘‘, and’’, and by adding at of’’ after ‘‘thereunder’’. ‘‘(ii) in the case of an individual who is not the end the following new paragraph: (e) EFFECTIVE DATE.—The amendments a member of a targeted group (within the ‘‘(8) the community development financial made by this section shall apply to taxable meaning of section 51(d)), is within a popu- institution investment credit determined years beginning after December 31, 1997. lation census tract having a poverty rate of under section 45E(a).’’ SEC. 803. TREATMENT OF SOFTWARE AS FSC EX- at least 15 percent, (f) CLERICAL AMENDMENT.—The table of PORT PROPERTY. ‘‘(B)(i) substantially all of the services per- sections for subpart D of part IV of sub- (a) IN GENERAL.—Section 927(a)(2)(B) (re- formed during such period by such employee chapter A of chapter 1 is amended by adding lating to excluded property) is amended by for such employer are performed within the at the end the following new item: inserting ‘‘computer software,’’ after ‘‘other District of Columbia in a trade or business of ‘‘Sec. 45E. Qualified equity investments in than’’. the employer, or (b) EFFECTIVE DATES.— community development finan- ‘‘(ii) the principal place of business of the (1) IN GENERAL.—Except as provided in cial institutions.’’ employer is within the District of Columbia, paragraph (2), the amendment made by this and (g) EFFECTIVE DATE.—The amendments section shall apply to software licenses made by this section shall apply to invest- ‘‘(C) in the case of an individual who is not granted after the date of the enactment of a member of a targeted group (within the ments made after the date of the enactment this Act in taxable years ending after such of this Act. meaning of section 51(d)), as of the beginning date. of such period it is reasonable to expect that TITLE VIII—OTHER TAX RELIEF (2) EXCEPTION FOR EXISTING LICENSES.—The the compensation to be paid to such individ- SEC. 801. SUSPENSION OF STATUTE OF LIMITA- amendment made by this section shall not ual for services performed during such period TIONS ON FILING REFUND CLAIMS apply to software licenses granted by a licen- for the employer will be less than $28,500. DURING PERIODS OF DISABILITY. sor after the date of the enactment of this ‘‘(2) CERTAIN PERSONS NOT ELIGIBLE.—The (a) IN GENERAL.—Section 6511 (relating to Act if, on such date, the person to whom the term ‘qualified District employee’ shall not limitations on credit or refund) is amended license is granted (or any related person) include— by redesignating subsection (h) as subsection held a substantially similar license granted ‘‘(A) any individual described in subpara- (i) and by inserting after subsection (g) the by the licensor (or any related person). graph (A), (B), or (C) of section 51(i)(1) (relat- following new subsection: TITLE IX—INCENTIVES FOR THE DISTRICT ing to related individuals), ‘‘(h) RUNNING OF PERIODS OF LIMITATION OF COLUMBIA ‘‘(B) any individual described in section SUSPENDED WHILE TAXPAYER IS FINANCIALLY SEC. 901. TAX INCENTIVES FOR REVITALIZATION 51(i)(2) (relating to nonqualifying rehires), DISABLED.— OF THE DISTRICT OF COLUMBIA. determined by treating qualified District ‘‘(1) IN GENERAL.—In the case of an individ- (a) IN GENERAL.—Chapter 1 is amended by employees as members of a targeted group, ual, the running of the periods specified in adding at the end the following new sub- ‘‘(C) any 5-percent owner (as defined in sec- subsections (a), (b), and (c) shall be sus- chapter: tion 416(i)(1)(B)), pended during any period of such individual’s ‘‘(D) any individual employed by the em- life that such individual is financially dis- ‘‘Subchapter W—Incentives for Revitalization ployer unless such individual— abled. of the District of Columbia ‘‘(i) is employed by the employer for at ‘‘(2) FINANCIALLY DISABLED.— ‘‘Sec. 1400A. Employment credit. least 180 days, or ‘‘(A) IN GENERAL.—For purposes of para- ‘‘Sec. 1400B. Additional expensing. ‘‘(ii) has completed at least 400 hours of graph (1), an individual is financially dis- ‘‘Sec. 1400C. Tax-exempt economic develop- services performed for the employer, and abled if such individual is unable to manage ment bonds. ‘‘(E) any individual employed by the em- his financial affairs by reason of any medi- ‘‘Sec. 1400D. Credit for equity investments ployer at any facility described in section cally determinable physical or mental im- in and loans to District of Co- 144(c)(6)(B). pairment which can be expected to result in lumbia businesses. death or which has lasted or can be expected Rules similar to the rules of section ‘‘Sec. 1400E. Definitions. to last for a continuous period of not less 1396(d)(3) shall apply for purposes of subpara- than 12 months. An individual shall not be ‘‘Sec. 1400F. Status of Economic Develop- graph (D). considered to have such an impairment un- ment Corporation for District ‘‘(d) DEFINITION AND SPECIAL RULES.—For less proof of the existence thereof is fur- of Columbia. purposes of this section— nished in such form and manner as the Sec- ‘‘SEC. 1400A. EMPLOYMENT CREDIT. ‘‘(1) WAGES.—The term ‘wages’ has the retary may require. ‘‘(a) AMOUNT OF CREDIT.—For purposes of same meaning as when used in section 51, in- ‘‘(B) EXCEPTION WHERE INDIVIDUAL HAS section 38, the amount of the District of Co- cluding amounts treated as wages by section GUARDIAN, ETC.—An individual shall not be lumbia employment credit determined under 51(e)(3)(B); except that subsections (c)(4) and treated as financially disabled during any this section for the taxable year shall be (e)(3)(D) shall not apply. period that such individual’s spouse or any equal to 40 percent of the qualified first-year ‘‘(2) CONTROLLED GROUPS.—All employers other person is authorized to act on behalf of wages for such year. treated as a single employer under sub- such individual in financial matters.’’ ‘‘(b) QUALIFIED FIRST-YEAR WAGES.—For section (a) or (b) of section 52 shall be treat- (b) EFFECTIVE DATE.—The amendment purposes of this section— ed as a single employer, and the credit (if made by subsection (a) shall apply to claims ‘‘(1) IN GENERAL.—The term ‘qualified first- any) determined under this section with re- for credit or refund for periods ending after year wages’ means wages paid or incurred by spect to each such employer shall be its pro- the date of the enactment of this Act. the employer during the taxable year which portionate share of the wages giving rise to SEC. 802. MODIFICATIONS OF PUERTO RICO ECO- are attributable to services rendered by an such credit. NOMIC ACTIVITY CREDIT. employee of the employer— ‘‘(3) CERTAIN OTHER RULES MADE APPLICA- (a) EXTENSION OF CREDIT.—Section 30A(g) ‘‘(A) during the 1-year period beginning on BLE.—Rules similar to the rules of sub- (relating to application of credit) is amended the day the employee begins work for the sections (j) and (k) of section 51, and sub- by striking ‘‘, and before January 1, 2006’’. employer, and sections (c), (d), and (e) of section 52, shall (b) TAXPAYERS OTHER THAN EXISTING ‘‘(B) while the employee is a qualified Dis- apply. CLAIMANTS ELIGIBLE FOR CREDIT.—Section trict employee. ‘‘(4) CERTIFICATION OF PRINCIPAL PLACE OF 30A(a)(2) (defining qualified domestic cor- ‘‘(2) ONLY FIRST $10,000 OF WAGES TAKEN INTO ABODE.—An individual shall not be treated as poration) is amended to read as follows: ACCOUNT.—The amount of the qualified first- meeting the requirement of subsection June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4791 (c)(1)(A) unless requirements similar to the the aggregate amount of outstanding Dis- business in the District of Columbia (or, in requirements of section 51(d)(11) are met. trict facility bonds allocable to any person the case of a new corporation, such corpora- ‘‘(5) COST-OF-LIVING ADJUSTMENT OF $28,500 (taking into account such issue) exceeds tion was being organized for purposes of en- LIMIT.—In the case of any period during a $15,000,000. gaging in such a trade or business). calendar year after 1997, the dollar amount ‘‘(d) CERTAIN RULES TO APPLY.— ‘‘(B) REDEMPTIONS.—A rule similar to the contained in subsection (c)(1)(C) shall be in- ‘‘(1) IN GENERAL.—Rules similar to the rule of section 1202(c)(3) shall apply for pur- creased by an amount equal to— rules of subsections (c)(2), (d), and (e) of sec- poses of this paragraph. ‘‘(A) such dollar amount, multiplied by tion 1394, and subparagraphs (B)(ii), (C), and ‘‘(4) QUALIFIED DISTRICT PARTNERSHIP IN- ‘‘(B) the cost-of-living adjustment deter- (D) of section 1394(b)(3), shall apply for pur- TEREST.—For purposes of this subsection, the mined under section 1(f)(3) for such calendar poses of this section. term ‘qualified District partnership interest’ year by substituting ‘calendar year 1996’ for ‘‘(2) REQUIREMENTS AFTER TESTING PE- means any interest in a partnership if— ‘calendar year 1992’ in subparagraph (B) RIOD.—A business shall not fail to be treated ‘‘(A) such interest is acquired by the tax- thereof. as a qualified District business for purposes payer from the partnership solely in ex- ‘‘(6) OTHER INCENTIVES.— of this section for any taxable year begin- change for cash, and ‘‘(A) EXTENSION OF ADDITIONAL TEMPORARY ning after the testing period (as defined in ‘‘(B) as of the time such interest was ac- INCENTIVE FOR EMPLOYING LONG-TERM FAMILY section 1394(b)(3)(C)) by reason of failing to quired, such partnership was engaging in a ASSISTANCE RECIPIENTS RESIDING IN THE DIS- meet any requirement of subsection (b) or (c) trade or business in the District of Columbia TRICT OF COLUMBIA.—In the case of a long- of section 1397B. The preceding sentence (or, in the case of a new partnership, such term family assistance recipient (as defined shall not apply to any business which is not partnership was being organized for purposes in section 51(e)(4)), section 51(e)(3)(D) shall a qualified business by reason of paragraph of engaging in such a trade or business). (1), (4), or (5) of section 1397B(d). be applied by substituting ‘September 30, ‘‘(5) DISPOSITIONS OF DISTRICT BUSINESS IN- ‘‘(e) APPLICATION OF SECTION.—This section 2002’ for ‘September 30, 2000’ if— VESTMENTS.— shall apply to bonds issued after the date of ‘‘(i) such individual’s principal place of ‘‘(A) IN GENERAL.—If a taxpayer disposes of the enactment of this section and before abode is within the District of Columbia dur- any District business investment (or any January 1, 2003. ing the period described in section 51(e)(3), other property the basis of which is deter- ‘‘SEC. 1400D. CREDIT FOR EQUITY INVESTMENTS and IN AND LOANS TO DISTRICT OF CO- mined in whole or in part by reference to the ‘‘(ii) the requirement of clause (i) or (ii) of LUMBIA BUSINESSES. adjusted basis of such investment) before the subsection (c)(1)(B) is met during such period ‘‘(a) GENERAL RULE.—For purposes of sec- end of the 5-year period beginning on the with respect to such individual. tion 38, the District investment credit deter- date such investment was acquired by the ‘‘(B) EXTENSION OF WORK OPPORTUNITY mined under this section for any taxable taxpayer, the taxpayer’s tax imposed by this CREDIT.—In the case of wages paid to a mem- year is— chapter for the taxable year in which such ber of a targeted group (within the meaning ‘‘(1) the qualified lender credit for such distribution occurs shall be increased by the of section 51(d)) while such member’s prin- year, and aggregate decrease in the credits allowed cipal place of abode is within the District of ‘‘(2) the qualified equity investment credit under section 38 for all prior taxable years Columbia, section 51(c)(4)(B) shall be applied for such year. which would have resulted solely from reduc- by substituting ‘September 30, 2002’ for ‘Sep- ‘‘(b) QUALIFIED LENDER CREDIT.—For pur- ing to zero any credit determined under this tember 30, 1998’. poses of this section— section with respect to such investment. ‘‘(e) APPLICATION OF SECTION.—This section ‘‘(1) IN GENERAL.—The qualified lender ‘‘(B) EXCEPTIONS.—Subparagraph (A) shall shall apply with respect to individuals who credit for any taxable year is the amount of not apply to any gift, transfer, or trans- begin work for the employer on and after the credit specified for such year by the Eco- action described in paragraph (1), (2), or (3) of date of the enactment of this section and be- nomic Development Corporation with re- section 1245(b). fore October 1, 2002. spect to qualified District loans made by the ‘‘(C) SPECIAL RULE.—Any increase in tax ‘‘SEC. 1400B. ADDITIONAL EXPENSING. taxpayer. under subparagraph (A) shall not be treated ‘‘(a) GENERAL RULE.—In the case of a quali- ‘‘(2) LIMITATION.—In no event may the as a tax imposed by this chapter for purposes fied District business, for purposes of section qualified lender credit with respect to any of— 179— loan exceed 25 percent of the cost of the ‘‘(i) determining the amount of any credit ‘‘(1) the limitation under section 179(b)(1) property purchased with the proceeds of the allowable under this chapter, and shall be increased by the lesser of— loan. ‘‘(ii) determining the amount of the tax ‘‘(A) $20,000, or ‘‘(3) QUALIFIED DISTRICT LOAN.—For pur- imposed by section 55. ‘‘(B) the cost of section 179 property which poses of paragraph (1), the term ‘qualified ‘‘(6) BASIS REDUCTION.—For purposes of this is qualified District property placed in serv- district loan’ means any loan for the pur- title, the basis of any District business in- ice during the taxable year, and chase (as defined in section 179(d)(2)) of prop- vestment shall be reduced by the amount of erty to which section 168 applies (or would ‘‘(2) the amount taken into account under the credit determined under this section apply but for section 179) (or land which is section 179(b)(2) with respect to any section with respect to such investment. functionally related and subordinate to such 179 property which is qualified District prop- ‘‘(d) LIMITATION ON AMOUNT OF CREDIT.— property) and substantially all of the use of erty shall be 50 percent of the cost thereof. ‘‘(1) IN GENERAL.—The amount of the Dis- which is in the District of Columbia and is in ‘‘(b) RECAPTURE.—Rules similar to the trict investment credit determined under the active conduct of a trade or business in rules under section 179(d)(10) shall apply with this section with respect to any taxpayer for the District of Columbia. A rule similar to respect to any qualified District property any taxable year shall not exceed the credit the rule of section 1397C(a)(2) shall apply for which ceases to be used in the District of Co- amount allocated to such taxpayer for such purposes of the preceding sentence. lumbia by a District business. taxable year by the Economic Development ‘‘(c) QUALIFIED EQUITY INVESTMENT CRED- OORDINATION ITH ECTION Corporation. ‘‘(c) C W S 1397A.—In IT.— ‘‘(2) OVERALL LIMITATION.—The aggregate no event shall qualified District property be ‘‘(1) IN GENERAL.—For purposes of this sec- treated as qualified zone property for pur- tion, the qualified equity investment credit credit amount which may be allocated by the poses of section 1397A. determined under this section for any tax- Economic Development Corporation under ‘‘(d) APPLICATION OF SECTION.—This section able year is an amount equal to the percent- this section shall not exceed $95,000,000. shall apply to property placed in service age specified by the Economic Development ‘‘(3) CRITERIA FOR ALLOCATING CREDIT after December 31, 1997, and before January Corporation (but not greater than 25 percent) AMOUNTS.—The allocation of credit amounts 1, 2002. of the aggregate amount paid in cash by the under this section shall be made in accord- ‘‘SEC. 1400C. TAX-EXEMPT ECONOMIC DEVELOP- taxpayer during the taxable year for the pur- ance with criteria established by the Eco- MENT BONDS. chase of District business investments. nomic Development Corporation. In estab- ‘‘(a) IN GENERAL.—For purposes of part IV ‘‘(2) DISTRICT BUSINESS INVESTMENT.—For lishing such criteria, such Corporation shall of subchapter B of this chapter (relating to purposes of this subsection, the term ‘Dis- take into account— tax exemption requirements for State and trict business investment’ means— ‘‘(A) the degree to which the business re- local bonds), the term ‘exempt facility bond’ ‘‘(A) any District business stock, and ceiving the loan or investment will provide includes any bond issued as part of an issue ‘‘(B) any District partnership interest. job opportunities for low and moderate in- 95 percent or more of the net proceeds (as de- ‘‘(3) DISTRICT BUSINESS STOCK.—For pur- come residents of the District of Columbia, fined in section 150(a)(3)) of which are to be poses of this subsection— and used to provide any District facility. ‘‘(A) IN GENERAL.—Except as provided in ‘‘(B) whether such business is within a pop- ‘‘(b) DISTRICT FACILITY.—For purposes of subparagraph (B), the term ‘District business ulation census tract in the District of Co- this section, the term ‘District facility’ stock’ means any stock in a domestic cor- lumbia having a poverty rate of at least 15 means any District property the principal poration if— percent. user of which is a qualified District business, ‘‘(i) such stock is acquired by the taxpayer ‘‘(e) REGULATIONS.—The Secretary shall and any land which is functionally related at its original issue (directly or through an prescribe such regulations as may be appro- and subordinate to such property. underwriter) in exchange for cash, and priate to carry out this section. ‘‘(c) LIMITATION ON AMOUNT OF BONDS.— ‘‘(ii) as of the time such stock was issued, ‘‘(f) APPLICATION OF SECTION.—This section Subsection (a) shall not apply to any issue if such corporation was engaged in a trade or shall apply to any credit amount allocated H4792 CONGRESSIONAL RECORD — HOUSE June 26, 1997

for taxable years beginning after December (c) CLERICAL AMENDMENT.—The table of of any stock, debt instrument, or partner- 31, 1997, and before January 1, 2003. subchapters for chapter 1 is amended by add- ship interest which is not a marketable secu- ‘‘SEC. 1400E. DEFINITIONS. ing at the end the following new item: rity (as defined in section 453(f)) if the con- ‘‘(a) QUALIFIED DISTRICT BUSINESS.—For tract settles within 1 year after the date ‘‘Subchapter W. Incentives for revitalization purposes of this subchapter, the term ‘quali- such contract is entered into. of the District of Columbia.’’ fied District business’ means a corporation, ‘‘(3) EXCEPTION FOR CERTAIN CLOSED TRANS- partnership, or proprietorship which would (d) EFFECTIVE DATE.—This section shall ACTIONS.—In applying this section, there be a qualified business entity (as defined in take effect on the date of the enactment of shall be disregarded any transaction (which section 1397B) or a qualified proprietorship this Act. would otherwise be treated as a constructive (as defined in such section) if— TITLE X—REVENUES sale) during the taxable year if— ‘‘(1) the District of Columbia were an Subtitle A—Financial Products ‘‘(A) such transaction is closed before the empowerment zone (and there were no other end of the 30th day after the close of such empowerment zones or enterprise commu- SEC. 1001. CONSTRUCTIVE SALES TREATMENT taxable year, and FOR APPRECIATED FINANCIAL POSI- nities), and TIONS. ‘‘(B) in the case of a transaction which is ‘‘(2) section 1397B(b)(1) did not apply. (a) IN GENERAL.—Part IV of subchapter P closed during the 90-day period ending on ‘‘(b) QUALIFIED DISTRICT PROPERTY.—For of chapter 1 is amended by adding at the end such 30th day— purposes of this subchapter, the term ‘quali- the following new section: ‘‘(i) the taxpayer holds the appreciated fi- fied District property’ means any property nancial position throughout the 60-day pe- ‘‘SEC. 1259. CONSTRUCTIVE SALES TREATMENT which would be qualified zone property (as riod beginning on the date such transaction defined in section 1397C) if— FOR APPRECIATED FINANCIAL POSI- TIONS. is closed, and ‘‘(1) the District of Columbia were an ‘‘(a) IN GENERAL.—If there is a constructive ‘‘(ii) at no time during such 60-day period empowerment zone (and there were no other sale of an appreciated financial position— is the taxpayer’s risk of loss with respect to empowerment zones or enterprise commu- ‘‘(1) the taxpayer shall recognize gain as if such position reduced by reason of a cir- nities), such position were sold, assigned, or other- cumstance which would be described in sec- ‘‘(2) paragraph (1)(A) of section 1397C(a) re- wise terminated at its fair market value on tion 246(c)(4) if references to stock included ferred to the date of the enactment of this the date of such constructive sale (and any references to such position. section, gain shall be taken into account for the tax- ‘‘(4) RELATED PERSON.—A person is related ‘‘(3) paragraph (1)(B) of section 1397C(a) did able year which includes such date), and to another person with respect to a trans- not apply, and ‘‘(2) for purposes of applying this title for action if— ‘‘(4) paragraph (2) of section 1397C(a) were periods after the constructive sale— ‘‘(A) the relationship is described in sec- applied by substituting ‘an amount equal to ‘‘(A) proper adjustment shall be made in tion 267 or 707(b), and 15 percent of the adjusted basis’ for ‘an the amount of any gain or loss subsequently ‘‘(B) such transaction is entered into with amount equal to the adjusted basis’. realized with respect to such position for any a view toward avoiding the purposes of this ‘‘(c) ECONOMIC DEVELOPMENT CORPORA- gain taken into account by reason of para- section. TION.—For purposes of this subchapter, the graph (1), and ‘‘(d) OTHER DEFINITIONS.—For purposes of term ‘Economic Development Corporation’ this section— means the Economic Development Corpora- ‘‘(B) the holding period of such position shall be determined as if such position were ‘‘(1) FORWARD CONTRACT.—The term ‘for- tion hereafter established by law for the Dis- ward contract’ means a contract to deliver a trict of Columbia. originally acquired on the date of such con- structive sale. substantially fixed amount of property for a ‘‘SEC. 1400F. STATUS OF ECONOMIC DEVELOP- substantially fixed price. MENT CORPORATION FOR DISTRICT ‘‘(b) APPRECIATED FINANCIAL POSITION.— ‘‘(2) OFFSETTING NOTIONAL PRINCIPAL CON- OF COLUMBIA. For purposes of this section— TRACT.—The term ‘offsetting notional prin- ‘‘(a) IN GENERAL.—For purposes of this ‘‘(1) IN GENERAL.—Except as provided in cipal contract’ means, with respect to any title and the Social Security Act, the Eco- paragraph (2), the term ‘appreciated finan- property, an agreement which includes— nomic Development Corporation is an agen- cial position’ means any position with re- ‘‘(A) a requirement to pay (or provide cred- cy of the District of Columbia. spect to any stock, debt instrument, or part- ‘‘(b) BOND AUTHORITY.—The Economic De- nership interest if there would be gain were it for) all or substantially all of the invest- velopment Corporation shall be allocated 50 such position sold, assigned, or otherwise ment yield (including appreciation) on such percent of the private activity bond volume terminated at its fair market value. property for a specified period, and cap allocated to the District of Columbia ‘‘(2) EXCEPTIONS.—The term ‘appreciated fi- ‘‘(B) a right to be reimbursed for (or re- under section 146. Notwithstanding section nancial position’ shall not include— ceive credit for) all or substantially all of 146(e), the District of Columbia may not ‘‘(A) any position with respect to straight any decline in the value of such property. alter the allocation under the preceding sen- debt (as defined in section 1361(c)(5)(B) with- ‘‘(e) SPECIAL RULES.— tence.’’ out regard to clause (iii) thereof), and ‘‘(1) TREATMENT OF SUBSEQUENT SALE OF PO- (b) CREDITS MADE PART OF GENERAL BUSI- ‘‘(B) any position which is marked to mar- SITION WHICH WAS DEEMED SOLD.—If— NESS CREDIT.— ket under any provision of this title or the ‘‘(A) there is a constructive sale of any ap- (1) Subsection (b) of section 38 is amended regulations thereunder. preciated financial position, by striking ‘‘plus’’ at the end of paragraph ‘‘(3) POSITION.—The term ‘position’ means ‘‘(B) such position is subsequently disposed (12), by striking the period at the end of an interest, including a futures or forward of, and paragraph (13) and inserting a comma, and contract, short sale, or option. ‘‘(C) at the time of such disposition, the by adding at the end the following new para- ‘‘(c) CONSTRUCTIVE SALE.—For purposes of transaction resulting in the constructive graphs: this section— sale of such position is open with respect to ‘‘(14) the District of Columbia employment ‘‘(1) IN GENERAL.—A taxpayer shall be the taxpayer or any related person, credit determined under section 1400A(a), treated as having made a constructive sale of solely for purposes of determining whether plus an appreciated financial position if the tax- the taxpayer has entered into a constructive ‘‘(15) the District investment credit deter- payer (or a related person)— sale of any other appreciated financial posi- mined under section 1400D(a).’’ ‘‘(A) enters into a short sale of the same or tion held by the taxpayer, the taxpayer shall (2) Subsection (d) of section 39 is amended substantially identical property, be treated as entering into such transaction by adding at the end the following new para- ‘‘(B) enters into an offsetting notional immediately after such disposition. For pur- graph: principal contract with respect to the same poses of the preceding sentence, an assign- ‘‘(10) NO CARRYBACK OF DISTRICT OF COLUM- or substantially identical property, ment or other termination shall be treated BIA EMPLOYMENT AND INVESTMENT CREDITS BE- ‘‘(C) enters into a futures or forward con- as a disposition. FORE EFFECTIVE DATE.—No portion of the un- tract to deliver the same or substantially ‘‘(2) CERTAIN TRUST INSTRUMENTS TREATED used business credit for any taxable year identical property, AS STOCK.—For purposes of this section, an which is attributable to the credit under sec- ‘‘(D) in the case of an appreciated financial interest in a trust which is actively traded tion 1400A or 1400D may be carried back to a position that is a short sale or a contract de- (within the meaning of section 1092(d)(1)) taxable year ending before the date of the scribed in subparagraph (B) or (C) with re- shall be treated as stock. enactment of such sections.’’ spect to any property, acquires the same or ‘‘(3) MULTIPLE POSITIONS IN PROPERTY.—If a (3) Subsection (c) of section 196 is amended substantially identical property, or taxpayer holds multiple positions in prop- by striking ‘‘and’’ at the end of paragraph ‘‘(E) to the extent prescribed by the Sec- erty, the determination of whether a specific (7), by striking the period at the end of para- retary in regulations, enters into 1 or more transaction is a constructive sale and, if so, graph (8) and inserting a comma, and by add- other transactions (or acquires 1 or more po- which appreciated financial position is ing at the end the following new paragraphs: sitions) that have substantially the same ef- deemed sold shall be made in the same man- ‘‘(9) the District of Columbia employment fect as a transaction described in any of the ner as actual sales. credit determined under section 1400A(a), preceding subparagraphs. ‘‘(f) REGULATIONS.—The Secretary shall and ‘‘(2) EXCEPTION FOR SALES OF NONPUBLICLY prescribe such regulations as may be nec- ‘‘(10) the District investment credit deter- TRADED PROPERTY.—The term ‘constructive essary or appropriate to carry out the pur- mined under section 1400D(a).’’ sale’ shall not include any contract for sale poses of this section.’’ June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4793

(b) ELECTION OF MARK TO MARKET FOR SE- (A) there was a constructive sale on or be- (2) ONLY OBLIGATIONS ACQUIRED AFTER JUNE CURITIES TRADERS AND FOR TRADERS AND fore such date of any appreciated financial 8, 1997, TAKEN INTO ACCOUNT.—Subparagraph DEALERS IN COMMODITIES.—Subsection (d) of position, (A) of section 265(b)(2) is amended by strik- section 475 (relating to mark to market ac- (B) the transaction resulting in such con- ing ‘‘August 7, 1986’’ and inserting ‘‘June 8, counting method for dealers in securities) is structive sale of such position remains open 1997 (August 7, 1986, in the case of a financial amended by adding at the end the following (with respect to the decedent or any related institution)’’. new paragraph: person) for not less than 2 years after the (3) SMALL ISSUER EXCEPTION NOT TO ‘‘(4) ELECTION OF MARK TO MARKET FOR SE- date of such transaction (whether such pe- APPLY.—Subparagraph (A) of section 265(b)(3) CURITIES TRADERS AND FOR TRADERS AND riod is before or after such date), and is amended by striking ‘‘Any qualified’’ and DEALERS IN COMMODITIES.— (C) such transaction is not closed within inserting ‘‘In the case of a financial institu- ‘‘(A) IN GENERAL.—In the case of a person— the 30-day period beginning on the date of tion, any qualified’’. ‘‘(i) who is engaged in a trade or business the enactment of this Act, (4) EXCEPTION FOR CERTAIN BONDS ACQUIRED to which this paragraph applies, and then, for purposes of such Code, such posi- ON SALE OF GOODS OR SERVICES.—Subpara- ‘‘(ii) who elects to be treated as a dealer in tion (and any property related thereto, as de- graph (B) of section 265(b)(4) is amended by securities for purposes of this section with termined under the principles of section adding at the end the following new sen- respect to such trade or business, 1259(d)(1) of such Code (as so added)) shall be tence: ‘‘In the case of a taxpayer other than subsections (a), (b)(3), (c)(3), and (e) and the treated as property constituting rights to re- a financial institution, such term shall not preceding provisions of this subsection (or, ceive an item of income in respect of a dece- include a nonsaleable obligation acquired by in the case of a dealer in commodities, this dent under section 691 of such Code. such taxpayer in the ordinary course of busi- section) shall apply to all commodities and (4) ELECTION OF SECURITIES TRADERS, AND ness as payment for goods or services pro- securities held by such person in any trade FOR TRADERS AND DEALERS IN COMMODITIES, vided by such taxpayer to any State or local or business with respect to which such elec- TO BE TREATED AS DEALERS IN SECURITIES.— government.’’ tion is in effect in the same manner as if (A) IN GENERAL.—The amendment made by (5) LOOK-THRU RULES FOR PARTNERSHIPS.— such person were a dealer in securities and subsection (b) shall apply to taxable years Paragraph (6) of section 265(b) is amended by all references to securities included ref- ending after the date of the enactment of adding at the end the following new subpara- erences to commodities. this Act. graph: ‘‘(B) APPLICATION OF PARAGRAPH.—This (B) 4-YEAR SPREAD OF ADJUSTMENTS.—In ‘‘(C) LOOK-THRU RULES FOR PARTNERSHIPS.— paragraph shall apply to any active trade or the case of a taxpayer who elects under sec- In the case of a corporation which is a part- business— tion 475(d)(4) of the Internal Revenue Code of ner in a partnership, such corporation shall ‘‘(i) as a trader in securities, or 1986 (as added by this section) to change its be treated for purposes of this subsection as ‘‘(ii) as a trader or dealer in commodities. method of accounting for its first taxable holding directly its allocable share of the as- ‘‘(C) EXCEPTION FOR CERTAIN HOLDINGS OF year ending after the date of the enactment sets of the partnership.’’ TRADERS.—In the case of a trader in securi- of this Act, the net amount of the adjust- (6) APPLICATION OF PRO RATA DISALLOWANCE ties or commodities, subsection (a) shall not ments required to be taken into account by ON AFFILIATED GROUP BASIS.—Subsection (b) apply to any security or commodity (to the taxpayer under section 481 of the Inter- of section 265 is amended by adding at the which subsection (a) would otherwise apply nal Revenue Code of 1986 shall be taken into end the following new paragraph: solely by reason of this paragraph) if such se- account ratably over the 4-taxable year pe- ‘‘(7) APPLICATION OF DISALLOWANCE ON AF- curity or commodity is clearly identified in riod beginning with such first taxable year. FILIATED GROUP BASIS.— the trader’s records (before the close of the SEC. 1002. LIMITATION ON EXCEPTION FOR IN- ‘‘(A) IN GENERAL.—For purposes of this sub- day applicable under subsection (b)(2)) as VESTMENT COMPANIES UNDER SEC- section, all members of an affiliated group being held other than in a trade or business TION 351. filing a consolidated return under section (a) IN GENERAL.—Paragraph (1) of section to which the election under subparagraph (A) 1501 shall be treated as 1 taxpayer. 351(e) (relating to exceptions) is amended by is in effect. A security or commodity so iden- ‘‘(B) TREATMENT OF INSURANCE COMPA- adding at the end the following: ‘‘For pur- tified shall be treated as described in sub- NIES.—This subsection shall not apply to an poses of the preceding sentence, the term ‘in- section (b)(1). insurance company, and subparagraph (A) vestment company’ includes any company if shall be applied without regard to any mem- ‘‘(D) COMMODITY.—For purposes of this more than 80 percent of the value of the as- paragraph, the term ‘commodities’ includes ber of an affiliated group which is an insur- sets of such company (other than assets held ance company.’’ only commodities of a kind customarily in the ordinary course of a trade or business dealt in on an organized commodity ex- (6) DE MINIMIS EXCEPTION FOR NONFINANCIAL for sale to customers) is attributable to— INSTITUTIONS.—Subsection (b) of section 265 change. ‘‘(A) money, ‘‘(E) ELECTION.—An election under this is amended by adding at the end the follow- ‘‘(B) any financial instrument (as defined ing new paragraph: paragraph may be made separately for each in section 731(c)(2)(C)), trade or business and without the consent of ‘‘(8) DE MINIMIS EXCEPTION FOR NON- ‘‘(C) any foreign currency, FINANCIAL INSTITUTIONS.—In the case of a the Secretary. Such an election, once made, ‘‘(D) any interest in a real estate invest- shall apply to the taxable year for which corporation, paragraph (1) shall not apply for ment trust, a common trust fund, a regu- any taxable year if the amount described in made and all subsequent taxable years unless lated investment company, or a publicly revoked with the consent of the Secretary.’’ paragraph (2)(A) with respect to such cor- traded partnership (as defined in section poration does not exceed the lesser of— (c) CLERICAL AMENDMENT.—The table of 7704(b)), ‘‘(A) 2 percent of the amount described in sections for part IV of subchapter P of chap- ‘‘(E) any interest described in clause (iv), paragraph (2)(B), or ter 1 is amended by adding at the end the fol- (v), or (vi) of section 731(c)(2)(B) (or which ‘‘(B) $1,000,000. lowing new item: would be so described without regard to any The preceding sentence shall not apply to a reference to active trading or market- financial institution or to a dealer in tax-ex- ‘‘Sec. 1259. Constructive sales treatment for ability), empt obligations.’’ appreciated financial posi- ‘‘(F) any other asset specified in regula- (7) CLERICAL AMENDMENT.—The subsection tions.’’ tions prescribed by the Secretary, or heading for section 265(b) is amended by ‘‘(G) any combination of the foregoing.’’ striking ‘‘FINANCIAL INSTITUTIONS’’ and in- (d) EFFECTIVE DATES.— (b) EFFECTIVE DATE.— serting ‘‘CORPORATIONS’’. (1) IN GENERAL.—Except as otherwise pro- (1) IN GENERAL.—The amendment made by vided in this subsection, the amendments (b) APPLICATION OF SECTION 265(a)(2) WITH subsection (a) shall apply to transfers after RESPECT TO CONTROLLED GROUPS.—Para- made by this section shall apply to any con- June 8, 1997, in taxable years ending after graph (2) of section 265(a) is amended after structive sale after June 8, 1997. such date. ‘‘obligations’’ by inserting ‘‘held by the tax- (2) EXCEPTION FOR SALES OF POSITIONS, ETC. (2) BINDING CONTRACTS.—The amendment payer (or any corporation which is a member HELD BEFORE JUNE 9, 1997.—A constructive made by subsection (a) shall not apply to of a controlled group (as defined in section sale before June 9, 1997, and the property to any transfer pursuant to a written binding 267(f)(1)) which includes the taxpayer)’’. which the position involved in the trans- contract in effect on June 8, 1997, that pro- (c) EFFECTIVE DATE.—The amendments action relates, shall not be taken into ac- vides for the transfer of a fixed amount of made by this section shall apply to taxable count in determining whether any other con- property, and at all times thereafter before years beginning after the date of the enact- structive sale after June 8, 1997, has occurred such transfer. ment of this Act. if, within before the close of the 30-day pe- SEC. 1003. MODIFICATION OF RULES FOR ALLO- SEC. 1004. GAINS AND LOSSES FROM CERTAIN riod beginning on the date of the enactment CATING INTEREST EXPENSE TO TAX- TERMINATIONS WITH RESPECT TO of this Act, such position and property are EXEMPT INTEREST. PROPERTY. clearly identified in the taxpayer’s records (a) PRO RATA ALLOCATION RULES APPLICA- (a) APPLICATION OF CAPITAL TREATMENT TO as offsetting. The preceding sentence shall BLE TO CORPORATIONS.— PROPERTY OTHER THAN PERSONAL PROP- cease to apply as of the date the taxpayer (1) IN GENERAL.—Paragraph (1) of section ERTY.— ceases to hold such position or property. 265(b) is amended by striking ‘‘In the case of (1) IN GENERAL.—Paragraph (1) of section (3) SPECIAL RULE.—In the case of a dece- a financial institution’’ and inserting ‘‘In the 1234A (relating to gains and losses from cer- dent dying after June 8, 1997, if— case of a corporation’’. tain terminations) is amended by striking H4794 CONGRESSIONAL RECORD — HOUSE June 26, 1997

‘‘personal property (as defined in section ‘‘(3) SPECIAL RULES FOR AMOUNTS PAYABLE tions had not been taken into account under 1092(d)(1))’’ and inserting ‘‘property’’. IN EQUITY.—For purposes of paragraph (2), in- section 318(a)(4), (2) EFFECTIVE DATE.—The amendment debtedness shall be treated as payable in eq- any amount treated as a dividend with re- made by paragraph (1) shall apply to termi- uity of the issuer or a related party only if— spect to such redemption shall be treated as nations more than 30 days after the date of ‘‘(A) a substantial amount of the principal an extraordinary dividend to which para- the enactment of this Act. or interest is required to be paid or con- graphs (1) and (2) of subsection (a) apply (b) APPLICATION OF CAPITAL TREATMENT, verted, or at the option of the issuer or a re- without regard to the period the taxpayer ETC. TO OBLIGATIONS ISSUED BY NATURAL lated party is payable in, or convertible into, held such stock. In the case of a redemption PERSONS.— such equity, described in clause (iii), only the basis in the (1) IN GENERAL.—Section 1271(b) is amended ‘‘(B) a substantial amount of the principal stock redeemed shall be taken into account to read as follows: or interest is required to be determined, or under subsection (a). ‘‘(b) EXCEPTION FOR CERTAIN OBLIGA- at the option of the issuer or a related party ‘‘(B) REORGANIZATIONS, ETC.—An exchange TIONS.— is determined, by reference to the value of described in section 356(a)(1) which is treated ‘‘(1) IN GENERAL.—This section shall not such equity, or as a dividend under section 356(a)(2) shall be apply to— ‘‘(C) the indebtedness is part of an arrange- ‘‘(A) any obligation issued by a natural treated as a redemption of stock for purposes ment which is reasonably expected to result of applying subparagraph (A).’’ person before June 9, 1997, and in a transaction described in subparagraph ‘‘(B) any obligation issued before July 2, (A) or (B). (c) TIME FOR REDUCTION.—Paragraph (1) of 1982, by an issuer which is not a corporation section 1059(d) is amended to read as follows: For purposes of subparagraphs (A) and (B), and is not a government or political subdivi- ‘‘(1) TIME FOR REDUCTION.—Any reduction principal or interest shall be treated as re- sion thereof. in basis under subsection (a)(1) shall be quired to be so paid, converted, or deter- ‘‘(2) TERMINATION.—Paragraph (1) shall not treated as occurring at the beginning of the mined if it may be required at the option of apply to any obligation purchased (within ex-dividend date of the extraordinary divi- the holder or a related party and there is a the meaning of section 179(d)(2)) after June 8, dend to which the reduction relates.’’ substantial certainty the option will be exer- 1997.’’ cised. (d) EFFECTIVE DATES.— (2) EFFECTIVE DATE.—The amendment ‘‘(4) RELATED PARTY.—For purposes of this (1) IN GENERAL.—The amendments made by made by paragraph (1) shall take effect on subsection, a person is a related party with this section shall apply to distributions after the date of enactment of this Act. respect to another person if such person May 3, 1995. SEC. 1005. DETERMINATION OF ORIGINAL ISSUE bears a relationship to such other person de- (2) TRANSITION RULE.—The amendments DISCOUNT WHERE POOLED DEBT scribed in section 267(b) or 707(b). made by this section shall not apply to any OBLIGATIONS SUBJECT TO ACCEL- distribution made pursuant to the terms of— ERATION. ‘‘(5) REGULATIONS.—The Secretary shall (A) a written binding contract in effect on (a) IN GENERAL.—Subparagraph (C) of sec- prescribe such regulations as may be nec- tion 1272(a)(6) (relating to debt instruments essary or appropriate to carry out the pur- May 3, 1995, and at all times thereafter be- to which the paragraph applies) is amended poses of this subsection, including regula- fore such distribution, or by striking ‘‘or’’ at the end of clause (i), by tions preventing avoidance of this subsection (B) a tender offer outstanding on May 3, striking the period at the end of clause (ii) through the use of an issuer other than a 1995. and inserting ‘‘, or’’, and by inserting after corporation.’’ (3) CERTAIN DIVIDENDS NOT PURSUANT TO clause (i) the following: (b) EFFECTIVE DATE.— CERTAIN REDEMPTIONS.—In determining ‘‘(iii) any pool of debt instruments the (1) IN GENERAL.—The amendment made by whether the amendment made by subsection yield on which may be reduced by reason of this section shall apply to disqualified debt (a) applies to any extraordinary dividend prepayments (or to the extent provided in instruments issued after June 8, 1997. other than a dividend treated as an extraor- regulations, by reason of other events). (2) TRANSITION RULE.—The amendment dinary dividend under section 1059(e)(1) of To the extent provided in regulations pre- made by this section shall not apply to any the Internal Revenue Code of 1986 (as amend- scribed by the Secretary, in the case of a instrument issued after June 8, 1997, if such ed by this Act), paragraphs (1) and (2) shall small business engaged in the trade or busi- instrument is— be applied by substituting ‘‘September 13, ness of selling tangible personal property at (A) issued pursuant to a written agreement 1995’’ for ‘‘May 3, 1995’’. which was binding on such date and at all retail, clause (iii) shall not apply to debt in- SEC. 1012. APPLICATION OF SECTION 355 TO DIS- struments incurred in the ordinary course of times thereafter, TRIBUTIONS FOLLOWED BY ACQUI- such trade or business while held by such (B) described in a ruling request submitted SITIONS AND TO INTRAGROUP business.’’ to the Internal Revenue Service on or before TRANSACTIONS. such date, or (b) EFFECTIVE DATES.— (a) DISTRIBUTIONS FOLLOWED BY ACQUISI- (C) described on or before such date in a (1) IN GENERAL.—The amendment made by TIONS.—Section 355 (relating to distribution public announcement or in a filing with the this section shall apply to taxable years be- of stock and securities of a controlled cor- Securities and Exchange Commission re- ginning after the date of the enactment of poration) is amended by adding at the end quired solely by reason of the distribution. this Act. the following new subsection: (2) CHANGE IN METHOD OF ACCOUNTING.—In Subtitle B—Corporate Organizations and the case of any taxpayer required by this Reorganizations ‘‘(e) RECOGNITION OF GAIN WHERE CERTAIN DISTRIBUTIONS OF STOCK OR SECURITIES ARE section to change its method of accounting SEC. 1011. TAX TREATMENT OF CERTAIN EX- FOLLOWED BY ACQUISITION.— for its first taxable year beginning after the TRAORDINARY DIVIDENDS. ‘‘(1) GENERAL RULE.—If there is a distribu- date of the enactment of this Act— (a) TREATMENT OF EXTRAORDINARY DIVI- tion to which this subsection applies, the fol- (A) such change shall be treated as initi- DENDS IN EXCESS OF BASIS.—Paragraph (2) of ated by the taxpayer, section 1059(a) (relating to corporate share- lowing rules shall apply: (B) such change shall be treated as made holder’s recognition of gain attributable to ‘‘(A) ACQUISITION OF CONTROLLED CORPORA- with the consent of the Secretary, and nontaxed portion of extraordinary dividends) TION.—If there is an acquisition described in (C) the net amount of the adjustments re- is amended to read as follows: paragraph (2)(A)(ii) with respect to any con- quired to be taken into account by the tax- ‘‘(2) AMOUNTS IN EXCESS OF BASIS.—If the trolled corporation, any stock or securities payer under section 481 of the Internal Reve- nontaxed portion of such dividends exceeds in the controlled corporation shall not be nue Code of 1986 shall be taken into account such basis, such excess shall be treated as treated as qualified property for purposes of ratably over the 4-taxable year period begin- gain from the sale or exchange of such stock subsection (c)(2) of this section or section ning with such first taxable year. for the taxable year in which the extraor- 361(c)(2). SEC. 1006. DENIAL OF INTEREST DEDUCTIONS ON dinary dividend is received.’’ ‘‘(B) ACQUISITION OF DISTRIBUTING CORPORA- CERTAIN DEBT INSTRUMENTS. (b) TREATMENT OF REDEMPTIONS WHERE OP- TION.—If there is an acquisition described in (a) IN GENERAL.—Section 163 (relating to TIONS INVOLVED.—Paragraph (1) of section paragraph (2)(A)(ii) with respect to the dis- deduction for interest) is amended by redes- 1059(e) (relating to treatment of partial liq- tributing corporation, the controlled cor- ignating subsection (k) as subsection (l) and uidations and non-pro rata redemptions) is poration shall recognize gain in an amount by inserting after subsection (j) the follow- amended to read as follows: equal to the amount of net gain which would ing new subsection: ‘‘(1) TREATMENT OF PARTIAL LIQUIDATIONS be recognized if all the assets of the distrib- ‘‘(k) DISALLOWANCE OF DEDUCTION ON CER- AND CERTAIN REDEMPTIONS.—Except as other- uting corporation (immediately after the TAIN DEBT INSTRUMENTS OF CORPORATIONS.— wise provided in regulations— distribution) were sold (at such time) for fair ‘‘(1) IN GENERAL.—No deduction shall be al- ‘‘(A) REDEMPTIONS.—In the case of any re- market value. Any gain recognized under the lowed under this chapter for any interest demption of stock— preceding sentence shall be treated as long- paid or accrued on a disqualified debt instru- ‘‘(i) which is part of a partial liquidation term capital gain and shall be taken into ac- ment. (within the meaning of section 302(e)) of the count for the taxable year which includes ‘‘(2) DISQUALIFIED DEBT INSTRUMENT.—For redeeming corporation, the day after the date of such distribution. purposes of this subsection, the term ‘dis- ‘‘(ii) which is not pro rata as to all share- ‘‘(2) DISTRIBUTIONS TO WHICH SUBSECTION qualified debt instrument’ means any indebt- holders, or APPLIES.— edness of a corporation which is payable in ‘‘(iii) which would not have been treated ‘‘(A) IN GENERAL.—This subsection shall equity of the issuer or a related party. (in whole or in part) as a dividend if any op- apply to any distribution— June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4795 ‘‘(i) to which this section (or so much of a controlled corporation or a distributing qualified under paragraph (1)(D)) is amended section 356 as relates to this section) applies, corporation shall include a reference to any to read as follows: and predecessor or successor of such corporation. ‘‘(H) SPECIAL RULES FOR DETERMINING ‘‘(ii) which is part of a plan (or series of re- ‘‘(E) STATUTE OF LIMITATIONS.—If there is WHETHER CERTAIN TRANSACTIONS ARE QUALI- lated transactions) pursuant to which 1 or an acquisition to which paragraph (1) (A) or FIED UNDER PARAGRAPH (1)(D).—For purposes more persons acquire directly or indirectly (B) applies— of determining whether a transaction quali- stock representing a 50-percent or greater in- ‘‘(i) the statutory period for the assess- fies under paragraph (1)(D)— terest in the distributing corporation or any ment of any deficiency attributable to any ‘‘(i) in the case of a transaction with re- controlled corporation. part of the gain recognized under this sub- spect to which the requirements of subpara- ‘‘(B) PLAN PRESUMED TO EXIST IN CERTAIN section by reason of such acquisition shall graphs (A) and (B) of section 354(b)(1) are CASES.—If 1 or more persons acquire directly not expire before the expiration of 3 years met, the term ‘control’ has the meaning or indirectly stock representing a 50-percent from the date the Secretary is notified by given such term by section 304(c), and or greater interest in the distributing cor- the taxpayer (in such manner as the Sec- ‘‘(ii) in the case of a transaction with re- poration or any controlled corporation dur- retary may by regulations prescribe) that spect to which the requirements of section ing the 4-year period beginning on the date such acquisition occurred, and 355 are met, the shareholders described in which is 2 years before the date of the dis- ‘‘(ii) such deficiency may be assessed be- paragraph (1)(D) shall be treated as having tribution, such acquisition shall be treated fore the expiration of such 3-year period not- control of the corporation to which the as- as pursuant to a plan described in subpara- withstanding the provisions of any other law sets are transferred if such shareholders hold graph (A)(ii) unless it is established that the or rule of law which would otherwise prevent a 50-percent or greater interest (as defined in distribution and the acquisition are not pur- such assessment. section 351(c)(2)) in such corporation imme- suant to a plan or series of related trans- ‘‘(5) REGULATIONS.—The Secretary shall diately after the transfer.’’ actions. prescribe such regulations as may be nec- (d) EFFECTIVE DATES.— ‘‘(C) COORDINATION WITH SUBSECTION (d).— essary to carry out the purposes of this sub- (1) SECTION 355 RULES.—The amendments This subsection shall not apply to any dis- section, including regulations— made by subsections (a) and (b) shall apply tribution to which subsection (d) applies. ‘‘(A) providing for the application of this to distributions after April 16, 1997. ‘‘(3) SPECIAL RULES RELATING TO ACQUISI- subsection where there is more than 1 con- (2) DIVISIVE TRANSACTIONS.—The amend- TIONS.— trolled corporation, ments made by subsection (c) shall apply to ‘‘(A) CERTAIN ACQUISITIONS NOT TAKEN INTO ‘‘(B) treating 2 or more distributions as 1 transfers after the date of the enactment of ACCOUNT.—Except as provided in regulations, distribution where necessary to prevent the this Act. the following acquisitions shall not be treat- avoidance of such purposes, and (3) TRANSITION RULE.—The amendments ed as described in paragraph (2)(A)(ii): ‘‘(C) providing for the application of rules made by this section shall not apply to any ‘‘(i) The acquisition of stock in any con- similar to the rules of subsection (d)(6) where distribution after April 16, 1997, if such dis- trolled corporation by the distributing cor- appropriate for purposes of paragraph tribution is— poration. (2)(B).’’ (A) made pursuant to a written agreement ‘‘(ii) The acquisition by a person of stock (b) SECTION 355 NOT TO APPLY TO CERTAIN which was binding on such date and at all in any controlled corporation by reason of INTRAGROUP TRANSACTIONS.—Section 355, as times thereafter, holding stock in the distributing corpora- amended by subsection (a), is amended by (B) described in a ruling request submitted tion. adding at the end the following new sub- to the Internal Revenue Service on or before ‘‘(iii) The acquisition by a person of stock section: such date, or in any successor corporation of the distribut- ‘‘(f) SECTION NOT TO APPLY TO CERTAIN (C) described on or before such date in a ing corporation or any controlled corpora- INTRAGROUP TRANSACTIONS.—Except as pro- public announcement or in a filing with the tion by reason of holding stock in such dis- vided in regulations, this section shall not Securities and Exchange Commission re- tributing or controlled corporation. apply to the distribution of stock from 1 quired solely by reason of the distribution. ‘‘(iv) The acquisition of stock in a corpora- member of an affiliated group filing a con- This subparagraph shall not apply to any tion if shareholders owning directly or indi- solidated return to another member of such written agreement, ruling request, or public rectly a 50-percent or greater interest in the group, and the Secretary shall provide prop- announcement or filing unless it identifies distributing corporation or any controlled er adjustments for the treatment of such dis- the unrelated acquirer of the distributing corporation before such acquisition own indi- tribution, including (if necessary) adjust- corporation or of any controlled corporation, rectly a 50-percent or greater interest in ments to— whichever is applicable. such distributing or controlled corporation ‘‘(1) the adjusted basis of any stock SEC. 1013. TAX TREATMENT OF REDEMPTIONS IN- after such acquisition. which— VOLVING RELATED CORPORATIONS. This subparagraph shall not apply to any ac- ‘‘(A) is in a corporation which is a member (a) STOCK PURCHASES BY RELATED COR- quisition if the stock held before the acquisi- of such group, and PORATIONS.—The last sentence of section tion was acquired pursuant to a plan de- ‘‘(B) is held by another member of such 304(a)(1) (relating to acquisition by related scribed in subparagraph (A)(ii). group, and corporation other than subsidiary) is amend- ‘‘(B) ASSET ACQUISITIONS.—Except as pro- ‘‘(2) the earnings and profits of any mem- ed to read as follows: ‘‘To the extent that vided in regulations, for purposes of this sub- ber of such group.’’ such distribution is treated as a distribution section, if the assets of the distributing cor- (c) DETERMINATION OF CONTROL IN CERTAIN to which section 301 applies, the transferor poration or any controlled corporation are DIVISIVE TRANSACTIONS.— and the acquiring corporation shall be treat- acquired by a successor corporation in a (1) SECTION 351 TRANSACTIONS.—Section ed in the same manner as if the transferor transaction described in subparagraph (A), 351(c) (relating to special rule) is amended to had transferred the stock so acquired to the (C), or (D) of section 368(a)(1) or any other read as follows: acquiring corporation in exchange for stock transaction specified in regulations by the ‘‘(c) SPECIAL RULES WHERE DISTRIBUTION of the acquiring corporation in a transaction Secretary, the shareholders (immediately be- TO SHAREHOLDERS.— to which section 351(a) applies, and then the fore the acquisition) of the corporation ac- ‘‘(1) IN GENERAL.—In determining control acquiring corporation had redeemed the quiring such assets shall be treated as ac- for purposes of this section— stock it was treated as issuing in such trans- quiring stock in the corporation from which ‘‘(A) the fact that any corporate transferor action.’’ the assets were acquired. distributes part or all of the stock in the cor- (b) COORDINATION WITH SECTION 1059.— ‘‘(4) DEFINITION AND SPECIAL RULES.—For poration which it receives in the exchange to Clause (iii) of section 1059(e)(1)(A), as amend- purposes of this subsection— its shareholders shall not be taken into ac- ed by this title, is amended to read as fol- ‘‘(A) 50-PERCENT OR GREATER INTEREST.— count, and lows: The term ‘50-percent or greater interest’ has ‘‘(B) if the requirements of section 355 are ‘‘(iii) which would not have been treated the meaning given such term by subsection met with respect to such distribution, the (in whole or in part) as a dividend if— (d)(4). shareholders shall be treated as in control of ‘‘(I) any options had not been taken into ‘‘(B) DISTRIBUTIONS IN TITLE 11 OR SIMILAR such corporation immediately after the ex- account under section 318(a)(4), or CASE.—Paragraph (1) shall not apply to any change if the shareholders hold at least a 50- ‘‘(II) section 304(a) had not applied,’’. distribution made in a title 11 or similar case percent interest in such corporation imme- (c) SPECIAL RULE FOR ACQUISITIONS BY FOR- (as defined in section 368(a)(3)). diately after the distribution. EIGN CORPORATIONS.—Section 304(b) (relating ‘‘(C) AGGREGATION AND ATTRIBUTION ‘‘(2) 50-PERCENT INTEREST.—For purposes of to special rules for application of subsection RULES.— this subsection, the term ‘50-percent inter- (a)) is amended by adding at the end the fol- ‘‘(i) AGGREGATION.—The rules of paragraph est’ means stock possessing 50 percent of the lowing new paragraph: (7)(A) of subsection (d) shall apply. total combined voting power of all classes of ‘‘(5) ACQUISITIONS BY FOREIGN CORPORA- ‘‘(ii) ATTRIBUTION.—Section 355(d)(8)(A) stock entitled to vote and 50 percent of the TIONS.— shall apply in determining whether a person total value of shares of all classes of stock.’’ ‘‘(A) IN GENERAL.—In the case of any acqui- holds stock or securities in any corporation. (2) D REORGANIZATIONS.—Section sition to which subsection (a) applies in ‘‘(D) SUCCESSORS AND PREDECESSORS.—For 368(a)(2)(H) (relating to special rule for deter- which the acquiring corporation is a foreign purposes of this subsection, any reference to mining whether certain transactions are corporation, the only earnings and profits H4796 CONGRESSIONAL RECORD — HOUSE June 26, 1997

taken into account under paragraph (2)(A) ‘‘(1) IN GENERAL.—For purposes of this sec- a person required to register such a tax shel- shall be those earnings and profits— tion, the term ‘tax shelter’ includes any en- ter by reason of section 6111(d)(3)— ‘‘(i) which are attributable (under regula- tity, plan, arrangement, or transaction— ‘‘(i) such person shall be required to pay tions prescribed by the Secretary) to stock ‘‘(A) a significant purpose of the structure the penalty under paragraph (1) only if such of the acquiring corporation owned (within of which is the avoidance or evasion of Fed- person actually participated in such shelter, the meaning of section 958(a)) by a corpora- eral income tax for a direct or indirect par- ‘‘(ii) the amount of such penalty shall be tion or individual which is— ticipant which is a corporation, determined by taking into account under ‘‘(I) a United States shareholder (within ‘‘(B) which is offered to any potential par- subparagraph (A)(i) only the fees paid by the meaning of section 951(b)) of the acquir- ticipant under conditions of confidentiality, such person, and ing corporation, and and ‘‘(iii) such penalty shall be in addition to ‘‘(II) the transferor or a person who bears a ‘‘(C) for which the tax shelter promoters the penalty imposed on any other person for relationship to the transferor described in may receive fees in excess of $100,000 in the failing to register such shelter.’’ section 267(b) or 707(b), and aggregate. (c) MODIFICATIONS TO SUBSTANTIAL UNDER- ‘‘(ii) which were accumulated during the ‘‘(2) CONDITIONS OF CONFIDENTIALITY.—For STATEMENT PENALTY.— period or periods such stock was owned by purposes of paragraph (1)(B), an offer is (1) RESTRICTION ON REASONABLE BASIS FOR such person while the acquiring corporation under conditions of confidentiality if— CORPORATE UNDERSTATEMENT OF INCOME was a controlled foreign corporation. ‘‘(A) the potential participant to whom the TAX.—Subparagraph (B) of section 6662(d)(2) ‘‘(B) APPLICATION OF SECTION 1248.—For pur- offer is made (or any other person acting on is amended by adding at the end the follow- poses of subparagraph (A), the rules of sec- behalf of such participant) has an under- ing new flush sentence: standing or agreement with or for the bene- tion 1248(d) shall apply except to the extent ‘‘For purposes of clause (ii)(II), in no event fit of any promoter of the tax shelter that otherwise provided by the Secretary. shall a corporation be treated as having a such participant (or such other person) will ‘‘(C) REGULATIONS.—The Secretary shall reasonable basis for its tax treatment of an limit disclosure of the tax shelter or any sig- prescribe such regulations as are appropriate item attributable to a multiple-party financ- nificant tax features of the tax shelter, or to carry out the purposes of this paragraph.’’ ing transaction if such treatment does not ‘‘(B) any promoter of the tax shelter— (d) EFFECTIVE DATE.— clearly reflect the income of the corpora- ‘‘(i) claims, knows, or has reason to know, (1) IN GENERAL.—The amendments made by tion.’’ ‘‘(ii) knows or has reason to know that any this section shall apply to distributions and (2) MODIFICATION TO DEFINITION OF TAX other person (other than the potential par- acquisitions after June 8, 1997. SHELTER.—Clause (iii) of section 6662(d)(2)(C) ticipant) claims, or (2) TRANSITION RULE.—The amendments is amended by striking ‘‘the principal pur- ‘‘(iii) causes another person to claim, made by this section shall not apply to any pose’’ and inserting ‘‘a significant purpose’’. distribution or acquisition after June 8, 1997, that the tax shelter (or any aspect thereof) is (d) CONFORMING AMENDMENTS.— if such distribution or acquisition is— proprietary to any person other than the po- (1) Paragraph (2) of section 6707(a) is (A) made pursuant to a written agreement tential participant or is otherwise protected amended by striking ‘‘The penalty’’ and in- which was binding on such date and at all from disclosure to or use by others. serting ‘‘Except as provided in paragraph (3), times thereafter, For purposes of this subsection, the term the penalty’’. (B) described in a ruling request submitted ‘promoter’ means any person or any related (2) Subparagraph (A) of section 6707(a)(1) is to the Internal Revenue Service on or before person (within the meaning of section 267 or amended by striking ‘‘paragraph (2)’’ and in- such date, or 707) who participates in the organization, serting ‘‘paragraph (2) or (3), as the case may (C) described in a public announcement or management, or sale of the tax shelter. be’’. filing with the Securities and Exchange ‘‘(3) PERSONS OTHER THAN PROMOTER RE- (e) EFFECTIVE DATE.— Commission on or before such date. QUIRED TO REGISTER IN CERTAIN CASES.— (1) IN GENERAL.—Except as provided in SEC. 1014. MODIFICATION OF HOLDING PERIOD ‘‘(A) IN GENERAL.—If— paragraph (2), the amendments made by this APPLICABLE TO DIVIDENDS RE- ‘‘(i) the requirements of subsection (a) are section shall apply to any tax shelter (as de- CEIVED DEDUCTION. not met with respect to any tax shelter (as fined in section 6111(d) of the Internal Reve- (a) IN GENERAL.—Subparagraph (A) of sec- defined in paragraph (1)) by any tax shelter nue Code of 1986, as amended by this section) tion 246(c)(1) is amended to read as follows: promoter, and interests in which are offered to potential ‘‘(A) which is held by the taxpayer for 45 ‘‘(ii) no tax shelter promoter is a United participants after the Secretary of the days or less during the 90-day period begin- States person, Treasury prescribes guidance with respect to ning on the date which is 45 days before the then each United States person who dis- meeting requirements added by such amend- date on which such share becomes ex-divi- cussed participation in such shelter shall ments. dend with respect to such dividend, or’’. register such shelter under subsection (a). (2) MODIFICATIONS TO SUBSTANTIAL UNDER- (b) CONFORMING AMENDMENTS.— ‘‘(B) EXCEPTION.—Subparagraph (A) shall STATEMENT PENALTY.—The amendments (1) Paragraph (2) of section 246(c) is amend- not apply to a United States person who dis- made by subsection (c) shall apply to items ed to read as follows: cussed participation in a tax shelter if— with respect to transactions entered into ‘‘(2) 90-DAY RULE IN THE CASE OF CERTAIN ‘‘(i) such person notified the promoter in after the date of the enactment of this Act. PREFERENCE DIVIDENDS.—In the case of stock writing (not later than the close of the 90th SEC. 1022. CERTAIN PREFERRED STOCK TREAT- having preference in dividends, if the tax- day after the day on which such discussions ED AS BOOT. payer receives dividends with respect to such began) that such person would not partici- (a) SECTION 351.—Section 351 (relating to stock which are attributable to a period or pate in such shelter, and transfer to corporation controlled by trans- periods aggregating in excess of 366 days, ‘‘(ii) such person does not participate in feror) is amended by redesignating sub- paragraph (1)(A) shall be applied— such shelter. section (g) as subsection (h) and by inserting ‘‘(A) by substituting ‘90 days’ for ‘45 days’ ‘‘(4) OFFER TO PARTICIPATE TREATED AS after subsection (f) the following new sub- each place it appears, and OFFER FOR SALE.—For purposes of sub- section: ‘‘(B) by substituting ‘180-day period’ for sections (a) and (b), an offer to participate in ‘‘(g) NONQUALIFIED PREFERRED STOCK NOT ‘90-day period’.’’ a tax shelter (as defined in paragraph (1)) TREATED AS STOCK.— (2) Paragraph (3) of section 246(c) is amend- shall be treated as an offer for sale.’’ ‘‘(1) IN GENERAL.—For purposes of sub- ed by adding ‘‘and’’ at the end of subpara- (b) PENALTY.—Subsection (a) of section sections (a) and (b), the term ‘stock’ shall graph (A), by striking subparagraph (B), and 6707 (relating to failure to furnish informa- not include nonqualified preferred stock. by redesignating subparagraph (C) as sub- tion regarding tax shelters) is amended by ‘‘(2) NONQUALIFIED PREFERRED STOCK.—For paragraph (B). adding at the end the following new para- purposes of paragraph (1)— (c) EFFECTIVE DATE.—The amendments graph: ‘‘(A) IN GENERAL.—The term ‘nonqualified made by this section shall apply to dividends ‘‘(3) CONFIDENTIAL ARRANGEMENTS.— preferred stock’ means preferred stock if— received or accrued after the 30th day after ‘‘(A) IN GENERAL.—In the case of a tax shel- ‘‘(i) the holder of such stock has the right the date of the enactment of this Act. ter (as defined in section 6111(d)), the penalty to require the issuer or a related person to imposed under paragraph (1) shall be an redeem or purchase the stock, Subtitle C—Other Corporate Provisions amount equal to the greater of— ‘‘(ii) the issuer or a related person is re- SEC. 1021. REGISTRATION AND OTHER PROVI- ‘‘(i) 50 percent of the fees paid to all pro- quired to redeem or purchase such stock, SIONS RELATING TO CONFIDENTIAL moters of the tax shelter with respect to of- ‘‘(iii) the issuer or a related person has the CORPORATE TAX SHELTERS. ferings made before the date such shelter is right to redeem or purchase the stock and, (a) IN GENERAL.—Section 6111 (relating to registered under section 6111, or as of the issue date, it is more likely than registration of tax shelters) is amended by ‘‘(ii) $10,000. not that such right will be exercised, or redesignating subsections (d) and (e) as sub- Clause (i) shall be applied by substituting ‘75 ‘‘(iv) the dividend rate on such stock varies sections (e) and (f), respectively, and by in- percent’ for ‘50 percent’ in the case of an in- in whole or in part (directly or indirectly) serting after subsection (c) the following new tentional failure or act described in para- with reference to interest rates, commodity subsection: graph (1). prices, or other similar indices. ‘‘(d) CERTAIN CONFIDENTIAL ARRANGEMENTS ‘‘(B) SPECIAL RULE FOR PARTICIPANTS RE- ‘‘(B) LIMITATIONS.—Clauses (i), (ii), and (iii) TREATED AS TAX SHELTERS.— QUIRED TO REGISTER SHELTER.—In the case of of subparagraph (A) shall apply only if the June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4797

right or obligation referred to therein may (c) SECTION 355.—Paragraph (3) of section (or would be so required but for the dollar be exercised within the 20-year period begin- 355(a) is amended by adding at the end the limitation contained therein) or section ning on the issue date of such stock and such following new subparagraph: 6051.’’ right or obligation is not subject to a contin- ‘‘(D) NON QUALIFIED PREFERRED STOCK.— (b) REPORTING OF ATTORNEYS’ FEES PAY- gency which, as of the issue date, makes re- Nonqualified preferred stock (as defined in ABLE TO CORPORATIONS.—The regulations mote the likelihood of the redemption or section 351(g)(2)) received in a distribution providing an exception under section 6041 of purchase. with respect to stock other than non- the Internal Revenue Code of 1986 for pay- ‘‘(C) EXCEPTIONS FOR CERTAIN RIGHTS OR OB- qualified preferred stock (as so defined) shall ments made to corporations shall not apply LIGATIONS.— not be treated as stock or securities.’’ to payments of attorneys’ fees. ‘‘(i) IN GENERAL.—A right or obligation (d) SECTION 356.—Section 356 is amended by (c) EFFECTIVE DATE.—The amendment shall not be treated as described in clause (i), redesignating subsections (e) and (f) as sub- made by this section shall apply to payments (ii), or (iii) of subparagraph (A) if— sections (f) and (g), respectively, and by in- made after December 31, 1997. ‘‘(I) it may be exercised only upon the serting after subsection (d) the following new SEC. 1032. DECREASE OF THRESHOLD FOR RE- death, disability, or mental incompetency of subsection: PORTING PAYMENTS TO CORPORA- the holder, or ‘‘(e) NONQUALIFIED PREFERRED STOCK TIONS PERFORMING SERVICES FOR FEDERAL AGENCIES. ‘‘(II) in the case of a right or obligation to TREATED AS OTHER PROPERTY.—For purposes (a) IN GENERAL.—Subsection (d) of section redeem or purchase stock transferred in con- of this section— ‘‘(1) IN GENERAL.—Except as provided in 6041A (relating to returns regarding pay- nection with the performance of services for ments of remuneration for services and di- the issuer or a related person (and which rep- paragraph (2), the term ‘other property’ in- cludes nonqualified preferred stock (as de- rect sales) is amended by adding at the end resents reasonable compensation), it may be the following new paragraph: exercised only upon the holder’s separation fined in section 351(g)(2)). ‘‘(3) PAYMENTS TO CORPORATIONS BY FED- from service from the issuer or a related per- ‘‘(2) EXCEPTION.—The term ‘other property’ does not include nonqualified preferred stock ERAL EXECUTIVE AGENCIES.— son. ‘‘(A) IN GENERAL.—Notwithstanding any ‘‘(ii) EXCEPTION.—Clause (i)(I) shall not (as so defined) to the extent that, under sec- tion 354 or 355, such preferred stock would be regulation prescribed by the Secretary be- apply if the stock relinquished in the ex- fore the date of the enactment of this para- change, or the stock acquired in the ex- permitted to be received without the rec- ognition of gain.’’ graph, subsection (a) shall apply to remu- change is in— neration paid to a corporation by any Fed- ‘‘(I) a corporation if any class of stock in (e) CONFORMING AMENDMENTS.— (1) Subparagraph (B) of section 354(a)(2) eral executive agency (as defined in section such corporation or a related party is readily and subparagraph (C) of section 355(a)(3)(C) 6050M(b)). tradable on an established securities market are each amended by inserting ‘‘(including ‘‘(B) EXCEPTION.—Subparagraph (A) shall or otherwise, or nonqualified preferred stock, as defined in not apply to— ‘‘(II) any other corporation if such ex- section 351(g)(2))’’ after ‘‘stock’’. ‘‘(i) services under contracts described in change is part of a transaction or series of (2) Subparagraph (A) of section 354(a)(3) section 6050M(e)(3) with respect to which the transactions in which such corporation is to and subparagraph (A) of section 355(a)(4) are requirements of section 6050M(e)(2) are met, become a corporation described in subclause each amended by inserting ‘‘nonqualified and (I). preferred stock and’’ after ‘‘including’’. ‘‘(ii) such other services as the Secretary ‘‘(3) DEFINITIONS.—For purposes of this sub- (3) Section 1036 is amended by redesignat- may specify in regulations prescribed after section— ing subsection (b) as subsection (c) and by in- the date of the enactment of this para- ‘‘(A) PREFERRED STOCK.—The term ‘pre- serting after subsection (a) the following new graph.’’ ferred stock’ means stock which is limited subsection: (b) EFFECTIVE DATE.—The amendment and preferred as to dividends and does not ‘‘(b) NONQUALIFIED PREFERRED STOCK NOT made by this section shall apply to returns participate (including through a conversion TREATED AS STOCK.—For purposes of this sec- the due date for which (determined without privilege) in corporate growth to any signifi- tion, nonqualified preferred stock (as defined regard to any extension) is more than 90 days cant extent. in section 351(g)(2)) shall be treated as prop- after the date of the enactment of this Act. ‘‘(B) RELATED PERSON.—A person shall be erty other than stock.’’ SEC. 1033. DISCLOSURE OF RETURN INFORMA- treated as related to another person if they (f) EFFECTIVE DATE.— TION FOR ADMINISTRATION OF CER- bear a relationship to such other person de- TAIN VETERANS PROGRAMS. (1) IN GENERAL.—The amendments made by scribed in section 267(b) or 707(b). this section shall apply to transactions after (a) GENERAL RULE.—Subparagraph (D) of ‘‘(4) REGULATIONS.—The Secretary may June 8, 1997. section 6103(l)(7) (relating to disclosure of re- prescribe such regulations as may be nec- turn information to Federal, State, and local (2) TRANSITION RULE.—The amendments essary or appropriate to carry out the pur- made by this section shall not apply to any agencies administering certain programs) is poses of this subsection and sections transaction after June 8, 1997, if such trans- amended by striking ‘‘Clause (viii) shall not 354(a)(2)(C), 355(a)(3)(D), and 356(e). The Sec- action is— apply after September 30, 1998.’’ (b) EFFECTIVE DATE.—The amendment retary may also prescribe regulations, con- (A) made pursuant to a written agreement made by subsection (a) shall take effect on sistent with the treatment under this sub- which was binding on such date and at all the date of the enactment of this Act. section and such sections, for the treatment times thereafter, of nonqualified preferred stock under other (B) described in a ruling request submitted SEC. 1034. CONTINUOUS LEVY ON CERTAIN PAY- MENTS. provisions of this title.’’ to the Internal Revenue Service on or before (a) IN GENERAL.—Section 6331 (relating to (b) SECTION 354.—Paragraph (2) of section such date, or levy and distraint) is amended— (C) described on or before such date in a 354(a) (relating to exchanges of stock and se- (1) by redesignating subsection (h) as sub- public announcement or in a filing with the curities in certain reorganizations) is section (i), and Securities and Exchange Commission re- amended by adding at the end the following (2) by inserting after subsection (g) the fol- quired solely by reason of the distribution. new subparagraph: lowing new subsection: ‘‘(C) NONQUALIFIED PREFERRED STOCK.— Subtitle D—Administrative Provisions ‘‘(h) CONTINUING LEVY ON CERTAIN PAY- ‘‘(i) IN GENERAL.—Nonqualified preferred SEC. 1031. REPORTING OF CERTAIN PAYMENTS MENTS.— stock (as defined in section 351(g)(2)) re- MADE TO ATTORNEYS. ‘‘(1) IN GENERAL.—The effect of a levy on ceived in exchange for stock other than non- (a) IN GENERAL.—Section 6045 (relating to specified payments to or received by a tax- qualified preferred stock (as so defined) shall returns of brokers) is amended by adding at payer shall be continuous from the date such not be treated as stock or securities. the end the following new subsection: levy is first made until such levy is released. ‘‘(ii) RECAPITALIZATIONS OF FAMILY-OWNED ‘‘(f) RETURN REQUIRED IN THE CASE OF PAY- Notwithstanding section 6334, such levy shall CORPORATIONS.— MENTS TO ATTORNEYS.— attach up to 15 percent of any salary or pen- ‘‘(I) IN GENERAL.—Clause (i) shall not apply ‘‘(1) IN GENERAL.—Any person engaged in a sion payment due to the taxpayer. in the case of a recapitalization under sec- trade or business and making a payment (in ‘‘(2) SPECIFIED PAYMENTS.—For the pur- tion 368(a)(1)(E) of a family-owned corpora- the course of such trade or business) to poses of paragraph (1), the term ‘specified tion. which this subsection applies shall file a re- payments’ means— ‘‘(II) FAMILY-OWNED CORPORATION.—For turn under subsection (a) and a statement ‘‘(A) Federal payments other than pay- purposes of this clause, except as provided in under subsection (b) with respect to such ments for which eligibility is based on the regulations, the term ‘family-owned corpora- payment. income or assets (or both) of a payee, tion’ means any corporation which is de- ‘‘(2) APPLICATION OF SUBSECTION.— ‘‘(B) payments described in subsection scribed in clause (i) of section 447(d)(2)(C) ‘‘(A) IN GENERAL.—This subsection shall (a)(4) (relating to unemployment benefits), throughout the 8-year period beginning on apply to any payment to an attorney in con- and the date which is 5 years before the date of nection with legal services (whether or not ‘‘(C) payments described in subsection the recapitalization. For purposes of the pre- such services are performed for the payor). (a)(11) (relating to certain public assistance ceding sentence, stock shall not be treated ‘‘(B) EXCEPTION.—This subsection shall not payments).’’ as owned by a family member during any pe- apply to the portion of any payment which is (b) EFFECTIVE DATE.—The amendment riod described in section 355(d)(6)(B).’’ required to be reported under section 6041(a) made by subsection (a) shall apply to levies H4798 CONGRESSIONAL RECORD — HOUSE June 26, 1997

issued after the date of the enactment of this RETARY NOTIFIED OF INCONSISTENCY.—Rules MENT.—The amendments made by subsection Act. similar to the rules of section 6034A(c) shall (c) shall not apply to amounts paid for a SEC. 1035. RETURNS OF BENEFICIARIES OF ES- apply to items reported by a trust under sub- ticket purchased before the date of the en- TATES AND TRUSTS REQUIRED TO section (b)(1)(B) and to United States persons actment of this Act for a specified flight be- FILE RETURNS CONSISTENT WITH referred to in such subsection.’’ ginning on or after October 1, 1997. ESTATE OR TRUST RETURN OR TO (c) EFFECTIVE DATE.—The amendments NOTIFY SECRETARY OF INCONSIST- SEC. 1042. CREDIT FOR TIRE TAX IN LIEU OF EX- ENCY. made by this section shall apply to returns CLUSION OF VALUE OF TIRES IN COMPUTING PRICE. (a) DOMESTIC ESTATES AND TRUSTS.—Sec- of beneficiaries and owners filed after the tion 6034A (relating to information to bene- date of the enactment of this Act. (a) IN GENERAL.—Subsection (e) of section ficiaries of estates and trusts) is amended by Subtitle E—Excise and Employment Tax 4051 is amended to read as follows: adding at the end the following new sub- Provisions ‘‘(e) CREDIT AGAINST TAX FOR TIRE TAX.— section: If— SEC. 1041. EXTENSION AND MODIFICATION OF ‘‘(1) tires are sold on or in connection with ‘‘(c) BENEFICIARY’S RETURN MUST BE CON- AIRPORT AND AIRWAY TRUST FUND SISTENT WITH ESTATE OR TRUST RETURN OR TAXES. the sale of any article, and ‘‘(2) tax is imposed by this subchapter on SECRETARY NOTIFIED OF INCONSISTENCY.— (a) FUEL TAXES.— the sale of such tires, ‘‘(1) IN GENERAL.—A beneficiary of any es- (1) AVIATION FUEL.—Clause (ii) of section tate or trust to which subsection (a) applies 4091(b)(3)(A) is amended by striking ‘‘Sep- there shall be allowed as a credit against the shall, on such beneficiary’s return, treat any tember 30, 1997’’ and inserting ‘‘September tax imposed by this subchapter an amount reported item in a manner which is consist- 30, 2007’’. equal to the tax (if any) imposed by section ent with the treatment of such item on the (2) AVIATION GASOLINE.—Subparagraph (B) 4071 on such tires.’’ applicable entity’s return. of section 4081(d)(2) is amended by striking (b) CONFORMING AMENDMENT.—Subpara- ‘‘(2) NOTIFICATION OF INCONSISTENT TREAT- ‘‘September 30, 1997’’ and inserting ‘‘Septem- graph (B) of section 4052(b)(1) is amended by MENT.— ber 30, 2007’’. striking clause (iii), by adding ‘‘and’’ at the ‘‘(A) IN GENERAL.—In the case of any re- (3) NONCOMMERCIAL AVIATION.—Subpara- end of clause (ii), and by redesignating ported item, if— graph (B) of section 4041(c)(3) is amended by clause (iv) as clause (iii). ‘‘(i)(I) the applicable entity has filed a re- striking ‘‘September 30, 1997’’ and inserting (c) EFFECTIVE DATE.—The amendments turn but the beneficiary’s treatment on such ‘‘September 30, 2007’’. made by this section shall take effect on beneficiary’s return is (or may be) inconsist- (b) TICKET TAXES.— January 1, 1998. ent with the treatment of the item on the (1) PERSONS.—Clause (ii) of section SEC. 1043. RESTORATION OF LEAKING UNDER- applicable entity’s return, or 4261(g)(1)(A) is amended by striking ‘‘Sep- GROUND STORAGE TANK TRUST ‘‘(II) the applicable entity has not filed a tember 30, 1997’’ and inserting ‘‘September FUND TAXES. return, and 30, 2007’’. Paragraph (3) of section 4081(d) is amended ‘‘(ii) the beneficiary files with the Sec- (2) PROPERTY.—Clause (ii) of section by inserting before the period ‘‘, and before retary a statement identifying the inconsist- 4271(d)(1)(A) is amended by striking ‘‘Sep- the date of the enactment of the Revenue ency, tember 30, 1997’’ and inserting ‘‘September Reconciliation Act of 1997’’. paragraph (1) shall not apply to such item. 30, 2007’’. SEC. 1044. REINSTATEMENT OF OIL SPILL LIABIL- ‘‘(B) BENEFICIARY RECEIVING INCORRECT IN- (c) MODIFICATIONS TO TAX ON TRANSPOR- ITY TRUST FUND TAX. FORMATION.—A beneficiary shall be treated TATION OF PERSONS BY AIR.—Subsection (c) of (a) IN GENERAL.—Paragraph (1) of section as having complied with clause (ii) of sub- section 4261 (relating to use of international 4611(f) is amended by striking ‘‘December 31, paragraph (A) with respect to a reported travel facilities) is amended to read as fol- 1989, and before January 1, 1995’’ and insert- item if the beneficiary— lows: ing ‘‘December 31, 1997’’. Paragraph (2) of ‘‘(i) demonstrates to the satisfaction of the ‘‘(c) USE OF INTERNATIONAL TRAVEL FACILI- section 4611(f) is hereby repealed. Secretary that the treatment of the reported TIES.— (b) EFFECTIVE DATE.—The amendment item on the beneficiary’s return is consistent ‘‘(1) IN GENERAL.—There is hereby imposed made by subsection (a) shall take effect on with the treatment of the item on the state- a tax of $10 on any amount paid (whether January 1, 1998. ment furnished under subsection (a) to the within or without the United States) for any SEC. 1045. EXTENSION OF FEDERAL UNEMPLOY- beneficiary by the applicable entity, and transportation of any person by air, if such MENT SURTAX. ‘‘(ii) elects to have this paragraph apply transportation begins or ends in the United (a) IN GENERAL.—Section 3301 is amended with respect to that item. States. by striking ‘‘equal to—’’ and all that follows ‘‘(3) EFFECT OF FAILURE TO NOTIFY.—In any ‘‘(2) EXCEPTION FOR TRANSPORTATION EN- through ‘‘thereafter;’’ and inserting ‘‘6.2 per- case— TIRELY TAXABLE UNDER SUBSECTION (a).—This cent in the case of calendar year 1998 and ‘‘(A) described in subparagraph (A)(i)(I) of subsection shall not apply to any transpor- each calendar year thereafter’’. paragraph (2), and tation all of which is taxable under sub- (b) EFFECTIVE DATE.—The amendment ‘‘(B) in which the beneficiary does not section (a) (determined without regard to made by subsection (a) shall apply to cal- comply with subparagraph (A)(ii) of para- sections 4281 and 4282). endar years beginning after December 31, graph (2), ‘‘(3) SPECIAL RULE FOR ALASKA AND HA- 1997. any adjustment required to make the treat- WAII.—In any case in which the tax imposed Subtitle F—Provisions Relating to Tax- ment of the items by such beneficiary con- by paragraph (1) applies to a domestic seg- Exempt Entities ment, such tax shall apply only on depar- sistent with the treatment of the items on SEC. 1051. EXPANSION OF LOOK-THRU RULE FOR the applicable entity’s return shall be treat- ture. INTEREST, ANNUITIES, ROYALTIES, ed as arising out of mathematical or clerical ‘‘(4) INFLATION ADJUSTMENT.— AND RENTS DERIVED BY SUBSIDI- errors and assessed according to section ‘‘(A) IN GENERAL.—In the case of transpor- ARIES OF TAX-EXEMPT ORGANIZA- 6213(b)(1). Paragraph (2) of section 6213(b) tation beginning in a calendar year after TIONS. shall not apply to any assessment referred to 1998, the dollar amount contained in para- (a) IN GENERAL.—Paragraph (13) of section in the preceding sentence. graph (1) shall be increased by an amount 512(b) is amended to read as follows: ‘‘(4) DEFINITIONS.—For purposes of this sub- equal to— ‘‘(13) SPECIAL RULES FOR CERTAIN AMOUNTS section— ‘‘(i) such dollar amount, multiplied by RECEIVED FROM CONTROLLED ENTITIES.— ‘‘(A) REPORTED ITEM.—The term ‘reported ‘‘(ii) the cost-of-living adjustment deter- ‘‘(A) IN GENERAL.—If an organization (in item’ means any item for which information mined under section 1(f)(3) for such calendar this paragraph referred to as the ‘controlling is required to be furnished under subsection year by substituting ‘calendar year 1997’ for organization’) receives (directly or indi- (a). ‘calendar year 1992’ in subparagraph (B) rectly) a specified payment from another en- ‘‘(B) APPLICABLE ENTITY.—The term ‘appli- thereof. tity which it controls (in this paragraph re- cable entity’ means the estate or trust of ‘‘(B) ROUNDING.—If any increase deter- ferred to as the ‘controlled entity’), notwith- which the taxpayer is the beneficiary. mined under subparagraph (A) is not a mul- standing paragraphs (1), (2), and (3), the con- ‘‘(5) ADDITION TO TAX FOR FAILURE TO COM- tiple of 10 cents, such increase shall be trolling organization shall include such pay- PLY WITH SECTION.—For addition to tax in rounded to the nearest multiple of 10 cents.’’ ment as an item of gross income derived the case of a beneficiary’s negligence in con- (d) EFFECTIVE DATES.— from an unrelated trade or business to the nection with, or disregard of, the require- (1) FUEL TAXES.—The amendment made by extent such payment reduces the net unre- ments of this section, see part II of sub- subsection (a) shall apply take effect on Oc- lated income of the controlled entity (or in- chapter A of chapter 68.’’ tober 1, 1997. creases any net unrelated loss of the con- (b) FOREIGN TRUSTS.—Subsection (d) of sec- (2) TICKET TAXES.— trolled entity). There shall be allowed all de- tion 6048 (relating to information with re- (A) IN GENERAL.—The amendments made ductions of the controlling organization di- spect to certain foreign trusts) is amended by subsections (b) and (c) shall apply to rectly connected with amounts treated as de- by adding at the end the following new para- transportation beginning on or after October rived from an unrelated trade or business graph: 1, 1997. under the preceding sentence. ‘‘(5) UNITED STATES PERSON’S RETURN MUST (B) TREATMENT OF AMOUNTS PAID FOR TICK- ‘‘(B) NET UNRELATED INCOME OR LOSS.—For BE CONSISTENT WITH TRUST RETURN OR SEC- ETS PURCHASED BEFORE DATE OF ENACT- purposes of this paragraph— June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4799

‘‘(i) NET UNRELATED INCOME.—The term (2) CONFORMING AMENDMENT.—Subpara- the requirements of the preceding sentence ‘net unrelated income’ means— graph (B) of section 954(c)(1) is amended— solely because— ‘‘(I) in the case of a controlled entity (A) by striking the second sentence, and (A) it provides for a sale in lieu of an ex- which is not exempt from tax under section (B) by striking ‘‘also’’ in the last sentence. change, or 501(a), the portion of such entity’s taxable (b) EXCEPTION FOR DEALERS.—Paragraph (2) (B) the property to be acquired as replace- income which would be unrelated business of section 954(c) is amended by adding at the ment property was not identified under such taxable income if such entity were exempt end the following new subparagraph: contract before June 9, 1997. from tax under section 501(a) and had the ‘‘(C) EXCEPTION FOR DEALERS.—Except as same exempt purposes (as defined in section provided in subparagraph (A), (E), or (G) of SEC. 1063. HOLDING PERIOD REQUIREMENT FOR CERTAIN FOREIGN TAXES. 513A(a)(5)(A)) as the controlling organiza- paragraph (1) or by regulations, in the case tion, or of a regular dealer in property (within the (a) IN GENERAL.—Section 901 is amended by ‘‘(II) in the case of a controlled entity meaning of paragraph (1)(B)), forward con- redesignating subsection (k) as subsection (l) which is exempt from tax under section tracts, option contracts, or similar financial and by inserting after subsection (j) the fol- 501(a), the amount of the unrelated business instruments (including notional principal lowing new subsection: taxable income of the controlled entity. contracts and all instruments referenced to ‘‘(k) MINIMUM HOLDING PERIOD FOR CERTAIN ‘‘(ii) NET UNRELATED LOSS.—the term ‘net commodities), there shall not be taken into TAXES.— unrelated loss’ means the net operating loss account in computing foreign personal hold- ‘‘(1) IN GENERAL.—No credit shall be al- adjusted under rules similar to the rules of ing income any item of income, gain, deduc- lowed to the taxpayer under subsection (a) clause (i). tion, or loss from any transaction (including for any income, war profits, or excess profits ‘‘(C) SPECIFIED PAYMENT.—For purposes of hedging transactions) entered into in the or- tax by reason of a dividend or other inclu- this paragraph, the term ‘specified payment’ dinary course of such dealer’s trade or busi- sion with respect to stock in a foreign cor- means any interest, annuity, royalty, or ness as such a dealer.’’ poration or a regulated investment company rent. (c) EFFECTIVE DATE.—The amendments if— ‘‘(D) DEFINITION OF CONTROL.—For purposes made by this section shall apply to taxable ‘‘(A) such stock is held by the taxpayer for of this paragraph— years beginning after the date of the enact- 15 days or less during the 30-day period be- ‘‘(i) CONTROL.—The term ‘control’ means— ment of this Act. ginning on the date which is 15 days before ‘‘(I) in the case of a corporation, ownership SEC. 1062. PERSONAL PROPERTY USED PREDOMI- (by vote or value) of more than 50 percent of the date on which such share becomes ex-div- NANTLY IN THE UNITED STATES idend with respect to such dividend, or the stock in such corporation, TREATED AS NOT PROPERTY OF A ‘‘(II) in the case of a partnership, owner- LIKE KIND WITH RESPECT TO PROP- ‘‘(B) to the extent that the taxpayer is ship of more than 50 percent of the profits in- ERTY USED PREDOMINANTLY OUT- under an obligation (whether pursuant to a terests or capital interests in such partner- SIDE THE UNITED STATES. short sale or otherwise) to make related pay- ship, or (a) IN GENERAL.—Subsection (h) of section ments with respect to positions in substan- ‘‘(III) in any other case, ownership of more 1031 (relating to exchange of property held tially similar or related property. than 50 percent of the beneficial interests in for productive use or investment) is amended ‘‘(2) LOWER TIER CORPORATIONS.—To the ex- the entity. to read as follows: tent that the credit otherwise allowable ‘‘(ii) CONSTRUCTIVE OWNERSHIP.—Section ‘‘(h) SPECIAL RULES FOR FOREIGN REAL AND under subsection (a) is for taxes deemed paid 318 (relating to constructive ownership of PERSONAL PROPERTY.—For purposes of this under section 853, 902, or 960 through a chain stock) shall apply for purposes of determin- section— of ownership of stock in 1 or more other for- ing ownership of stock in a corporation. ‘‘(1) REAL PROPERTY.—Real property lo- eign corporations, no credit shall be allowed Similar principles shall apply for purposes of cated in the United States and real property under subsection (a) for such taxes to the ex- determining ownership of interests in any located outside the United States are not tent— other entity. property of a like kind. ‘‘(A) attributable to stock held by any cor- ‘‘(E) RELATED PERSONS.—The Secretary ‘‘(2) PERSONAL PROPERTY.— poration in such chain for less than the pe- shall prescribe such rules as may be nec- ‘‘(A) IN GENERAL.—Personal property used riod described in paragraph (1)(A), or essary or appropriate to prevent avoidance of predominantly within the United States and ‘‘(B) that such corporation is under an ob- the purposes of this paragraph through the personal property used predominantly out- ligation referred to in paragraph (1)(B). use of related persons.’’ side the United States are not property of a ‘‘(3) 45-DAY RULE IN THE CASE OF CERTAIN (b) EFFECTIVE DATE.— like kind. PREFERENCE DIVIDENDS.—In the case of stock (1) IN GENERAL.—Except as provided in ‘‘(B) PREDOMINANT USE.—Except as pro- having preference in dividends, if the tax- paragraph (2), the amendments made by this vided in subparagraph (C) and (D), the pre- payer receives dividends with respect to such section shall apply to taxable years begin- dominant use of any property shall be deter- stock which are attributable to a period or ning after the date of the enactment of this mined based on— periods aggregating in excess of 366 days, Act. ‘‘(i) in the case of the property relin- paragraph (1)(A) shall be applied— (2) CONTROL TEST.—In the case of taxable quished in the exchange, the 2-year period ‘‘(A) by substituting ‘45 days’ for ‘15 days’ years beginning before January 1, 1999, an or- ending on the date of such relinquishment, each place it appears, and ganization shall be treated as controlling an- and ‘‘(B) by substituting ‘90-day period’ for ‘30- other organization for purposes of section ‘‘(ii) in the case of the property acquired in day period’. 512(b)(13) of the Internal Revenue Code of the exchange, the 2-year period beginning on ‘‘(4) EXCEPTION FOR CERTAIN TAXES PAID BY 1986 (as amended by this section) only if it the date of such acquisition. SECURITIES DEALERS.— controls such organization within the mean- ‘‘(C) PROPERTY HELD FOR LESS THAN 2 ‘‘(A) IN GENERAL.—Paragraphs (1) and (2) ing of such section, determined by substitut- YEARS.—Except in the case of an exchange shall not apply to any qualified tax with re- ing ‘‘80 percent’’ for ‘‘50 percent’’ each place which is part of a transaction (or series of spect to any security held in the active con- it appears in subparagraph (D) thereof. transactions) structured to avoid the pur- duct in a foreign country of a securities busi- Subtitle G—Foreign-Related Provisions poses of this subsection— ness of any person— SEC. 1061. DEFINITION OF FOREIGN PERSONAL ‘‘(i) only the periods the property was held ‘‘(i) who is registered as a securities broker HOLDING COMPANY INCOME. by the person relinquishing the property (or or dealer under section 15(a) of the Securities (a) INCOME FROM NOTIONAL PRINCIPAL CON- any related person) shall be taken into ac- Exchange Act of 1934, TRACTS AND PAYMENTS IN LIEU OF DIVI- count under subparagraph (B)(i), and ‘‘(ii) who is registered as a Government se- DENDS.— ‘‘(ii) only the periods the property was held curities broker or dealer under section 15C(a) (1) IN GENERAL.—Paragraph (1) of section by the person acquiring the property (or any of such Act, or 954(c) (defining foreign personal holding com- related person) shall be taken into account ‘‘(iii) who is licensed or authorized in such pany income) is amended by adding at the under subparagraph (B)(ii). foreign country to conduct securities activi- end the following new subparagraph: ‘‘(D) SPECIAL RULE FOR CERTAIN PROP- ties in such country and is subject to bona ‘‘(F) INCOME FROM NOTIONAL PRINCIPAL CON- ERTY.—Property described in any subpara- fide regulation by a securities regulating au- TRACTS.—Net income from notional principal graph of section 168(g)(4) shall be treated as thority of such country. contracts. Any item of income, gain, deduc- used predominantly in the United States.’’ ‘‘(B) QUALIFIED TAX.—For purposes of sub- tion, or loss from a notional principal con- (b) EFFECTIVE DATE.— paragraph (A), the term ‘qualified tax’ means tract entered into for purposes of hedging (1) IN GENERAL.—The amendment made by a tax paid to a foreign country (other than any item described in any preceding subpara- this section shall apply to transfers after the foreign country referred to in subpara- graph shall not be taken into account for June 8, 1997, in taxable years ending after graph (A)) if— purposes of this subparagraph but shall be such date. ‘‘(i) the dividend to which such tax is at- taken into account under such other sub- (2) BINDING CONTRACTS.—The amendment tributable is subject to taxation on a net paragraph. made by this section shall not apply to any basis by the country referred to in subpara- ‘‘(G) PAYMENTS IN LIEU OF DIVIDENDS.—Pay- transfer pursuant to a written binding con- graph (A), and ments in lieu of dividends which are made tract in effect on June 8, 1997, and at all ‘‘(ii) such country allows a credit against pursuant to an agreement to which section times thereafter before the disposition of its net basis tax for the full amount of the 1058 applies.’’ property. A contract shall not fail to meet tax paid to such other foreign country. H4800 CONGRESSIONAL RECORD — HOUSE June 26, 1997

‘‘(C) REGULATIONS.—The Secretary may (2) COORDINATION WITH TREATIES.—The (C) Subclause (III) of section prescribe such regulations as may be appro- amendments made by this section shall not 6611(f)(4)(B)(ii) (as so redesignated) is amend- priate to prevent the abuse of the exception apply in any case where their application ed by inserting ‘‘(as defined in paragraph provided by this paragraph. would be contrary to any treaty obligation (3)(B))’’ after ‘‘credit carryback’’ the first ‘‘(5) CERTAIN RULES TO APPLY.—For pur- of the United States. place it appears. poses of this subsection, the rules of para- (d) INFORMATION TO BE PROVIDED BY CUS- (D) Section 6611 is amended by striking graphs (3) and (4) of section 246(c) shall TOMS SERVICE.—The United States Custom subsection (g) and by redesignating sub- apply. Service shall provide the Secretary of the sections (h) and (i) as subsections (g) and (h), ‘‘(6) TAXES ALLOWED AS DEDUCTION, ETC.— Treasury or his delegate with such informa- respectively. Sections 275 and 78 shall not apply to any tax tion as may be specified by such Secretary in (c) EFFECTIVE DATE.—The amendments which is not allowable as a credit under sub- order to enable such Secretary to determine made by this section shall apply to section (a) by reason of this subsection.’’ whether ships which are not registered in the carrybacks arising in taxable years begin- (b) NOTICE OF WITHHOLDING TAXES PAID BY United States are engaged in transportation ning after the date of the enactment of this REGULATED INVESTMENT COMPANY.—Sub- to or from the United States. Act. section (c) of section 853 (relating to foreign SEC. 1065. INTEREST ON UNDERPAYMENTS NOT Subtitle H—Other Revenue Provisions tax credit allowed to shareholders) is amend- REDUCED BY FOREIGN TAX CREDIT ed by adding at the end the following new SEC. 1071. TERMINATION OF SUSPENSE AC- CARRYBACKS. COUNTS FOR FAMILY CORPORA- sentence: ‘‘Such notice shall also include the (a) IN GENERAL.—Subsection (d) of section TIONS REQUIRED TO USE ACCRUAL amount of such taxes which (without regard 6601 is amended by redesignating paragraphs METHOD OF ACCOUNTING. to the election under this section) would not (2) and (3) as paragraphs (3) and (4), respec- (a) IN GENERAL.—Subsection (i) of section be allowable as a credit under section 901(a) tively, and by inserting after paragraph (1) 447 (relating to method of accounting for cor- to the regulated investment company by rea- the following new paragraph: porations engaged in farming) is amended by son of section 901(k).’’ ‘‘(2) FOREIGN TAX CREDIT CARRYBACKS.—If adding at the end the following new para- FFECTIVE DATE.—The amendments (c) E any credit allowed for any taxable year is in- graph: made by this section shall apply to dividends creased by reason of a carryback of tax paid ‘‘(7) TERMINATION.— paid or accrued more than 30 days after the or accrued to foreign countries or posses- ‘‘(A) IN GENERAL.—No suspense account date of the enactment of this Act. sions of the United States, such increase may be established under this subsection by SEC. 1064. PENALTIES FOR FAILURE TO DIS- shall not affect the computation of interest any corporation required by this section to CLOSE POSITION THAT CERTAIN change its method of accounting for any tax- INTERNATIONAL TRANSPORTATION under this section for the period ending with INCOME IS NOT INCLUDIBLE IN the filing date for the taxable year in which able year ending after June 8, 1997. GROSS INCOME. such taxes were in fact paid or accrued, or, ‘‘(B) PHASEOUT OF EXISTING SUSPENSE AC- (a) IN GENERAL.—Section 883 is amended by with respect to any portion of such credit COUNTS.— adding at the end the following new sub- carryback from a taxable year attributable ‘‘(i) IN GENERAL.—Each suspense account section: to a net operating loss carryback or a capital under this subsection shall be reduced (but ‘‘(d) PENALTIES FOR FAILURE TO DISCLOSE loss carryback from a subsequent taxable not below zero) for each taxable year begin- POSITION THAT CERTAIN INTERNATIONAL year, such increase shall not affect the com- ning after June 8, 1997, by an amount equal TRANSPORTATION INCOME IS NOT INCLUDIBLE putation of interest under this section for to the lesser of— IN GROSS INCOME.— the period ending with the filing date for ‘‘(I) the applicable portion of such account, ‘‘(1) IN GENERAL.—A taxpayer who, with re- such subsequent taxable year.’’ or spect to any tax imposed by this title, takes (b) CONFORMING AMENDMENT TO REFUNDS ‘‘(II) 50 percent of the taxable income of the position that any of its gross income de- ATTRIBUTABLE TO FOREIGN TAX CREDIT the corporation for the taxable year, or, if rived from the international operation of 1 CARRYBACKS.— the corporation has no taxable income for or more ships or aircraft is not includible in (1) IN GENERAL.—Subsection (f) of section such year, the amount of any net operating gross income by reason of paragraph (1) or (2) 6611 is amended by redesignating paragraphs loss (as defined in section 172(c)) for such of subsection (a) or paragraph (1) or (2) of (2) and (3) as paragraphs (3) and (4), respec- taxable year. section 872(b) (or by reason of any applicable tively, and by inserting after paragraph (1) For purposes of the preceding sentence, the treaty) shall be entitled to such treatment the following new paragraph: amount of taxable income and net operating only if such position is disclosed (in such ‘‘(2) FOREIGN TAX CREDIT CARRYBACKS.—For loss shall be determined without regard to manner as the Secretary may prescribe) on purposes of subsection (a), if any overpay- this paragraph. the return of tax for such tax (or any state- ment of tax imposed by subtitle A results ‘‘(ii) COORDINATION WITH OTHER REDUC- ment attached to such return). from a carryback of tax paid or accrued to TIONS.—The amount of the applicable portion ‘‘(2) ADDITIONAL PENALTIES FOR FAILING TO foreign countries or possessions of the Unit- for any taxable year shall be reduced (but DISCLOSE POSITION.—If a taxpayer fails to ed States, such overpayment shall be deemed not below zero) by the amount of any reduc- meet the requirement of paragraph (1) for not to have been made before the filing date tion required for such taxable year under any taxable year with respect to the inter- for the taxable year in which such taxes were any other provision of this subsection. national operation of 1 or more ships or one in fact paid or accrued, or, with respect to ‘‘(iv) INCLUSION IN INCOME.—Any reduction or more aircraft— any portion of such credit carryback from a in a suspense account under this paragraph ‘‘(A) the amount of the income from the taxable year attributable to a net operating shall be included in gross income for the tax- international operation to which such failure loss carryback or a capital loss carryback able year of the reduction. relates— from a subsequent taxable year, such over- ‘‘(C) APPLICABLE PORTION.—For purposes of ‘‘(i) which is from sources without the payment shall be deemed not to have been subparagraph (B), the term ‘applicable por- United States, and made before the filing date for such subse- tion’ means, for any taxable year, the ‘‘(ii) which is attributable to a fixed place quent taxable year.’’ amount which would ratably reduce the of business in the United States, (2) CONFORMING AMENDMENTS.— amount in the account (after taking into ac- shall be treated for purposes of this title as (A) Paragraph (4) of section 6611(f) (as so count prior reductions) to zero over the pe- effectively connected with the conduct of a redesignated) is amended— riod consisting of such taxable year and the trade or business within the United States, (i) by striking ‘‘PARAGRAPHS (1) AND (2)’’ and remaining taxable years in such first 20 tax- and inserting ‘‘PARAGRAPHS (1), (2), AND (3)’’, and able years. ‘‘(B) no deductions or credits shall be al- (ii) by striking ‘‘paragraph (1) or (2)’’ each ‘‘(D) AMOUNTS AFTER 20TH YEAR.—Any lowed which are attributable to income from place it appears and inserting ‘‘paragraph (1), amount in the account as of the close of the the international operation to which the (2), or (3)’’. 20th year referred to in subparagraph (C) failure relates. (B) Clause (ii) of section 6611(f)(4)(B) (as so shall be treated as the applicable portion for ‘‘(3) REASONABLE CAUSE EXCEPTION.—This redesignated) is amended by striking ‘‘and’’ each succeeding year thereafter to the ex- subsection shall not apply to a failure to dis- at the end of subclause (I), by redesignating tent not reduced under this paragraph for close a position if it is shown that such fail- subclause (II) as subclause (III), and by in- any prior taxable year after such 20th year.’’ ure is due to reasonable cause and not due to serting after subclause (I) the following new (b) EFFECTIVE DATE.—The amendments willful neglect.’’ subclause: made by this section shall apply to taxable (b) CONFORMING AMENDMENTS.—Paragraphs ‘‘(II) in the case of a carryback of taxes years ending after June 8, 1997. (1) and (2) of section 872(b), and paragraph (1) paid or accrued to foreign countries or pos- SEC. 1072. ALLOCATION OF BASIS AMONG PROP- and (2) of 883(a), are each amended by strik- sessions of the United States, the taxable ERTIES DISTRIBUTED BY PARTNER- ing ‘‘Gross income’’ each place it appears year in which such taxes were in fact paid or SHIP. and inserting ‘‘Except as provided in section accrued (or, with respect to any portion of (a) IN GENERAL.—Subsection (c) of section 883(d), gross income’’. such carryback from a taxable year attrib- 732 is amended to read as follows: (c) EFFECTIVE DATE.— utable to a net operating loss carryback or a ‘‘(c) ALLOCATION OF BASIS.— (1) IN GENERAL.—The amendments made by capital loss carryback from a subsequent ‘‘(1) IN GENERAL.—The basis of distributed this section shall apply to taxable years be- taxable year, such subsequent taxable year), properties to which subsection (a)(2) or (b) is ginning after December 31, 1997. and’’. applicable shall be allocated— June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4801 ‘‘(A) first to any unrealized receivables (as SEC. 1074. EXTENSION OF TIME FOR TAXING ‘‘(iv) provides a beginning date and a maxi- defined in section 751(c)) and inventory items PRECONTRIBUTION GAIN. mum period of time for which the contract (as defined in section 751(d)(2)) in an amount (a) IN GENERAL.—Sections 704(c)(1)(B) and may be in effect that does not exceed 156 equal to the adjusted basis of each such prop- 737(b)(1) are each amended by striking ‘‘5 weeks or 36 months from such beginning date erty to the partnership (or if the basis to be years’’ and inserting ‘‘10 years’’. (including renewals or options to extend), allocated is less than the sum of the adjusted (b) EFFECTIVE DATE.—The amendment ‘‘(v) provides for level payments within the bases of such properties to the partnership, made by subsection (a) shall apply to prop- 156-week or 36-month period that, in the ag- in the manner provided in paragraph (3)), and erty contributed to a partnership after June gregate, generally exceed the normal retail ‘‘(B) to the extent of any remaining basis, 8, 1997. price of the consumer property plus interest, to other distributed properties— SEC. 1075. LIMITATION ON PROPERTY FOR ‘‘(vi) provides for payments under the con- ‘‘(i) first to the extent of each such prop- WHICH INCOME FORECAST METHOD tract that, in the aggregate, do not exceed erty’s adjusted basis to the partnership, and MAY BE USED. $10,000 per item of consumer property, ‘‘(ii) then, to the extent any increase or de- (a) LIMITATION.—Subsection (g) of section ‘‘(vii) provides that the customer does not crease in basis is required in order to have 167 is amended by adding at the end the fol- have any legal obligation to make all the the adjusted bases of such other distributed lowing new paragraph: payments referred to in clause (ii) set forth properties equal such remaining basis, in the ‘‘(6) LIMITATION ON PROPERTY FOR WHICH IN- under the contract, and that at the end of manner provided in paragraph (2) or (3), COME FORECAST METHOD MAY BE USED.—The each payment period the customer may ei- whichever is appropriate. depreciation deduction allowable under this ther continue to use the consumer property section may be determined under the income ‘‘(2) METHOD OF ALLOCATING INCREASE.— by making the payment for the next pay- Any increase required under paragraph (1)(B) forecast method or any similar method only ment period or return such property to the shall be allocated among the properties— with respect to— rent-to-own dealer in good working order, in ‘‘(A) first to properties with unrealized ap- ‘‘(A) property described in paragraph (3) or which case the customer does not incur any preciation in proportion to their respective (4) of section 168(f), further obligations under the contract and is amounts of unrealized appreciation before ‘‘(B) copyrights, not entitled to a return of any payments pre- such increase (but only to the extent of each ‘‘(C) books, viously made under the contract, and property’s unrealized appreciation), and ‘‘(D) patents, and ‘‘(viii) provides that the customer has no ‘‘(B) then, to the extent such increase is ‘‘(E) other property specified in regula- right to sell, sublease, mortgage, pawn, not allocated under subparagraph (A), in pro- tions. pledge, encumber, or otherwise dispose of the portion to their respective fair market val- Such methods may not be used with respect consumer property until all the payments ues. to any amortizable section 197 intangible (as stated in the contract have been made.’’ ‘‘(3) METHOD OF ALLOCATING DECREASE.— defined in section 197(c)).’’ (c) EFFECTIVE DATE.—The amendment Any decrease required under paragraph (1)(A) (b) DEPRECIATION PERIOD FOR RENT-TO-OWN made by this section shall apply to property or (1)(B) shall be allocated— PROPERTY.— placed in service after the date of the enact- ‘‘(A) first to properties with unrealized de- (1) IN GENERAL.—Subparagraph (A) of sec- ment of this Act. preciation in proportion to their respective tion 168(e)(3) (relating to 3-year property) is SEC. 1076. REPEAL OF SPECIAL RULE FOR RENT- amounts of unrealized depreciation before amended by striking ‘‘and’’ at the end of AL USE OF VACATION HOMES, ETC., such decrease (but only to the extent of each clause (i), by striking the period at the end FOR LESS THAN 15 DAYS. property’s unrealized depreciation), and of clause (ii) and inserting ‘‘, and’’, and by (a) IN GENERAL.—Section 280A (relating to ‘‘(B) then, to the extent such decrease is adding at the end the following new clause: disallowance of certain expenses in connec- not allocated under subparagraph (A), in pro- ‘‘(iii) any qualified rent-to-own property.’’ tion with business use of home, rental of va- portion to their respective adjusted bases (as (2) 4-YEAR CLASS LIFE.—The table contained cation homes, etc.) is amended by striking adjusted under subparagraph (A)).’’ in section 168(g)(3)(B) is amended by insert- subsection (g). ing before the first item the following new (b) NO BASIS REDUCTION UNLESS DEPRECIA- (b) EFFECTIVE DATE.—The amendment item: TION CLAIMED.—Section 1016 is amended by made by subsection (a) shall apply to dis- ‘‘(A)(iii) ...... 4 ’’ redesignating subsection (e) as subsection (f) tributions after the date of the enactment of and by inserting after subsection (d) the fol- (3) DEFINITION OF QUALIFIED RENT-TO-OWN this Act. lowing new subsection: PROPERTY.—Subsection (i) of section 168 is ‘‘(e) SPECIAL RULE WHERE RENTAL USE OF SEC. 1073. REPEAL OF REQUIREMENT THAT IN- amended by adding at the end the following VACATION HOME, ETC., FOR LESS THAN 15 VENTORY BE SUBSTANTIALLY AP- new paragraph: PRECIATED. DAYS.—If a dwelling unit is used during the ‘‘(14) QUALIFIED RENT-TO-OWN PROPERTY.— taxable year by the taxpayer as a residence (a) IN GENERAL.—Paragraph (2) of section ‘‘(A) IN GENERAL.—The term ‘qualified and such dwelling unit is actually rented for 751(a) is amended to read as follows: rent-to-own property’ means property held less than 15 days during the taxable year, the ‘‘(2) inventory items of the partnership,’’. by a rent-to-own dealer for purposes of being reduction under subsection (a)(2) by reason subject to a rent-to-own contract. (b) CONFORMING AMENDMENTS.— of such rental use in any taxable year begin- ‘‘(B) RENT-TO-OWN DEALER.—The term (1) Subsection (d) of section 751 is amended ning after December 31, 1997, shall not exceed ‘rent-to-own dealer’ means a person that, in to read as follows: the depreciation deduction allowed for such the ordinary course of business, regularly en- rental use.’’ ‘‘(d) INVENTORY ITEMS.—For purposes of ters into rent-to-own contracts with cus- (c) EFFECTIVE DATE.—The amendments this subchapter, the term ‘inventory items’ tomers for the use of consumer property, if a means— made by this section shall apply to taxable substantial portion of those contracts termi- years beginning after December 31, 1997. ‘‘(1) property of the partnership of the kind nate and the property is returned to such described in section 1221(1), SEC. 1077. EXPANSION OF REQUIREMENT THAT person before the receipt of all payments re- INVOLUNTARILY CONVERTED PROP- ‘‘(2) any other property of the partnership quired to transfer ownership of the property which, on sale or exchange by the partner- ERTY BE REPLACED WITH PROP- from such person to the customer. ERTY ACQUIRED FROM AN UNRE- ship, would be considered property other ‘‘(C) CONSUMER PROPERTY.—The term LATED PERSON. than a capital asset and other than property ‘consumer property’ means tangible personal (a) IN GENERAL.—Subsection (i) of section described in section 1231, property of a type generally used within the 1033 is amended to read as follows: ‘‘(3) any other property of the partnership home. Such term shall not include cellular ‘‘(i) REPLACEMENT PROPERTY MUST BE AC- which, if sold or exchanged by the partner- telephones and any computer or peripheral QUIRED FROM UNRELATED PERSON IN CERTAIN ship, would result in a gain taxable under equipment (as defined in section 168(i)). CASES.— subsection (a) of section 1246 (relating to ‘‘(D) RENT-TO-OWN CONTRACT.—The term ‘‘(1) IN GENERAL.—If the property which is gain on foreign investment company stock), ‘rent-to-own contract’ means any lease for involuntarily converted is held by a taxpayer and the use of consumer property between a rent- to which this subsection applies, subsection ‘‘(4) any other property held by the part- to-own dealer and a customer who is an indi- (a) shall not apply if the replacement prop- nership which, if held by the selling or dis- vidual which— erty or stock is acquired from a related per- tributee partner, would be considered prop- ‘‘(i) is titled ‘Rent-to-Own Agreement’ or son. The preceding sentence shall not apply erty of the type described in paragraph (1), ‘Lease Agreement with Ownership Option,’ to the extent that the related person ac- (2), or (3).’’ or uses other similar language, quired the replacement property or stock (2) Sections 724(d)(2), 731(a)(2)(B), 731(c)(6), ‘‘(ii) provides for level, regular periodic from an unrelated person during the period 732(c)(1)(A) (as amended by the preceding payments (for a payment period which is a applicable under subsection (a)(2)(B). section), 735(a)(2), and 735(c)(1) are each week or month), ‘‘(2) TAXPAYERS TO WHICH SUBSECTION AP- amended by striking ‘‘section 751(d)(2)’’ and ‘‘(iii) provides that legal title to such prop- PLIES.—This subsection shall apply to— inserting ‘‘section 751(d)’’. erty remains with the rent-to-own dealer ‘‘(A) a C corporation, (c) EFFECTIVE DATE.—The amendments until the customer makes all the payments ‘‘(B) a partnership in which 1 or more C made by this section shall apply to sales, ex- described in clause (ii) or early purchase corporations own, directly or indirectly (de- changes, and distributions after the date of payments required under the contract to ac- termined in accordance with section the enactment of this Act. quire legal title to the item of property, 707(b)(3)), more than 50 percent of the capital H4802 CONGRESSIONAL RECORD — HOUSE June 26, 1997 interest, or profits interest, in such partner- we are lacking. We have one of the big- so hard in plowing this ground for tax ship at the time of the involuntary conver- gest imports into China, American edu- relief for middle-income Americans, be- sion, and cation. Those people are going there, ginning with the Contract With Amer- ‘‘(C) any other taxpayer if, with respect to picking up our technology, and ica in 1994, that I would welcome his property which is involuntarily converted 1 during the taxable year, the aggregate of the through 1 ⁄2 billion people, they are joining us in a bipartisan effort to pass amount of realized gain on such property on able to be more productive. this bill. which there is realized gain exceeds $100,000. Which area are we going in America? While my proposal offers tax relief In the case of a partnership, subparagraph We have the prison population growing, for life, the Democrat substitute pro- (C) shall apply with respect to the partner- not our education population. We have vides tax relief for a portion of life. It ship and with respect to each partner. A 1.5 million people in jail, not only not is helpful to parents with children but similar rule shall apply in the case of an S productive, but hundreds of billions of it does not help the children once they corporation and its shareholders. dollars is being paid just to keep them grow up to become taxpayers. The ‘‘(3) RELATED PERSON.—For purposes of this subsection, a person is related to another incarcerated. Democrat substitute contains provi- person if the person bears a relationship to In the Democratic alternative that sions that actually hurt the taxpayer. the other person described in section 267(b) we are talking about, we take it even The manner in which they stack the or 707(b)(1).’’ further than the President’s plan, and child credit and the EITC represents a (b) EFFECTIVE DATE.—The amendment say, start in our public school systems, back-door increase in welfare spending. made by this section shall apply to involun- but do not try to do it alone. Bring in The substitute has a $300-per-child tax tary conversions occurring after June 8, 1997. our private sector. What will be the credit through the year 2001, not $500, SEC. 1078. TREATMENT OF EXCEPTION FROM IN- jobs demanded in 10 years, in 20 years, which hard-hit families need; takes STALLMENT SALES RULES FOR SALES OF PROPERTY BY A MANU- in 30 years? Formulate that in a part- money away from middle-income par- FACTURER TO A DEALER. nership with the schools so that the ents who pay income taxes and gives it (a) IN GENERAL.—Paragraph (2) of section employees will be able to come from to people who do not pay income taxes 811(c) of the Tax Reform Act of 1986 is hereby the communities in which they live, or who already receive a large check repealed. and when they graduate from high from the Government. (b) EFFECTIVE DATE.— school, when they graduate from col- Republicans think income tax relief (1) IN GENERAL.—The amendment made by lege, they not only would have the should be reserved for people who pay this section shall apply to taxable years be- ginning after the date of the enactment of pomp, the circumstance, and the di- income taxes. They have waited 16 this Act. ploma, but they would have a job, so years for this relief. And it should be (2) COORDINATION WITH SECTION 481.—In the they will not be dependent on society. devoted to them. And, yes, we do not case of any taxpayer required by this section Clearly we have seen a division in our give the tax credit, which is an income to change its method of accounting for any way of thinking. We have an oppor- tax credit, to those who pay no income taxable year— tunity now to have a bill that is fair tax. (A) such changes shall be treated as initi- for Americans. The President is not The substitute actually raises taxes ated by the taxpayer, going to tolerate that the other party because it cancels the scheduled drop (B) such changes shall be treated as made dictate who are working Americans. with the consent of the Secretary, and in the FUTA tax, the Federal unem- (C) the net amount of the adjustments re- You can use your formulas, make up ployment tax, which is a tax on pay- quired to be taken into account under sec- your charts, but if you are working, roll, a tax on work and is a discourage- tion 481(a) of the Internal Revenue Code of the President of the United States in- ment for job creation. 1986 shall be taken into account ratably over sists that you get the child credit to Their education provisions, just like the 4 taxable year period beginning with the assist you with some of the problems the President’s, risk driving up college first taxable year beginning after the date of that you face. costs for all Americans, thanks to their the enactment of this Act. The President is not going to accept inflationary nature. The CHAIRMAN pro tempore. Pursu- the capital gains tax indexing. We went Finally, the capital gains provision is ant to House Resolution 174, the gen- out of our way to make certain that we way too limited to protect domestic tleman from New York [Mr. RANGEL] can make it freer for the small busi- savings and to increase risk-taking in and a Member opposed each will con- ness person, the farmer, those people the development of more business op- trol 30 minutes. that have special needs. But we cannot portunities and greater job creation. Does the gentleman from Texas [Mr. afford to have, in the next 5, 10, 15, 20 Mr. Chairman, I believe clearly that ARCHER] wish to control the time in op- years, revenue losses that our budget although the Democrats are trying and position? cannot carry. trying very hard, and I applaud them Mr. ARCHER. Yes, Mr. Chairman, I So since we know that the President for that, that they should rather join do. says that the Republican bill is not bi- us in a program that really gives relief, The CHAIRMAN pro tempore. The partisan, it is born politically dead on which has been too long in coming, cre- gentleman from Texas [Mr. ARCHER] arrival, it is going to be defeated, let us ates the opportunity for job expansion, will be recognized for 30 minutes in op- pick up what we can to make certain economic growth, and greater jobs for position. that we have an alternative that can Americans who are now finally trying The Chair recognizes the gentleman go into conference, and invite our Re- to get off welfare and to break the from New York [Mr. RANGEL]. publican friends to learn what biparti- cycle of dependency. I urge a vote Mr. RANGEL. Mr. Chairman, I yield sanship is about. against the substitute. myself such time as I may consume. We have swallowed a lot on our side. Mr. Chairman, I reserve the balance Mr. Chairman, the President of the We ask you to really work with us so of my time. United States, as I pointed out, made we can take to the American people Mr. RANGEL. Mr. Chairman, I yield an effort to get a bipartisan bill. It is not a battle based on class but a bipar- 1 minute and 30 seconds to the gen- still referred to by the chairman of the tisan effort to show that we can work tleman from Texas [Mr. DOGGETT]. Committee on Ways and Means as a bi- together, liberals and conservatives, Mr. DOGGETT. Mr. Chairman, one of partisan bill. The President has re- Democrats and Republicans, with the the many good reasons to oppose this viewed that bill, the President has, the President of the United States for a Republican tax bill is the fact that it Secretary of the Treasury has. They better America. actually increases taxes on some Amer- think that it is very difficult for them Mr. Chairman, I reserve the balance icans, a tax on educational oppor- to see the goals and objectives that of my time. tunity. they wanted to have. Mr. ARCHER. Mr. Chairman, I yield There are universities all across this One of the classic examples would be myself such time as I may consume. country who assist their graduate stu- in the area of education. The President Mr. Chairman, I welcome the re- dents who work as teaching assistants, sees the dream of an America, that our marks of the gentleman from New as research assistants, by reducing economic growth would be based on York [Mr. RANGEL]. I certainly work to their tuition and lowering their cost of productivity, and he knows so well achieve bipartisanship. I would say to education. Under the current law, when that in this area of education is where the gentleman, since we have worked graduate students get that help, their June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4803 tuition assistance is not taxable. But lifetime cap of $600,000, but they need try. That is wrong and the Democratic under this bill, as proposed by the Re- that section for their tax bill. package tries to correct it. publicans, those students who rep- Education, there is no incentive here Mr. ARCHER. Mr. Chairman, I yield 3 resent our future will face a significant to save and to grow and to teach people minutes to a respected member of the tax increase while at the same time the that education is valuable, and we have Committee on Ways and Means, the Republican bill will give many tax a structure that will allow you to nur- gentleman from Arizona [Mr. breaks to the rich and famous of Amer- ture growth for education. It is a 100 HAYWORTH]. ica. percent pass-through. Mr. HAYWORTH. Mr. Chairman, I These teaching and research assist- Let me tell my colleagues, as soon as listened with great interest to the ants are providing assistance with over those institutions out there, in my ranking member of the Committee on 40 percent of the courses at many of background as a teacher, once you Appropriations. I have a great deal of our largest universities. They get by on have a $10,000 checkoff spot on your in- respect for the gentleman from Wiscon- $12,000 to $15,000 a year at the same come tax, do you know how much tui- sin. But I think this points out the fun- time they are trying to get an edu- tion is going to go up? Do you know damental difference between our two cation and help others get an edu- what the argument is going to be? Just major parties. Indeed, to echo the com- cation. pass it through. Where is quality? ments of my colleague from California, At the University of Texas in Austin, Where is growth? Where is incentive? sadly, sadly so many of our friends on we have more of these graduate stu- But they have got that facade. Estate the other side are unalterably opposed dents than any other college in the tax, have to have the estate tax facade. to the American people hanging onto country. To Joe and Sheryl Schaefer, It is there not for individuals, just more of their own money and sending this is not just some arcane print in small businesses. Expiring provision, less of it here to Washington that they the Tax Code. Rather, these two got to have a section on expiring provi- would try to nitpick an agreement neuroscientists who represent our fu- sions. Read the fine print. It is only for broadly arrived at with the President ture and who also happen to be the par- 1 year. Why bother? Because they have of the United States. ents of a young baby while they main- tax package envy. We have expiring Mr. Chairman, all we need do is lis- tain a near perfect 4-point average at provisions. They have to have expiring ten to the hardworking American peo- the University of Texas, they will not provisions. ple. One of my constituents, via get a dime from the child tax credit And then to really show you the telefax, a small business owner, Jon under this Republican bill. game, all day the gentleman from New Cramer, points out the wisdom of those But they will face such a substantial York has been talking about giving who live far beyond the Beltway in the increase in their taxes under this bill hardworking people relief, not just great State of Arizona, when he says, that they have told me that one or those who pay income taxes, but those ‘‘JD, you cannot give an income tax both of them will have to drop out of people who pay other taxes as well. break to those who do not pay income graduate school. Well, one of the biggest taxes that are taxes.’’ I have heard the same thing from paid are payroll taxes. If an employer It is a very simple thought. Not other graduate students across this pays a payroll tax, that is money not fraught with cruelty, as some would country. Hiking taxes on young Ameri- available to go to the worker. suggest, but a commonsense compas- cans like this, which the Democratic Guess what, in the fine print of their sion. And again it is important to note substitute does not do but the Repub- tax package is the perpetuation of a the reality of the evaluation by the lican tax bill does do, is a tax on edu- payroll tax, $6.3 billion over 5 years. nonpartisan Joint Tax Commission cation. It is in the wrong direction. Let While they are saying we ought to give that tells us that fully, fully 76 percent us live up to our commitment on edu- some relief to those who pay payroll of the tax relief in the Republican plan cation and reject the tax increase. taxes, they are perpetuating a tax goes to families earning between $20 Mr. ARCHER. Mr. Chairman, I yield 3 which guarantees workers will get less. and $75,000 a year. minutes to the gentleman from Califor- Tax package envy, I am really sur- Indeed, for those who lament and nia [Mr. THOMAS], respected member of prised. It looks pretty good. It looks a would claim the greatest tax breaks go the Committee on Ways and Means, lot like ours, but beware, it is a Holly- to the wealthy, well, it is interesting chairman of the Subcommittee on wood set. to evaluate who they believe is Health. Mr. RANGEL. Mr. Chairman, I yield wealthy. Mr. Chairman, I do not be- (Mr. THOMAS asked and was given 1 minute to the gentleman from Wis- lieve anyone here who is a homeowner permission to revise and extend his re- consin [Mr. OBEY]. pays rent to himself, and yet that is marks.) Mr. OBEY. Mr. Chairman, the issue is the twisted evaluation that comes from Mr. THOMAS. Mr. Chairman, I thank not whether there is going to be a tax the highly partisan report from the my chairman for yielding me the time. cut. It is who going to get most of it. Treasury Department. I talked earlier about the fact that Under the Republican tax bill, you No, I believe that the majority tax the Democrats are just loath to have have the biggest transfer of wealth out plan is the best and I believe that, the myth of Republicans only cutting of the pockets of low- and middle-in- sadly, though our friends on the other taxes for the rich and so they have had come families to the most well-off fam- side rhetorically come here to the well to create a ridiculous explanation of ilies in this country that we have had and say that, yes, they have now em- how much someone has to argue that since 1981. The Republican package braced tax cuts, history is an incred- this is for the wealthy. But I now real- does not contribute to long-term defi- ible teacher. It shows us, Mr. Chair- ize that they have another problem; cit reduction. It threatens it. man, that for the first time in 16 years, that is, they have tax package envy. The Democratic bill, by contrast, the first time in over a decade and a It is amazing to listen to the Demo- provides far more help to families who half, a new majority is finally about crats put together a tax package. Is it make less than $75,000 a year. It does the business of giving Americans, not interesting in their tax package not penalize working mothers who need working Americans, much-needed tax they have a child credit? We have a child care because they are concerned relief. child credit; they have a child credit. about their children. It helps Main My colleague from California said it But it is a whole lot like Hollywood, Street rather than Wall Street. well, and I do not impugn the motives when you walk down the movie sets, I am not envious at all of the Repub- of those on the other side who are try- they are a facade. It looks like a house lican package. I am appalled by the ing to catch up and proffer some sort of but it is really just a fake front. They fact that it once again, as they have tax relief. Indeed, in a sense, Mr. Chair- do not give $500 to families until 2001. done continuously in this Congress, man, it is a measure of how far we have We have capital gains. They have tried to use virtually every other piece come, but sadly the minority sub- capital gains. There is that front, looks of the tax package as a Trojan horse to stitute has miles and miles and dollars like capital gains. Walk through the drive through this place a giant bo- and dollars to go before it is credible. door. It is not available to people who nanza for the wealthiest 100,000 or Mr. RANGEL. Mr. Chairman, I yield trade in public securities. There is a 200,000 tax-paying families in this coun- myself such time as I may consume to H4804 CONGRESSIONAL RECORD — HOUSE June 26, 1997 say that I am a member of this biparti- cans. It provides a full $1,500 tuition tax credit estate tax relief. It speaks to capital san Joint Committee on Taxation. I for each of the first 2 years of college and a gains. have not hired any staff. I have not credit of 20 percent of tuition costs after the And we forced the issue of capital seen any reports. I know it is biparti- first 2 years. This is a vital investment be- gains in this simple sense: We believe san because the chairman said it was. cause, in today's global, high technology that for middle-income Americans the But if we would be kind enough to re- economy, higher levels of education are re- most capital asset they are ever going lease this bipartisan statement so we quired than ever before. While the capital to have is their home. We argue on would know what is in it, I think the gains tax reduction in the substitute does not their behalf today that they need re- American people will have a better conform with that which I believe is most pro- lief. idea about our differences. ductive, it is more responsible than that con- We address the issue of middle-in- Mr. Chairman, I yield such time as he tained in H.R. 2014. This substitute also pro- come tax relief in our Democratic al- may consume to the gentleman from vides tax relief to families who are selling their ternative. Offer an affirmative vote. Texas [Mr. BENTSEN]. home, the biggest investment for most middle- Vote for the Democratic alternative. (Mr. BENTSEN asked and was given income families; it helps families struggling to Mr. ARCHER. Mr. Chairman, I yield permission to revise and extend his re- keep the family business and the family farm 11⁄2 minutes to the gentleman from marks.) in the family; and it does not contain back Ohio [Mr. CHABOT]. Mr. BENTSEN. Mr. Chairman, I rise loaded provisions that explode the deficit. Mr. CHABOT. Mr. Chairman, I think in opposition to H.R. 2014 and in sup- The Democratic substitute is more fair and we all know when a big government port of the substitute of gentleman more responsible. I urge a ``no'' vote on the liberal gets his hands on your money, from New York. bill and a ``yes'' vote on the Democratic sub- he is going to be very reluctant to give Mr. Chairman, I support the bipartisan bal- stitute. it back. Today we are hearing from a anced budget agreement and I support re- Mr. RANGEL. Mr. Chairman, I yield lot of our liberal friends on the other sponsible tax relief, but I cannot support the 3 minutes to the gentleman from Mas- side of the aisle who are facing that legislation before us today because it is unfair sachusetts [Mr. NEAL]. very dilemma. and fiscally irresponsible. This legislation does Mr. NEAL of Massachusetts. Mr. In 1993 this Congress, then under con- not do enough to help middle-income families. Chairman, what we have here is a con- trol of the liberal Democrats and What it does is set off a tax time bomb that tinuation of the argument that began joined by President Clinton, engineered will drain revenue from the Treasury and in 1993. Late in the evening hour, with- the largest single peacetime tax in- cause budget deficits to explode again and out one Republican vote, the Demo- crease in American history. Shortly completely undermine our efforts to balance cratic Members of this House voted for thereafter, the taxpayers decided to the budget for the first time since 1969. a deficit reduction plan that worked. elect a Republican Congress; and today Mr. Chairman, I support responsible tax re- That is what has brought us here today that Republican Congress is attempt- lief. I have introduced legislation to reduce the to the position of where we can discuss ing to cut taxes. capital gains tax on a sliding scale based on tax cuts for the American people. Mr. Chairman, the howling has start- how long an asset is held, which I believe I recall that evening because of the ed. Our liberal friends have come to the would be both economically productive and hand wringing that we heard from the well, one after another, waging what fiscally responsible. But this legislation makes other side. I remember the doomsday amounts to class warfare, trying to no distinction between productive and unpro- prophets who took on the well on the convince us that tax cuts for working ductive investments and will do little to spur other side and predicted that the mod- families are somehow unfair. economic growth. Even worse, it includes in- ern American economy would be Like it or not, Mr. Chairman, we are flation indexing that would cause revenue wrecked because of what the President going to pass a bill today that cuts losses to explode after it fully takes effect. and the Democratic majority at that taxes for American families, that cuts This bill is also unfair in many ways. It gives time were doing here in the House. taxes for those who sell their homes, more than half its benefits to the wealthiest 5 What has been the result? Four years that cuts the death tax. Hopefully the percent of Americans, people making an aver- of unparalleled economic prosperity President will not stand in our way. age of $250,000 a year. It denies the full $500 and economic growth where each quar- We keep hearing ‘‘tax cuts for the per child tax credit to 15 million working, tax- ter seems almost to get better than the rich, tax cuts for the rich.’’ Seventy- paying, wage-earning parents because it previous quarter. It has almost defied five percent of the tax cuts that we are doesn't let them count the credit against their modern imagination because the talking about go to people who make payroll taxes. It limits tax breaks on college for Democrats had the courage to take on less than $75,000. Let me repeat that. those most in need of this assistance by pro- the issue of deficit reduction in a real Seventy-five percent of the tax cuts viding only half of the $1,500 tuition tax credit way. So today this is a continuation of that we are talking about go to people originally proposed by the President. And it that argument. This is not an argu- who make less than $75,000. penalizes working families by cutting back on ment about tax cuts. So what is the liberal Democrats’ their child tax credit if they have child care ex- definition of the rich? I guess it is any- b 1600 penses. body who has got a job. So let us pass Even worse, Mr. Chairman, middle-income We all agree that this is the time for the tax cuts. Let us get away from all families will be penalized again in the future tax cuts. What we honestly bicker this ‘‘tax cuts for the rich.’’ Let us do when the costs of this tax legislation explode about today in this institution is sim- something for the American people. and cause massive budget deficits to build up ply this: Who is to get these tax cuts? Mr. RANGEL. Mr. Chairman, I yield again. Then we would face the choice of ei- Now, we can believe the people that 21⁄2 minutes to the gentleman from ther increasing taxes or cutting vital programs gave us our Social Security and Medi- Maryland [Mr. HOYER]. such as Medicare, Medicaid, and education to care and the 8-hour workday and the (Mr. HOYER asked and was given pay for these exploding tax cuts. notion that everybody in America permission to revise and extend his re- And explode they will. This tax bill is full of ought to be able to try their hand at marks.) gimmicks to limit the costs of the tax cuts in college, people like me, who went to Mr. HOYER. Mr. Chairman, working the first 5 years and to hide their true long- college because of Social Security, or Americans are in need of tax relief. term costs. The size of the net tax cuts grows we can accept the arguments of those They are also in need of their country rapidly after the first 5 years. In the second 5 on the other side that now they are the balancing its budget. The Republican years, net tax cuts grow at 15 percent per champions of middle-class Americans bill fails average, hard-working Ameri- year, much faster than inflation or growth in because they favor tax cuts for the peo- cans on both counts. the size of the economy. The explosion will be ple who reside on Wall Street. Al Hunt of the Wall Street Journal even worse outside the 10-year horizon. The simple truth is that the Demo- says of the Gingrich-Archer plan that We need responsible tax relief that helps cratic substitute that we have today is it is, and I quote, ‘‘a bonanza for the af- our families and keeps the Federal budget in not tax cut envy; it speaks to middle fluent, crumbs for the working class, balance. That is what the Democratic sub- America. It assists 12 million Ameri- and eventually costly.’’ In fact, it will stitute will provide. The majority of the tax cuts cans who are struggling with the costs likely cost over $600 billion in the sec- in the substitute benefit middle-income Ameri- of tuition. It does address the issue of ond 10-year period from 2008 through June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4805 2017. The capital gains, IRA, and estate folks down in my district on the street $75,000. That is the truth. There is a tax provisions alone are more expen- about this, that kind of makes sense to huge difference between 22 percent and sive in the year 2007 than they are in them. If you pay income taxes, you 58 percent. The Democratic substitute the entire first 5 years. need a tax break, you need the child provides tax relief for working families Look at this chart. On the far right tax credit. If you do not pay income because, let us face it, those families here is the first 5 years of their tax cut taxes, you should not get an income who get $200,000 in dividend income are where, lo and behold, the capital gains tax credit. I think that probably makes earning more than $75,000. brings us money. That is the bait. The sense to most Americans, and that is Mr. ARCHER. Mr. Chairman, I yield 3 switch, in 2007 alone the capital gains what we are trying to do in our bill. If minutes to the gentleman from Texas explode into the loss of revenue. Who is we want to talk about increasing wel- [Mr. DELAY], the majority whip of the going to pay for that? fare benefits, which is what the earned House of Representatives. Last weekend’s NBC-Wall Street income tax credit is, then we can do Mr. DELAY. Mr. Chairman, I appre- Journal poll said that two-thirds of that. ciate the chairman yielding me this Americans reject the Republicans’ bo- I happen to like the earned income time. I rise in opposition to this sub- nanza for the affluent and support the tax credit. I think it is sound policy. It stitute and in support of the Taxpayers Democratic tax cut for mainstream does encourage people to get off wel- Relief Act of 1997. working Americans who need relief fare and into work. But that is a dif- It has been 16 years since the tax- from the burden they bear from income ferent subject from giving hard-work- payers of America have had tax relief taxes but also, as the chairman surely ing, tax-paying Americans a tax break. from the Federal Government, and to- knows, those half of Americans who So I hope that the public will not be day’s bill is long overdue. But instead pay more in FICA than they do in in- confused by the continual harangue of embracing tax relief, the Democrat come taxes. from the other side that we are not giv- minority embraces class warfare. Hunt’s characterization of the Re- ing the families of certain numbers of America’s working families are publicans’ failure to give relief to most children this tax break. We already forced to pay over 50 percent of their working Americans who need it is an give them a tax break. We already give salaries to the government because of effort which, and I quote, ‘‘shamefully them money back when they pay no high taxes and costly regulations. No shortchanges the working poor,’’ that taxes. wonder it takes one parent to work for is what the other bill does, and I am So the bill that the Democrats have the Government while the other parent not envious at all of that bill, I say to proposed is, in effect, an increase on works for the family. Instead of work- the gentleman from Arizona [Mr. welfare benefits, not a true income tax ing with us to ease that tax burden, the HAYWORTH]. credit for folks who pay income tax. minority leadership offers in their sub- In 1993 Republicans led the Nation Mr. RANGEL. Mr. Chairman, I yield stitute more welfare. into deep debt, a course not reversed myself such time as I may consume, It should come as no surprise that until President Clinton’s budget was and I would just like to say to the gen- the members of the minority oppose adopted in 1993, as has been pointed tleman that it is a hurting thing when this bill. Asking liberals to go support out, without one Republican vote. That you are talking about working Ameri- tax relief is like asking aliens to come resulted in five straight years of deficit cans with children asking for welfare, back to Roswell. If it has not happened reduction, the first time that has hap- whether they all are asking for the dig- in the last 50 years, it probably will not pened in this century. nity to continue to work, and sever the happen in the next 50 years. We Democrats are for giving tax cuts benefits that other working families The liberals oppose tax cuts but they to working Americans, small business- would get. choose to cloak their opposition in the men and family farmers, and our alter- Mr. RANGEL. Mr. Chairman, I yield rhetoric of class warfare. Frankly, this native does just that. We should reject 11⁄2 minutes to the gentleman from rhetoric is giving me a headache. It is the Republican’s repeat of the 1981 dis- Maine [Mr. ALLEN]. like listening to my daughter Mandy’s aster. We should give real cuts to those Mr. ALLEN. Mr. Chairman, I thank favorite music. The beat is simple, the most pressed in our society Americans the gentleman from New York [Mr. volume is loud, but the ultimate con- who are going to work daily, staying RANGEL] for yielding. tribution to society is meaningless. off welfare and raising their children, In the course of this debate there has Mr. Chairman, we need less rhetoric making America stronger for their ef- been a lot of reference by the other side for the Democrats regarding taxes and forts. to the fact that 76 percent of the bene- more illumination. Our tax cuts help Mr. ARCHER. Mr. Chairman. I yield 3 fits of this tax cut will go to families working families in all stages of life, minutes to the gentleman from Louisi- earning $75,000 a year or less. We have from those who have children to those ana [Mr. MCCRERY], another well-re- heard that number over and over again, who are grandparents, from those who spected member of the Committee on 75 percent, 76 percent. want to save for a retirement to those Ways and Means. It is a bogus number because it does who want to invest in the future of Mr. MCCRERY. Mr. Chairman, I not include, when they measure family America. Working families are not nec- thank the gentleman from Texas [Mr. income they do not include interest, essarily rich in wealth, but they are ARCHER] for yielding. I just want to they do not include dividends, they do rich in spirit. talk for a couple minutes about their not include investment income in mu- The liberals believe that these people question of children in working fami- nicipal bonds, they do not include do not deserve tax relief, and I think lies that will not receive the tax credit. money from other investments. If you that is pretty sad. So I just urge my I think what everybody should know have someone earning $200,000 in divi- colleagues to reject this weak sub- is that those children or at least the dends and interest, they are listed on stitute and vote for America’s first tax families of those children already re- the records of the Joint Committee on cut in 17 years. ceive a tax credit, the earned income Taxation here as earning nothing un- b tax credit. Even though those families less they have income of $30,000 or so. 1645 do not have any income tax liability, The 76 percent is a bogus number. Mr. RANGEL. Mr. Chairman, I yield in other words, even though those fam- If we look at the Treasury figures, such time as he may consume to the ilies pay zero in income taxes, we pro- those numbers measure dividends, they gentleman from Louisiana [Mr. JEF- vide them with a tax credit. We send measure all sorts of investment in- FERSON]. money back to them from Washington, come. When we look at those numbers, (Mr. JEFFERSON asked and was even though they do not send any in- only 22 percent of the benefits of this given permission to revise and extend come taxes to Washington, so we al- tax cut go to families earning $75,000 or his remarks.) ready give those families a tax credit. less. Twenty-two percent is the real Mr. JEFFERSON. Mr. Chairman, I rise in Our bill provides some income tax re- number, not 76 percent. opposition to the Republican's so-called Tax- lief through an income tax credit to Now, by contrast, the Democratic payer Relief Act and in support of the Demo- families with children who pay income substitute provides 58 percent of its cratic substitute. We are all for tax cuts, taxes. Now, having talked to a lot of benefits to families earning less than Democrats and Republicans. But, the question H4806 CONGRESSIONAL RECORD — HOUSE June 26, 1997 is, will middle-income families, the working Mr. RANGEL. Mr. Chairman, I yield The other piece that is so important families of our country, get any relief from the 8 minutes to the gentleman from Cali- about the Democratic plan—— Republican's capital gains tax cut? The an- fornia [Mr. BECERRA]. Mr. BECERRA. Reclaiming my time, swer is very, very little, if at all. This is nec- Mr. BECERRA. Mr. Chairman, I they are taxing graduate students and essarily true because middle-class working thank the gentleman from New York they are collecting $430 million in families own very little of the capital assets for yielding the time, and if I could, taxes as a result of doing that, and at that are taxed at capital gains rates today. If just in taking in all this debate, and we the same time they are giving corpora- your family made between zero and $25,000 are now discussing the Democratic al- tions a tax windfall and not asking last year, you were in an income group that ternative, it strikes me that there are them to pay any taxes. Does that seem paid 2.2 percent of the capital gains taxes. two provisions that really make it fair? Those who made between $25,000 and clear why the Democratic alternative Ms. STABENOW. It is not fair, and $50,000 paid another 8 percent of the capital is so much better than the bill we have one of the reasons I am proud to sup- gains taxes. And, if you made between before us from the Republican major- port the Democrat plan is that we ful- $100,000 and $200,000, you paid 16 percent ity. fill the commitment of giving over $35 of the capital gains taxes. First, when my colleagues talk about billion; I believe it is over $40 billion, The fact is that 60 percent of all capital the child tax credit, when any working to education-related tax relief so any- gains taxes paid in 1996 were paid by tax- American comes home with that pay one going to school can further their payers who made more than $200,000. These stub and that American looks down the education to get a good job, and that super rich taxpayers, make up only 1 percent list of taxes paid, I do not think the graduate student will not actually see of all the taxpayers in America; only 110,000 American says, well, that was excise a tax increase. tax filers out of more than 110 million tax- tax, that was payroll tax, that was in- It is amazing to me that as we are payers, and they get a tax break of roughly $7 come tax. She knows she paid taxes. talking about tax cuts today that for billion a year. So how do we make capital And for those here in this Chamber to too many of my constituents they are gains tax breaks fair to working families? say that those taxes paid by that indi- going to see an actual tax increase, and The Democratic substitute does it by vidual making $20,000, $23,000, $28,000 do I am not going to support a tax in- targeting the capital gains tax relief to small not count verges on being un-American crease on those folks. businesses, family farms, and homeowners. It to me because that is a tax paid to pro- Mr. BECERRA. Mr. Chairman, I yield leaves out most families that make more than vide for the operation of this govern- to the gentleman from Louisiana [Mr. $100,000 a year, and gives 76 percent of its ment and the programs that we all use. JEFFERSON]. tax relief to families that make less than Second, the average cost of a commu- Mr. JEFFERSON. Mr. Chairman, I $100,000 a year. nity college education, a public com- think what is really important is that The Democratic substitute targets family munity college education, is about the Republicans are using gimmicks in farm owners and small business owners for its $1,200. Under the Republican tax bill, this whole operation. Just as they are estate tax relief, assets that keep families to- they will get a credit, but only half of in the education tax credit area, so gether and that usually represents a lifetime of that, $600. they are doing it in the capital gains work and investment. In our bill we try to reflect what the area. When they tell us that 75 percent The Republican's bill gets worse still on of the capital gains taxes go to ordi- capital gains. Not only do more than half of President agreed or thought he agreed nary folks who are middle-income tax- the capital gains tax breaks in this bill go to to do with the Republicans when he ne- payers, what they are saying in the the top 1 percent, it is going to open the door gotiated a budget deal, and that was to first 5 years when they use this idea of to an old stripe of shenanigan that only the give them a $1,200 tax credit for edu- super rich taxpayer can play. It will reintroduce cation. induced sales, this gimmick of induced the opportunity for clever new tax shelters. Two ways that the deal was broken. sales, but when we look past the first 5 This is because there will now be under the There are other ways the deal was bro- years there is a huge windfall for those Republican bill a 20 percent differential be- ken. The gentleman from Texas [Mr. high-income taxpayers, and this is, tween the top marginal rate of 39 percent that DOGGETT] mentioned one, that we are after all, a 10-year window we are deal- high-income earners will have to pay on sala- going to be taxing graduate students. ing with here, not the first 5 years. ries and the 20 percent capital gains rate that That seems to me to be so unfair, and So we need to tell the whole story Republicans are pushing on the floor. I see the gentlewoman from Michigan that this Democratic substitute does it If you were a high-income taxpayer making [Ms. STABENOW] here. quite differently. We come up front more than $100,000 a year, wouldn't you rath- Ms. STABENOW. Mr. Chairman, will with what we are talking about here, er pay a 20 percent rate on your earnings that the gentleman yield? we give the capital gains tax to people a 39 percent rate? Of course you would. So Mr. BECERRA. I yield to the gentle- who need it, the small business owners, what you would do, with your lawyer or your woman from Michigan to make some those people who are small farmers and tax accountant, is devise ways to re-character- remarks. folks who are homeowners. These are ize your income from income from a salary to Ms. STABENOW. Mr. Chairman, I ap- the folks who make up the heart of income from a capital asset. Thus, by chang- preciate my friend from California America, and these are the people who ing the name of your income, or as a tax law- yielding to me regarding the issue of are hard-working folks who need the yer would say, by recharacterizing your in- graduate students because there is an help, and we concentrate our capital come, you could save 20 percent of the taxes important difference between the gains relief to them, and this is no gim- that you otherwise would have to pay. It's a Democratic and Republican plan. As we mick, this is real relief for those peo- great deal if you can get. But you can only get know, in the Republican plan they take ple. it if you are one of the super rich in our coun- away what is now tuition tax relief. If Ms. STABENOW. Mr. Chairman, will try. This is a back to the future tax bill. It's the someone is a graduate student, and I the gentleman yield? same old story all over againÐif you are a received a number of letters from Mr. BECERRA. I yield to the gentle- working stiff, you work and pay your taxes; Michigan State University graduate woman from Michigan. and if you are a high-income taxpayer, you students in my district indicating that Ms. STABENOW. Mr. Chairman, I find a loophole to get out of paying. This Re- they are receiving right now about came to Congress in January rep- publican bill provides loopholes big enough to $15,000 in salary for teaching graduate resenting middle-Michigan, middle- drive a Brink's truck through, and that's ex- courses, and that is in addition to some class working men and women in actly what the high-income taxpayers of this relief that they get by being given tui- Michigan who want to receive tax re- country are going to do. the Republican bill is tion, free tuition, in order to be able to lief directly in their pockets. What I an unfair, unprogressive, inefficient, complex go to school, the Republican plan see is a basic philosophical difference tax proposal. The Democratic substitute solves would now tax that tuition that they about how to create jobs and grow the these problems. are given as part of their salaries. And economy in this country. Republicans Like we used to say in the Louisiana legisla- so my $15,000 graduate student that is say give it to those at the top, it trick- ture, the Republican tax bill is a snake and we working their way through school will les down. We say put it directly in the ought to kill it. Then pass the Democratic sub- add $1,000 to their tax bill. That is a pockets, money directly in the pockets stitute. huge tax cut, $1,000 on a $15,000 salary. of middle-income working people, June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4807 whether it is their house, sending their lower- to middle-income families owe income One of the benefits of going to con- children to college, their children, tax before EITC is calculated, but have little or ference would be that the Republicans their small business, their farm, put it no income tax obligation remaining after EITC here will have to face up to the con- in their pocket; they will turn around, is calculated. Under the Democratic bill, these sequences of their bill over 10 years. buy cars, buy houses, take care of their families would be covered. What it means in terms of exploding children. That is how we create jobs The Republican tax bill's largest tax cutsÐ the deficit and what it means in terms and that is why I support this proposal. capital gains, Individual Retirement Accounts, of fairness, the Democratic alternative Mr. BECERRA. Mr. Chairman, I see estate, and corporate taxesÐprovide most of is fiscally responsible and fair. The Re- one of the gentlewoman’s colleagues is their benefits to the rich. The richest 1 percent publican proposal is irresponsible fis- also interested and I will recognize the get more of the overall tax break than the bot- cally and unfair both in education and gentlewoman from Michigan [Ms. KIL- tom 60 percent combined. According to the the child credit among others. PATRICK] in a second. If I can just men- Center on Budget and Policy Priorities, the I urge that we support the Demo- tion this child tax credit we have been Joint Tax Committee's distribution tables do cratic alternative. talking about all day, 73 million chil- not reflect any of the benefits that taxpayers Mr. ARCHER. Mr. Chairman, I yield dren in this country under the age of would receive from these four provisions. such time as he may consume to the 18. Under the Democratic alternative, The Democratic tax bill makes the benefits gentleman from Missouri [Mr. BLUNT]. 60 million children will be provided in these four areas, especially for working (MR. BLUNT asked and was given with a tax credit. Under the Repub- people, fair. It provides 71 percent of the tax permission to revise and extend his re- lican plan, 39 million children; 21 mil- breaks to families earning $100,000 or less. It marks.) Mr. BLUNT. Mr. Chairman, I have lion children will not. provides a capital gains tax cut, an estate tax some concerns about this bill that I Ms. STABENOW. Would the gen- cut, and tax cuts for small businesses, family think could be handled in conference. I tleman from California say that again, farms, and homeowners. The only way that will be supporting the Republican bill please, for us? you are eligible for these tax breaks is if you that gives relief to American families Mr. BECERRA. Sixty million chil- work and pay taxes. today. dren under the Democratic alternative Mr. BECERRA. Reclaiming my time, Mr. Chairman, while I intend to support this will qualify for the child tax credit. Mr. Chairman, just in closing because I tax relief bill today, I want the record to reflect Under the Republican plan, 39 million. know we are going to run out of time, my concern about two provisions of the bill Twenty-one million children in Amer- is just mention the reason there is a that I strongly oppose. One is the limited re- ica will not qualify under the Repub- difference of 21 million children is be- newal of employer provided continuing under- lican plan that will under the Demo- cause we do what we can to provide a graduate education reimbursement. While the cratic plan. tax break for those families that are Senate tax bill extends the current law section Ms. KILPATRICK. Mr. Chairman, earning $30,000 and under. The Repub- 127 exemption permanently, the House bill ex- will the gentleman yield? licans unfortunately say it is not worth tends sec. 127 until December 31, 1997. Mr. BECERRA. I yield to the gentle- it because they do not believe that that Nearly two-thirds of major employers in woman from Michigan. tax that we are imposing on those fam- southwest Missouri offer this benefit, affecting Ms. KILPATRICK. Mr. Chairman, for ilies is worth counting. over 60,000 workers in Springfield and Joplin those reasons we need to support this So it is a difference of opinion. There alone. These employers include a chicken tax plan. The Democratic plan takes is a difference in values here. processor, a fan belt manufacturer, a paper care of more American families, it of- Ms. STABENOW. Mr. Chairman, will goods processor, and a ball bearings pro- fers more opportunities for America’s the gentleman yield? ducer. Without a long-term extension of sec- children, and it offers the tax cuts to Mr. BECERRA. I yield to the gentle- tion 127, many of these companies will dis- those families who need the tax cuts, woman from Michigan. continue this benefit, denying their employees hardworking families who pay taxes. Ms. STABENOW. Mr. Chairman, we the help they need to improve their skills. So I thank the gentleman from Cali- have talked a lot today about a police The second provision I oppose is the elimi- fornia for yielding, and I hope and en- officer in Georgia. I would like to just nation of tax exempt treatment of tuition re- courage my colleagues to vote for the like to share with my colleague my po- duction provided to employees of educational Democratic plan, the tax plan that lice officers’ starting salary in Lan- institutions. Again, the Senate bill maintains does offer tax cuts to America’s work- sing, MI, as well as my firefighters.’ the current law. The majority of people who ing families. They start at $26,800, working hard. take this benefit are staff members, not fac- The Republican tax bill would deny tax cred- These are folks with families, protect- ulty. its for another 4 million lower middle income ing my community whether it is for The person who cleans toilets for $7 an children. Forty percentÐ2 out of every 5 chil- fires or from crime. Under the proposal hour so that both of her children can attend drenÐwould be ineligible for the credit be- the Republicans have, they will not re- college at the same time would have to pay cause their family's incomes are not high ceive the full $500 child tax credit be- taxes on a tuition benefit that far exceeds her enough. The total number of children denied cause they get another tax credit. income. Graduate teaching assistants at an in- this credit because their families do not make Under the Democratic plan my fire- stitution like Tulane would pay taxes on a tui- enough money would be 28 million. The Re- fighters and police officers will receive tion benefit of $20,930 per year with an in- publican's highly touted $500 tax credit that is the total amount of tax credits and de- come stipend that is far lower than the tuition nonrefundable allegedly gives tax relief to fam- ductions that they ought to receive to benefit. ilies. While corporations will reap a $22 billion be able to help take care of their fami- Let me be clear that I am not concerned windfall in this bill, 28 million children would lies. Folks with higher incomes get lots about the president of Harvard or the person get nothing. of different tax credits. I want my fire- who heads up the medical program at Johns The Republican tax bill denies tax credits to fighters and my police officers to be Hopkins. What I object to is raising taxes on working families. For example, a family of four able to get what they have now in tax people who clean chickens for a living or work with two children with no child care expenses credits and be able to get the full value as security guards at colleges. It is simply un- would not receive any credit unless its income of the $500-per-child tax credit. thinkable that we would make it harder for exceeded $24,385. Moreover, if the family had Mr. BECERRA. I do not know what people who make fan belts or work at a col- child care expenses, it could earn as much as the gentlewoman from Michigan did lege to go to school, get a graduate degree, $27,180 and fail to qualify for the credit. Also, but she is bringing out all her col- or work at a job that makes higher education families that have more than two children, or leagues from Michigan. affordable for their kids. have high mortgage or health care costs and Mr. LEVIN. Mr. Chairman, will the While I do intend to vote for the bill today, itemize their deductions, could make close to gentleman yield? I do so only because I have been assured by $30,000 and still not qualify for the credit. Mr. BECERRA. I yield to the gen- the Republican leadership that they will work The Democratic tax bill has real child credit tleman from Michigan. to address my concerns before the final ver- tax credits. The Democratic bill does not com- Mr. LEVIN. Mr. Chairman, just sion of this legislation comes back before the pute a family's child care tax credit after the quickly I want to say again about this House next month. The American people have earned income tax credit [EITC] is figured. 76 percent figure that the Republicans long deserved the tax relief we are consider- This is a significant differenceÐmillions of have used. It is at best a 5-year figure. ing today, and I look forward to working with H4808 CONGRESSIONAL RECORD — HOUSE June 26, 1997

Chairman ARCHER and our leadership as the only help all taxpayers at all stages of Ms. SANCHEZ. Mr. Chairman, to- bill goes to conference. their life, but particularly right now night I wanted to be in my hometown Mr. ARCHER. Mr. Chairman, I yield those people in the Red River Valley with my constituents, the people who 30 seconds to the gentleman from Lou- who have been devastated, devastated worked hard to get me here. But they isiana [Mr. MCCRERY]. by the horrible flooding. This Congress recognize the historic importance of Mr. McCRERY. Mr. Chairman, I just has listened to those people at those the vote we are about to take on this wanted 30 seconds to respond to my town meetings elsewhere, when the bill. As we are casting our votes, I urge good friend from California. Nobody on mayors came out here. The Committee my colleagues to carefully consider this side of the aisle said that payroll on Ways and Means has responded. I every American who will be affected by taxes were not taxes. Certainly they strongly urge my colleagues to pass our actions today. are taxes. We recognize that and we this important bill. This is a monumental day. Before us created the earned income tax credit Mr. ARCHER. Mr. Chairman, I yield 1 we have the opportunity to vote on a specifically for that purpose, to give minute to the gentleman from Illinois bill which will affect the life of every those families some tax relief against [Mr. SHIMKUS]. single American. But before we take the burden of those payroll taxes. But (Mr. SHIMKUS asked and was given that vote, we must really think about they do not pay any income taxes so permission to revise and extend his re- whether or not every hard-working we are not going to give them income marks.) American is being treated equally. Will tax relief. Mr. SHIMKUS. Mr. Chairman, this all Americans, including single par- So I just wanted to make that point debate speaks highly in support of tax ents, workers who are struggling to get crystal clear. They are taxes, we be- reform, a fairer, flatter, simpler Tax by on the minimum wage, and families lieve they are taxes, we already give Code, but as a new Member this debate with schoolchildren receive the bene- them a credit against those taxes. has also been very disheartening. fits promised from this tax bill? Mr. ARCHER. Mr. Chairman, I yield As a West Point cadet I lived by a I am a fiscal conservative. I agree such time as he may consume to the motto: I will not lie, cheat or steal nor with my colleagues on both sides of the gentleman from Minnesota [Mr. tolerate those who do. As an Army offi- aisle that we must balance the budget, RAMSTAD], a respected member of the cer we said an officer’s word is his that we should cut taxes, and that we Committee on Ways and Means. bond. I am here to tell my colleagues 75 must cut spending. Today’s proposed (Mr. RAMSTAD asked and was given percent of these tax cuts go to those tax bill has big problems. However, the permission to revise and extend his re- who make $75,000 or less. Democratic substitute addresses the marks.) Let us reject the Democratic pro- capital gains tax, the child tax credit, Mr. RAMSTAD. Mr. Chairman, I posal and continue the work that the and the education tax credit in a more thank my distinguished chairman for American people sent us here to do. equitable fashion than the proposed Republican tax bill. yielding this time to me and for his b 1630 strong leadership in bringing this Tax- Working-class Americans should not Mr. ARCHER. Mr. Chairman, I yield 1 payers Relief Act to the floor to pro- be excluded from the majority of the minute to the gentleman from Penn- vide hardworking Americans with the tax cuts. Working-class Americans sylvania [Mr. FOX]. should not continue to carry the bur- most substantial tax relief since 1981, Mr. FOX of Pennsylvania. Mr. Chair- Mr. Chairman. This tax relief bill here den of taxes without sufficient relief, man, I thank the gentleman for his and working-class Americans deserve today truly does cover people at all leadership on this bill. stages of life, from the childhood years fair tax relief from this Congress. The majority bill, Mr. Chairman, will If this bill does pass and go to con- through the education years to the sav- give the hard-working Americans their ference, I hope the conferees will re- ings years and into the retirement first tax cut in 16 years. It will allow member the pledge that we made for years. millions of hard-working American But in addition to the five major pro- equality of tax relief. Fairness in tax- families the opportunity to keep more ation is what we pledged to the Amer- visions in this tax bill which have been of their own money and make their ican people. Fairness is what we must debated most extensively here today, own decisions about what they do with deliver in our actions here today. the child tax credit, the education tax it. Yesterday, it was with much hesitation that incentives, the capital gains tax relief, I am especially pleased with provi- I voted in favor of the spending bill. Although the extension of IRAs and reduction in sions that deal with assistance in edu- this bill may not follow through on all of the death taxes, I would like to focus on cation. The House tax relief plan pro- promises of the balanced budget agreement, it three provisions which have not gotten vides millions of college-age students is an important first step as the budget moves much attention today but are very, and their parents with a $1,500 tax cred- to conference. very important to help victims of the it that provides 15 percent of expenses Mr. ARCHER. Mr. Chairman, I have recent flooding in the Red River Val- for the first 2 years of college, voca- no further requests for time, and I will ley, and I would like to thank the tional training, or other postsecondary close, so I would encourage the gen- chairman and the other members of the education program. tleman from New York [Mr. RANGEL] to Committee on Ways and Means who Moreover, parents and students are use the balance of his time. worked together in a bipartisan way, also provided with a $10,000 deduction Mr. RANGEL. Mr. Chairman, I yield who listened to those flood victims per student per year for expenses with 30 seconds to the gentlewoman from when we were there in the Red River State prepaid tuition plans for edu- Texas [Ms. JACKSON-LEE]. Valley at those town meetings, par- cation investment accounts and fami- Ms. JACKSON-LEE of Texas. Mr. ticularly the gentleman from North lies making penalty-free withdrawals Chairman, I thank the gentleman for Dakota [Mr. POMEROY] and the gen- from any IRA to help further cover the yielding to me. tleman from Minnesota [Mr. PETERSON] cost of college, vocational training, or Let me briefly say that I rise in on the other side of the aisle who other postsecondary education pro- strong support of the Democratic alter- worked to help craft these provisions. gram. native on two counts. One, just take as This bill today, this tax relief bill, in- This House Republican plan will also an example the chairman of Microsoft cludes special mortgage revenue bond allow families to make contributions who would get capital gains and estate rules for those people to rebuild their to non-State-operated education in- tax reductions and even a new IRA pro- homes, their apartment buildings and vestment accounts to encourage sav- vision under the Republican plan that houses in the flood areas. It includes ings for college, and I would ask sup- would also let him take a $4,000 tax extensions of IRS deadlines for flood port for the majority proposal from the break for educational expenses, while area taxpayers. And it also includes Committee on Ways and Means. at the same time a working police offi- special IRS rules for sales of livestock Mr. ARCHER. Mr. Chairman, I re- cer in my district in Houston and a caused by the horrible historic flooding serve the balance of my time. working police officer in the Speaker’s in the Red River Valley. Mr. RANGEL. Mr. Chairman, I yield district would not be allowed to get a Mr. Chairman, this bill will help real 2 minutes to the gentlewoman from tax credit for their children, or to ben- people right away. This bill will not California [Ms. SANCHEZ]. efit from this particular Republican June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4809 bill. The bill on the Democratic side al- Mr. RANGEL. Mr. Chairman, I yield the truth is, the people below $100,000 a lows for working Americans to receive 30 seconds to the gentlewoman from year in income over the last 20 years tax cuts. California [Ms. WOOLSEY]. has seen their income stay in place, or Mr. Chairman, I rise today in support of the (Ms. WOOLSEY asked and was given they have even fallen behind. It is that Democratic alternative to H.R. 2014. The permission to revise and extend her re- central fact that leads us to the con- Democratic plan authored by the distinguished marks.) clusion that the people under $100,000 a ranking member of the Ways and Means Ms. WOOLSEY. Mr. Chairman, it is year are the people that ought to claim Committee, Representative CHARLES RANGEL, absolutely certain that we knew when the lion’s share of this tax cut. is the fairer tax plan. It is the plan that gives we passed the balanced budget that the Now, our tax cut is a families first tax relief to those who need itÐto hard-work- devil would be in the details. Well, this tax cut. Let us talk about the child ing tax-paying families. The Democratic sub- bill is full of devils. I would urge every- credit for a minute. A lot has been stitute provides 71 percent of tax cuts to fami- one who really wants to help working made of the fact that in the Republican lies earning less than $100,000. families and to support educational op- bill families earning $20,000 and $25,000 The Republican plan, in striking contrast, portunities to vote it down. a year do not get the full child credit overwhelmingly benefits the wealthiest at the Mr. RANGEL. Mr. Chairman, I yield because we, together, Republicans and expense of working families. A recent analysis the remainder of the time for closing Democrats, decided to cut these fami- by the Center for Budget and Policy Priorities purposes to the gentleman from Mis- lies’ taxes by the earned income credit highlighted this disparity and revealed that be- souri [Mr. GEPHARDT], the Democratic on a couple of occasions over the last tween the Republican tax bill and spending bill minority leader. 10 years, trying to help those hard- voted on yesterday, the very wealthiest 1 per- (Mr. GEPHARDT asked and was working families do well. Now we are cent of families will have their incomes boost- given permission to revise and extend being told that we cannot give them ed by an average of $27,000 a year, while his remarks.) the child credit because they are on struggling families in the bottom 20 percent of Mr. GEPHARDT. Mr. Chairman, I welfare. the economic ladder actually end up losing rise tonight in favor of the Rangel How dare anyone say that someone is $63 a year. According to an analysis of the Democratic bill and to speak in favor on welfare who goes to work every day Republican bill by the Treasury Department, of it over the Republican bill. earning $17,000 and $20,000 and $25,000 a the richest 1 percent get more of the overall I rise to raise a simple question, year. They are paying taxes. They are tax breaks than the bottom 60 percent com- which is who should be getting the paying the Social Security tax. They bined. lion’s share of the benefit from this tax are paying Federal excise taxes, they The disparities between the Democratic and cut bill. Everybody is for tax cuts. I are paying State taxes, they are paying Republican plans are most obvious in the am, the Republicans are, I think every local taxes, they are paying lots of areas of education and child care tax credits. Member of the House is happy tonight taxes, and they need help. And they The differences illustrate clearly the lack of that we are here on the floor talking above everyone need the child credit. concern in the Republican plan for our Na- about tax cuts. The reason we are here, Now, let us talk about education. tion's working families. in my view, is that the Democratic What is more important in today’s The Democratic alternative would make the Party in 1993 produced this deficit divi- world than getting an education? We $500 child credit available to families who dend as a result of courageous votes are in a global economy. We have to work and pay taxesÐand who earn less than cast by Democrats, all Democrats in have highly productive workers. We all $75,000. This ensures that millions more chil- 1993. Now we are very near to balancing know that mental capability is the dren would qualify for the tax credit than do the budget. Some say we might even most important thing, the currency of under the Republican bill. The Republican bill balance the budget next year as a re- the world economy. And we are saying, denies adequate tax relief to 15 million work- sult of that action. let us make sure every young person in ing, tax-paying families by refusing to give So the question is, who gets the tax this country, no matter what their in- them the full $500 child tax credit for the cut? I believe, and I think Democrats come, gets a chance to go to college. earned income tax credit. This would mean believe, that this tax cut should go to The President has talked about it now that a working family with two children earning hard-working, middle-income families for 5 years. $25,000 would not receive the $500 child and families struggling to get into the Ben Naes lives in my district in credit. middle class. Barnhart, MO. He is 21 years old. He Democrats understand that college afford- I refer the Members to these charts. just came through community college. ability is a priority for American families and so The Republican bill gives 19 million He is trying now to go to State univer- the Democratic substitute provides the full families the lion’s share of their tax sity. If our tax bill had been in place $1,500 HOPE scholarship tuition tax credit for cut, about 70 percent, to families earn- the first 2 years of postsecondary education last year, he would have gotten an ing over $100,000 a year. They only give including vocational and 2-year educational $1,100 tax credit or his family would about 30 percent of their tax cut to programs, as well as a credit of 20 percent of have so he could go to college. Under families earning less than $100,000, tuition costs after the first 2 years. The Repub- the Republican bill, he would have got- lican bill, however, skimps on tax breaks for whereas with the Democratic tax bill ten about a $700 credit. More impor- college by providing only half of the $1,500 we give the lion’s share of our tax cut tantly, next year when these bills HOPE tuition tax credit and only for the first 2 to families earning below $100,000 a might be in place, he is going on to years of college illustrating that the Demo- year, 91 million families. We give a tax State university. He could get $600 out cratic plan is the one that protects and pro- cut to families earning over $100,000 a of our bill to go to State university; vides for the concerns of working families. year, but it is less of a tax cut. We under the Republican bill, not a red Additionally, the Democratic alternative pro- want everybody to have a tax cut, we cent of help for Ben Naes. Ben Naes got vides immediate and targeted tax relief to just want the lion’s share of it to go to a 3.9 in community college. He wants small businesses and family farms. It does not hard-working middle income families to be a biochemist. He could be a bio- give capital gains tax breaks to wealthy people and families trying to get into the mid- chemist and would not come out with a whose principal assets are stocks, bonds, and dle class. mountain of debt if the Democratic bill collectibles as the Republican plan does. My colleagues may say why? Why do were in place. Finally, the Republican bill gives large cor- we insist that the tax cut go to people Mr. Chairman, I remember when I porations a $22 billion windfall by scaling back in the middle and trying to get into the wanted to go to college. My dad was a the corporate minimum tax. The Democratic middle? There is a simple reason. The milk truck driver and we did not have alternative contains no such provision. people at the top, the 19 million fami- a lot of money. And my mother took Mr. Chairman, it is abundantly clear that lies that are the top earners in the me down to the church that we went H.R. 2014, the Republican tax plan, is one country have seen their income over to, Third Baptist Church in St. Louis that is designed to benefit the wealthy in our the last 20 years go up by about 50 per- and we sat down across from the pastor Nation. It is for this reason that I stand reso- cent. We are thrilled that their income and we asked if we could have a loan lutely behind the Democratic alternativeÐa has gone up. God bless them. I wish ev- from the church. I am old enough, we balanced tax package that is good for working erybody in this country would have did not have Pell grants, we did not families and good for America. their income go up by 50 percent. But have loans, we did not have tax bills H4810 CONGRESSIONAL RECORD — HOUSE June 26, 1997 that gave credits, and the minister of ment to stop wasteful Washington dle-income working income tax-paying our church had a little scholarship spending and give the tax dollars back Americans, trying to take from one fund and he gave us $500, which helped to the people who earn them. It is time citizen in order to give to another. toward the $1,500 tuition at my college. we stopped punishing the successful. Yet, it is true that this bill is limited Ben Naes maybe can go to the church Instead, we must help more Americans to tax relief for middle-income families and get that kind of a loan, but he so that everyone can become success- who pay income taxes. We will not needs more than that to get to the ful, so that that ladder of upward mo- take away from those families and State university today. He needs the bility is available to all of us. We do their children to give to families who Democratic tax bill to help him go to not stay in one income category in the pay no income tax. That is not what college. United States; we take advantage of this particular bill is all about. Other Now, let me end by saying this: As our opportunities. bills in the past have done that. There my colleagues go to vote on these two My father was broke in 1932. He lost is time to address those problems. bills, put out of your mind everything his job. He was in default on his home This, as President Clinton said when he you have heard from every lobbyist, mortgage. He started from scratch on campaigned in 1992, should be a tax re- put out of your mind everything that borrowed money. He took the risk. He lief bill for middle-income Americans you have seen in ads put in by special spent the work hours. Yes, he earned, who pay income taxes. To my friends across the aisle I have interest groups in the newspapers, put but he came back, and ultimately he a simple message: Let it go, let it go, out of your mind everything that you achieved the American dream of a let it go. We have tried your way. For have been told by the people who have small businessman, yes, a small busi- 30 years we raised taxes and we in- had the ability to approach you in the nessman who was successful. creased spending. It is now our turn. It halls or call you up; put out of your When we listen to the economic class is the turn of silent, hard-working mind what people at fundraising events warfare in this country, we would Americans who have paid and paid and have told you about what should hap- think everyone stays in the same in- paid to see their earnings redistributed pen in this tax bill, and put in your come category throughout their entire to others. mind the people that you represent in life. We would think that people who And to my friends across the aisle, your district and remember that the save for a lifetime for an asset and sell hear my plea: vote for your constitu- median household income in this coun- it one time in their life, perhaps for ents, not your leadership. Exercise try is $35,000 a year. Put them in your $150,000, or $200,000 is rich. But they did your judgment. Show your independ- mind. Put Ben Naes in your mind and not have that income in every year. ence. Do what you know is right. Vote vote for a tax bill that in good con- But those are the kinds of statistics for the taxpayer, and vote for the ma- science helps the hard-working middle- that distort the rhetoric on these tax jority Taxpayer Relief Act. income families of this country. Let us bills. Mr. CLAY. Mr. Chairman, few issues that pass the Democratic tax bill, the Ran- b 1645 we will debate this Congress better illustrate gel bill, which is the best bill. the gulf that exists between Democratic and Mr. ARCHER. Mr. Chairman, I yield It is time to bring the American peo- Republican priorities for working families. The myself the balance of my time. ple together. It is time to put economic measure before us launches an unprece- Mr. Chairman, as I have listened to class warfare aside. We all share in this dented transfer of wealth from the poor and this debate, I have been struck by the opportunity in this great country. middle class to the wealthy. According to the philosophical difference that still ex- I would like to have heard the debate Citizens for Tax Justice, 41 percent of the tax ists between some in the Democrat rhetoric in 1961, when President John cuts in this plan go to the top 1 percent of tax- Party and the rest of us who are trying F. Kennedy proposed the first major re- payers. to change the way Washington works. duction in capital gains taxes, the first By contrast, taxpayers with incomes in the As Republicans and some Democrats major across-the-board tax relief. How lower 40 percent would see no benefits, and move forward to balance the budget would that have disturbed you, I say to some would get a tax hike. and reduce the tax burden on the my colleagues over here on the Demo- The education related tax credits short- American people, we have made our crat side? What would your rhetoric change lower-income families as well. It pro- governing philosophy clear. We believe have been to the John F. Kennedy tax vides a nonrefundable tax credit equal to half that the strength of this great Nation relief bill that spurred economic the college expenses up to $3,000 a year. The lies not with the Government, but with growth in this country? credit will be unavailable to most low-income its people. Left to their own, without And he spoke to that to the Amer- families because it is not refundable. It signifi- Government interference, red tape or ican people. He did not indulge in eco- cantly disadvantages students who attend excessive taxation, there is no problem nomic class warfare. He spoke about lower tuition institutions such as community that the people cannot solve. We have what is right for the country to gen- colleges, because the credit only includes tui- proved that over and over again in our erate jobs, to generate growth, to gen- tion, not living expenses. history. We also believe that the great erate more opportunity for all Ameri- The proposal also discriminates against low- social experiment of the last 30 years cans. It is clear from this debate that income families by reducing the amount of tax has led to an unparalleled expansion of the Democrat caucus remains a liberal credit by the amount of any Pell grant award. By contrast the Democratic alternative tax the Federal Government. It is clear, it caucus. The overwhelming majority of proposal provides a $1,500 tax credit that will is in the books. But sadly, it has failed the Democrat party, the party I once be accessible to middle income and poor fami- to solve our Nation’s most difficult belonged to, insists that the Govern- lies. The credit will be refundable, thus benefit- problems, whether they be education or ment in Washington remains the only ing low- and middle-income students, and solution and represents the best hope drugs, or family breakdown. They have does not have a Pell grant offset. gotten worse, not better. of how to solve our problems. The Democratic alternative allows the credit The Government we inherited along Yes, if we could only spend more to be used for all college expenses and in- with the bankruptcy on whose brink we money, my friends on the other side of cludes a 20-percent tax credit for the remain- have been left has overextended its the aisle argue, we could make our Na- ing years of college. reach and has made promises that no tion’s problems go away. While the The Republican plan has been totally repu- government can actually fill. This is, world has changed, the Democrat lead- diated by the Clinton administration. In a letter after all, only a government. It cannot ership has not. They still cling to the to Chairman ARCHER this week, Secretary take the tax dollars that are earned by notion that an ever-expanding Federal Rubin concluded that education package falls one citizen, hand them to another citi- Government, one that requires more nearly $13 billion short of the agreed goal of zen, and then believe that it has im- taxes from its citizens, is the best hope $35 billion in tax cuts for education directs proved the lot of either. For 30 years we have to solve our problems. more benefits toward upper-income families we tried that. It is called tax and While the heart of the Democrats while reducing the benefits to lower-income spend. may sound as if they are in the right families. Mr. Chairman, the time has come to place, their fingers surely are in the I urge my colleagues to reject this flawed, admit that tax and spend has failed. It wrong place, because their fingers re- unjust tax scheme and adopt the Democratic is time to reduce the size of Govern- main stuck deep in the wallets of mid- alternative plan. June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4811 Mr. DOYLE. Mr. Chairman, I am in strong The Democratic substitute provides such re- and their children. And while I am proud of support of the Democratic substitute. My con- lief. Because it abides by the budget accord, this Congress and the administration for be- stituents in western Pennsylvania and I be- it advances capital gains tax cuts, estate tax ginning the balancing process by working to- lieve that the budget deficit is one of the most relief, and a per-child tax credit. But, it is a gether and making some of the tough choices important issues facing our country. Con- stronger measure than the Archer plan in that we are all going to be required to make, I will sequently, it is absolutely crucial that this rec- it goes further in helping middle-class families not blindly support whatever reconciliation bill onciliation legislation provides for a budget cope with the costs of owning a home and comes to the floor, simply because it carries which is brought into balance and then stays paying for their kids' college education. Simi- the label of a balanced budget agreement. in balance. Unfortunately, this Republican rev- larly, it contains initiatives not included in the As I have said, I believe that balancing the enue bill, which has been crafted by Chairman Republican plan which I strongly support, such budget is our obligation to working families ARCHER, is riddled with gimmicks, back loaded as incentives for environmental cleanups, eco- and the children who eventually must bear the tax expenditures, and false assumptions which nomic development, and local school con- financial burdens of the choices we make will explode the deficit after 2002. The Demo- struction. today. But a balanced budget is not worth cratic alternative, on the other hand, will pro- However, the biggest difference is the fact supporting if, in the final analysis, it actually vide tax relief for middle-class families that that the alternative is more economically re- hurts the people we claim to have been work- can really use it and is still compatible with sponsible and fair. It does not lay the ground- ing for all along. The tax package before us real, long-term deficit reduction. work for decades more of mounting debt, and today ignores those to whom I feel we owe a The Republican estate tax provisions are a it gives relief to the working, middle-class fam- duty, and it rewards those who are least in prime example of the short-sighted nature of ilies who have been struggling to get by. While need of relief. Why work so hard to balance their plan. Like the Democratic alternative, the over 71 percent of the benefits in the alter- our budget, to finally arrive at a place where archer bill doubles the estate tax exemption native go to families earning under $100,000 we can afford to offer tax cuts, only to have from $600,000 to $1 million. However, the a year, these same families receive only the vast majority of cuts go to the wealthiest chairman's plan implements this change over around one-third of the benefits under the Re- 20 percent of Americans? This not why I have the course of an entire decade. In doing so, publican plan, when fully phased-in. In light of toiled for so many years, promoting fiscal re- Chairman ARCHER is able to mask the real this, I think it is safe to say that this Demo- sponsibility, supporting a balanced budget costs of his proposal, which will not be felt cratic substitute is the real middle-class tax amendment, opposing wasteful spending. No, until well after 2002. cut. Mr. Speaker, I have worked in pursuit of a dif- Because the Democratic estate tax provi- The Archer tax proposal would cause the ferent goal: to provide security, stability, and sions are more clearly focused, the costs are deficit to behave like a rubber ball that is relief to the most vulnerable among us. manageable and affordable, even when fully dropped from high in the air. Rather than hit- The balanced budget plan crafted by Presi- implemented. As a result, the Democratic al- ting the ground with a dull thud, the Archer dent Clinton and congressional leaders called ternative provides for nearly immediate reform cuts will cause the deficit to bounce right back, for a fair distribution of tax cuts, and I voted of estate taxes. Rather than waiting until 2007, out of control once again. It seems to me that in support of that agreement. If I thought that the small business people and farmers, who if the leadership were serious about holding mandate was carried out in the bill before us, desperately need estate tax relief, would be the deficit down, they would include strict defi- I would vote for it as well. Unfortunately, able to utilize the $1 million exemption next cit enforcement provisions that go beyond an somewhere along the way, fairness and equity year. This nearly immediate phase-in could exentison of the pay-as-you-go requirements. have fallen by the wayside, and we are left help thousands more family owned businesses As a cosponsor of the Budget Enforcement with a dramatically uneven plan which not only than the Archer plan. Act, a bill that would lock in deficit reduction, prematurely provides our wealthiest citizens, In addition, I believe that we can spur eco- I have been working with Members from both with the benefits of a balanced budget, it also nomic growth and empower millions of middle- sides of the aisle to have this measure at- deprives low-income and middle-class citi- class investors by reducing the capital gains tached to this reconciliation legislation. The zensÐthe same people who will be forced to tax rates in an economically conservative Republican leadership has said that the Budg- bear much of the burden associated with new manner. However, the Archer capital gains et Enforcement Act will be brought to the floor spending cutsÐof similar benefits. This plan is plan is not only socially inequitable, it is fis- next month. While I am disappointed they unjust and unjustifiable, and I urge my col- cally irresponsible. In fact, it is timed to pro- would not allow us to offer it as an amend- leagues to oppose the Republican bill and vide a fleeting increase in revenues, which ment to there conciliation legislation, I am vote instead for the Democratic substitute. No helps bring the budget into balance in 2002. pleased it will be considered. However, the plan is perfect, and we all recognize how But then, in the following years, the costs of Rules Committee chairman has indicated that much work remains to be done in conference this program sky rocket. the bill may be altered before coming to the and beyond. But that should not be an excuse This gimmick is part of the chairman's pro- floor. I believe it would be a grave mistake for for complacency today. We have an oppor- posal to index capital gains for inflation after the leadership to weaken the Budget Enforce- tunity to send a better bill to the conferees, 2002. In order to qualify for the indexing on ment Act in any way. and that is what I plan to do by supporting the assets held before 2001 investors will have to Given the structure of the Archer plan a re- substitute. pay between $10 and $12 billion in taxes, as turn to deficit spending appears nearly inevi- Only half of America's children would be part of a one time mark-to-market levy. With table, and if we allow the deficit to bounce up covered under the highly touted child tax cred- the help of this one time infusion, the Archer again after 2002, we will have accomplished its in the Republican tax bill. A shocking 49.9 capital gains plan will actually result in an nothing. Actually, we will have done something percent of children nationwide would be com- overall revenue increase of $2.7 billion from worse than nothing. We will have cynically pletely ineligible for the $500 child credit under 1997 to 2002. However, in the 5 years follow- brought the budget into check for one passing the House plan because the credit would not ing the 2002 target date, the capital gains pro- moment just to reap political rewards. be available to many moderate- and low-in- visions will cost $37.5 billion, and they will Mr. Chairman, this would be unconscion- come families. In contrast, the child credit in continue to increase steadily for years to able. We must balance the budget and keep the Democratic substitute would cover 71 per- come. it balanced. If we are going to have tax relief, cent of American children, including 91 per- I am troubled by these tax cuts which will we must be fiscally responsible and we must cent of those children whose families' incomes explode in the out years because, for some target those truly in need of relief. The Demo- are in the lowest 20 percent. Likewise, the time, I have subscribed to the view that we cratic alternative meets these criteria. The Ar- education credits, the capital gains cuts and should balance the budget first, and then con- cher plan does not. I urge my colleagues the alternative minimum tax provisions in the sider tax cuts. However, this bipartisan budget make a vote for the long-term economic health Democratic substitute are the ones that truly agreement demands that tax cuts be enacted of this country and support the Democratic live up to the promises of the budget agree- this year. I recognize this compromise is per- substitute. ment. haps our best chance to balance the budget, Mr. POSHARD. Mr. Chairman, I rise today We must also think about the years beyond and I do not wish to risk scuttling the process in opposition to this bill and in support of the 2002 and take care to ensure that what we do by fighting such a substantial component. I be- substitute offered by my Democratic col- now in the name of short-term gain does not lieve it is crucial that we all work within the de- leagues. I have worked hard for many years cause new hardships in the decades to follow. fined parameters, so I will support prudent, re- toward the goal of a balanced Federal budget, Too many of the Republican tax cuts are sponsible tax relief for middle-class families because I felt I owed that to my constituents, poised to explode in the 5 years after balance which adheres to the budget agreement. and to all hard working American taxpayers is reached, erasing whatever benefits we may H4812 CONGRESSIONAL RECORD — HOUSE June 26, 1997 have realized and creating the likelihood of the Democratic alternative plan that includes Ms. WATERS. Mr. Chairman, I rise today in additional cuts in the very programs upon hard-working average Americans. Are we a support of the Democratic alternative tax bill. which our neediest citizens depend. My con- government just for the rich or a government The Democratic Caucus finally came to the re- science will not allow me to force such bur- for all of its people? alization that Republican style tax-relief for the dens on our children and grandchildren, and I Mr. POMEROY. Mr. Chairman, Republicans rich is not the kind of tax relief that should be have not waited patiently and worked diligently and Democrats have agreed on a bipartisan adopted by this Congress. for so long to achieve balance, only to see it budget plan that includes $85 billion in net tax Not all tax relief is bad. But, Republican disappear in a cloud of smoke in just a few relief over the next 5 years and $250 billion style tax relief is immoral. The Republican tax short years. over the next 10 years. There is no disagree- plan benefits the rich plain and simple. The Mr. Chairman, the process of balancing the ment between the parties over the amount of Democratic Caucus has finally defined, budget requires us all to make difficult tax cuts to be provided. However, there is a shaped and organized sensible tax relief for choices, and I have made yet another today. sharp difference of opinion over how those re- the people who need it and deserve itÐthe I will support the Democratic substitute tax bill sources should be allocated. low-wage and middle-income workers of because I believe it is the right thing to do for I believe there are two important principles America. my constituents, for our children, and for all that Congress should follow in delivering tax The Republicans denied tax cuts to the hard-working Americans who have already relief for American families: First tax cuts poorest, hardest working Americans. Wait- should not explode the deficit in future years been asked to sacrifice so much. The sub- resses, drug store clerks, janitors, maids, bus- which would increase the debt and tax burden stitute provides a fair alternative, it lives up to boys, hospital attendants, garment workers, on our children, and second, the majority of the promises made in the budget agreement, receptionists, aides, elevator operators, farm the tax cut benefits should flow to those who it does not sacrifice long-term stability for workers, dishwashers, department store need it most, working and middle-income fami- short-term gain, and it is a plan that we can clerks, and bank tellersÐthese hardest-work- lies. In my view, the Democratic alternative to be proud to present to the American people. ing, poorest-paid Americans are the ones who the Ways and Means tax bill far better upholds Ms. EDDIE BERNICE JOHNSON of Texas. really deserve a tax break. What is in the Re- Mr. Chairman, the tax plan presented by my these principles. Mr. Chairman, the Ways and Means bill publican tax plan for them? Nothing, nothing, Republican colleagues ventures far from the loses sight of the most important objective of and nothing. best interest of the average American citizen. the bipartisan budget agreementÐa sustain- In the Democratic alternative, nearly three- However, the Democratic alternative runs par- able balanced budget. Although the revenue quarters of the tax benefits go to middle- and allel to the needs of middle income families. loss in this bill is nearly within the 10-year lim- lower-income families making less than Mr. Chairman, the Republican tax plan is its established by the budget agreement, it $58,000 a year. The Republicans give the ma- designed to benefit those who are in the least contains several provisions that will trigger ex- jority of their tax breaks to the wealthiest 5 need of a break. Analysis shows that 50 per- ploding revenue loss in future years and throw percent of AmericansÐthose making an aver- cent of the benefits from the bill will benefit the the budget out of balance. For instance, the age of $250,000 a year. wealthiest 5 percent of American citizens. The revenue loss from the back-loaded IRA provi- The Democratic family tax credit covers 20 Democrats propose an alternative plan that sion that allows wealthy individuals to shelter million more low-income children than the Re- citizens for tax justice estimates will deliver their income from taxation grows at 73 percent publican plan. The Republicans want to deny three-fourths of tax benefits to middle- and per year. The revenue loss from the repeal of the family credit to 28 million children from lower-income Americans. The bill will give a the alternative minimum tax [AMT] that en- families making less than $20,000 per year. tax break to those individuals who own and sures that America's large corporations pay The Democratic alternative would also stim- sell stock bonds, leaving the average middle- their fair share of taxes grows at 49 percent ulate economic investment in economically to low-income American without tax relief. per year. As a result of these provisions and distressed urban communities across the The Democratic alternative will give the tax others, the cost of this bill over the second 10 countryÐincluding my own districtÐby honor- break to homeowners, small business owners, years skyrockets to $650±$750 billion and en- ing the commitment made as part of the budg- and farmers, those who need it most. In addi- dangers the future fiscal health of our Nation. et agreement to authorize a second round of tion, the alternative will give some form of tax Second, given the limited resources that are the Empowerment Zone and Enterprise Com- break to every middle- to low-income working available to cut taxes while still balancing the munity Program. family. The Republican tax bill, however, de- budget, I believe it is critical that those re- The Democratic alternative values working nies a $500 tax break to 15 million families by sources be targeted to those who need it families over increasing corporate profits and not extending breaks to those who qualify mostÐworking and middle-income families. tax breaks for the wealthy. I urge my col- under the earned income tax credit [EITC]. The Democratic alternative is far superior to leagues to help working America. Support the The future of America rests on the edu- the Ways and Means bill in this regard. The Democratic plan. cation of our children. I am sure both Repub- committee bill provides two-thirds of the tax The CHAIRMAN pro tempore (Mr. licans and Democrats alike will agree to this benefits to the top 20 percent of income earn- LATOURETTE). All time has expired. statement. The Republicans respond by giving ers whereas the alternative give two-thirds of The question is on the amendment in a narrow $1,500 hope scholarship to the few the tax benefit to families on the bottom 80 the nature of a substitute offered by attending certain colleges. Of course this will percent of the income scale. the gentleman from New York [Mr. only apply to those attending private expen- Mr. Chairman, the alternative tax bill is also RANGEL]. sive colleges. Colleges that low-income Ameri- superior to the committee bill in delivering es- The question was taken; and the cans cannot afford. In contrast, the Demo- tate and capital gains tax relief to family farm- Chairman pro tempore announced that cratic alternative will give scholarships to stu- ers and small business. The committee bill the noes appeared to have it. dents of working families attending community slowly increases the estate tax exemption RECORDed vote colleges. from the current $600,000 to $1 million over The Republican tax plan does not answer Mr. RANGEL. Mr. Chairman, I de- the next 10 years. The alternative, on the mand a recorded vote. the Nation's plea for higher educational oppor- other hand, raises the exemption to $1 million tunity for all its children when their plan gives A recorded vote was ordered. on January 1 next year for family-owned farms The vote was taken by electronic de- the wealthiest individuals $16,000 within a 4- and businesses. The committee bill would re- year span. This is more than the amount given vice, and there were—ayes 197, noes 235, duce the capital gains tax from 28 to 20 per- not voting 3, as follows: to lower-income families through a Pell grant. cent whereas the alternative reduces the tax The message from such actions is that the rate to 18 percent without exploding the deficit [Roll No. 243] education of the few is more important than by limiting the rate reduction to farm, busi- AYES—197 the education of lower income children. We do ness, and real estate assets. Abercrombie Berry Brown (OH) not agree. The education of all children is vital In summary, Mr. Chairman, the Democratic Ackerman Bishop Capps Allen Blagojevich Cardin to the growth and development of our country. tax alternative delivers tax relief to those who Andrews Blumenauer Carson Therefore the Democratic alternative plan will need it while better protecting the prospects Baesler Bonior Clay concentrate most of its resources toward the for a sustainable balanced budget over the Baldacci Borski Clayton Barcia Boswell Clement education of children from families with limited long-term. I sincerely hope the tax bill that Barrett (WI) Boucher Clyburn incomes that are struggling to pay for college. emerges from the House-Senate conference Becerra Boyd Condit The conclusion is clear. Reject the Repub- committee will fulfill these objective so that it Bentsen Brown (CA) Conyers lican tax plan just for the wealthy and support can be enacted with strong bipartisan support. Berman Brown (FL) Costello June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4813 Coyne Kanjorski Pickett Latham Paul Skeen The SPEAKER pro tempore. The Cramer Kaptur Pomeroy LaTourette Paxon Smith (MI) Cummings Kennedy (MA) Poshard Lazio Pease Smith (NJ) Clerk will report the motion to recom- Danner Kennedy (RI) Price (NC) Leach Peterson (PA) Smith (OR) mit. Davis (FL) Kennelly Rahall Lewis (CA) Petri Smith (TX) The Clerk read as follows: Davis (IL) Kildee Rangel Lewis (KY) Pickering Smith, Linda Mr. PETERSON of Minnesota moves to re- DeGette Kilpatrick Reyes Linder Pitts Snowbarger commit the bill H.R. 2014 to the Committee Delahunt Kind (WI) Rivers Lipinski Pombo Solomon on the Budget with instructions to report DeLauro Kleczka Rodriguez Livingston Porter Souder Dellums Klink Roemer LoBiondo Portman Spence the same back to the House forthwith with Dicks Kucinich Rothman Lucas Pryce (OH) Stearns the following amendments: Dingell LaFalce Roybal-Allard Manzullo Quinn Stump Strike subsection (c) of section 1 and titles Dixon Lampson Rush McCollum Radanovich Sununu I, II, III, IV, V, VI, VII, VIII, IX, XI, XII, Doggett Lantos Sabo McCrery Ramstad Talent XIII, XIV, and XV. Dooley Levin Sanchez McDade Redmond Tauzin Redesignate title X (relating to revenues), Doyle Lewis (GA) Sanders McHugh Regula Taylor (NC) and each of the sections contained therein, Edwards Lofgren Sandlin McInnis Riggs Thomas as title I, and sections of title I, as appro- Engel Lowey Sawyer McIntosh Riley Thornberry Eshoo Luther Schumer McKeon Rogan Thune priate. Etheridge Maloney (CT) Scott Metcalf Rogers Tiahrt Add at the end of the bill the following new Evans Maloney (NY) Serrano Mica Rohrabacher Traficant title: Farr Manton Sherman Miller (FL) Ros-Lehtinen Upton TITLE II—ADDITIONAL PROVISIONS Fattah Markey Sisisky Molinari Roukema Visclosky Fazio Martinez Skaggs Moran (KS) Royce Walsh SEC. 201. ADDITIONAL PROVISIONS. Filner Mascara Skelton Moran (VA) Ryun Wamp It is the sense of the House of Representa- Flake Matsui Slaughter Morella Salmon Watkins tives that additional provisions should be Foglietta McCarthy (MO) Smith, Adam Murtha Sanford Watts (OK) added to the Internal Revenue Code of 1986 so Ford McCarthy (NY) Snyder Myrick Saxton Weldon (FL) that: Frank (MA) McDermott Spratt Nethercutt Scarborough Weldon (PA) (1) CAPITAL GAINS REDUCTIONS.— Frost McGovern Stabenow Neumann Schaefer, Dan Weller (A) REDUCTION IN CAPITAL GAINS TAX FOR Furse McHale Stark Ney Schaffer, Bob White Gejdenson McIntyre Stenholm Northup Sensenbrenner Whitfield NONCORPORATE TAXPAYERS.—Effective as of Gephardt McKinney Stokes Norwood Sessions Wicker May 7, 1997, there is excluded from gross in- Gonzalez McNulty Strickland Nussle Shadegg Wolf come of noncorporate taxpayers the follow- Goode Meek Stupak Oxley Shaw Young (AK) ing percentages of capital gains from the Gordon Menendez Tanner Packard Shays Young (FL) sale or exchange of assets: Green Millender- Tauscher Pappas Shimkus (i) 10 percent for assets held at least 1 year. Gutierrez McDonald Taylor (MS) Parker Shuster (ii) 20 percent for assets held at least 2 Thompson Hall (OH) Miller (CA) NOT VOTING—3 Hamilton Minge Thurman years. Harman Mink Tierney Meehan Schiff Yates (iii) 30 percent for assets held at least 3 Hastings (FL) Moakley Torres years. Hefner Mollohan Towns b 1710 (iv) 40 percent for assets held at least 4 Hilliard Nadler Turner Messrs. PEASE, YOUNG of Alaska, years. Hinchey Neal Velazquez SHADEGG, and Mrs. SMITH of Wash- (v) 50 percent for assets held five or more Hinojosa Oberstar Vento years. Holden Waters ington changed their vote from ‘‘aye’’ Obey (B) GAINS ON SALE OF PRINCIPAL RESI- Hooley Olver Watt (NC) to ‘‘no.’’ DENCE.—Up to $250,000 in gain realized on the Hoyer Ortiz Waxman Mr. DELAHUNT and Mr. DOGGETT Jackson (IL) Owens Wexler sale or exchange of a principal residence is Jackson-Lee Pallone Weygand changed their vote from ‘‘no’’ to ‘‘aye.’’ excluded from taxation. (TX) Pascrell Wise So the amendment in the nature of a (2) ESTATE AND GIFT TAXES.— Jefferson Pastor Woolsey substitute was rejected. (A) AMOUNTS EXCLUDED BY UNIFIED CRED- John Payne Wynn The result of the vote was announced IT.—The unified credit allowed to the estate Johnson (WI) Pelosi of every decedent is increased, resulting in Johnson, E. B. Peterson (MN) as above recorded. The CHAIRMAN pro tempore (Mr. the following amounts being excluded from the estate tax: NOES—235 LATOURETTE). Under the rule, the Com- mittee rises. (i) $700,000 in the case of decedents dying in Aderholt Combest Goodlatte 1998. Archer Cook Goodling Accordingly, the Committee rose; (ii) $800,000 in the case of decedents dying Armey Cooksey Goss and the Speaker pro tempore (Mr. in 1999. Bachus Cox Graham LAHOOD) having assumed the chair, Mr. (iii) $850,000 in the case of decedents dying Baker Crane Granger Ballenger Crapo Greenwood LATOURETTE, Chairman pro tempore of in 2000. Barr Cubin Gutknecht the Committee of the Whole House on (iv) $900,000 in the case of decedents dying Barrett (NE) Cunningham Hall (TX) the State of the Union, reported that in 2001. Bartlett Davis (VA) Hansen that Committee, having had under con- (v) $1,000,000 in the case of decedents dying Barton Deal Hastert in 2002. Bass DeFazio Hastings (WA) sideration the bill (H.R. 2014) to pro- (vi) $1,100,000 in the case of decedents dying Bateman DeLay Hayworth vide for reconciliation pursuant to sub- in 2003. Bereuter Deutsch Hefley sections (b)(2) and (d) of section 105 of (vii) $1,200,000 in the case of decedents Bilbray Diaz-Balart Herger Bilirakis Dickey Hill the concurrent resolution on the budg- dying in 2004 and thereafter. Bliley Doolittle Hilleary et for fiscal year 1998, pursuant to (B) FAMILY FARMS AND BUSINESSES.—In ad- Blunt Dreier Hobson House Resolution 174, he reported the dition to subparagraph (A), family farms and Boehlert Duncan Hoekstra bill, as amended pursuant to that rule, businesses are allowed to exclude from the Boehner Dunn Horn back to the House. gross estate up to $1,000,000, beginning in cal- Bonilla Ehlers Hostettler endar year 1998. Bono Ehrlich Houghton The SPEAKER pro tempore. Under (3) CHILD TAX CREDIT.—There is allowed Brady Emerson Hulshof the rule, the previous question is or- Bryant English Hunter against the income tax of an individual a Bunning Ensign Hutchinson dered and the amendment is agreed to. nonrefundable credit for dependents under Burr Everett Hyde The question is on the engrossment age 17 in the following amounts: Burton Ewing Inglis and third reading of the bill. (A) $300 in taxable years beginning in 1997, Buyer Fawell Istook The bill was ordered to be engrossed 1998, and 1999, and Callahan Foley Jenkins and read a third time, and was read the (B) $500 thereafter. Calvert Forbes Johnson (CT) Camp Fowler Johnson, Sam third time. The credit is phased out for taxpayers whose Campbell Fox Jones MOTION TO RECOMMIT OFFERED BY MR. adjusted gross income is between $60,000 and Canady Franks (NJ) Kasich PETERSON OF MINNESOTA $75,000. Cannon Frelinghuysen Kelly Mr. PETERSON of Minnesota. Mr. (4) TAX REDUCTIONS RELATED TO EDU- Castle Gallegly Kim Speaker, I offer a motion to recommit. CATIONAL EXPENSES.—There is allowed Chabot Ganske King (NY) against the income tax of an individual— Chambliss Gekas Kingston The SPEAKER pro tempore. Is the (A) a credit of $1,500 per year for up to two Chenoweth Gibbons Klug gentleman opposed to the bill? years for higher education expenses, which Christensen Gilchrest Knollenberg Mr. PETERSON of Minnesota. I am Coble Gillmor Kolbe credit— Coburn Gilman LaHood opposed to the bill in its current form, (i) beginning with adjusted gross income of Collins Gingrich Largent Mr. Speaker. $50,000 ($80,000 in the case of a joint return), H4814 CONGRESSIONAL RECORD — HOUSE June 26, 1997 is phased out ratably over a range of $20,000; The children’s tax credit is more then the Committee on the Budget, can and costly than we need to do because it in- quickly return to the floor with a bet- (ii) is phased in by substituting— (I) ‘$1,100’ for ‘$1,500’ in taxable years be- cludes families going up to $110,000 in- ter tax bill, a tax bill that reflects our ginning in 1997, 1998, and 1999, and come. The estate tax relief income in values, that is fair, that is good for (II) ‘$1,200’ for ‘$1,500’ in the taxable year this bill is phased in over too long a pe- families, good for farms, good for small beginning in 2000; and riod and is less than many of us on businesses. (B) a deduction of $10,000 ($5,000 in 1997 and both sides of the aisle want to do. And Mr. Speaker, I urge my colleagues to 1998) for higher education fees and tuition, the backloaded IRAs in the committee support this motion to recommit. which amount is phased out ratably over a bill are a bad idea that cost over $13 Mr. GINGRICH. Mr. Speaker, I rise in range of $20,000, beginning with adjusted billion in 10 years and explode the defi- opposition to the motion to recommit. gross income of $50,000 ($80,000 in the case of The SPEAKER pro tempore (Mr. a joint return). cit out into the future. LAHOOD). The gentleman from Georgia Mr. PETERSON of Minnesota (during The alternative minimum tax provi- [Mr. GINGRICH], the Speaker, is recog- the reading). Mr. Speaker, I ask unani- sions in the committee bill that will cost $40 billion over 10 years are also nized for 5 minutes. mous consent that the motion to re- Mr. GINGRICH. Mr. Speaker, let me commit be considered as read and troublesome to many of us and, like other provisions in this bill, are likely begin, if I might, with the comment by printed in the RECORD. my friend over there who referred to The SPEAKER pro tempore. Is there to send the deficit up in the future. the recent Presidential message, ask- objection to the request of the gen- What we did in this motion is really ing ‘‘Is that a veto?’’ Because I think tleman from Minnesota? very simple. We are recommending one of the things that makes today so There was no objection. that the Committee on Ways and Means develop a better, fairer tax bill exciting is that in fact this is a bill b 1715 that rewards the people who make our that the President is going to sign; Mr. PETERSON of Minnesota. Mr. country work. Small businesses create that in fact yesterday the President Speaker, I offer a motion to recommit, 85 percent of the new jobs in this coun- sent up a letter supporting the bill that on behalf of my colleagues in the Blue try, farmers and the working people came up yesterday. Dog Coalition, that provides tax relief that work on those farms and small I am not sure whether our friend who to mainstream America, small busi- businesses. had that comment voted with the nesses, farmers, and working families, This bill contains a capital gains tax President yesterday or voted against and does all of that in a fiscally respon- provision that is simple, that provides him. But the fact is, there is a biparti- sible way. for capital gains relief like the old way san effort to balance the budget, to First of all, I want to thank our lead- we did it, that rewards long-term in- save Medicare, and to cut taxes. ership for allowing us to offer this. I vestment, economic growth, and job This is a hard, difficult thing. It has also want to thank my Blue Dog col- development. Our capital gains provi- involved much rhetoric, much nego- leagues for their hard work and deter- sion is simple. It provides for an exclu- tiating, and it does not come easily, mination in developing this alternative sion from income of 10 percent per and yet it is very, very important for tax bill. And finally, I want to thank year, up to 50 percent at 5 years. So the American people on three levels. It the gentleman from New York [Mr. you get 10 percent; at 5 years you get a is very important for rebuilding their RANGEL] and his staff for all of their 50-percent exclusion from income. trust in the institutions of govern- assistance. The motion also contains immediate ment. It is very important for the fu- First of all, Mr. Speaker, we are estate tax relief for small businesses ture of their country’s economy. And it going to hear about a chart that I just and farmers. An exemption for closely is very important, at a personal level, received when I walked in from Joint held businesses and ranches and family for individuals to have a chance to Tax that says we are $4.7 billion over in farms is immediately increased to $1 have a little more take-home pay, a the first 5 years. This is the first I have million next year. It also increases the little more money for their children, a seen of this. We do not agree with this, unified credit to $1 million in 2002 and little more money to go to college or and we cannot really respond because $1.2 million in 2004, the first increase in vocational-technical school, a little we do not know the basis for these this unified credit since 1976. better chance to keep their family numbers. Clearly, this can fit within My motion to recommit also includes farm or family business, a little better the $85 billion. It also says we are at a family tax credit that provides a $500 chance to invest and create jobs and $230 billion over the 10 years. So I just credit for children under 17 because we save. want to make that clear, and this will believe that this will strengthen fami- These are not small things. And the fit within the terms of the budget lies, and this is phased out between fact is, we have worked with the Presi- agreement. $60,000 and $75,000 of income, not dent. It is our full expectation, as the A lot of Democrats in this body, Mr. $110,000 like the committee bill. White House said again, I think as re- Speaker, support tax cuts, and we al- The motion also includes the Presi- cently as this morning, that when the ways have, just as President Clinton dent’s $1,500 HOPE scholarship, $10,000 negotiations are done both of these has supported tax relief for American tuition tax deductions, tax breaks that bills will be signed. That is very good families. But if we are going to provide the President proposed. for the American people. tax relief and balance the budget at the It is that simple: Real capital gains Now my friend, the gentleman from same time, tax relief must be well-con- relief that rewards long-term invest- Minnesota [Mr. PETERSON] offered a structed and targeted to working fami- ment, immediate estate tax relief, a motion to recommit, and that cer- lies and it must not bust the budget. family tax credit, and education tax tainly is a process that is legitimate. Mr. Speaker, the tax bill before us breaks for American families, real sus- We frankly cannot comment on the de- today is deficient in many respects and tained immediate tax relief for Amer- tail because the version we had earlier should be defeated. It is overly com- ican families, farms, and businesses. has been changed so much, so I do not plicated. It is not targeted. It may send Mr. Speaker, we provide these tax want to spend a lot of time. I under- the budget deficit up once again out- breaks without breaking the bank be- stand that we go through these exer- side the 10-year budget window. cause we do not backload our provi- cises. The capital gains provisions in this sions. This motion will not explode the I would point out that that motion, if bill are overly complicated. It will be deficit. This motion is responsible tax we understand it based on the material difficult to use in the real world, and policy. And what is more, this motion we got 4 minutes ago, does increase the the indexation of capital gains will re- provides more capital gains relief, deficit in 1998 by $7 billion, does in- quire so much record keeping that it is more estate tax relief, a better, more crease the deficit in 1999 by $11 billion. going to cause taxpayers out there a family-friendly children’s tax cut, and Over 5 years, it is our best estimate, real problem to use. And this is prob- the important education tax breaks having only looked at it for 4 minutes, ably going to cause us more fiscal prob- that most of us support. that it is a $50 billion tax cut, not an lems in the future because of index- Mr. Speaker, if this motion passes $85 billion tax cut. But the truth is, we ation. the Committee on Ways and Means, do not fully know because this was a June 26, 1997 CONGRESSIONAL RECORD — HOUSE H4815 political gesture offered for political [Roll No. 244] Hunter Moran (VA) Sessions Hutchinson Morella Shadegg reasons so that my friend could vote AYES—164 Hyde Murtha Shaw for something a little different. Abercrombie Gejdenson Mollohan Inglis Myrick Shays What I can report is that the Farm Ackerman Gonzalez Nadler Istook Nethercutt Sherman Bureau, having looked at all of our ef- Allen Goode Neal Jackson (IL) Neumann Shimkus Andrews Green Oberstar Jenkins Ney Shuster forts, is endorsing the Archer bill. I can Baesler Hall (OH) Obey Johnson (CT) Northup Skeen report that the National Federation of Baldacci Hall (TX) Olver Johnson, Sam Norwood Smith (MI) Independent Business, the leading Barcia Hamilton Ortiz Jones Nussle Smith (NJ) Kanjorski Oxley Smith (OR) small business group in America, hav- Bentsen Harman Owens Berman Hastings (FL) Pallone Kasich Packard Smith (TX) ing looked at the opportunities, is en- Berry Hefner Pascrell Kelly Pappas Smith, Linda dorsing the Taxpayer Relief Act that Bishop Hilliard Pastor Kennedy (RI) Parker Snowbarger Kilpatrick Paul Solomon the gentleman from Texas [Mr. AR- Blagojevich Hinchey Peterson (MN) Blumenauer Hinojosa Pickett Kim Paxon Souder CHER ] has offered. Boswell Holden Pomeroy King (NY) Payne Spence I can report that again and again Boucher Hooley Poshard Kingston Pease Stark groups that care about children, groups Boyd Hoyer Price (NC) Klug Pelosi Stearns Brown (CA) Jackson-Lee Rahall Knollenberg Peterson (PA) Strickland that care about families, groups that Brown (OH) (TX) Rangel Kolbe Petri Stump care about personal take-home pay, Capps Jefferson Reyes Kucinich Pickering Sununu groups that care about small business, Cardin John Rodriguez LaHood Pitts Talent Largent Pombo Tauzin groups that care about family farms, Carson Johnson (WI) Roemer Clay Johnson, E. B. Rothman Latham Porter Taylor (NC) groups that care about saving and in- Clayton Kaptur Rush LaTourette Portman Thomas vestment and job creation have en- Clement Kennedy (MA) Sabo Lazio Pryce (OH) Thornberry dorsed the Archer bill. Clyburn Kennelly Sanchez Leach Quinn Thune Condit Kildee Sandlin Lewis (CA) Radanovich Tiahrt Why have they done that? Because it Conyers Kind (WI) Sawyer Lewis (GA) Ramstad Tierney is a bill that was designed seriously Costello Kleczka Schumer Lewis (KY) Redmond Torres with serious study, that evolved over a Coyne Klink Serrano Linder Regula Traficant Lipinski Riggs Upton period of time, that was accurately Cramer LaFalce Sisisky Cummings Lampson Skaggs Livingston Riley Velazquez scored, that was out in the open, that Danner Lantos Skelton LoBiondo Rivers Visclosky everybody had a chance to see, that did Davis (FL) Levin Slaughter Lucas Rogan Walsh not change in the last 5 minutes before Davis (IL) Lofgren Smith, Adam Manzullo Rogers Wamp DeGette Lowey Snyder McCollum Rohrabacher Waters a vote. Delahunt Luther Spratt McCrery Ros-Lehtinen Watkins So I would say to all of my col- Deutsch Maloney (CT) Stabenow McDade Roukema Watts (OK) leagues, the only legitimate serious Dicks Maloney (NY) Stenholm McGovern Roybal-Allard Waxman Dingell Manton Stokes McHugh Royce Weldon (FL) vote on the motion to recommit is Dixon Markey Stupak McInnis Ryun Weldon (PA) ‘‘no’’ because the fact is, no one knows Doggett Martinez Tanner McIntosh Salmon Weller what is in the motion to recommit. No Dooley Mascara Tauscher McKeon Sanders White Meek Sanford Whitfield one knows how it would score. No one Doyle Matsui Taylor (MS) Edwards McCarthy (MO) Thompson Metcalf Saxton Wicker knows the implications. It is a nice, Engel McCarthy (NY) Thurman Mica Scarborough Wolf brief political publicity gesture. And Eshoo McDermott Towns Miller (CA) Schaefer, Dan Young (AK) then we should all vote ‘‘yes’’. Etheridge McHale Turner Miller (FL) Schaffer, Bob Young (FL) Evans McIntyre Vento Molinari Scott I would say even to my friends on the Farr McKinney Watt (NC) Moran (KS) Sensenbrenner left who find it hard, if they voted for Fattah McNulty Wexler NOT VOTING—3 the 1993 tax increase, this is their Fazio Menendez Weygand Filner Millender- Wise Meehan Schiff Yates chance to do a little bit to return some Flake McDonald Woolsey of it back to the American people. Ford Minge Wynn b 1742 Let me just say that for too many Frost Mink Furse Moakley Mr. DELLUMS and Mr. KENNEDY of years this city raised taxes, increased Rhode Island changed their vote from spending, created a big deficit, and did NOES—268 ‘‘aye’’ to ‘‘no.’’ not care about the future. It took care Aderholt Castle Forbes Mr. NADLER and Mr. MOLLOHAN of this year’s political needs at the ex- Archer Chabot Fowler changed their vote from ‘‘no’’ to ‘‘aye.’’ pense of our children’s future. The Armey Chambliss Fox Bachus Chenoweth Frank (MA) So the motion to recommit was re- leadership from the gentleman from Baker Christensen Franks (NJ) jected. Ohio [Mr. KASICH] and the gentleman Ballenger Coble Frelinghuysen The result of the vote was announced from Texas [Mr. ARCHER] and from so Barr Coburn Gallegly as above recorded. many people working with President Barrett (NE) Collins Ganske Barrett (WI) Combest Gekas The SPEAKER pro tempore (Mr. Clinton, we have pulled together a real Bartlett Cook Gephardt LAHOOD). The question is on the final effort to balance the budget, to save Barton Cooksey Gibbons passage of the bill. Medicare, to cut taxes, and to give our Bass Cox Gilchrest Bateman Crane Gillmor The question was taken; and the children and our country a better fu- Becerra Crapo Gilman Speaker pro tempore announced that ture. That is why we should all vote Bereuter Cubin Gingrich the ayes appeared to have it. ‘‘yes’’ on final passage. Bilbray Cunningham Goodlatte Bilirakis Davis (VA) Goodling RECORDED VOTE The SPEAKER pro tempore. Without Bliley Deal Gordon Mr. ARCHER. Mr. Speaker, I demand objection, the previous question is or- Blunt DeFazio Goss a recorded vote. dered on the motion to recommit. Boehlert DeLauro Graham Boehner DeLay Granger A recorded vote was ordered. There was no objection. Bonilla Dellums Greenwood The vote was taken by electronic de- The SPEAKER pro tempore. The Bonior Diaz-Balart Gutierrez vice, and there were—ayes 253, noes 179, question is on the motion to recommit. Bono Dickey Gutknecht not voting 3, as follows: Borski Doolittle Hansen The question was taken; and the Brady Dreier Hastert [Roll No. 245] Speaker pro tempore announced that Brown (FL) Duncan Hastings (WA) AYES—253 the noes appeared to have it. Bryant Dunn Hayworth Bunning Ehlers Hefley Aderholt Barton Bonilla RECORDED VOTE Burr Ehrlich Herger Archer Bass Bono Ms. PETERSON of Minnesota. Mr. Burton Emerson Hill Armey Bateman Boswell Buyer English Hilleary Bachus Bereuter Brady Speaker, I demand a recorded vote. Callahan Ensign Hobson Baesler Bilbray Bryant A recorded vote was ordered. Calvert Everett Hoekstra Baker Bilirakis Bunning Ballenger Bliley Burr The vote was taken by electronic de- Camp Ewing Horn Campbell Fawell Hostettler Barr Blunt Burton vice, and there were—ayes 164, noes 268, Canady Foglietta Houghton Barrett (NE) Boehlert Buyer not voting 3, as follows: Cannon Foley Hulshof Bartlett Boehner Callahan H4816 CONGRESSIONAL RECORD — HOUSE June 26, 1997 Calvert Hilleary Porter Hastings (FL) McCarthy (MO) Roybal-Allard a privileged report on a bill making ap- Camp Hobson Portman Hefner McDermott Rush Canady Hoekstra Pryce (OH) Hilliard McGovern Sabo propriations for the Department of the Cannon Horn Quinn Hinchey McHale Sanders Interior and related agencies for the Castle Hostettler Radanovich Hinojosa McKinney Sawyer fiscal year ending September 30, 1998, Chabot Houghton Ramstad Holden McNulty Schumer and for other purposes. Chambliss Hulshof Redmond Hooley Meek Scott Chenoweth Hunter Regula Hoyer Menendez Serrano The SPEAKER pro tempore (Mr. Christensen Hutchinson Riggs Jackson (IL) Millender- Skaggs LAHOOD). Is there objection to the re- Clement Hyde Riley Jackson-Lee McDonald Slaughter quest of the gentleman from Ohio? Coble Inglis Roemer (TX) Miller (CA) Smith, Adam There was no objection. Coburn Istook Rogan Jefferson Minge Snyder The SPEAKER pro tempore. All Collins Jenkins Rogers Johnson (WI) Mink Spratt Combest John Rohrabacher Johnson, E.B. Moakley Stabenow points of order are reserved on the bill. Condit Johnson (CT) Ros-Lehtinen Kanjorski Mollohan Stark f Cook Johnson, Sam Roukema Kaptur Moran (VA) Stenholm Cooksey Jones Royce Kennedy (MA) Murtha Stokes SUNDRY MESSAGES FROM THE Cox Kasich Ryun Kennedy (RI) Nadler Strickland PRESIDENT Cramer Kelly Salmon Kennelly Neal Stupak Crane Kim Sanchez Kildee Oberstar Tanner Sundry messages in writing from the Crapo King (NY) Sandlin Kilpatrick Obey Tauscher President of the United States were Cubin Kingston Sanford Kind (WI) Olver Thompson communicated to the House by Mr. Cunningham Klug Saxton Kleczka Ortiz Thurman Danner Knollenberg Scarborough Klink Owens Tierney Sherman Williams, one of his secretar- Davis (VA) Kolbe Schaefer, Dan Kucinich Pallone Torres ies. Deal LaHood Schaffer, Bob LaFalce Pascrell Towns f DeLay Largent Sensenbrenner Lampson Pastor Velazquez Diaz-Balart Latham Sessions Lantos Payne Vento EXPRESSING THE SENSE OF CON- Dickey LaTourette Shadegg Levin Pelosi Visclosky Dicks Lazio Shaw Lewis (GA) Peterson (MN) Waters GRESS RELATING TO ELECTIONS Dooley Leach Shays Lofgren Pomeroy Watt (NC) IN ALBANIA SCHEDULED FOR Doolittle Lewis (CA) Sherman Lowey Poshard Waxman JUNE 29, 1997 Dreier Lewis (KY) Shimkus Luther Price (NC) Wexler Duncan Linder Shuster Maloney (NY) Rahall Weygand Mr. GILMAN. Mr. Speaker, I ask Dunn Lipinski Sisisky Manton Rangel Wise unanimous consent that the Commit- Ehlers Livingston Skeen Markey Reyes Woolsey tee on International Relations be dis- Ehrlich LoBiondo Skelton Martinez Rivers Wynn Emerson Lucas Smith (MI) Mascara Rodriguez charged from further consideration of English Maloney (CT) Smith (NJ) Matsui Rothman the concurrent resolution (H. Con. Res. Ensign Manzullo Smith (OR) NOT VOTING—3 105) expressing the sense of the Con- Everett McCarthy (NY) Smith (TX) gress relating to the elections in Alba- Ewing McCollum Smith, Linda Meehan Schiff Yates Fawell McCrery Snowbarger nia scheduled for June 29, 1997, and ask Foley McDade Solomon b 1800 for its immediate consideration in the Forbes McHugh Souder The Clerk announced the following House. Fowler McInnis Spence The Clerk read the title of the con- Fox McIntosh Stearns pair: Franks (NJ) McIntyre Stump On this vote: current resolution. Frelinghuysen McKeon Sununu The SPEAKER pro tempore. Is there Mr. Schiff for, with Mr. Yates against. Gallegly Metcalf Talent objection to the request of the gen- Ganske Mica Tauzin Mr. SHERMAN changed his vote tleman from New York? Gekas Miller (FL) Taylor (MS) from ‘‘no’’ to ‘‘aye.’’ Gibbons Molinari Taylor (NC) Mr. TRAFICANT. Reserving the Gilchrest Moran (KS) Thomas So the bill was passed. right to object, Mr. Speaker, I do not Gillmor Morella Thornberry The result of the vote was announced plan to object, but I would like to yield Gilman Myrick Thune as above recorded. Gingrich Nethercutt Tiahrt now to the distinguished chairman for Goode Neumann Traficant A motion to reconsider was laid on an explanation. Goodlatte Ney Turner the table. Mr. GILMAN. Mr. Speaker, will the Goodling Northup Upton f gentleman yield? Gordon Norwood Walsh Mr. TRAFICANT. I yield to the gen- Goss Nussle Wamp REPORT ON RESOLUTION PROVID- tleman from New York. Graham Oxley Watkins ING FOR CONSIDERATION OF Granger Packard Watts (OK) Mr. GILMAN. Mr. Speaker, I thank Greenwood Pappas Weldon (FL) H.R. 2016, MILITARY CONSTRUC- the gentleman for yielding. Gutknecht Parker Weldon (PA) TION APPROPRIATIONS ACT, 1998 At this time, Mr. Speaker, as Alba- Hall (TX) Paul Weller Hansen Paxon White Mrs. MYRICK, from the Committee nian democracy is at a crossroads, our Harman Pease Whitfield on Rules, submitted a privileged report thoughts and prayers are with the peo- Hastert Peterson (PA) Wicker (Rept. No. 105–156) on the resolution (H. ple of Albania struggling to safeguard Hastings (WA) Petri Wolf Hayworth Pickering Young (AK) Res. 178) providing for consideration of the progress they have made toward Hefley Pickett Young (FL) the bill (H.R. 2016) making appropria- democracy and a market-based econ- Herger Pitts tions for military construction, family omy. Hill Pombo housing, and base realignment and clo- The Albanian people have suffered enormous hardships throughout this NOES—179 sure for the Department of Defense for the fiscal year ending September 30, century. We have always been hopeful Abercrombie Capps Edwards that, having expelled their former Ackerman Cardin Engel 1998, and for other purposes, which was Allen Carson Eshoo referred to the House Calendar and or- Communist overlords, the way would Andrews Clay Etheridge dered to be printed. be open for Albania’s citizens to enjoy Baldacci Clayton Evans f the true benefits of economic and polit- Barcia Clyburn Farr ical progress. Barrett (WI) Conyers Fattah PERMISSION FOR COMMITTEE ON Becerra Costello Fazio The events that unfolded late last Bentsen Coyne Filner APPROPRIATIONS TO HAVE year with the insolvency and the col- Berman Cummings Flake UNTIL MIDNIGHT TUESDAY, lapse of several major investment Berry Davis (FL) Foglietta JULY 1, 1997, TO FILE REPORT ON Bishop Davis (IL) Ford houses came as a deep disappointment. Blagojevich DeFazio Frank (MA) BILL MAKING APPROPRIATIONS The violence that erupted earlier this Blumenauer DeGette Frost FOR DEPARTMENT OF INTERIOR year was a true shock to most Mem- Bonior Delahunt Furse AND RELATED AGENCIES, FIS- bers of the Congress, including myself. Borski DeLauro Gejdenson CAL YEAR 1998 Boucher Dellums Gephardt Those forces or individuals who seek to Boyd Deutsch Gonzalez Mr. REGULA. Mr. Speaker, I ask reap profit or political gain from the Brown (CA) Dingell Green unanimous consent that the Commit- unrest are to be condemned, and they Brown (FL) Dixon Gutierrez Brown (OH) Doggett Hall (OH) tee on Appropriations may have until should have no place in Albania’s fu- Campbell Doyle Hamilton midnight Tuesday, July 1, 1997, to file ture.