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American Association of Airport Executives &
Airports Council International - North America Legislative Affairs Representing the nation's airports in Washington, D.C. |
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H.R. 3448
`(D) INCREASE IN INFLATION ADJUSTMENT PERCENTAGE FOR
GROWTH DURING BASE YEARS- The inflation adjustment
percentage (determined under subparagraph (C) without
regard to this subparagraph) for each of the 5 taxable
years referred to in paragraph (5)(A) shall be increased by--
`(i) 5 percentage points in the case of a taxable
year ending during the 1-year period ending on October
13, 1995;
`(ii) 10.25 percentage points in the case of a
taxable year ending during the 1-year period ending on
October 13, 1994;
`(iii) 15.76 percentage points in the case of a
taxable year ending during the 1-year period ending on
October 13, 1993;
`(iv) 21.55 percentage points in the case of a
taxable year ending during the 1-year period ending on
October 13, 1992; and
`(v) 27.63 percentage points in the case of a taxable
year ending during the 1-year period ending on October
13, 1991.
`(5) BASE PERIOD YEAR- For purposes of this subsection--
`(A) IN GENERAL- The term `base period year' means each
of 3 taxable years which are among the 5 most recent
taxable years of the corporation ending before October 14,
1995, determined by disregarding--
`(i) one taxable year for which the corporation had
the largest inflation-adjusted possession income, and
`(ii) one taxable year for which the corporation had
the smallest inflation-adjusted possession income.
`(B) CORPORATIONS NOT HAVING SIGNIFICANT POSSESSION
INCOME THROUGHOUT 5-YEAR PERIOD-
`(i) IN GENERAL- If a corporation does not have
significant possession income for each of the most
recent 5 taxable years ending before October 14, 1995,
then, in lieu of applying subparagraph (A), the term
`base period year' means only those taxable years (of
such 5 taxable years) for which the corporation has
significant possession income; except that, if such
corporation has significant possession income for 4 of
such 5 taxable years, the rule of subparagraph (A)(ii)
shall apply.
`(ii) SPECIAL RULE- If there is no year (of such 5
taxable years) for which a corporation has significant
possession income--
`(I) the term `base period year' means the first taxable year
ending on or after October 14, 1995, but
`(II) the amount of possession income for such year which is
taken into account under paragraph (4) shall be the amount which
would be determined if such year were a short taxable year ending
on September 30, 1995.
`(iii) SIGNIFICANT POSSESSION INCOME- For purposes of
this subparagraph, the term `significant possession
income' means possession income which exceeds 2 percent
of the possession income of the taxpayer for the
taxable year (of the period of 6 taxable years ending
with the first taxable year ending on or after October
14, 1995) having the greatest possession income.
`(C) ELECTION TO USE ONE BASE PERIOD YEAR-
`(i) IN GENERAL- At the election of the taxpayer, the
term `base period year' means--
`(I) only the last taxable year of the corporation ending in
calendar year 1992, or
`(II) a deemed taxable year which includes the first ten months
of calendar year 1995.
`(ii) BASE PERIOD INCOME FOR 1995- In determining the
adjusted base period income of the corporation for the
deemed taxable year under clause (i)(II), the
possession income shall be annualized and shall be
determined without regard to any extraordinary item.
`(iii) ELECTION- An election under this subparagraph
by any possession corporation may be made only for the
corporation's first taxable year beginning after
December 31, 1995, for which it is a possession
corporation. The rules of subclauses (II) and (III) of
subsection (a)(4)(B)(iii) shall apply to the election
under this subparagraph.
`(D) ACQUISITIONS AND DISPOSITIONS- Rules similar to the
rules of subparagraphs (A) and (B) of section 41(f)(3)
shall apply for purposes of this subsection.
`(6) POSSESSION INCOME- For purposes of this subsection, the
term `possession income' means, with respect to any possession,
the income referred to in subsection (a)(1)(A) determined with
respect to that possession. In no event shall possession income
be treated as being less than zero.
`(7) SHORT YEARS- If the current year or a base period year
is a short taxable year, the application of this subsection
shall be made with such annualizations as the Secretary shall
prescribe.
`(8) SPECIAL RULES FOR CERTAIN POSSESSIONS-
`(A) IN GENERAL- In the case of an existing credit
claimant with respect to an applicable possession, this
section (other than the preceding paragraphs of this
subsection) shall apply to such claimant with respect to
such applicable possession for taxable years beginning
after December 31, 1995, and before January 1, 2006.
`(B) APPLICABLE POSSESSION- For purposes of this
paragraph, the term `applicable possession' means Guam,
American Samoa, and
the Commonwealth of the Northern Mariana Islands.
`(9) EXISTING CREDIT CLAIMANT- For purposes of this
subsection--
`(A) IN GENERAL- The term `existing credit claimant'
means a corporation--
`(i)(I) which was actively conducting a trade or
business in a possession on October 13, 1995, and
`(II) with respect to which an election under this
section is in effect for the corporation's taxable year
which includes October 13, 1995, or
`(ii) which acquired all of the assets of a trade or
business of a corporation which--
`(I) satisfied the requirements of subclause (I) of clause (i)
with respect to such trade or busi-ness, and
`(II) satisfied the requirements of subclause (II) of clause (i).
`(B) NEW LINES OF BUSINESS PROHIBITED- If, after October
13, 1995, a corporation which would (but for this
subparagraph) be an existing credit claimant adds a
substantial new line of business (other than in an
acquisition described in subparagraph (A)(ii)), such
corporation shall cease to be treated as an existing credit
claimant as of the close of the taxable year ending before
the date of such addition.
`(C) BINDING CONTRACT EXCEPTION- If, on October 13, 1995,
and at all times thereafter, there is in effect with
respect to a corporation a binding contract for the
acquisition of assets to be used in, or for the sale of
assets to be produced from, a trade or business, the
corporation shall be treated for purposes of this paragraph
as actively conducting such trade or business on October
13, 1995. The preceding sentence shall not apply if such
trade or business is not actively conducted before January
1, 1996.
`(10) SEPARATE APPLICATION TO EACH POSSESSION- For purposes
of determining--
`(A) whether a taxpayer is an existing credit claim-ant,
and
`(B) the amount of the credit allowed under this section,
this subsection (and so much of this section as relates to this
subsection) shall be applied separately with respect to each
possession.'.
(b) ECONOMIC ACTIVITY CREDIT FOR PUERTO RICO-
(1) IN GENERAL- Subpart B of part IV of subchapter A of
chapter 1 is amended by adding at the end the following new
section:
`SEC. 30A. PUERTO RICAN ECONOMIC ACTIVITY CREDIT.
`(a) ALLOWANCE OF CREDIT-
`(1) IN GENERAL- Except as otherwise provided in this
section, if the conditions of both paragraph (1) and paragraph
(2) of subsection (b) are satisfied with respect to a qualified
domestic corporation, there shall be allowed as a credit
against the tax imposed by this chapter an amount equal to the
portion of the tax which is attributable to the taxable income,
from sources without the United States, from--
`(A) the active conduct of a trade or business within
Puerto Rico, or
`(B) the sale or exchange of substantially all of the
assets used by the taxpayer in the active conduct of such
trade or business.
In the case of any taxable year beginning after December 31,
2001, the aggregate amount of taxable income taken into account
under the preceding sentence (and in applying subsection (d))
shall not exceed the adjusted base period income of such
corporation, as determined in the same manner as under section
936(j).
`(2) QUALIFIED DOMESTIC CORPORATION- For purposes of
paragraph (1), the term `qualified domestic corporation' means
a domestic corporation--
`(A) which is an existing credit claimant with respect to
Puerto Rico, and
`(B) with respect to which section 936(a)(4)(B) does not
apply for the taxable year.
`(3) SEPARATE APPLICATION- For purposes of deter-mining--
`(A) whether a taxpayer is an existing credit claimant
with respect to Puerto Rico, and
`(B) the amount of the credit allowed under this section,
this section (and so much of section 936 as relates to this
section) shall be applied separately with respect to Puerto Rico.
`(b) CONDITIONS WHICH MUST BE SATISFIED- The conditions referred
to in subsection (a) are--
`(1) 3-YEAR PERIOD- If 80 percent or more of the gross income
of the qualified domestic corporation for the 3-year period
immediately preceding the close of the taxable year (or for
such part of such period immediately preceding the close of
such taxable year as may be applicable) was derived from
sources within a possession (determined without regard to
section 904(f)).
`(2) TRADE OR BUSINESS- If 75 percent or more of the gross
income of the qualified domestic corporation for such period or
such part thereof was derived from the active conduct of a
trade or business within a possession.
`(c) CREDIT NOT ALLOWED AGAINST CERTAIN TAXES- The credit
provided by subsection (a) shall not be allowed against the tax
imposed by--
`(1) section 59A (relating to environmental tax),
`(2) section 531 (relating to the tax on accumulated earnings),
`(3) section 541 (relating to personal holding company tax), or
`(4) section 1351 (relating to recoveries of foreign
expropriation losses).
`(d) LIMITATIONS ON CREDIT FOR ACTIVE BUSINESS INCOME- The amount
of the credit determined under subsection (a) for any taxable year
shall not exceed the sum of the following amounts:
`(1) 60 percent of the sum of--
`(A) the aggregate amount of the qualified domestic
corporation's qualified possession wages for such taxable
year, plus
`(B) the allocable employee fringe benefit expenses of
the qualified domestic corporation for such taxable year.
`(2) The sum of--
`(A) 15 percent of the depreciation allowances for the
taxable year with respect to short-life qualified tangible
property,
`(B) 40 percent of the depreciation allowances for the
taxable year with respect to medium-life qualified tangible
property, and
`(C) 65 percent of the depreciation allowances for the
taxable year with respect to long-life qualified tangible
property.
`(3) If the qualified domestic corporation does not have an
election to use the method described in section
936(h)(5)(C)(ii) (relating to profit split) in effect for the
taxable year, the amount of the qualified possession income
taxes for the taxable year allocable to nonsheltered income.
`(e) ADMINISTRATIVE PROVISIONS- For purposes of this title--
`(1) the provisions of section 936 (including any applicable
election thereunder) shall apply in the same manner as if the
credit under this section were a credit under section
936(a)(1)(A) for a domestic corporation to which section
936(a)(4)(A) applies,
`(2) the credit under this section shall be treated in the
same manner as the credit under section 936, and
`(3) a corporation to which this section applies shall be
treated in the same manner as if it were a corporation electing
the application of section 936.
`(f) DEFINITIONS- For purposes of this section, any term used in
this section which is also used in section 936 shall have the same
meaning given such term by section 936.
`(g) APPLICATION OF SECTION- This section shall apply to taxable
years beginning after December 31, 1995, and before January 1,
2006.'.
(2) CONFORMING AMENDMENTS-
(A) Paragraph (1) of section 55(c) is amended by striking
`and the section 936 credit allowable under section 27(b)'
and inserting `, the section 936 credit allowable under
section 27(b), and the Puerto Rican economic activity
credit under section 30A'.
(B) Subclause (I) of section 56(g)(4)(C)(ii) is amended--
(i) by inserting `30A,' before `936', and
(ii) by striking `and (i)' and inserting `, (i), and
(j)'.
(C) Clause (iii) of section 56(g)(4)(C) is amended by
adding at the end the following new subclause:
`(VI) APPLICATION TO SECTION 30A CORPORATIONS- References in this
clause to section 936 shall be treated as including references to
section 30A.'.
(D) Subsection (b) of section 59 is amended by striking
`section 936,' and all that follows and inserting `section
30A or 936, alternative minimum taxable income shall not
include any income with respect to which a credit is
determined under section 30A or 936.'.
(E) The table of sections for subpart B of part IV of
subchapter A of chapter 1 is amended by adding at the end
the following new item:
`Sec. 30A. Puerto Rican economic activity credit.'.
(F)(i) The heading for subpart B of part IV of subchapter
A of chapter 1 is amended to read as follows:
`SUBPART B--OTHER CREDITS'.
(ii) The table of subparts for part IV of subchapter A of
chapter 1 is amended by striking the item relating to
subpart B and inserting the following new item:
`SUBPART B. OTHER CREDITS.'.
(c) EFFECTIVE DATE-
(1) IN GENERAL- Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years
beginning after December 31, 1995.
(2) SPECIAL RULE FOR QUALIFIED POSSESSION SOURCE INVESTMENT
INCOME- The amendments made by this section shall not apply to
qualified possession source investment income received or
accrued before July 1, 1996, without regard to the taxable year
in which received or accrued.
(3) SPECIAL TRANSITION RULE FOR PAYMENT OF ESTIMATED TAX
INSTALLMENT- In determining the amount of any installment due
under section 6655 of the Internal Revenue Code of 1986 after
the date of the enactment of this Act and before October 1,
1996, only 1/2 of any increase in tax (for the taxable year
for which such installment is made) by reason of the amendments
made by subsections (a) and (b) shall be taken into account.
Any reduction in such installment by reason of the preceding
sentence shall be recaptured by increasing the next required
installment for such year by the amount of such reduction.
SEC. 1602. REPEAL OF EXCLUSION FOR INTEREST ON LOANS USED TO
ACQUIRE EMPLOYER SECURITIES.
(a) IN GENERAL- Section 133 (relating to interest on certain
loans used to acquire employer securities) is hereby repealed.
(b) CONFORMING AMENDMENTS-
(1) Subparagraph (B) of section 291(e)(1) is amended by
striking clause (iv) and by redesignating clause (v) as clause
(iv).
(2) Section 812 is amended by striking subsection (g).
(3) Paragraph (5) of section 852(b) is amended by striking
subparagraph (C).
(4) Paragraph (2) of section 4978(b) is amended by striking
subparagraph (A) and all that follows and inserting the
following:
`(A) first from qualified securities to which section
1042 applied acquired during the 3-year period ending on
the date of the disposition, beginning with the securities
first so acquired, and
`(B) then from any other employer securities.
If subsection (d) applies to a disposition, the disposition
shall be treated as made from employer securities in the
opposite order of the preceding sentence.'.
(5)(A) Section 4978B (relating to tax on disposition of
employer securities to which section 133 applied) is hereby
repealed.
(B) The table of sections for chapter 43 is amended by
striking the item relating to section 4978B.
(6) Subsection (e) of section 6047 is amended by striking
paragraphs (1), (2), and (3) and inserting the following new
paragraphs:
`(1) any employer maintaining, or the plan administrator
(within the meaning of section 414(g)) of, an employee stock
ownership plan which holds stock with respect to which section
404(k) applies to dividends paid on such stock, or
`(2) both such employer or plan administrator,'.
(7) Subsection (f) of section 7872 is amended by striking
paragraph (12).
(8) The table of sections for part III of subchapter B of
chapter 1 is amended by striking the item relating to section
133.
(c) EFFECTIVE DATE-
(1) IN GENERAL- The amendments made by this section shall
apply to loans made after the date of the enactment of this Act.
(2) REFINANCINGS- The amendments made by this section shall
not apply to loans made after the date of the enactment of this
Act to refinance securities acquisition loans (determined
without regard to section 133(b)(1)(B) of the Internal Revenue
Code of 1986, as in effect on the day before the date of the
enactment of this Act) made on or before such date or to
refinance loans described in this paragraph if--
(A) the refinancing loans meet the requirements of
section 133 of such Code (as so in effect),
(B) immediately after the refinancing the principal
amount of the loan resulting from the refinancing does not
exceed the principal amount of the refinanced loan
(immediately before the refinancing), and
(C) the term of such refinancing loan does not extend
beyond the last day of the term of the original securities
acquisition loan.
For purposes of this paragraph, the term `securities
acquisition loan' includes a loan from a corporation to an
employee stock ownership plan described in section 133(b)(3) of
such Code (as so in effect).
(3) EXCEPTION- Any loan made pursuant to a binding written
contract in effect before June 10, 1996, and at all times
thereafter before such loan is made, shall be treated for
purposes of paragraphs (1) and (2) as a loan made on or before
the date of the enactment of this Act.
SEC. 1603. CERTAIN AMOUNTS DERIVED FROM FOREIGN CORPORATIONS
TREATED AS UNRELATED BUSINESS TAXABLE INCOME.
(a) GENERAL RULE- Subsection (b) of section 512 (relating to
modifications) is amended by adding at the end the following new
paragraph:
`(17) TREATMENT OF CERTAIN AMOUNTS DERIVED FROM FOREIGN
CORPORATIONS-
`(A) IN GENERAL- Notwithstanding paragraph (1), any
amount included in gross income under section 951(a)(1)(A)
shall be included as an item of gross income derived from
an unrelated trade or business to the extent the amount so
included is attributable to insurance income (as defined in
section 953) which, if derived directly by the
organization, would be treated as gross income from an
unrelated trade or business. There shall be allowed all
deductions directly connected with amounts included in
gross income under the preceding sentence.
`(B) EXCEPTION-
`(i) IN GENERAL- Subparagraph (A) shall not apply to
income attributable to a policy of insurance or
reinsurance with respect to which the person (directly
or indirectly) insured is--
`(I) such organization,
`(II) an affiliate of such organization which is exempt from tax
under section 501(a), or
`(III) a director or officer of, or an individual who (directly
or indirectly) performs services for, such organization or
affiliate but only if the insurance covers primarily risks
associated with the performance of services in connection with such
organization or affiliate.
`(ii) AFFILIATE- For purposes of this subparagraph--
`(I) IN GENERAL- The determination as to whether an entity is an
affiliate of an organization shall be made under rules similar to
the rules of section 168(h)(4)(B).
`(II) SPECIAL RULE- Two or more organizations (and any affiliates
of such organizations) shall be treated as affiliates if such
organizations are colleges or universities described in section
170(b)(1)(A)(ii) or organizations described in section
170(b)(1)(A)(iii) and participate in an insurance arrangement that
provides for any profits from such arrangement to be returned to
the policyholders in their capacity as such.
`(C) REGULATIONS- The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out
the purposes of this paragraph, including regulations for
the application of this paragraph in the case of income
paid through 1 or more entities or between 2 or more chains
of entities.'.
(b) EFFECTIVE DATE- The amendment made by this section shall
apply to amounts included in gross income in any taxable year
beginning after December 31, 1995.
SEC. 1604. DEPRECIATION UNDER INCOME FORECAST METHOD.
(a) GENERAL RULE- Section 167 (relating to depreciation) is
amended by redesignating subsection (g) as subsection (h) and by
inserting after subsection (f) the following new subsection:
`(g) DEPRECIATION UNDER INCOME FORECAST METHOD-
`(1) IN GENERAL- If the depreciation deduction allowable
under this section to any taxpayer with respect to any property
is determined under the income forecast method or any similar
method--
`(A) the income from the property to be taken into
account in determining the depreciation deduction under
such method shall be equal to the amount of income earned
in connection with the property before the close of the
10th taxable year following the taxable year in which the
property was placed in service,
`(B) the adjusted basis of the property shall only
include amounts with respect to which the requirements of
section 461(h) are satisfied,
`(C) the depreciation deduction under such method for the
10th taxable year beginning after the taxable year in which
the property was placed in service shall be equal to the
adjusted basis of such property as of the beginning of such
10th taxable year, and
`(D) such taxpayer shall pay (or be entitled to receive)
interest computed under the look-back method of paragraph
(2) for any recomputation year.
`(2) LOOK-BACK METHOD- The interest computed under the
look-back method of this paragraph for any recomputation year
shall be determined by--
`(A) first determining the depreciation deductions under
this section with respect to such property which would have
been allowable for prior taxable years if the determination
of the amounts so allowable had been made on the basis of
the sum of the following (instead of the estimated income
from such property)--
`(i) the actual income earned in connection with such
property for periods before the close of the
recomputation year, and
`(ii) an estimate of the future income to be earned
in connection with such property for periods after the
recomputation year and before the close of the 10th
taxable year following the taxable year in which the
property was placed in service,
`(B) second, determining (solely for purposes of
computing such interest) the overpayment or underpayment of
tax for each such prior taxable year which would result
solely from the application of subparagraph (A), and
`(C) then using the adjusted overpayment rate (as defined
in section 460(b)(7)), compounded daily, on the overpayment
or underpayment determined under subparagraph (B).
For purposes of the preceding sentence, any cost incurred after
the property is placed in service (which is not treated as a
separate property under paragraph (5)) shall be taken into
account by discounting (using the Federal mid-term rate
determined under section 1274(d) as of the time such cost is
incurred) such cost to its value as of the date the property is
placed in service. The taxpayer may elect with respect to any
property to have the preceding sentence not apply to such
property.
`(3) EXCEPTION FROM LOOK-BACK METHOD- Paragraph (1)(D) shall
not apply with respect to any property which had a cost basis
of $100,000 or less.
`(4) RECOMPUTATION YEAR- For purposes of this subsection,
except as provided in regulations, the term `recomputation
year' means, with respect to any property, the 3d and the 10th
taxable years beginning after the taxable year in which the
property was placed in service, unless the actual income earned
in connection with the property for the period before the close
of such 3d or 10th taxable year is within 10 percent of the
income earned in connection with the property for such period
which was taken into account under paragraph (1)(A).
`(5) SPECIAL RULES-
`(A) CERTAIN COSTS TREATED AS SEPARATE PROPERTY- For
purposes of this subsection, the following costs shall be
treated as separate properties:
`(i) Any costs incurred with respect to any property
after the 10th taxable year beginning after the taxable
year in which the property was placed in service.
`(ii) Any costs incurred after the property is placed
in service and before the close of such 10th taxable
year if such costs are significant and give rise to a
significant increase in the income from the property
which was not included in the estimated income from the
property.
`(B) SYNDICATION INCOME FROM TELEVISION SERIES- In the
case of property which
is 1 or more episodes in a television series, income from
syndicating such series shall not be required to be taken into
account under this subsection before the earlier of--
`(i) the 4th taxable year beginning after the date
the first episode in such series is placed in service, or
`(ii) the earliest taxable year in which the taxpayer
has an arrangement relating to the future syndication
of such series.
`(C) SPECIAL RULES FOR FINANCIAL EXPLOITATION OF
CHARACTERS, ETC- For purposes of this subsection, in the
case of television and motion picture films, the income
from the
property shall include income from the exploitation of characters,
designs, scripts, scores, and other incidental income associated
with such films, but only to the extent that such income is earned
in connection with the ultimate use of such items by, or the
ultimate sale of merchandise to, persons who are not related
persons (within the meaning of section 267(b)) to the taxpayer.
`(D) COLLECTION OF INTEREST- For purposes of subtitle F
(other than sections 6654 and 6655), any interest required
to be paid by the taxpayer under paragraph (1) for any
recomputation year shall be treated as an increase in the
tax imposed by this chapter for such year.
`(E) DETERMINATIONS- For purposes of paragraph (2),
determinations of the amount of income earned in connection
with any property shall be made in the same manner as for
purposes of applying the income forecast method; except
that any income from the disposition of such property shall
be taken into account.
`(F) TREATMENT OF PASS-THRU ENTITIES- Rules similar to
the rules of section 460(b)(4) shall apply for purposes of
this subsection.'
(b) EFFECTIVE DATE-
(1) IN GENERAL- The amendment made by subsection (a) shall
apply to property placed in service after September 13, 1995.
(2) BINDING CONTRACTS- The amendment made by subsection (a)
shall not apply to any property produced or acquired by the
taxpayer pursuant to a written contract which was binding on
September 13, 1995, and at all times thereafter before such
production or acquisition.
(3) UNDERPAYMENTS OF INCOME TAX- No addition to tax shall be
made under section 6662 of such Code as a result of the
application of subsection (d) of that section (relating to
substantial understatements of income tax) with respect to any
underpayment of income tax for any taxable year ending before
such date of enactment, to the extent such underpayment was
created or increased by the amendments made by subsection (a).
SEC. 1605. REPEAL OF EXCLUSION FOR PUNITIVE DAMAGES AND FOR DAMAGES
NOT ATTRIBUTABLE TO PHYSICAL INJURIES OR SICKNESS.
(a) IN GENERAL- Paragraph (2) of section 104(a) (relating to
compensation for injuries or sickness) is amended to read as follows:
`(2) the amount of any damages (other than punitive damages)
received (whether by suit or agreement and whether as lump sums
or as periodic payments) on account of personal physical
injuries or physical sickness;'.
(b) EMOTIONAL DISTRESS AS SUCH TREATED AS NOT PHYSICAL INJURY OR
PHYSICAL SICKNESS- Section 104(a) is amended by striking the last
sentence and inserting the following new sentence: `For purposes of
paragraph (2), emotional distress shall not be treated as a
physical injury or physical sickness. The preceding sentence shall
not apply to an amount of damages not in excess of the amount paid
for medical care (described in subparagraph (A) or (B) of section
213(d)(1)) attributable to emotional distress.'.
(c) APPLICATION OF PRIOR LAW FOR STATES IN WHICH ONLY PUNITIVE
DAMAGES MAY BE AWARDED IN WRONGFUL DEATH ACTIONS- Section 104 is
amended by redesignating subsection (c) as subsection (d) and by
inserting after subsection (b) the following new subsection:
`(c) APPLICATION OF PRIOR LAW IN CERTAIN CASES- The phrase
`(other than punitive damages)' shall not apply to punitive damages
awarded in a civil action--
`(1) which is a wrongful death action, and
`(2) with respect to which applicable State law (as in effect
on September 13, 1995 and without regard to any modification
after such date) provides, or has been construed to provide by
a court of competent jurisdiction pursuant to a decision issued
on or before September 13, 1995, that only punitive damages may
be awarded in such an action.
This subsection shall cease to apply to any civil action filed on
or after the first date on which the applicable State
law ceases to provide (or is no longer construed to provide) the
treatment described in paragraph (2).'.
(d) EFFECTIVE DATE-
(1) IN GENERAL- Except as provided in paragraph (2), the
amendments made by this section shall apply to amounts received
after the date of the enactment of this Act, in taxable years
ending after such date.
(2) EXCEPTION- The amendments made by this section shall not
apply to any amount received under a written binding agreement,
court decree, or mediation award in effect on (or issued on or
before) September 13, 1995.
SEC. 1606. REPEAL OF DIESEL FUEL TAX REBATE TO PURCHASERS OF
DIESEL-POWERED AUTOMOBILES AND LIGHT TRUCKS.
(a) IN GENERAL- Section 6427 (relating to fuels not used for
taxable purposes) is amended by striking subsection (g).
(b) CONFORMING AMENDMENTS-
(1) Paragraph (3) of section 34(a) is amended to read as
follows:
`(3) under section 6427 with respect to fuels used for
nontaxable purposes or resold during the taxable year
(determined without regard to section 6427(k)).'.
(2) Paragraphs (1) and (2)(A) of section 6427(i) are each
amended--
(A) by striking `(g),', and
(B) by striking `(or a qualified diesel powered highway
vehicle purchased)' each place it appears.
(c) EFFECTIVE DATE- The amendments made by this section shall
apply to vehicles purchased after the date of the enactment of this
Act.
SEC. 1607. EXTENSION AND PHASEDOWN OF LUXURY PASSENGER AUTOMOBILE
TAX.
(a) EXTENSION- Subsection (f) of section 4001 is amended by
striking `1999' and inserting `2002'.
(b) PHASEDOWN- Section 4001 is amended by redesignating
subsection (f) (as amended by subsection (a) of this section) as
subsection (g) and by inserting after subsection (e) the following
new subsection:
`(f) PHASEDOWN- For sales occurring in calendar years after 1995
and before 2003, subsection (a) shall be applied by substituting
for `10 percent' the percentage determined in accordance with the
following table:
[Bold->] `If the calendar year is: [<-Bold]
-- [Bold->] The percentage is: [<-Bold]
1996
--9 percent
1997
--8 percent
1998
--7 percent
1999
--6 percent
2000
--5 percent
2001
--4 percent
2002
--3 percent .'.
(c) EFFECTIVE DATE- The amendments made by this section shall
apply with respect to sales occurring after the date which is 7
days after the date of the enactment of this Act.
SEC. 1608. TERMINATION OF FUTURE TAX-EXEMPT BOND FINANCING FOR
LOCAL FURNISHERS OF ELECTRICITY AND GAS.
(a) IN GENERAL- Section 142(f) (relating to local furnishing of
electric energy or gas) is amended by adding at the end the
following new paragraphs:
`(3) TERMINATION OF FUTURE FINANCING- For purposes of this
section, no bond may be issued as part of an issue described in
subsection (a)(8) with respect to a facility for the local
furnishing of electric energy or gas on or after the date of
the enactment of this paragraph unless--
`(A) the facility will--
`(i) be used by a person who is engaged in the local
furnishing of that energy source on January 1, 1997, and
`(ii) be used to provide service within the area
served by such person on January 1, 1997, (or within a
county or city any portion of which is within such
area), or
`(B) the facility will be used by a successor in interest
to such person for the same use and within the same service
area as described in subparagraph (A).
`(4) ELECTION TO TERMINATE TAX-EXEMPT BOND FINANCING BY
CERTAIN FURNISHERS-
`(A) IN GENERAL- In the case of a facility financed with
bonds issued before the date of the enactment of this
paragraph which would cease to be tax-exempt by reason of
the failure to meet the local furnishing requirement of
subsection (a)(8) as a result of a service area expansion,
such bonds shall not cease to be tax-exempt bonds (and
section 150(b)(4) shall not apply) if the person engaged in
such local furnishing by such facility makes an election
described in subparagraph (B).
`(B) ELECTION- An election is described in this
subparagraph if it is an election made in such manner as
the Secretary prescribes, and such person (or its
predecessor in interest) agrees that--
`(i) such election is made with respect to all
facilities for the local furnishing of electric energy
or gas, or both, by such person,
`(ii) no bond exempt from tax under section 103 and
described in subsection (a)(8) may be issued on or
after the date of the enactment of this paragraph with
respect to all such facilities of such person,
`(iii) any expansion of the service area--
`(I) is not financed with the proceeds of any exempt facility
bond described in subsection (a)(8), and
`(II) is not treated as a nonqualifying use under the rules of
paragraph (2), and
`(iv) all outstanding bonds used to finance the
facilities for such person are redeemed not later than
6 months after the later of--
`(I) the earliest date on which such bonds may be redeemed, or
`(II) the date of the election.
`(C) RELATED PERSONS- For purposes of this paragraph, the
term `person' includes a group of related persons (within
the meaning of section 144(a)(3)) which includes such
person.'.
(b) NO INFERENCE WITH RESPECT TO OUTSTANDING BONDS- The use of
the term `person' in section 142(f)(3) of the Internal Revenue Code
of 1986, as added by subsection (a), shall not be construed to
affect the tax-exempt status of interest on any bonds issued before
the date of the enactment of this Act.
SEC. 1609. EXTENSION OF AIRPORT AND AIRWAY TRUST FUND EXCISE TAXES.
(a) FUEL TAX-
(1) Subparagraph (A) of section 4091(b)(3) is amended to read
as follows:
`(A) The rate of tax specified in paragraph (1) shall be
4.3 cents per gallon--
`(i) after December 31, 1995, and before the date
which is 7 calendar days after the date of the
enactment of the Small Business Job Protection Act of
1996, and
`(ii) after December 31, 1996.'.
(2) Section 4081(d) is amended--
(A) by adding at the end the following new paragraph:
`(3) AVIATION GASOLINE- After December 31, 1996, the rate of
tax specified in subsection (a)(2)(A)(i) on aviation gasoline
shall be 4.3 cents per gallon.', and
(B) by inserting `(other than the tax on aviation
gasoline)' after `subsection (a)(2)(A)'.
(3) Section 4041(c)(5) is amended by inserting `, and during
the period beginning on the date which is 7 calendar days after
the date of the enactment of the Small Business Job Protection
Act of 1996 and ending on December 31, 1996' after `December
31, 1995'.
(b) TICKET TAXES- Sections 4261(g) and 4271(d) are each amended
by striking `January 1, 1996' and inserting `January 1, 1996, and
to transportation beginning on or after the date which is 7
calendar days after the date of the enactment of the Small Business
Job Protection Act of 1996 and before January 1, 1997'.
(c) TRANSFERS TO AIRPORT AND AIRWAY TRUST FUND-
(1) Subsection (b) of section 9502 is amended by striking
`January 1, 1996' each place it appears and inserting `January
1, 1997'.
(2) Paragraph (3) of section 9502(f) is amended to read as
follows:
`(3) TERMINATION- Notwithstanding the preceding provisions of
this subsection, the Airport and Airway Trust Fund financing
rate shall be zero with respect to--
`(A) taxes imposed after December 31, 1995, and before
the date which is 7 calendar days after the date of the
enactment of the Small Business Job Protection Act of 1996,
and
`(B) taxes imposed after December 31, 1996.'.
(3) Subsection (d) of section 9502 is amended by adding at
the end the following new paragraph:
`(5) TRANSFERS FROM AIRPORT AND AIRWAY TRUST FUND ON ACCOUNT
OF REFUNDS OF TAXES ON TRANSPORTATION BY AIR- The Secretary of
the Treasury shall pay from time to time from the Airport and
Airway Trust Fund into the general fund of the Treasury amounts
equivalent to the amounts paid after December 31, 1995, under
section 6402 (relating to authority to make credits or refunds)
or section 6415 (relating to credits or refunds to persons who
collected certain taxes) in respect of taxes under sections
4261 and 4271.'.
(d) EXCISE TAX EXEMPTION FOR CERTAIN EMERGENCY MEDICAL
TRANSPORTATION BY AIR AMBULANCE- Subsection (f) of section 4261
(relating to imposition of tax on transportation by air) is amended
to read as follows:
`(f) EXEMPTION FOR AIR AMBULANCES PROVIDING CERTAIN EMERGENCY
MEDICAL TRANSPORTATION- No tax shall be imposed under this section
or section 4271 on any air transportation for the purpose of
providing emergency medical services--
`(1) by helicopter, or
`(2) by a fixed-wing aircraft equipped for and exclusively
dedicated to acute care emergency medical services.'.
(e) EXEMPTION FOR CERTAIN HELICOPTER USES- Subsection (e) of
section 4261 is amended by adding at the end the following new
sentence: `In the case of helicopter transportation described in
paragraph (1), this subsection shall be applied by treating each
flight segment as a distinct flight.'.
(f) FLIGHT-BY-FLIGHT DETERMINATION OF AVAILABILITY FOR HIRE FOR
AFFILIATED GROUPS- Section 4282 is amended by redesignating
subsection (b) as subsection (c) and by inserting after subsection
(a) the following new subsection:
`(b) AVAILABILITY FOR HIRE- For purposes of subsection (a), the
determination of whether an aircraft is available for hire by
persons who are not members of an affiliated group shall be made on
a flight-by-flight basis.'
(g) CONSOLIDATION OF TAXES ON AVIATION GASOLINE-
(1) IN GENERAL- Subparagraph (A) of section 4081(a)(2)
(relating to imposition of tax on gasoline and diesel fuel) is
amended by redesignating clause (ii) as clause (iii) and by
striking clause (i) and inserting the following:
`(i) in the case of gasoline other than aviation
gasoline, 18.3 cents per gallon,
`(ii) in the case of aviation gasoline, 19.3 cents
per gallon, and'.
(2) TERMINATION- Subsection (d) of section 4081 is amended by
redesignating paragraph (2) as paragraph (3) and by inserting
after paragraph (1) the following new paragraph:
`(2) AVIATION GASOLINE- On and after January 1, 1997, the
rate specified in subsection (a)(2)(A)(ii) shall be 4.3 cents
per gallon.'
(3) REPEAL OF RETAIL LEVEL TAX-
(A) Subsection (c) of section 4041 is amended by striking
paragraphs (2) and (3) and by redesignating paragraphs (4)
and (5) as paragraphs (2) and (3), respectively.
(B) Paragraph (3) of section 4041(c), as redesignated by
paragraph (1), is amended by striking `paragraphs (1) and
(2)' and inserting `paragraph (1)'.
(4) CONFORMING AMENDMENTS-
(A) Paragraph (1) of section 4041(k) is amended by adding
`and' at the end of subparagraph (A), by striking `, and'
at the end of subparagraph (B) and inserting a period, and
by striking subparagraph (C).
(B) Paragraph (1) of section 4081(d) is amended by
striking `each rate of tax specified in subsection
(a)(2)(A)' and inserting `the rates of tax specified in
clauses (i) and (iii) of subsection (a)(2)(A)'.
(C) Sections 6421(f)(2)(A) and 9502(f)(1)(A) are each
amended by striking `section 4041(c)(4)' and inserting
`section 4041(c)(2)'.
(D) Paragraph (2) of section 9502(b) is amended by
striking `14 cents' and inserting `15 cents'.
(h) FLOOR STOCKS TAXES ON AVIATION FUEL-
(1) IMPOSITION OF TAX- In the case of aviation fuel on which
tax was imposed under section 4091 of the Internal Revenue Code
of 1986 before the tax-increase date described in paragraph
(3)(A)(i) and which is held on such date by any person, there
is hereby imposed a floor stocks tax of 17.5 cents per gallon.
(2) LIABILITY FOR TAX AND METHOD OF PAYMENT-
(A) LIABILITY FOR TAX- A person holding aviation fuel on
a tax-increase date to which the tax imposed by paragraph
(1) applies shall be liable for such tax.
(B) METHOD OF PAYMENT- The tax imposed by paragraph (1)
shall be paid in such manner as the Secretary shall
prescribe.
(C) TIME FOR PAYMENT- The tax imposed by paragraph (1)
with respect to any tax-increase date shall be paid on or
before the first day of the 7th month beginning after such
tax-increase date.
(3) DEFINITIONS- For purposes of this subsection--
(A) TAX INCREASE DATE- The term `tax-increase date' means
the date which is 7 calendar days after the date of the
enactment of this Act.
(B) AVIATION FUEL- The term `aviation fuel' has the
meaning given such term by section 4093 of such Code.
(C) HELD BY A PERSON- Aviation fuel shall be considered
as `held by a person' if title thereto has passed to such
person (whether or not delivery to the person has been made).
(D) SECRETARY- The term `Secretary' means the Secretary
of the Treasury or his delegate.
(4) EXCEPTION FOR EXEMPT USES- The tax imposed by paragraph
(1) shall not apply to aviation fuel held by any person on any
tax-increase date exclusively for any use for which a credit or
refund of the entire tax imposed by section 4091 of such Code
is allowable for aviation fuel purchased on or after such
tax-increase date for such use.
(5) EXCEPTION FOR CERTAIN AMOUNTS OF FUEL-
(A) IN GENERAL- No tax shall be imposed by paragraph (1)
on aviation fuel held on any tax-increase date by any
person if the aggregate amount of aviation fuel held by
such person on such date does not exceed 2,000 gallons. The
preceding sentence shall apply only if such person submits
to the Secretary (at the time and in the manner required by
the Secretary) such information as the Secretary shall
require for purposes of this paragraph.
(B) EXEMPT FUEL- For purposes of subparagraph (A), there
shall not be taken into account fuel held by any person
which is exempt from the tax imposed by paragraph (1) by
reason of paragraph (4).
(C) CONTROLLED GROUPS- For purposes of this paragraph--
(i) CORPORATIONS-
(I) IN GENERAL- All persons treated as a controlled group shall
be treated as 1 person.
(II) CONTROLLED GROUP- The term `controlled group' has the
meaning given to such term by subsection (a) of section 1563 of
such Code; except that for such purposes the phrase `more than 50
percent' shall be substituted for the phrase `at least 80 percent'
each place it appears in such subsection.
(ii) NONINCORPORATED PERSONS UNDER COMMON CONTROL-
Under regulations prescribed by the Secretary,
principles similar to the principles of clause (i)
shall apply to a group of persons under common control
where 1 or more of such persons is not a corporation.
(6) OTHER LAW APPLICABLE- All provisions of law, including
penalties, applicable with respect to the taxes imposed by
section 4091 of such Code shall, insofar as applicable and not
inconsistent with the provisions of this subsection, apply with
respect to the floor stock taxes imposed by paragraph (1) to
the same extent as if such taxes were imposed by such section
4091.
(i) EFFECTIVE DATE- The amendments made by this section shall
take effect on the 7th calendar day after the date of the enactment
of this Act, except that the amendments made by subsection (b)
shall not apply to any amount paid before such date.
SEC. 1610. BASIS ADJUSTMENT TO PROPERTY HELD BY CORPORATION WHERE
STOCK IN CORPORATION IS REPLACEMENT PROPERTY UNDER INVOLUNTARY
CONVERSION RULES.
(a) IN GENERAL- Subsection (b) of section 1033 is amended to read
as follows:
`(b) BASIS OF PROPERTY ACQUIRED THROUGH INVOLUNTARY CONVERSION-
`(1) CONVERSIONS DESCRIBED IN SUBSECTION (a)(1)- If the
property was acquired as the result of a compulsory or
involuntary conversion described in subsection (a)(1), the
basis shall be the same as in the case of the property so
converted--
`(A) decreased in the amount of any money received by the
taxpayer which was not expended in accordance with the
provisions of law (applicable to the year in which such
conversion was made) determining the taxable status of the
gain or loss upon such conversion, and
`(B) increased in the amount of gain or decreased in the
amount of loss to the taxpayer recognized upon such
conversion under the law applicable to the year in which
such conversion was made.
`(2) CONVERSIONS DESCRIBED IN SUBSECTION (a)(2)- In the case
of property purchased by the taxpayer in a transaction
described in subsection (a)(2) which resulted in the
nonrecognition of any part of the gain realized as the result
of a compulsory or involuntary conversion, the basis shall be
the cost of such property decreased in the amount of the gain
not so recognized; and if the property purchased consists of
more than 1 piece of property, the basis determined under this
sentence shall be allocated to the purchased properties in
proportion to their respective costs.
`(3) PROPERTY HELD BY CORPORATION THE STOCK OF WHICH IS
REPLACEMENT PROPERTY-
`(A) IN GENERAL- If the basis of stock in a corporation
is decreased under paragraph (2), an amount equal to such
decrease shall also be applied to reduce the basis of
property held by the corporation at the time the taxpayer
acquired control (as defined in subsection (a)(2)(E)) of
such corporation.
`(B) LIMITATION- Subparagraph (A) shall not apply to the
extent that it would (but for this subparagraph) require a
reduction in the aggregate adjusted bases of the property
of the corporation below the taxpayer's adjusted basis of
the stock in the corporation (determined immediately after
such basis is decreased under paragraph (2)).
`(C) ALLOCATION OF BASIS REDUCTION- The decrease required
under subparagraph (A) shall be allocated--
`(i) first to property which is similar or related in
service or use to the converted property,
`(ii) second to depreciable property (as defined in
section 1017(b)(3)(B)) not described in clause (i), and
`(iii) then to other property.
`(D) SPECIAL RULES-
`(i) REDUCTION NOT TO EXCEED ADJUSTED BASIS OF
PROPERTY- No reduction in the basis of any property
under this paragraph shall exceed the adjusted basis of
such property (determined without regard to such
reduction).
`(ii) ALLOCATION OF REDUCTION AMONG PROPERTIES- If
more than 1 property is described in a clause of
subparagraph (C), the reduction under this paragraph
shall be allocated among such property in proportion to
the adjusted bases of such property (as so determined).'.
(b) EFFECTIVE DATE- The amendment made by this section shall
apply to involuntary conversions occurring after the date of the
enactment of this Act.
SEC. 1611. TREATMENT OF CERTAIN INSURANCE CONTRACTS ON RETIRED LIVES.
(a) GENERAL RULE-
(1) Paragraph (2) of section 817(d) (defining variable
contract) is amended by striking `or' at the end of
subparagraph (A), by striking `and' at the end of subparagraph
(B) and inserting `or', and by inserting after subparagraph (B)
the following new subparagraph:
`(C) provides for funding of insurance on retired lives
as described in section 807(c)(6), and'.
(2) Paragraph (3) of section 817(d) is amended by striking
`or' at the end of subparagraph (A), by striking the period at
the end of subparagraph (B) and inserting `, or', and by
inserting after subparagraph (B) the following new subparagraph:
`(C) in the case of funds held under a contract described
in paragraph (2)(C), the amounts paid in, or the amounts
paid out, reflect the investment return and the market
value of the segregated asset account.'.
(b) EFFECTIVE DATE- The amendments made by this section shall
apply to taxable years beginning after December 31, 1995.
SEC. 1612. TREATMENT OF MODIFIED GUARANTEED CONTRACTS.
(a) GENERAL RULE- Subpart E of part I of subchapter L of chapter
1 (relating to definitions and special rules) is amended by
inserting after section 817 the following new section:
`SEC. 817A. SPECIAL RULES FOR MODIFIED GUARANTEED CONTRACTS.
`(a) COMPUTATION OF RESERVES- In the case of a modified
guaranteed contract, clause (ii) of section 807(e)(1)(A) shall not
apply.
`(b) SEGREGATED ASSETS UNDER MODIFIED GUARANTEED CONTRACTS MARKED
TO MARKET-
`(1) IN GENERAL- In the case of any life insurance company,
for purposes of this subtitle--
`(A) Any gain or loss with respect to a segregated asset
shall be treated as ordinary income or loss, as the case
may be.
`(B) If any segregated asset is held by such company as
of the close of any taxable year--
`(i) such company shall recognize gain or loss as if
such asset were sold for its fair market value on the
last business day of such taxable year, and
`(ii) any such gain or loss shall be taken into
account for such taxable year.
Proper adjustment shall be made in the amount of any gain
or loss subsequently realized for gain or loss taken into
account under the preceding sentence. The Secretary may
provide by regulations for the application of this
subparagraph at times other than the times provided in this
subparagraph.
`(2) SEGREGATED ASSET- For purposes of paragraph (1), the
term `segregated asset' means any asset held as part of a
segregated account referred to in subsection (d)(1) under a
modified guaranteed contract.
`(c) SPECIAL RULE IN COMPUTING LIFE INSURANCE RESERVES- For
purposes of applying section 816(b)(1)(A) to any modified
guaranteed contract, an assumed rate of interest shall include a
rate of interest determined, from time to time, with reference to a
market rate of interest.
`(d) MODIFIED GUARANTEED CONTRACT DEFINED- For purposes of this
section, the term `modified guaranteed contract' means a contract
not described in section 817--
`(1) all or part of the amounts received under which are
allocated to an account which, pursuant to State law or
regulation, is segregated from the general asset accounts of
the company and is valued from time to time with reference to
market values,
`(2) which--
`(A) provides for the payment of annuities,
`(B) is a life insurance contract, or
`(C) is a pension plan contract which is not a life,
accident, or health, property, casualty, or liability
contract,
`(3) for which reserves are valued at market for annual
statement purposes, and
`(4) which provides for a net surrender value or a
policyholder's fund (as defined in section 807(e)(1)).
If only a portion of a contract is not described in section 817,
such portion shall be treated for purposes of this section as a
separate contract.
`(e) REGULATIONS- The Secretary may prescribe regulations--
`(1) to provide for the treatment of market value adjustments
under sections 72, 7702, 7702A, and 807(e)(1)(B),
`(2) to determine the interest rates applicable under
sections 807(c)(3), 807(d)(2)(B), and 812 with respect to a
modified guaranteed contract annually, in a manner appropriate
for modified guaranteed contracts and, to the extent
appropriate for such a contract, to modify or waive the
applicability of section 811(d),
`(3) to provide rules to limit ordinary gain or loss
treatment to assets constituting reserves for modified
guaranteed contracts (and not other assets) of the company,
`(4) to provide appropriate treatment of transfers of assets
to and from the segregated account, and
`(5) as may be necessary or appropriate to carry out the
purposes of this section.'.
(b) CLERICAL AMENDMENT- The table of sections for subpart E of
part I of subchapter L of chapter 1 is amended by inserting after
the item relating to section 817 the following new item:
`Sec. 817A. Special rules for modified guaranteed contracts.'.
(c) Effective Date-
(1) IN GENERAL- The amendments made by this section shall
apply to taxable years beginning after December 31, 1995.
(2) TREATMENT OF NET ADJUSTMENTS- Except as provided in
paragraph (3), in the case of any taxpayer required by the
amendments made by this section to change its calculation of
reserves to take into account market value adjustments and to
mark segregated assets to market for any taxable year--
(A) such changes shall be treated as a change in method
of accounting initiated by the taxpayer,
(B) such changes shall be treated as made with the
consent of the Secretary, and
(C) the adjustments required by reason of section 481 of
the Internal Revenue Code of 1986, shall be taken into
account as ordinary income by the taxpayer for the
taxpayer's first taxable year beginning after December 31,
1995.
(3) LIMITATION ON LOSS RECOGNITION AND ON DEDUCTION FOR
RESERVE INCREASES-
(A) LIMITATION ON LOSS RECOGNITION-
(i) IN GENERAL- The aggregate loss recognized by
reason of the application of section 481 of the
Internal Revenue Code of 1986 with respect to section
817A(b) of such Code (as added by this section) for the
first taxable year of the taxpayer beginning after
December 31, 1995, shall not exceed the amount included
in the taxpayer's gross income for such year by reason
of the excess (if any) of--
(I) the amount of life insurance reserves as of the close of the
prior taxable year, over
(II) the amount of such reserves as of the beginning of such
first taxable year,
to the extent such excess is attributable to subsection
(a) of such section 817A. Notwithstanding the preceding
sentence, the adjusted basis of each segregated asset
shall be determined as if all such losses were
recognized.
(ii) DISALLOWED LOSS ALLOWED OVER PERIOD- The amount
of the loss which is not allowed under clause (i) shall
be allowed ratably over the period of 7 taxable years
beginning with the taxpayer's first taxable year
beginning after December 31, 1995.
(B) LIMITATION ON DEDUCTION FOR INCREASE IN RESERVES-
(i) IN GENERAL- The deduction allowed for the first
taxable year of the taxpayer beginning after December
31, 1995, by reason of the application of section 481
of such Code with respect to section 817A(a) of such
Code (as added by this section) shall not exceed the
aggregate built-in gain recognized by reason of the
application of such section 481 with respect to section
817A(b) of such Code (as added by this section) for
such first taxable year.
(ii) DISALLOWED DEDUCTION ALLOWED OVER PERIOD- The
amount of the deduction which is disallowed under
clause (i) shall be allowed ratably over the period of
7 taxable years beginning with the taxpayer's first
taxable year beginning after December 31, 1995.
(iii) BUILT-IN GAIN- For purposes of this
subparagraph, the built-in gain on an asset is the
amount equal to the excess of--
(I) the fair market value of the asset as of the beginning of the
first taxable year of the taxpayer beginning after December 31,
1995, over
(II) the adjusted basis of such asset as of such time.
SEC. 1613. TREATMENT OF CONTRIBUTIONS IN AID OF CONSTRUCTION.
(a) TREATMENT OF CONTRIBUTIONS IN AID OF CONSTRUCTION-
(1) IN GENERAL- Section 118 (relating to contributions to the
capital of a corporation) is amended--
(A) by redesignating subsection (c) as subsection (e), and
(B) by inserting after subsection (b) the following new
subsections:
`(c) SPECIAL RULES FOR WATER AND SEWERAGE DISPOSAL UTILITIES-
`(1) GENERAL RULE- For purposes of this section, the term
`contribution to the capital of the taxpayer' includes any
amount of money or other property received from any person
(whether or not a shareholder) by a regulated public utility
which provides water or sewerage disposal services if--
`(A) such amount is a contribution in aid of con-struction,
`(B) in the case of contribution of property other than
water or sewerage disposal facilities, such amount meets
the requirements of the expenditure rule of paragraph (2),
and
`(C) such amount (or any property acquired or constructed
with such amount) is not included in the taxpayer's rate
base for ratemaking purposes.
`(2) EXPENDITURE RULE- An amount meets the requirements of
this paragraph if--
`(A) an amount equal to such amount is expended for the
acquisition or construction of tangible property described
in section 1231(b)--
`(i) which is the property for which the
contribu-tion was made or is of the same type as such
property, and
`(ii) which is used predominantly in the trade or
business of furnishing water or sewerage disposal
services,
`(B) the expenditure referred to in subparagraph (A)
occurs before the end of the second taxable year after the
year in which such amount was received, and
`(C) accurate records are kept of the amounts contributed
and expenditures made, the expenditures to which
contributions are allocated, and the year in which the
contributions and expenditures are received and made.
`(3) DEFINITIONS- For purposes of this subsection--
`(A) CONTRIBUTION IN AID OF CONSTRUCTION- The term
`contribution in aid of construction' shall be defined by
regulations prescribed by the Secretary, except that such
term shall not include amounts paid as service charges for
starting or stopping services.
`(B) PREDOMINANTLY- The term `predominantly' means 80
percent or more.
`(C) REGULATED PUBLIC UTILITY- The term `regulated public
utility' has the meaning given such term by section
7701(a)(33), except that such term shall not include any
utility which is not required to provide water or sewerage
disposal services to members of the general public in its
service area.
`(4) DISALLOWANCE OF DEDUCTIONS AND CREDITS; ADJUSTED BASIS-
Notwithstanding any other provision of this subtitle, no
deduction or credit shall be allowed for, or by reason of, any
expenditure which constitutes a contribution in aid of
construction to which this subsection applies. The adjusted
basis of any property acquired with contributions in aid of
construction to which this subsection applies shall be zero.
`(d) STATUTE OF LIMITATIONS- If the taxpayer for any taxable year
treats an amount as a contribution to the capital of the taxpayer
described in subsection (c), then--
`(1) the statutory period for the assessment of any
deficiency attributable to any part of such amount shall not
expire before the expiration of 3 years from the date the
Secretary is notified by the taxpayer (in such manner as the
Secretary may prescribe) of--
`(A) the amount of the expenditure referred to in
subparagraph (A) of subsection (c)(2),
`(B) the taxpayer's intention not to make the
expenditures referred to in such subparagraph, or
`(C) a failure to make such expenditure within the period
described in subparagraph (B) of subsection (c)(2), and
`(2) such deficiency may be assessed before the expiration of
such 3-year period notwithstanding the provisions of any other
law or rule of law which would otherwise prevent such
assessment.'.
(2) CONFORMING AMENDMENT- Section 118(b) is amended by
inserting `except as provided in subsection (c),' before `the
term'.
(3) EFFECTIVE DATE- The amendments made by this subsection
shall apply to amounts received after June 12, 1996.
(b) RECOVERY METHOD AND PERIOD FOR WATER UTILITY PROPERTY-
(1) REQUIREMENT TO USE STRAIGHT LINE METHOD- Section
168(b)(3) is amended by adding at the end the following new
subparagraph:
`(F) Water utility property described in subsection
(e)(5).'.
(2) 25-YEAR RECOVERY PERIOD- The table contained in section
168(c)(1) is amended by inserting the following item after the
item relating to 20-year property:
`Water utility property
25 years'.
(3) WATER UTILITY PROPERTY-
(A) IN GENERAL- Section 168(e) is amended by adding at
the end the following new paragraph:
`(5) WATER UTILITY PROPERTY- The term `water utility
property' means property--
`(A) which is an integral part of the gathering,
treatment, or commercial distribution of water, and which,
without regard to this paragraph, would be 20-year
property, and
`(B) any municipal sewer.'.
(B) CONFORMING AMENDMENTS- Section 168 is amended--
(i) by striking subparagraph (F) of subsection
(e)(3), and
(ii) by striking the item relating to subparagraph
(F) in the table in subsection (g)(3).
(4) ALTERNATIVE SYSTEM- Clause (iv) of section 168(g)(2)(C)
is amended by inserting `or water utility property' after
`tunnel bore'.
(5) EFFECTIVE DATE- The amendments made by this subsection
shall apply to property placed in service after June 12, 1996,
other than property placed in service pursuant to a binding
contract in effect before June 10, 1996, and at all times
thereafter before the property is placed in service.
