H.R. 2014 "Taxpayer Relief Act of 1997"
"Taxpayer Fairness Act of 1997"
(continued)
`(7) SECTION 1250 GAIN- For purposes of paragraph (4), the
term `section 1250 gain' means the excess (if any) of--
`(A) the amount which would be treated as ordinary income
under section 1245 if all section 1250 property disposed of
by the taxpayer were section 1245 property, over
`(B) the amount treated as ordinary income under section
1250.
In the case of a taxable year which includes May 7, 1997,
section 1250 gain shall be determined by taking into account
only the gain properly taken into account for the portion of
the taxable year after May 6, 1997.
`(8) PRE-EFFECTIVE DATE GAIN-
`(A) IN GENERAL- In the case of a taxable year which
includes May 7, 1997, adjusted net capital gain shall be
determined without regard to pre-May 7, 1997, gain.
`(B) PRE-MAY 7, 1997, GAIN- The term `pre-May 7, 1997,
gain' means the amount which would be adjusted net capital
gain for the taxable year if adjusted net capital gain were
determined by taking into account only the gain or loss
properly taken into account for the portion of the taxable
year before May 7, 1997.
`(C) SPECIAL RULES FOR PASS-THRU ENTITIES- In applying
subparagraph (A) with respect to any pass-thru entity, the
determination of when gains and loss are properly taken
into account shall be made at the entity level.
`(D) PASS-THRU ENTITY DEFINED- For purposes of
subparagraph (C), the term `pass-thru entity' means--
`(i) a regulated investment company,
`(ii) a real estate investment trust,
`(iii) an S corporation,
`(iv) a partnership,
`(v) an estate or trust, and
`(vi) a common trust fund.'.
(b) MINIMUM TAX-
(1) IN GENERAL- Subsection (b) of section 55 is amended by
adding at the end the following new paragraph:
`(3) MAXIMUM RATE OF TAX ON NET CAPITAL GAIN OF NONCORPORATE
TAXPAYERS- The amount determined under the first sentence of
paragraph (1)(A)(i) shall not exceed the sum of--
`(A) the lesser of--
`(i) the amount determined under such first sentence
computed at the rates and in the same manner as if this
paragraph had not been enacted on the taxable excess
reduced by the adjusted net capital gain (as defined in
section 1(h)(4)), or
`(ii) the sum of--
`(I) the amount determined under such first sentence computed at
the rates and in the same manner as if this paragraph had not been
enacted on the taxable excess reduced by the sum of the adjusted
net capital gain (as so defined) and the section 1250 gain (as
defined in section 1(h)(7)), plus
`(II) 26 percent of the lesser of the section 1250 gain (as so
defined) or the taxable excess reduced by the adjusted net capital
gain (as so defined),
`(B) a tax of 10 percent of so much of the taxpayer's
adjusted net capital gain (or, if less, taxable excess) as
does not exceed the amount on which a tax is determined
under section 1(h)(1)(B), plus
`(C) a tax of 20 percent of the taxpayer's adjusted net
capital gain (or, if less, taxable excess) in excess of the
amount on which tax is determined under subparagraph (B).'.
(2) CONFORMING AMENDMENT- Clause (ii) of section 55(b)(1)(A)
is amended by striking `clause (i)' and inserting `this
subsection'.
(c) OTHER CONFORMING AMENDMENTS-
(1) Subsection (d) of section 291 is amended by inserting at
the end the following new sentence: `Any capital gain dividend
treated as having been paid out of such difference to a
shareholder which is not a corporation retains its characters
as section 1250 gain for purposes of applying section 1(h) to
such shareholder.'.
(2) Paragraph (1) of section 1445(e) is amended by striking
`28 percent' and inserting `20 percent'.
(3) The second sentence of section 7518(g)(6)(A), and the
second sentence of section 607(h)(6)(A) of the Merchant Marine
Act, 1936, are each amended by striking `28 percent' and
inserting `20 percent'.
(d) EFFECTIVE DATES-
(1) IN GENERAL- Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
ending after May 6, 1997.
(2) WITHHOLDING- The amendment made by subsection (c)(2)
shall apply only to amounts paid after the date of the
enactment of this Act.
(3) APPLICATION OF ESTIMATED TAX RULES- Clause (i) of section
6654(d)(1)(C) of the Internal Revenue Code of 1986 shall be
applied by substituting `109 percent' for `110 percent' where
the preceding taxable year referred to in such clause is a
taxable year beginning in calendar year 1996.
(4) APPLICATION OF ESTIMATED TAX RULES FOR 1998- Clause (i)
of section 6654(d)(1)(C) of the Internal Revenue Code of 1986
shall be applied by substituting `105 percent' for `110
percent' where the preceding taxable year referred to in such
clause is a taxable year beginning in calendar year 1997.
SEC. 312. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31,
2000, FOR PURPOSES OF DETERMINING GAIN.
(a) IN GENERAL- Part II of subchapter O of chapter 1 (relating to
basis rules of general application) is amended by inserting after
section 1021 the following new section:
`SEC. 1022. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31,
2000, FOR PURPOSES OF DETERMINING GAIN.
`(a) GENERAL RULE-
`(1) INDEXED BASIS SUBSTITUTED FOR ADJUSTED BASIS- Solely for
purposes of determining gain on the sale or other disposition
by a taxpayer (other than a corporation) of an indexed asset
which has been held for more than 3 years, the indexed basis of
the asset shall be substituted for its adjusted basis.
`(2) EXCEPTION FOR DEPRECIATION, ETC- The deductions for
depreciation, depletion, and amortization shall be determined
without regard to the application of paragraph (1) to the
taxpayer or any other person.
`(3) EXCEPTION FOR PRINCIPAL RESIDENCES- Paragraph (1) shall
not apply to any disposition of the principal residence (within
the meaning of section 121) of the taxpayer .
`(b) INDEXED ASSET-
`(1) IN GENERAL- For purposes of this section, the term
`indexed asset' means--
`(A) common stock in a C corporation (other than a
foreign corporation), and
`(B) tangible property,
which is a capital asset or property used in the trade or
business (as defined in section 1231(b)).
`(2) STOCK IN CERTAIN FOREIGN CORPORATIONS INCLUDED- For
purposes of this section--
`(A) IN GENERAL- The term `indexed asset' includes common
stock in a foreign corporation which is regularly traded on
an established securities market.
`(B) EXCEPTION- Subparagraph (A) shall not apply to--
`(i) stock of a foreign investment company (within
the meaning of section 1246(b)),
`(ii) stock in a passive foreign investment company
(as defined in section 1296),
`(iii) stock in a foreign corporation held by a
United States person who meets the requirements of
section 1248(a)(2), and
`(iv) stock in a foreign personal holding company (as
defined in section 552).
`(C) TREATMENT OF AMERICAN DEPOSITORY RECEIPTS- An
American depository receipt for common stock in a foreign
corporation shall be treated as common stock in such
corporation.
`(c) INDEXED BASIS- For purposes of this section--
`(1) GENERAL RULE- The indexed basis for any asset is--
`(A) the adjusted basis of the asset, increased by
`(B) the applicable inflation adjustment.
`(2) APPLICABLE INFLATION ADJUSTMENT- The applicable
inflation adjustment for any asset is an amount equal to--
`(A) the adjusted basis of the asset, multiplied by
`(B) the percentage (if any) by which--
`(i) the chain-type price index for GDP for the last
calendar quarter ending before the asset is disposed
of, exceeds
`(ii) the chain-type price index for GDP for the last
calendar quarter ending before the asset was acquired
by the taxpayer.
The percentage under subparagraph (B) shall be rounded to the
nearest 1/10 of 1 percentage point.
`(3) CHAIN-TYPE PRICE INDEX FOR GDP- The chain-type price
index for GDP for any calendar quarter is such index for such
quarter (as shown in the last revision thereof released by the
Secretary of Commerce before the close of the following
calendar quarter).
`(d) SUSPENSION OF HOLDING PERIOD WHERE DIMINISHED RISK OF LOSS;
TREATMENT OF SHORT SALES-
`(1) IN GENERAL- If the taxpayer (or a related person) enters
into any transaction which substantially reduces the risk of
loss from holding any asset, such asset shall not be treated as
an indexed asset for the period of such reduced risk.
`(2) SHORT SALES-
`(A) IN GENERAL- In the case of a short sale of an
indexed asset with a short sale period in excess of 3
years, for purposes of this title, the amount realized
shall be an amount equal to the amount realized (determined
without regard to this paragraph) increased by the
applicable inflation adjustment. In applying subsection
(c)(2) for purposes of the preceding sentence, the date on
which the property is sold short shall be treated as the
date of acquisition and the closing date for the sale shall
be treated as the date of disposition.
`(B) SHORT SALE PERIOD- For purposes of subparagraph (A),
the short sale period begins on the day that the property
is sold and ends on the closing date for the sale.
`(e) TREATMENT OF REGULATED INVESTMENT COMPANIES AND REAL ESTATE
INVESTMENT TRUSTS-
`(1) ADJUSTMENTS AT ENTITY LEVEL-
`(A) IN GENERAL- Except as otherwise provided in this
paragraph, the adjustment under subsection (a) shall be
allowed to any qualified investment entity (including for
purposes of determining the earnings and profits of such
entity).
`(B) EXCEPTION FOR CORPORATE SHAREHOLDERS- Under
regulations--
`(i) in the case of a distribution by a qualified
investment entity (directly or indirectly) to a
corporation--
`(I) the determination of whether such distribution is a dividend
shall be made without regard to this section, and
`(II) the amount treated as gain by reason of the receipt of any
capital gain dividend shall be increased by the percentage by which
the entity's net capital gain for the taxable year (determined
without regard to this section) exceeds the entity's net capital
gain for such year determined with regard to this section, and
`(ii) there shall be other appropriate adjustments
(including deemed distributions) so as to ensure that
the benefits of this section are not allowed (directly
or indirectly) to corporate shareholders of qualified
investment entities.
For purposes of the preceding sentence, any amount
includible in gross income under section 852(b)(3)(D) shall
be treated as a capital gain dividend and an S corporation
shall not be treated as a corporation.
`(C) EXCEPTION FOR QUALIFICATION PURPOSES- This section
shall not apply for purposes of sections 851(b) and 856(c).
`(D) EXCEPTION FOR CERTAIN TAXES IMPOSED AT ENTITY LEVEL-
`(i) TAX ON FAILURE TO DISTRIBUTE ENTIRE GAIN- If any
amount is subject to tax under section 852(b)(3)(A) for
any taxable year, the amount on which tax is imposed
under such section shall be increased by the percentage
determined under subparagraph (B)(i)(II). A similar
rule shall apply in the case of any amount subject to
tax under paragraph (2) or (3) of section 857(b) to the
extent attributable to the excess of the net capital
gain over the deduction for dividends paid determined
with reference to capital gain dividends only. The
first sentence of this clause shall not apply to so
much of the amount subject to tax under section
852(b)(3)(A) as is designated by the company under
section 852(b)(3)(D).
`(ii) OTHER TAXES- This section shall not apply for
purposes of determining the amount of any tax imposed
by paragraph (4), (5), or (6) of section 857(b).
`(2) ADJUSTMENTS TO INTERESTS HELD IN ENTITY-
`(A) REGULATED INVESTMENT COMPANIES- Stock in a regulated
investment company (within the meaning of section 851)
shall be an indexed asset for any calendar quarter in the
same ratio as--
`(i) the average of the fair market values of the
indexed assets held by such company at the close of
each month during such quarter, bears to
`(ii) the average of the fair market values of all
assets held by such company at the close of each such
month.
`(B) REAL ESTATE INVESTMENT TRUSTS- Stock in a real
estate investment trust (within the meaning of section 856)
shall be an indexed asset for any calendar quarter in the
same ratio as--
`(i) the fair market value of the indexed assets held
by such trust at the close of such quarter, bears to
`(ii) the fair market value of all assets held by
such trust at the close of such quarter.
`(C) RATIO OF 80 PERCENT OR MORE- If the ratio for any
calendar quarter determined under subparagraph (A) or (B)
would (but for this subparagraph) be 80 percent or more,
such ratio for such quarter shall be 100 percent.
`(D) RATIO OF 20 PERCENT OR LESS- If the ratio for any
calendar quarter determined under subparagraph (A) or (B)
would (but for this subparagraph) be 20 percent or less,
such ratio for such quarter shall be zero.
`(E) LOOK-THRU OF PARTNERSHIPS- For purposes of this
paragraph, a qualified investment entity which holds a
partnership interest shall be treated (in lieu of holding a
partnership interest) as holding its proportionate share of
the assets held by the partnership.
`(3) TREATMENT OF RETURN OF CAPITAL DISTRIBUTIONS- Except as
otherwise provided by the Secretary, a distribution with
respect to stock in a qualified investment entity which is not
a dividend and which results in a reduction in the adjusted
basis of such stock shall be treated as allocable to stock
acquired by the taxpayer in the order in which such stock was
acquired.
`(4) QUALIFIED INVESTMENT ENTITY- For purposes of this
subsection, the term `qualified investment entity' means--
`(A) a regulated investment company (within the meaning
of section 851), and
`(B) a real estate investment trust (within the meaning
of section 856).
`(f) OTHER PASS-THRU ENTITIES-
`(1) PARTNERSHIPS-
`(A) IN GENERAL- In the case of a partnership, the
adjustment made under subsection (a) at the partnership
level shall be passed through to the partners.
`(B) SPECIAL RULE IN THE CASE OF SECTION 754 ELECTIONS-
In the case of a transfer of an interest in a partnership
with respect to which the election provided in section 754
is in effect--
`(i) the adjustment under section 743(b)(1) shall,
with respect to the transferor partner, be treated as a
sale of the partnership assets for purposes of applying
this section, and
`(ii) with respect to the transferee partner, the
partnership's holding period for purposes of this
section in such assets shall be treated as beginning on
the date of such adjustment.
`(2) S CORPORATIONS- In the case of an S corporation, the
adjustment made under subsection (a) at the corporate level
shall be passed through to the shareholders. This section shall
not apply for purposes of determining the amount of any tax
imposed by section 1374 or 1375.
`(3) COMMON TRUST FUNDS- In the case of a common trust fund,
the adjustment made under subsection (a) at the trust level
shall be passed through to the participants.
`(4) INDEXING ADJUSTMENT DISREGARDED IN DETERMINING LOSS ON
SALE OF INTEREST IN ENTITY- Notwithstanding the preceding
provisions of this subsection, for purposes of determining the
amount of any loss on a sale or exchange of an interest in a
partnership, S corporation, or common trust fund, the
adjustment made under subsection (a) shall not be taken into
account in determining the adjusted basis of such interest.
`(g) DISPOSITIONS BETWEEN RELATED PERSONS-
`(1) IN GENERAL- This section shall not apply to any sale or
other disposition of property between related persons except to
the extent that the basis of such property in the hands of the
transferee is a substituted basis.
`(2) RELATED PERSONS DEFINED- For purposes of this section,
the term `related persons' means--
`(A) persons bearing a relationship set forth in section
267(b), and
`(B) persons treated as single employer under subsection
(b) or (c) of section 414.
`(h) TRANSFERS TO INCREASE INDEXING ADJUSTMENT- If any person
transfers cash, debt, or any other property to another person and
the principal purpose of such transfer is to secure or increase an
adjustment under subsection (a), the Secretary may disallow part or
all of such adjustment or increase.
`(i) SPECIAL RULES- For purposes of this section--
`(1) TREATMENT OF IMPROVEMENTS, ETC- If there is an addition
to the adjusted basis of any tangible property or of any stock
in a corporation during the taxable year by reason of an
improvement to such property or a contribution to capital of
such corporation--
`(A) such addition shall never be taken into account
under subsection (c)(1)(A) if the aggregate amount thereof
during the taxable year with respect to such property or
stock is less than $1,000, and
`(B) such addition shall be treated as a separate asset
acquired at the close of such taxable year if the aggregate
amount thereof during the taxable year with respect to such
property or stock is $1,000 or more.
A rule similar to the rule of the preceding sentence shall
apply to any other portion of an asset to the extent that
separate treatment of such portion is appropriate to carry out
the purposes of this section.
`(2) ASSETS WHICH ARE NOT INDEXED ASSETS THROUGHOUT HOLDING
PERIOD- The applicable inflation adjustment shall be
appropriately reduced for periods during which the asset was
not an indexed asset.
`(3) TREATMENT OF CERTAIN DISTRIBUTIONS- A distribution with
respect to stock in a corporation which is not a dividend shall
be treated as a disposition.
`(4) ACQUISITION DATE WHERE THERE HAS BEEN PRIOR APPLICATION
OF SUBSECTION (a)(1) WITH RESPECT TO THE TAXPAYER- If there has
been a prior application of subsection (a)(1) to an asset while
such asset was held by the taxpayer, the date of acquisition of
such asset by the taxpayer shall be treated as not earlier than
the date of the most recent such prior application.
`(5) COLLAPSIBLE CORPORATIONS- The application of section
341(a) (relating to collapsible corporations) shall be
determined without regard to this section.
`(j) REGULATIONS- The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of
this section.'.
(b) CLERICAL AMENDMENT- The table of sections for part II of
subchapter O of chapter 1 is amended by inserting after the item
relating to section 1021 the following new item:
`SEC. 1022. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31,
2000, FOR PURPOSES OF DETERMINING GAIN.'.
(c) EFFECTIVE DATES-
(1) IN GENERAL- The amendments made by this section shall
apply to the disposition of any property the holding period of
which begins after December 31, 2000.
(2) CERTAIN TRANSACTIONS BETWEEN RELATED PERSONS- The
amendments made by this section shall not apply to the
disposition of any property acquired after December 31, 2000,
from a related person (as defined in section 1022(g)(2) of the
Internal Revenue Code of 1986, as added by this section) if--
(A) such property was so acquired for a price less than
the property's fair market value, and
(B) the amendments made by this section did not apply to
such property in the hands of such related person.
(d) ELECTION TO RECOGNIZE GAIN ON ASSETS HELD ON JANUARY 1, 2001-
For purposes of the Internal Revenue Code of 1986--
(1) IN GENERAL- A taxpayer other than a corporation may elect
to treat--
(A) any readily tradable stock (which is an indexed
asset) held by such taxpayer on January 1, 2001, and not
sold before the next business day after such date, as
having been sold on such next business day for an amount
equal to its closing market price on such next business day
(and as having been reacquired on such next business day
for an amount equal to such closing market price), and
(B) any other indexed asset held by the taxpayer on
January 1, 2001, as having been sold on such date for an
amount equal to its fair market value on such date (and as
having been reacquired on such date for an amount equal to
such fair market value).
(2) TREATMENT OF GAIN OR LOSS-
(A) Any gain resulting from an election under paragraph
(1) shall be treated as received or accrued on the date the
asset is treated as sold under paragraph (1) and shall be
recognized notwithstanding any provision of the Internal
Revenue Code of 1986.
(B) Any loss resulting from an election under paragraph
(1) shall not be allowed for any taxable year.
(3) ELECTION- An election under paragraph (1) shall be made
in such manner as the Secretary of the Treasury or his delegate
may prescribe and shall specify the assets for which such
election is made. Such an election, once made with respect to
any asset, shall be irrevocable.
(4) READILY TRADABLE STOCK- For purposes of this subsection,
the term `readily tradable stock' means any stock which, as of
January 1, 2001, is readily tradable on an established
securities market or otherwise.
SEC. 313. EXEMPTION FROM TAX FOR GAIN ON SALE OF PRINCIPAL RESIDENCE.
(a) IN GENERAL- Section 121 (relating to one-time exclusion of
gain from sale of principal residence by individual who has
attained age 55) is amended to read as follows:
`SEC. 121. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE.
`(a) EXCLUSION- Gross income shall not include gain from the sale
or exchange of property if, during the 5-year period ending on the
date of the sale or exchange, such property has been owned and used
by the taxpayer as the taxpayer's principal residence for periods
aggregating 2 years or more.
`(b) LIMITATIONS-
`(1) DOLLAR LIMITATION- The amount of gain excluded from
gross income under subsection (a) with respect to any sale or
exchange shall not exceed $250,000 ($500,000 in the case of a
joint return where both spouses meet the use requirement of
subsection (a)).
`(2) APPLICATION TO ONLY 1 SALE OR EXCHANGE EVERY 2 YEARS-
`(A) IN GENERAL- Subsection (a) shall not apply to any
sale or exchange by the taxpayer if, during the 2-year
period ending on the date of such sale or exchange, there
was any other sale or exchange by the taxpayer or his
spouse to which subsection (a) applied.
`(B) PREMARRIAGE SALES BY SPOUSE NOT TAKEN INTO ACCOUNT-
If, but for this subparagraph, subsection (a) would not
apply to a sale or exchange by a married individual by
reason of a sale or exchange by such individual's spouse
before their marriage--
`(i) subparagraph (A) shall be applied without regard
to the sale or exchange by such individual's spouse, but
`(ii) the amount of gain excluded from gross income
under subsection (a) with respect to the sale or
exchange by such individual shall not exceed $250,000.
`(C) PRE-MAY 7, 1997, SALES NOT TAKEN INTO ACCOUNT-
Subparagraph (A) shall be applied without regard to any
sale or exchange before May 7, 1997.
`(c) EXCLUSION FOR TAXPAYERS FAILING TO MEET CERTAIN REQUIREMENTS-
`(1) IN GENERAL- In the case of a sale or exchange to which
this subsection applies, the ownership and use requirements of
subsection (a) shall not apply and subsection (b)(2) shall not
apply; but the amount of gain excluded from gross income under
subsection (a) with respect to such sale of exchange shall not
exceed--
`(A) the amount which bears the same ratio to the amount
which would be so excluded if such requirements had been
met, as
`(B) the shorter of--
`(i) the aggregate periods, during the 5-year period
ending on the date of such sale or exchange, such
property has been owned and used by the taxpayer as the
taxpayer's principal residence, or
`(ii) the period after the date of the most recent
prior sale or exchange by the taxpayer or his spouse to
which subsection (a) applied and before the date of
such sale or exchange,
bears to 2 years.
`(2) SALES AND EXCHANGES TO WHICH SUBSECTION APPLIES- This
subsection shall apply to any sale or exchange if--
`(A) subsection (a) would not (but for this subsection)
apply to such sale or exchange by reason of--
`(i) a failure to meet the ownership and use
requirements of subsection (a), or
`(ii) subsection (b)(2), and
`(B) such sale or exchange is by reason of a change in
place of employment, health, or, to the extent provided in
regulations, other unforeseen circumstances.
`(d) SPECIAL RULES-
`(1) JOINT RETURNS- For purposes of this section, if a
husband and wife make a joint return for the taxable year of
the sale or exchange of the property, subsection (a) shall,
subject to the provisions of subsection (b), apply if either
spouse meets the ownership and use requirements of subsection
(a) with respect to such property.
`(2) PROPERTY OF DECEASED SPOUSE- For purposes of this
section, in the case of an unmarried individual whose spouse is
deceased on the date of the sale or exchange of property, the
period such unmarried individual owned such property shall
include the period such deceased spouse held such property
before death.
`(3) PROPERTY OF DIVORCED SPOUSE- For purposes of this
section, in the case of an individual holding property
transferred to such individual incident to divorce (within the
meaning of section 1041(c))--
`(A) the period such individual owns such property shall
include the period the former spouse owned the property, and
`(B) the dollar limitation applicable under paragraph (1)
shall not be less than the amount such limitation would
have been had the sale or exchange occurred on the date the
divorce became final.
`(4) TENANT-STOCKHOLDER IN COOPERATIVE HOUSING CORPORATION-
For purposes of this section, if the taxpayer holds stock as a
tenant-stockholder (as defined in section 216) in a cooperative
housing corporation (as defined in such section), then--
`(A) the holding requirements of subsection (a) shall be
applied to the holding of such stock, and
`(B) the use requirements of subsection (a) shall be
applied to the house or apartment which the taxpayer was
entitled to occupy as such stockholder.
`(5) INVOLUNTARY CONVERSIONS-
`(A) IN GENERAL- For purposes of this section, the
destruction, theft, seizure, requisition, or condemnation
of property shall be treated as the sale of such property.
`(B) APPLICATION OF SECTION 1033- In applying section
1033 (relating to involuntary conversions), the amount
realized from the sale or exchange of property shall be
treated as being the amount determined without regard to
this section, reduced by the amount of gain not included in
gross income pursuant to this section.
`(C) PROPERTY ACQUIRED AFTER INVOLUNTARY CONVERSION- If
the basis of the property sold or exchanged is determined
(in whole or in part) under section 1033(b) (relating to
basis of property acquired through involuntary conversion),
then the holding and use by the taxpayer of the converted
property shall be treated as holding and use by the
taxpayer of the property sold or exchanged.
`(6) RECOGNITION OF GAIN ATTRIBUTABLE TO DEPRECIATION-
Subsection (a) shall not apply to so much of the gain from the
sale of any property as does not exceed the portion of the
depreciation adjustments (as defined in section 1250(b)(3))
attributable to periods after May 6, 1997, in respect of such
property.
`(7) DETERMINATION OF USE DURING PERIODS OF OUT-OF-RESIDENCE
CARE- In the case of a taxpayer who--
`(A) becomes physically or mentally incapable of
self-care, and
`(B) owns property and uses such property as the
taxpayer's principal residence during the 5-year period
described in subsection (a) for periods aggregating at
least 1 year,
then the taxpayer shall be treated as using such property as
the taxpayer's principal residence during any time during such
5-year period in which the taxpayer owns the property and
resides in any facility (including a nursing home) licensed by
a State or political subdivision to care for an individual in
the taxpayer's condition.
`(8) DETERMINATION OF MARITAL STATUS- In the case of any sale
or exchange, for purposes of this section--
`(A) the determination of whether an individual is
married shall be made as of the date of the sale or
exchange, and
`(B) an individual legally separated from his spouse
under a decree of divorce or of separate maintenance shall
not be considered as married.
`(9) SALES OF LIFE ESTATES AND REMAINDER INTERESTS- For
purposes of this section--
`(A) IN GENERAL- This section shall not fail to apply to
the sale or exchange of an interest in a principal
residence by reason of such interest being a life estate or
a remainder interest in such residence, but this section
shall apply only to one such interest in such residence
which is sold or exchanged separately.
`(B) EXCEPTION FOR SALES TO RELATED PARTIES- Subparagraph
(A) shall not apply to any sale to, or exchange with, any
person who bears a relationship to the taxpayer which is
described in section 267(b) or 707(b).
`(e) DENIAL OF EXCLUSION FOR EXPATRIATES- This section shall not
apply to any sale or exchange by an individual if the treatment
provided by section 877(a)(1) applies to such individual.
`(f) ELECTION TO HAVE SECTION NOT APPLY- This section shall not
apply to any sale or exchange with respect to which the taxpayer
elects not to have this section apply.
`(g) RESIDENCES ACQUIRED IN ROLLOVERS UNDER SECTION 1034- For
purposes of this section, in the case of property the acquisition
of which by the taxpayer resulted under section 1034 (as in effect
on the day before the date of the enactment of this sentence) in
the nonrecognition of any part of the gain realized on the sale or
exchange of another residence, in determining the period for which
the taxpayer has owned and used such property as the taxpayer's
principal residence, there shall be included the aggregate periods
for which such other residence (and each prior residence taken into
account under section 1223(7) in determining the holding period of
such property) had been so owned and used.'.
(b) REPEAL OF NONRECOGNITION OF GAIN ON ROLLOVER OF PRINCIPAL
RESIDENCE- Section 1034 (relating to rollover of gain on sale of
principal residence) is hereby repealed.
(c) CONFORMING AMENDMENTS-
(1) The following provisions of the Internal Revenue Code of
1986 are each amended by striking `section 1034' and inserting
`section 121': sections 25(e)(7), 56(e)(1)(A), 56(e)(3)(B)(i),
143(i)(1)(C)(i)(I), 163(h)(4)(A)(i)(I), 280A(d)(4)(A),
464(f)(3)(B)(i), 1033(h)(4), 1274(c)(3)(B), 6334(a)(13), and
7872(f)(11)(A).
(2) Paragraph (4) of section 32(c) is amended by striking
`(as defined in section 1034(h)(3))' and by adding at the end
the following new sentence: `For purposes of the preceding
sentence, the term `extended active duty' means any period of
active duty pursuant to a call or order to such duty for a
period in excess of 90 days or for an indefinite period.'.
(3) Subparagraph (A) of 143(m)(6) is amended by inserting
`(as in effect on the day before the date of the enactment of
the Taxpayer Relief Act of 1997)' after `1034(e)'.
(4) Subsection (e) of section 216 is amended by striking
`such exchange qualifies for nonrecognition of gain under
section 1034(f)' and inserting `such dwelling unit is used as
his principal residence (within the meaning of section 121)'.
(5) Section 512(a)(3)(D) is amended by inserting `(as in
effect on the day before the date of the enactment of the
Taxpayer Relief Act of 1997)' after `1034'.
(6) Paragraph (7) of section 1016(a) is amended by inserting
`(as in effect on the day before the date of the enactment of
the Taxpayer Relief Act of 1997)' after `1034' and by inserting
`(as so in effect)' after `1034(e)'.
(7) Paragraph (3) of section 1033(k) is amended to read as
follows:
`(3) For exclusion from gross income of gain from involuntary
conversion of principal residence, see section 121.'.
(8) Subsection (e) of section 1038 is amended to read as
follows:
`(e) PRINCIPAL RESIDENCES- If--
`(1) subsection (a) applies to a reacquisition of real
property with respect to the sale of which gain was not
recognized under section 121 (relating to gain on sale of
principal residence); and
`(2) within 1 year after the date of the reacquisition of
such property by the seller, such property is resold by him,
then, under regulations prescribed by the Secretary, subsections
(b), (c), and (d) of this section shall not apply to the
reacquisition of such property and, for purposes of applying
section 121, the resale of such property shall be treated as a part
of the transaction constituting the original sale of such property.'.
(9) Paragraph (7) of section 1223 is amended by inserting
`(as in effect on the day before the date of the enactment of
the Taxpayer Reief Act of 1997)' after `1034'.
(10) Paragraph (7) of section 1250(d) is amended to read as
follows:
`(7) DISPOSITION OF PRINCIPAL RESIDENCE- Subsection (a) shall
not apply to a disposition of property to the extent used by
the taxpayer as his principal residence (within the meaning of
section 121, relating to gain on sale of principal residence).'.
(11) Subsection (c) of section 6012 is amended by striking
`(relating to one-time exclusion of gain from sale of principal
residence by individual who has attained age 55)' and inserting
`(relating to gain from sale of principal residence)'.
(12) Paragraph (2) of section 6212(c) is amended by striking
subparagraph (C) and by redesignating the succeeding
subparagraphs accordingly.
(13) Section 6504 is amended by striking paragraph (4) and by
redesignating the succeeding paragraphs accordingly.
(14) The item relating to section 121 in the table of
sections for part III of subchapter B of chapter 1 is amended
to read as follows:
`SEC. 121. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL RESIDENCE.'.
(15) The table of sections for part III of subchapter O of
chapter 1 of such Code is amended by striking the item relating
to section 1034.
(d) EFFECTIVE DATE-
(1) IN GENERAL- The amendments made by this section shall
apply to sales and exchanges after May 6, 1997.
(2) SALES BEFORE DATE OF ENACTMENT- At the election of the
taxpayer, the amendments made by this section shall not apply
to any sale or exchange before the date of the enactment of
this Act.
(3) BINDING CONTRACTS- At the election of the taxpayer, the
amendments made by this section shall not apply to a sale or
exchange after the date of the enactment of this Act, if--
(A) such sale or exchange is pursuant to a contract which
was binding on such date, or
(B) without regard to such amendments, gain would not be
recognized under section 1034 of the Internal Revenue Code
of 1986 (as in effect on the day before the date of the
enactment of this Act) on such sale or exchange by reason
of a new residence acquired on or before such date or with
respect to the acquisition of which by the taxpayer a
binding contract was in effect on such date.
This paragraph shall not apply to any sale or exchange by an
individual if the treatment provided by section 877(a)(1) of
the Internal Revenue Code of 1986 applies to such individual.
PART II--CORPORATE CAPITAL GAINS
SEC. 321. REDUCTION OF ALTERNATIVE CAPITAL GAIN TAX FOR CORPORATIONS.
(a) IN GENERAL- Section 1201 is amended to read as follows:
`SEC. 1201. ALTERNATIVE TAX FOR CORPORATIONS.
`(a) GENERAL RULE- If for any taxable year a corporation has
8-year gain, then, in lieu of the tax imposed by sections 11, 511,
and 831 (a) and (b) (whichever is applicable), there is hereby
imposed a tax (if such tax is less than the tax imposed by such
sections) which shall consist of the sum of--
`(1) a tax computed on the taxable income reduced by the
amount of the 8-year gain, at the rates and in the manner as if
this subsection had not been enacted, plus
`(2) a tax of the applicable percentage of the amount of the
8-year gain (or, if less, taxable income).
`(b) APPLICABLE PERCENTAGE- For purposes of subsection (a)--
`(1) IN GENERAL- The term `applicable percentage' means--
`(A) 32 percent for the portion of any taxable year
within 1998,
`(B) 31 percent for the portion of any taxable year
within 1999, and
`(C) 30 percent for the portion of any taxable year after
1999.
`(2) FISCAL YEAR TAXPAYERS-
`(A) TAXABLE YEARS BEGINNING IN 1997- In applying this
section to taxable years beginning in 1997, 8-year gain
shall not exceed the 8-year gain determined by taking into
account only gains and losses properly taken into account
for the portion of the taxable year after December 31, 1997.
`(B) TAXABLE YEARS BEGINNING IN 1998 OR 1999- In the case
of a taxable year beginning in 1998 or 1999 which includes
portions of 2 calendar years, the applicable percentage
shall be applied separately to such portions by taking into
account--
`(i) in the case of the first such portion, the
lesser of--
`(I) the 8-year gain determined by taking into account only gains
and losses properly taken into account for such portion, or
`(II) the 8-year gain determined for the entire taxable year, and
`(ii) in the case of the second such portion, the
8-year gain (and the taxable income) determined for the
entire taxable year reduced by the amount on which tax
is determined under subsection (a)(2) for the first
such portion determined under clause (i).
`(C) SPECIAL RULE FOR PASS-THRU ENTITIES- Section
1(h)(8)(C) shall apply for purposes of this paragraph.
`(c) 8-YEAR GAIN- For purposes of this section, the term `8-year
gain' means the lesser of--
`(1) the amount of long-term capital gain which would be
computed for the taxable year if only gain from the sale or
exchange of property held by the taxpayer for more than 8 years
were taken into account, or
`(2) net capital gain.
The determination under the preceding sentence shall be made
without regard to collectibles gain (as defined in section 1(h)(5))
or section 1250 gain (as defined in section 1(h)(7)).
`(d) CROSS REFERENCES-
`For computation of the alternative tax--
`(1) in the case of life insurance companies, see section
801(a)(2),
`(2) in the case of regulated investment companies and their
shareholders, see section 852(b)(3)(A) and (D), and
`(3) in the case of real estate investment trusts, see section
857(b)(3)(A).'.
(b) TECHNICAL AMENDMENTS-
(1) Subsection (d) of section 291 is amended by striking
`subsection (a)(1) to such shareholder' and inserting
`subsection (a)(1) and section 1201 to such shareholder'.
(2) Clause (iii) of section 852(b)(3)(D) is amended by
striking `65 percent' and inserting `the applicable percentage'
and by inserting at the end the following new sentence: `For
purposes of the preceding sentence, the term `applicable
percentage' means the percentage equal to the excess of 100
percent over the percentage applicable under section 1201(a).'.
(3)(A) Subparagraph (B) of section 852(b)(3) is amended to
read as follows:
`(B) TREATMENT OF CAPITAL GAIN DIVIDENDS BY SHAREHOLDERS-
`(i) IN GENERAL- Except as provided in clause (ii), a
capital gain dividend shall be treated by the
shareholders as gain from the sale or exchange of a
capital asset held for more than 1 year.
`(ii) COORDINATION WITH 8-YEAR HOLDING PERIOD FOR
CORPORATE NET CAPITAL GAIN- The portion of any capital
gain dividend designated by the company as allocable to
gain from the sale or exchange of property held by the
company for more than 8 years shall be treated as gain
from the sale or exchange of a capital asset held for
more than 8 years. Rules similar to the rules of
subparagraph (C) shall apply to any designation under
the preceding sentence.'.
(B) Clause (i) of section 851(b)(3)(D) is amended by adding
at the end thereof the following new sentence: `Rules similar
to the rules of subparagraph (B) shall apply in determining
character of the amount to be so included by any such
shareholder which is a corporation.'.
(4) Subparagraph (B) of section 857(b)(3) is amended to read
as follows:
`(B) TREATMENT OF CAPITAL GAIN DIVIDENDS BY SHAREHOLDERS-
`(i) IN GENERAL- Except as provided in clause (ii), a
capital gain dividend shall be treated by the
shareholders or holders of beneficial interests as gain
from the sale or exchange of a capital asset held for
more than 1 year.
`(ii) COORDINATION WITH 8-YEAR HOLDING PERIOD FOR
CORPORATE NET CAPITAL GAIN- The portion of any capital
gain dividend designated by the company as allocable to
gain from the sale or exchange of property held by the
company for more than 8 years shall be treated as gain
from the sale or exchange of a capital asset held for
more than 8 years. Rules similar to the rules of
subparagraph (C) shall apply to any designation under
the preceding sentence.'.
(5) Subsection (c) of section 584 is amended--
(A) by inserting `but not more than 8 years' after `1
year' each place it appears in paragraph (2),
(B) by striking `and' at the end of paragraph (2), and
(C) by redesignating paragraph (3) as paragraph (4) and
inserting after paragraph (2) the following new paragraph:
`(3) as part of its gains and losses from sales or exchanges
of capital assets held for more than 8 years, its proportionate
share of the gains and losses of the common trust fund from
sales or exchanges of capital assets held for more than 8
years, and'.
(6) Subparagraph (E) of section 904(b)(3) is amended by
adding at the end the following new clause:
`(iv) REGULATIONS- The Secretary shall prescribe
regulations that adjust the limitation under subsection
(a) to reflect the rate differential for 8-year gain
(as defined in section 1201(c)) between the highest
rate of tax specified in section 11(b) and the
alternate rate of tax under section 1201(a) and the
limitation on the deduction for capital losses under
section 1211.'.
(c) EFFECTIVE DATES- The amendments made by this section shall
apply to taxable years ending after December 31, 1997.
TITLE IV--ALTERNATIVE MINIMUM TAX REFORM
SEC. 401. ADJUSTMENT OF EXEMPTION AMOUNTS FOR TAXPAYERS OTHER THAN
CORPORATIONS.
(a) IN GENERAL- Subsection (d) of section 55 is amended by adding
at the end the following new paragraph:
`(4) ADJUSTMENT OF EXEMPTION AMOUNTS FOR TAXPAYERS OTHER THAN
CORPORATIONS-
`(A) TAXABLE YEARS BEGINNING BEFORE JANUARY 1, 2008- In
the case of any taxable year beginning in a calendar year
after 1998 and before 2008--
`(i) IN GENERAL- The dollar amount applicable under
paragraph (1)(A) for any odd-numbered calendar year--
`(I) shall be $1,000 greater than the dollar amount applicable
under paragraph (1)(A) for the prior odd-numbered calendar year, and
`(II) shall apply to taxable years beginning in such odd-numbered
calendar year and the succeeding calendar year.
`(B) TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 2007- In
the case of any taxable year beginning in a calendar year
after 2007, the dollar amount applicable under paragraph
(1)(A) for taxable years beginning in 2007 shall be
increased by an amount equal to the product of--
`(i) such dollar amount, and
`(ii) the cost-of-living adjustment determined under
section 1(f)(3) for the calendar year in which the
taxable year begins, determined by substituting
`calendar year 2006' for `calendar year 1992' in
subparagraph (B) thereof.
If any increase determined under the preceding sentence is
not a multiple of $100, such increase shall be rounded to
the next lowest multiple of $100.
`(C) OTHER AMOUNTS-
`(i) The dollar amount applicable under paragraph
(1)(B) for any taxable year shall be an amount equal to
75 percent of the dollar amount applicable under
paragraph (1)(A) for such year.
`(ii) The dollar amount applicable under paragraph
(1)(C) for any taxable year shall be an amount equal to
50 percent of the dollar amount applicable under
paragraph (1)(A) for such year.'.
(b) CONFORMING AMENDMENT- The last sentence of section 55(d)(3)
is amended by striking `$165,000 or (ii) $22,500' and inserting
`the minimum amount of such income (as so determined) for which the
exemption amount under paragraph (1)(C) is zero, or (ii) such
exemption amount (determined without regard to this paragraph)'.
(c) EFFECTIVE DATE- The amendments made by this section shall
apply to taxable years beginning after December 31, 1998.
SEC. 402. EXEMPTION FROM ALTERNATIVE MINIMUM TAX FOR SMALL
CORPORATIONS.
(a) IN GENERAL- Section 55 (relating to alternative minimum tax
imposed) is amended by adding at the end the following new
subsection:
`(e) EXEMPTION FOR SMALL CORPORATIONS-
`(1) IN GENERAL- The tentative minimum tax of a corporation
shall be zero for any taxable year if--
`(A) such corporation met the $5,000,000 gross receipts
test of section 448(c) for any prior taxable year beginning
after December 31, 1996, and
`(B) such corporation would meet such test for the
taxable year and all prior taxable years beginning after
December 31, 1997, if such test were applied by
substituting `$7,500,000' for `$5,000,000'
`(2) PROSPECTIVE APPLICATION OF MINIMUM TAX IF SMALL
CORPORATION CEASES TO BE SMALL- In the case of a corporation
whose tentative minimum tax is zero for any prior taxable year
by reason of paragraph (1), the application of this part for
taxable years beginning with the first taxable year such
corporation ceases to be described in paragraph (1) shall be
determined without regard to transactions entered into or other
items arising in taxable years prior to such first taxable year.
`(3) LIMITATION ON USE OF CREDIT FOR PRIOR YEAR MINIMUM TAX
LIABILITY- In the case of a taxpayer whose tentative minimum
tax for any taxable year is zero by reason of paragraph (1),
the amount described in paragraph (2) of section 53(b) shall
not be less than the greater of--
`(A) the tentative minimum tax for the taxable year, or
`(B) 25 percent of so much of the regular tax liability
(reduced by the credit allowed by section 27) as exceeds
$25,000.
Rules similar to the rules of section 38(c)(3)(B) shall apply
for purposes of the preceding sentence.'.
(b) EFFECTIVE DATE- The amendment made by this section shall
apply to taxable years beginning after December 31, 1997.
SEC. 403. REPEAL OF ADJUSTMENT FOR DEPRECIATION.
(a) IN GENERAL- Clause (i) of section 56(a)(1)(A) is amended by
inserting `and before January 1, 1999,' after `December 31, 1986,'.
(b) STUDY-
(1) IN GENERAL- Because it is the intent of Congress that the
amendment made by subsection (a) not have the result of
permitting any corporation with taxable income from current
year operations to pay no Federal income tax, the Secretary of
the Treasury or his delegate shall conduct a study to determine
whether such amendment has that result and, if so, the policy
implications of that result.
(2) REPORT- The report of such study shall be submitted to
the Committee on Ways and Means of the House of Representatives
and the Committee on Finance of the Senate not later than
January 1, 2001.
SEC. 404. MINIMUM TAX NOT TO APPLY TO FARMERS' INSTALLMENT SALES.
(a) IN GENERAL- The last sentence of paragraph (6) of section
56(a) (relating to treatment of installment sales in computing
alternative minimum taxable income) is amended to read as follows:
`This paragraph shall not apply to any disposition--
`(A) in the case of a taxpayer using the cash receipts
and disbursements method of accounting, described in
section 453(l)(2)(A) (relating to farm property), or
`(B) with respect to which an election is in effect under
section 453(l)(2)(B) (relating to timeshares and
residential lots).'.
(b) EFFECTIVE DATES-
(1) IN GENERAL- The amendment made by this section shall
apply to dispositions in taxable years beginning after December
31, 1987.
(2) SPECIAL RULE FOR 1987- In the case of taxable years
beginning in 1987, the last sentence of section 56(a)(6) of the
Internal Revenue Code of 1986 (as in effect for such taxable
years) shall be applied by inserting `or in the case of a
taxpayer using the cash receipts and disbursements method of
accounting, any disposition described in section
453C(e)(1)(B)(ii)' after `section 453C(e)(4)'.
TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TAX PROVISIONS
SUBTITLE A--ESTATE AND GIFT TAX PROVISIONS
SEC. 501. COST-OF-LIVING ADJUSTMENTS RELATING TO ESTATE AND GIFT
TAX PROVISIONS.
(a) INCREASE IN UNIFIED ESTATE AND GIFT TAX CREDIT-
(1) ESTATE TAX CREDIT-
(A) IN GENERAL- Subsection (a) of section 2010 (relating
to unified credit against estate tax) is amended by
striking `$192,800' and inserting `the applicable credit
amount'.
(B) APPLICABLE CREDIT AMOUNT- Section 2010 is amended by
redesignating subsection (c) as subsection (d) and by
inserting after subsection (b) the following new subsection:
`(c) APPLICABLE CREDIT AMOUNT- For purposes of this section--
`(1) IN GENERAL- For purposes of this section, the applicable
credit amount is the amount of the tentative tax which would be
determined under the rate schedule set forth in section 2001(c)
if the amount with respect to which such tentative tax is to be
computed were the applicable exclusion amount determined in
accordance with the following table:
[Bold->] `In the case of estates of decedents [<-Bold]
-- [Bold->] The applicable [<-Bold]
[Bold->] dying, and gifts made, during: [<-Bold]
-- [Bold->] exclusion amount is: [<-Bold]
1998
--$ 650,000
1999
--$ 750,000
2000
--$ 765,000
2001 through 2004
--$ 775,000
2005
--$ 800,000
2006
--$ 825,000
2007 or thereafter
--$1,000,000.
`(2) COST-OF-LIVING ADJUSTMENT- In the case of any decedent
dying, and gift made, in a calendar year after 2007, the
$1,000,000 amount set forth in paragraph (1) shall be increased
by an amount equal to--
`(A) $1,000,000, multiplied by
`(B) the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year by substituting
`calendar year 2006' for `calendar year 1992' in
subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence is not a
multiple of $10,000, such amount shall be rounded to the next
lowest multiple of $10,000.'.
(C) ESTATE TAX RETURNS- Paragraph (1) of section 6018(a)
is amended by striking `$600,000' and inserting `the
applicable exclusion amount in effect under section 2010(c)
for the calendar year which includes the date of death'.
(D) PHASEOUT OF GRADUATED RATES AND UNIFIED CREDIT-
Paragraph (2) of section 2001(c) is amended by striking
`$21,040,000' and inserting `the amount at which the
average tax rate under this section is 55 percent'.
(E) ESTATES OF NONRESIDENTS NOT CITIZENS- Subparagraph
(A) of section 2102(c)(3) is amended by striking `$192,800'
and inserting `the applicable credit amount in effect under
section 2010(c) for the calendar year which includes the
date of death'.
(2) UNIFIED GIFT TAX CREDIT- Paragraph (1) of section 2505(a)
is amended by striking `$192,800' and inserting `the applicable
credit amount in effect under section 2010(c) for such calendar
year'.
(b) ALTERNATE VALUATION OF CERTAIN FARM, ETC., REAL PROPERTY-
Subsection (a) of section 2032A is amended by adding at the end the
following new paragraph:
`(3) INFLATION ADJUSTMENT- In the case of estates of
decedents dying in a calendar year after 1998, the $750,000
amount contained in paragraph (2) shall be increased by an
amount equal to--
`(A) $750,000, multiplied by
`(B) the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year by substituting
`calendar year 1997' for `calendar year 1992' in
subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence is not a
multiple of $10,000, such amount shall be rounded to the next
lowest multiple of $10,000.'.
(c) ANNUAL GIFT TAX EXCLUSION- Subsection (b) of section 2503 is
amended--
(1) by striking the subsection heading and inserting the
following:
`(b) EXCLUSIONS FROM GIFTS-
`(1) IN GENERAL- ',
(2) by moving the text 2 ems to the right, and
(3) by adding at the end the following new paragraph:
`(2) INFLATION ADJUSTMENT- In the case of gifts made in a
calendar year after 1998, the $10,000 amount contained in
paragraph (1) shall be increased by an amount equal to--
`(A) $10,000, multiplied by
`(B) the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year by substituting
`calendar year 1997' for `calendar year 1992' in
subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence is not a
multiple of $1,000, such amount shall be rounded to the next
lowest multiple of $1,000.'.
(d) EXEMPTION FROM GENERATION-SKIPPING TAX- Section 2631
(relating to GST exemption) is amended by adding at the end the
following new subsection:
`(c) INFLATION ADJUSTMENT- In the case of an individual who dies
in any calendar year after 1998, the $1,000,000 amount contained in
subsection (a) shall be increased by an amount equal to--
`(1) $1,000,000, multiplied by
`(2) the cost-of-living adjustment determined under section
1(f)(3) for such calendar year by substituting `calendar year
1997' for `calendar year 1992' in subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence is not a
multiple of $10,000, such amount shall be rounded to the next
lowest multiple of $10,000.'.
(e) AMOUNT SUBJECT TO REDUCED RATE WHERE EXTENSION OF TIME FOR
PAYMENT OF ESTATE TAX ON CLOSELY HELD BUSINESS- Subsection (j) of
section 6601 is amended by redesignating paragraph (3) as paragraph
(4) and by inserting after paragraph (2) the following new paragraph:
`(3) INFLATION ADJUSTMENT- In the case of estates of
decedents dying in a calendar year after 1998, the $1,000,000
amount contained in paragraph (2)(A) shall be increased by an
amount equal to--
`(A) $1,000,000, multiplied by
`(B) the cost-of-living adjustment determined under
section 1(f)(3) for such calendar year by substituting
`calendar year 1997' for `calendar year 1992' in
subparagraph (B) thereof.
If any amount as adjusted under the preceding sentence is not a
multiple of $10,000, such amount shall be rounded to the next
lowest multiple of $10,000.'.
(f) EFFECTIVE DATE- The amendments made by this section shall
apply to the estates of decedents dying, and gifts made, after
December 31, 1997.
SEC. 502. 20-YEAR INSTALLMENT PAYMENT WHERE ESTATE CONSISTS LARGELY
OF INTEREST IN CLOSELY HELD BUSINESS.
(a) IN GENERAL- Section 6166(a) (relating to extension of time
for payment of estate tax where estate consists largely of interest
in closely held business) is amended by striking `10' in paragraph
(1) and the heading thereof and inserting `20'.
(b) EFFECTIVE DATE- The amendments made by this section shall
apply to estates of decedents dying after December 31, 1997.
SEC. 503. NO INTEREST ON CERTAIN PORTION OF ESTATE TAX EXTENDED
UNDER SECTION 6166, REDUCED INTEREST ON REMAINING
PORTION, AND NO DEDUCTION FOR SUCH REDUCED
INTEREST.
(a) NO INTEREST AND REDUCED INTEREST-
(1) IN GENERAL- Paragraphs (1) and (2) of section 6601(j)
(relating to 4-percent rate on certain portion of estate tax
extended under section 6166), as amended by section 501(e), are
amended to read as follows:
`(1) IN GENERAL- If the time for payment of an amount of tax
imposed by chapter 11 is extended as provided in section 6166,
then in lieu of the annual rate provided by subsection (a)--
`(A) no interest shall be paid on the no-interest portion
of such amount, and
`(B) interest on so much of such amount as exceeds such
no-interest portion shall be paid at a rate equal to 45
percent of the annual rate provided by subsection (a).
For purposes of this subsection, the amount of any deficiency
which is prorated to installments payable under section 6166
shall be treated as an amount of tax payable in installments
under such section.
`(2) NO-INTEREST PORTION- For purposes of this section, the
term `no-interest portion' means the lesser of--
`(A)(i) the amount of the tentative tax which would be
determined under the rate schedule set forth in section
2001(c) if the amount with respect to which such tentative
tax is to be computed were the sum of $1,000,000 and the
applicable exclusion amount in effect under section
2010(c), reduced by
`(ii) the applicable credit amount in effect under
section 2010(c), or
`(B) the amount of the tax imposed by chapter 11 which is
extended as provided in section 6166.'.
(2) CONFORMING AMENDMENTS-
(A) Section 6601(j), as amended by section 501, is
amended--
(i) by striking `4-percent' each place it appears in
paragraph (3) and inserting `no-interest', and
(ii) by striking `4-PERCENT RATE ON CERTAIN PORTION
OF' in the heading and inserting `RATE ON'.
(B) Section 6166(b)(7)(A)(iii) is amended to read as
follows:
`(iii) for purposes of applying section 6601(j)
(relating to rate on estate tax extended under section
6166), the no-interest portion shall be zero.'.
(C) Section 6166(b)(8)(A)(iii) is amended to read as
follows:
`(iii) NO-INTEREST PORTION NOT TO APPLY- For purposes
of applying section 6601(j) (relating to rate on estate
tax extended under section 6166), the no-interest
portion shall be zero.'.
(b) DISALLOWANCE OF INTEREST DEDUCTION-
(1) ESTATE TAX- Paragraph (1) of section 2053(c) is amended
by adding at the end the following new subparagraph:
`(D) SECTION 6166 INTEREST- No deduction shall be allowed
under this section for any interest payable under section
6601 on any unpaid portion of the tax imposed by section
2001 for the period during which an extension of time for
payment of such tax is in effect under section 6166.'.
(2) INCOME TAX- Subparagraph (E) of section 163(h)(2) is
amended by striking `or 6166'.
(c) EFFECTIVE DATE- The amendments made by this section shall
apply to estates of decedents dying after December 31, 1997.
SEC. 504. EXTENSION OF TREATMENT OF CERTAIN RENTS UNDER SECTION
2032A TO LINEAL DESCENDANTS.
(a) GENERAL RULE- Paragraph (7) of section 2032A(c) (relating to
special rules for tax treatment of dispositions and failures to use
for qualified use) is amended by adding at the end the following
new subparagraph:
`(E) CERTAIN RENTS TREATED AS QUALIFIED USE- For purposes
of this subsection, a surviving spouse or lineal descendant
of the decedent shall not be treated as failing to use
qualified real property in a qualified use solely because
such spouse or descendant rents such property to a member
of the family of such spouse or descendant on a net cash
basis. For purposes of the preceding sentence, a legally
adopted child of an individual shall be treated as the
child of such individual by blood.'.
(b) CONFORMING AMENDMENT- Section 2032A(b)(5)(A) is amended by
striking the last sentence.
(c) EFFECTIVE DATE- The amendments made by this section shall
apply with respect to leases entered into after December 31, 1976.
SEC. 505. CLARIFICATION OF JUDICIAL REVIEW OF ELIGIBILITY FOR
EXTENSION OF TIME FOR PAYMENT OF ESTATE TAX.
(a) IN GENERAL- Part IV of subchapter C of chapter 76 of the
Internal Revenue Code of 1986 (relating to declaratory judgments)
is amended by adding at the end the following new section:
`SEC. 7479. DECLARATORY JUDGMENTS RELATING TO ELIGIBILITY OF ESTATE
WITH RESPECT TO INSTALLMENT PAYMENTS UNDER
SECTION 6166.
`(a) CREATION OF REMEDY- In a case of actual controversy
involving a determination by the Secretary of (or a failure by the
Secretary to make a determination with respect to)--
`(1) whether an election may be made under section 6166
(relating to extension of time for payment of estate tax where
estate consists largely of interest in closely held business)
with respect to an estate, or
`(2) whether the extension of time for payment of tax
provided in section 6166(a) has ceased to apply with respect to
an estate,
upon the filing of an appropriate pleading, the Tax Court may make
a declaration with respect to whether such election may be made,
whether such extension has ceased to apply, or the amount of such
installment payments. Any such declaration shall have the force and
effect of a decision of the Tax Court and shall be reviewable as
such.
`(b) LIMITATIONS-
`(1) PETITIONER- A pleading may be filed under this section,
with respect to any estate, only--
`(A) by the executor of such estate, or
`(B) by any person who has assumed an obligation to make
payments under section 6166 with respect to such estate
(but only if each other such person is joined as a party).
`(2) EXHAUSTION OF ADMINISTRATIVE REMEDIES- The court shall
not issue a declaratory judgment or decree under this section
in any proceeding unless it determines that the petitioner has
exhausted all available administrative remedies within the
Internal Revenue Service. A petitioner shall be deemed to have
exhausted its administrative remedies with respect to a failure
of the Secretary to make a determination at the expiration of
180 days after the date on which the request for such
determination was made if the petitioner has taken, in a timely
manner, all reasonable steps to secure such determination.
`(3) TIME FOR BRINGING ACTION- If the Secretary sends by
certified or registered mail notice of his determination as
described in subsection (a) to the petitioner, no proceeding
may be initiated under this section unless the pleading is
filed before the 91st day after the date of such mailing.'.
(b) CLERICAL AMENDMENT- The table of sections for part IV of
subchapter C of chapter 76 of such Code is amended by adding at the
end the following new item:
`SEC. 7479. DECLARATORY JUDGMENTS RELATING TO ELIGIBILITY OF ESTATE
WITH RESPECT TO INSTALLMENT PAYMENTS UNDER SECTION 6166.'.
(c) EFFECTIVE DATE- The amendments made by this section shall
apply to the estates of decedents dying after the date of the
enactment of this Act.
SEC. 506. GIFTS MAY NOT BE REVALUED FOR ESTATE TAX PURPOSES AFTER
EXPIRATION OF STATUTE OF LIMITATIONS.
(a) IN GENERAL- Section 2001 (relating to imposition and rate of
estate tax) is amended by adding at the end the following new
subsection:
`(f) VALUATION OF GIFTS- If--
`(1) the time has expired within which a tax may be assessed
under chapter 12 (or under corresponding provisions of prior
laws) on the transfer of property by gift made during a
preceding calendar period (as defined in section 2502(b)), and
`(2) the value of such gift is shown on the return for such
preceding calendar period or is disclosed in such return, or in
a statement attached to the return, in a manner adequate to
apprise the Secretary of the nature of such gift,
the value of such gift shall, for purposes of computing the tax
under this chapter, be the value of such gift as finally determined
for purposes of chapter 12.'.
(b) MODIFICATION OF APPLICATION OF STATUTE OF LIMITATIONS-
Paragraph (9) of section 6501(c) is amended to read as follows:
`(9) GIFT TAX ON CERTAIN GIFTS NOT SHOWN ON RETURN- If any
gift of property the value of which (or any increase in taxable
gifts required under section 2701(d) which) is required to be
shown on a return of tax imposed by chapter 12 (without regard
to section 2503(b)), and is not shown on such return, any tax
imposed by chapter 12 on such gift may be assessed, or a
proceeding in court for the collection of such tax may be begun
without assessment, at any time. The preceding sentence shall
not apply to any item which is disclosed in such return, or in
a statement attached to the return, in a manner adequate to
apprise the Secretary of the nature of such item. The value of
any item which is so disclosed may not be redetermined by the
Secretary after the expiration of the period under subsection
(a).'.
(c) DECLARATORY JUDGMENT PROCEDURE FOR DETERMINING VALUE OF GIFT-
(1) IN GENERAL- Part IV of subchapter C of chapter 76 is
amended by inserting after section 7476 the following new
section:
`SEC. 7477. DECLARATORY JUDGMENTS RELATING TO VALUE OF CERTAIN GIFTS.
`(a) CREATION OF REMEDY- In a case of an actual controversy
involving a determination by the Secretary of the value of any gift
shown on the return of tax imposed by chapter 12 or disclosed on
such return or in any statement attached to such return, upon the
filing of an appropriate pleading, the Tax Court may make a
declaration of the value of such gift. Any such declaration shall
have the force and effect of a decision of the Tax Court and shall
be reviewable as such.
`(b) LIMITATIONS-
`(1) PETITIONER- A pleading may be filed under this section
only by the donor.
`(2) EXHAUSTION OF ADMINISTRATIVE REMEDIES- The court shall
not issue a declaratory judgment or decree under this section
in any proceeding unless it determines that the petitioner has
exhausted all available administrative remedies within the
Internal Revenue Service.
`(3) TIME FOR BRINGING ACTION- If the Secretary sends by
certified or registered mail notice of his determination as
described in subsection (a) to the petitioner, no proceeding
may be initiated under this section unless the pleading is
filed before the 91st day after the date of such mailing.'.
(2) CLERICAL AMENDMENT- The table of sections for such part
IV is amended by inserting after the item relating to section
7476 the following new item:
`SEC. 7477. DECLARATORY JUDGMENTS RELATING TO VALUE OF CERTAIN
GIFTS.'.
(d) CONFORMING AMENDMENT- Subsection (c) of section 2504 is
amended by striking `, and if a tax under this chapter or under
corresponding provisions of prior laws has been assessed or paid
for such preceding calendar period'.
(e) EFFECTIVE DATES-
(1) IN GENERAL- The amendments made by subsections (a) and
(c) shall apply to gifts made after the date of the enactment
of this Act.
(2) SUBSECTION (b)--The amendment made by subsection (b)
shall apply to gifts made in calendar years ending after the
date of the enactment of this Act.
SEC. 507. TERMINATION OF THROWBACK RULES FOR DOMESTIC TRUSTS.
(a) ACCUMULATION DISTRIBUTIONS-
(1) IN GENERAL- Section 665 is amended by adding at the end
the following new subsection:
`(f) SPECIAL RULE FOR UNITED STATES TRUSTS- For purposes of this
subpart, in the case of a trust other than a foreign trust, any
distribution in any taxable year beginning after the date of the
enactment of this subsection shall be computed without regard to
any undistributed net income.'.
(2) CONFORMING AMENDMENT- Subsection (b) of section 665 is
amended by inserting `except as provided in subsection (f),'
after `subpart,'.
(b) PROPERTY TRANSFERRED TO TRUSTS- Subsection (e) of section 644
is amended by striking `or' at the end of paragraph (3), by
striking the period at the end of paragraph (4) and inserting `, or
', and by adding at the end the following new paragraph:
`(5) in the case of a trust other than a foreign trust, any
sale or exchange of property after the date of the enactment of
this paragraph.'.
(c) EFFECTIVE DATES-
(1) IN GENERAL- Except as provided in paragraph (2), the
amendments made by this section shall apply to distributions in
taxable years beginning after the date of the enactment of this
Act.
(2) TRANSFERRED PROPERTY- The amendments made by subsection
(b) shall apply to sales or exchanges after the date of the
enactment of this Act.
SEC. 508. UNIFIED CREDIT OF DECEDENT INCREASED BY UNIFIED CREDIT OF
SPOUSE USED ON SPLIT GIFT INCLUDED IN DECEDENT'S
GROSS ESTATE.
(a) IN GENERAL- Section 2010 (relating to unified credit against
estate tax) is amended by adding at the end the following new
subsection:
`(d) TREATMENT OF UNIFIED CREDIT USED BY SPOUSE ON SPLIT-GIFT
INCLUDED IN DECEDENT'S GROSS ESTATE- If--
`(1) the decedent was the donor of any gift one-half of which
was considered under section 2513 as made by the decedent's
spouse, and
`(2) the amount of such gift is includible in the gross
estate of the decedent by reason of section 2035, 2036, 2037,
or 2038,
the amount of the credit allowable by subsection (a) to the estate
of the decedent shall be increased by the amount of the unified
credit allowed against the tax imposed by section 2501 on the
amount of such gift considered under section 2513 as made by such
spouse.'.
(b) EFFECTIVE DATE- The amendment made by subsection (a) shall
apply to gifts made after the date of the enactment of this Act.
SEC. 509. REFORMATION OF DEFECTIVE BEQUESTS, ETC., TO SPOUSE OF
DECEDENT.
(a) IN GENERAL- Subsection (b) of section 2056 (relating to
bequests, etc., to surviving spouse) is amended by adding at the
end the following new paragraph:
`(11) REFORMATIONS PERMITTED-
`(A) IN GENERAL- In the case of any interest in property
with respect to which a deduction would be allowable under
subsection (a) but for a provision of this subsection, if--
`(i) the surviving spouse is entitled to all of the
income from the property for life,
`(ii) no person other than such spouse is entitled to
any distribution of such property during such spouse's
life, and
`(iii) there is a change of a governing instrument
(by reformation, amendment, construction, or otherwise)
as of the applicable date which results in the
satisfaction of the requirements of such provision as
of the date of the decedent's death,
the determination of whether such deduction is allowable
shall be made as of the applicable date.
`(B) SPECIAL RULE WHERE TIMELY COMMENCEMENT OF
REFORMATION- Clauses (i) and (ii) of subparagraph (A) shall
not apply to any interest if, not later than the date
described in subparagraph (C)(i), a judicial proceeding is
commenced to change such interest into an interest which
satisfies the requirements of the provision by reason of
which (but for this paragraph) a deduction would not be
allowable under subsection (a) for such interest.
`(C) APPLICABLE DATE- For purposes of subparagraph (A),
the term `applicable date' means--
`(i) the last date (including extensions) for filing
the return of tax imposed by this chapter, or
`(ii) if a judicial proceeding is commenced to comply
with such provision, the time when the changes pursuant
to such proceeding are made.
`(D) SPECIAL RULE- If the change referred to in
subparagraph (A)(iii) is to qualify the passage of the
interest under paragraph (7), subparagraph (A) shall apply
only if the election under paragraph (7)(B) is made.
`(E) STATUTE OF LIMITATIONS- If a judicial proceeding
described in subparagraph (C)(ii) is commenced with respect
to any interest, the period for assessing any deficiency of
tax attributable to such interest shall not expire before
the date 1 year after the date on which the Secretary is
notified that such provision has been complied with or that
such proceeding has been terminated.'.
(b) COMPARABLE RULE FOR GIFT TAX- Section 2523 (relating to gift
to spouse) is amended by adding at the end the following new
subsection:
`(j) REFORMATIONS PERMITTED- Rules similar to the rules of
section 2056(b)(11) shall apply for purposes of this section.'.
(c) EFFECTIVE DATE- The amendments made by this section shall
apply to estates of decedents dying, and gifts made, after the date
of the enactment of this Act.
SUBTITLE B--GENERATION-SKIPPING TAX PROVISIONS
SEC. 511. SEVERING OF TRUSTS HOLDING PROPERTY HAVING AN INCLUSION
RATIO OF GREATER THAN ZERO.
(a) IN GENERAL- Subsection (a) of section 2642 (relating to
inclusion ratio) is amended by adding at the end the following new
paragraph:
`(3) SEVERING OF TRUSTS HOLDING PROPERTY HAVING AN INCLUSION
RATIO OF GREATER THAN ZERO-
`(A) IN GENERAL- If a trust holding property having an
inclusion ratio of greater than zero is severed in a
qualified severance, at the election of the trustee of such
trust, the trusts resulting from such severance shall be
treated as separate trusts for purposes of this chapter and
1 such trust shall have an inclusion ratio of 1 and the
other such trust shall have an inclusion ratio of zero.
`(B) QUALIFIED SEVERANCE- For purposes of subparagraph
(A), the term `qualified severance' means the creation of 2
trusts from a single trust if each property held by the
single trust was divided between the 2 created trusts such
that one trust received an interest in each such property
equal to the applicable fraction of the single trust. Such
term includes any other severance permitted under
regulations prescribed by the Secretary.
`(C) ELECTION- The election under this paragraph shall be
made at the time prescribed by the Secretary. Such an
election, once made, shall be irrevocable.'.
(b) EFFECTIVE DATE- The amendment made by subsection (a) shall
apply to severances after the date of the enactment of this Act.
SEC. 512. EXPANSION OF EXCEPTION FROM GENERATION-SKIPPING TRANSFER
TAX FOR TRANSFERS TO INDIVIDUALS WITH DECEASED
PARENTS.
(a) IN GENERAL- Section 2651 (relating to generation assignment)
is amended by redesignating subsection (e) as subsection (f), and
by inserting after subsection (d) the following new subsection:
`(e) SPECIAL RULE FOR PERSONS WITH A DECEASED PARENT-
`(1) IN GENERAL- For purposes of determining whether any
transfer is a generation-skipping transfer, if--
`(A) an individual is a descendant of a parent of the
transferor (or the transferor's spouse or former spouse), and
`(B) such individual's parent who is a lineal descendant
of the parent of the transferor (or the transferor's spouse
or former spouse) is dead at the time the transfer (from
which an interest of such individual is established or
derived) is subject to a tax imposed by chapter 11 or 12
upon the transferor (and if there shall be more than 1 such
time, then at the earliest such time),
such individual shall be treated as if such individual were a
member of the generation which is 1 generation below the lower
of the transferor's generation or the generation assignment of
the youngest living ancestor of such individual who is also a
descendant of the parent of the transferor (or the transferor's
spouse or former spouse), and the generation assignment of any
descendant of such individual shall be adjusted accordingly.
`(2) LIMITED APPLICATION OF SUBSECTION TO COLLATERAL HEIRS-
This subsection shall not apply with respect to a transfer to
any individual who is not a lineal descendant of the transferor
(or the transferor's spouse or former spouse) if, at the time
of the transfer, such transferor has any living lineal
descendant.'.
(b) CONFORMING AMENDMENTS-
(1) Section 2612(c) (defining direct skip) is amended by
striking paragraph (2) and by redesignating paragraph (3) as
paragraph (2).
(2) Section 2612(c)(2) (as so redesignated) is amended by
striking `section 2651(e)(2)' and inserting `section 2651(f)(2)'.
(c) EFFECTIVE DATE- The amendments made by this section shall
apply to terminations, distributions, and transfers occurring after
December 31, 1997.
TITLE VI--EXTENSIONS
SEC. 601. RESEARCH TAX CREDIT.
(a) IN GENERAL- Paragraph (1) of section 41(h) (relating to
termination) is amended--
(1) by striking `May 31, 1997' and inserting `December 31,
1998', and
(2) by striking in the last sentence `during the first 11
months of such taxable year.' and inserting `during the
30-month period beginning with the first month of such year.
The 30 months referred to in the preceding sentence shall be
reduced by the number of full months after June 1996 (and
before the first month of such first taxable year) during which
the taxpayer paid or incurred any amount which is taken into
account in determining the credit under this section.'.
(b) TECHNICAL AMENDMENTS-
(1) Subparagraph (B) of section 41(c)(4) is amended to read
as follows:
`(B) ELECTION- An election under this paragraph shall
apply to the taxable year for which made and all succeeding
taxable years unless revoked with the consent of the
Secretary.'.
(2) Paragraph (1) of section 45C(b) is amended by striking
`May 31, 1997' and inserting `December 31, 1998'.
(c) EFFECTIVE DATE- The amendments made by this section shall
apply to amounts paid or incurred after May 31, 1997.
SEC. 602. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDATIONS.
(a) IN GENERAL- Clause (ii) of section 170(e)(5)(D) (relating to
termination) is amended by striking `May 31, 1997' and inserting
`December 31, 1998'.
(b) EFFECTIVE DATE- The amendment made by subsection (a) shall
apply to contributions made after May 31, 1997.
SEC. 603. WORK OPPORTUNITY TAX CREDIT.
(a) EXTENSION-
(1) IN GENERAL- Subparagraph (B) of section 51(c)(4)
(relating to termination) is amended by striking `September 30,
1997' and inserting `September 30, 1998'.
(2) EFFECTIVE DATE- The amendment made by paragraph (1) shall
apply to individuals who begin work for the employer after
September 30, 1997.
(b) WORK OPPORTUNITY CREDIT ALLOWED AGAINST MINIMUM TAX-
(1) IN GENERAL- Subsection (c) of section 38 (relating to
limitation based on amount of tax) is amended by redesignating
paragraph (3) as paragraph (4) and by inserting after paragraph
(2) the following new paragraph:
`(3) SPECIAL RULES FOR WORK OPPORTUNITY CREDIT-
`(A) IN GENERAL- In the case of the work opportunity
credit--
`(i) this section and section 39 shall be applied
separately with respect to the credit, and
`(ii) in applying paragraph (1) to the credit--
`(I) subparagraph (A) shall not apply, and
`(II) the limitation under paragraph (1) (as modified by
subclause (I)) shall be reduced by the credit allowed under
subsection (a) for the taxable year (other than the work
opportunity credit).
`(B) WORK OPPORTUNITY CREDIT- For purposes of this
subsection, the term `work opportunity credit' means the
credit allowable under subsection (a) by reason of section
51(a).'.
(2) CONFORMING AMENDMENT- Subclause (II) of section
38(c)(2)(A)(ii) is amended by inserting `or the work
opportunity credit' after `employment credit'.
(3) EFFECTIVE DATE- The amendments made by this subsection
shall apply to taxable years beginning after December 31, 1997.
(c) PERCENTAGE OF WAGES ALLOWED AS CREDIT-
(1) IN GENERAL- Subsection (a) of section 51 (relating to
determination of amount) is amended by striking `35 percent'
and inserting `40 percent'.
(2) APPLICATION OF CREDIT FOR INDIVIDUALS PERFORMING FEWER
THAN 400 HOURS OF SERVICES- Paragraph (3) of section 51(i) is
amended to read as follows:
`(3) INDIVIDUALS NOT MEETING MINIMUM EMPLOYMENT PERIODS-
`(A) REDUCTION OF CREDIT FOR INDIVIDUALS PERFORMING FEWER
THAN 400 HOURS OF SERVICES- In the case of an individual
who has completed at least 120 hours, but less than 400
hours, of services performed for the employer, subsection
(a) shall be applied by substituting `25 percent' for `40
percent'.
`(B) DENIAL OF CREDIT FOR INDIVIDUALS PERFORMING FEWER
THAN 120 HOURS OF SERVICES- No wages shall be taken into
account under subsection (a) with respect to any individual
unless such individual has completed at least 120 hours of
services performed for the employer.'.
(3) EFFECTIVE DATE- The amendments made by this subsection
shall apply to individuals who begin work for the employer
after September 30, 1997.
(d) MODIFICATION OF ELIGIBILITY REQUIREMENT BASED ON PERIOD ON
WELFARE-
(1) IN GENERAL- Subparagraph (A) of section 51(d)(2)
(defining qualified IV-A recipient) is amended by striking all
that follows `a IV-A program' and inserting `for any 9 months
during the 18-month period ending on the hiring date.'.
(2) CONFORMING AMENDMENT- Subparagraph (A) of section
51(d)(3) is amended to read as follows:
`(A) IN GENERAL- The term `qualified veteran' means any
veteran who is certified by the designated local agency as
being a member of a family receiving assistance under a
food stamp program under the Food Stamp Act of 1977 for at
least a 3-month period ending during the 12-month period
ending on the hiring date.'.
(3) EFFECTIVE DATE- The amendments made by this subsection
shall apply to individuals who begin work for the employer
after September 30, 1997.
SEC. 604. ORPHAN DRUG TAX CREDIT.
(a) IN GENERAL- Section 45C (relating to clinical testing
expenses for certain drugs for rare diseases or conditions) is
amended by striking subsection (e).
(b) EFFECTIVE DATE- The amendment made by subsection (a) shall
apply to amounts paid or incurred after May 31, 1997.
SEC. 605. BUDGETARY TREATMENT OF EXPIRING PREFERENTIAL EXCISE TAX
RATES WHICH ARE DEDICATED TO TRUST FUNDS.
(a) IN GENERAL- Subparagraph (C) of section 257(b)(2) of the
Balanced Budget and Emergency Deficit Control Act of 1985 (relating
to the baseline) is amended by inserting before the period `;
except that any expiring preferential rate (and any credit or
refund related thereto) shall be assumed not to be extended'.
(b) ESTIMATE OF REVENUE GAIN FROM CORRECTING BASELINE- For
purposes of estimating revenues under budget reconciliation, the
impact of the amendment made by subsection (a) on the calculation
of the baseline shall be determined in the same manner as if such
amendment were an amendment to the Internal Revenue Code of 1986.
(c) BUDGET ACT POINT OF ORDER- For purposes of section 311(a) of
the Congressional Budget Act of 1974, the appropriate level of
revenues shall be determined on the assumption that any expiring
preferential rate (and any credit or refund related thereto) of any
excise tax dedicated to a trust fund shall expire according to
current law.
(d) EFFECTIVE DATE- The amendment made by subsection (a) shall
apply to budget years beginning after the date of the enactment of
this Act.
TITLE VII--INCENTIVES FOR REVITALIZATION OF THE DISTRICT OF COLUMBIA
SEC. 701. TAX INCENTIVES FOR REVITALIZATION OF THE DISTRICT OF
COLUMBIA.
(a) IN GENERAL- Chapter 1 is amended by adding at the end the
following new subchapter:
[BOLD->] `SUBCHAPTER W--DISTRICT OF COLUMBIA ENTERPRISE ZONE
[<-BOLD]
`SEC. 1400. ESTABLISHMENT OF DC ZONE.
`SEC. 1400A. TAX-EXEMPT ECONOMIC DEVELOPMENT BONDS.
`SEC. 1400B. CREDIT FOR EQUITY INVESTMENTS IN AND LOANS TO DISTRICT
OF COLUMBIA BUSINESSES.
`SEC. 1400C. ZERO PERCENT CAPITAL GAINS RATE.
`SEC. 1400D. CREDIT TO PROVIDE EQUIVALENT OF 10 PERCENT RATE
BRACKET IN LIEU OF 15 PERCENT BRACKET.
`SEC. 1400. ESTABLISHMENT OF DC ZONE.
`(a) IN GENERAL- The applicable DC area is hereby designated as
the District of Columbia Enterprise Zone. For purposes of this
title (except as otherwise provided in this subchapter), the
District of Columbia Enterprise Zone shall be treated as an
empowerment zone designated under subchapter U.
`(b) APPLICABLE DC AREA- For purposes of subsection (a), the term
`applicable DC area' means the area consisting of--
`(1) the census tracts located in the District of Columbia
which are part of an enterprise community designated under
subchapter U before the date of the enactment of this
subchapter, and
`(2) all other census tracts--
`(A) which are located in the District of Columbia, and
`(B) for which the poverty rate is not less than 35
percent.
`(c) DISTRICT OF COLUMBIA ENTERPRISE ZONE- For purposes of this
subchapter, the terms `District of Columbia Enterprise Zone' and
`DC Zone' mean the District of Columbia Enterprise Zone designated
by subsection (a).
`(d) SPECIAL RULE FOR APPLICATION OF EMPLOYMENT CREDIT- In the
case of the DC Zone, section 1396 (relating to empowerment zone
employment credit) shall be applied by substituting `20' for `15'
in the table contained in section 1396(b). The preceding sentence
shall apply only with respect to qualified zone employees, as
defined in section 1396(d), determined by treating no area other
than the DC Zone as an empowerment zone or enterprise community.
`(e) TIME FOR WHICH DESIGNATION APPLICABLE-
`(1) IN GENERAL- The designation made by subsection (a) shall
apply for the period beginning on January 1, 1998, and ending
on December 31, 2002.
`(2) COORDINATION WITH DC ENTERPRISE COMMUNITY DESIGNATED
UNDER SUBCHAPTER U- The designation as an enterprise community,
under subchapter U, of the census tracts referred to in
subsection (b)(1) shall terminate on December 31, 2002.
`SEC. 1400A. TAX-EXEMPT ECONOMIC DEVELOPMENT BONDS.
`(a) IN GENERAL- In the case of the District of Columbia
Enterprise Zone--
`(1) subsection (a) of section 1394 (relating to tax-exempt
facility bonds for empowerment zones and enterprise
communities) applies only with respect to bonds issued by the
Economic Development Corporation, and
`(2) subparagraph (A) of section 1394(c)(1) (relating to
limitation on amount of bonds) shall be applied by substituting
`$15,000,000' for `$3,000,000'.
`(b) ECONOMIC DEVELOPMENT CORPORATION- For purposes of this
section, the term `Economic Development Corporation' means an
entity which is created by Federal law in 1997 as part of the
District of Columbia government.
`(c) PERIOD OF APPLICABILITY- This section shall apply to bonds
issued during the period beginning on January 1, 1998, and ending
on December 31, 2002.
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