H.R.1836 Economic Growth &
Tax Relief Reconciliation Act of 2001
Text of the Enrolled Bill Sent to President Bush
and Signed on June 7th
--H.R.1836--
H.R.1836
One Hundred Seventh Congress
of the
United States of America
AT THE FIRST SESSION
Begun and held at the City of Washington on Wednesday,
the third day of January, two thousand and one
An Act
To provide for reconciliation pursuant to section 104 of the concurrent resolution on the budget for fiscal year 2002.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS.
(a) SHORT TITLE- This Act may be cited as the `Economic Growth and Tax Relief Reconciliation Act of 2001'.
(b) AMENDMENT OF 1986 CODE- Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986.
(c) TABLE OF CONTENTS- The table of contents of this Act is as follows:
Sec. 1. Short title; references; table of contents.
TITLE I--INDIVIDUAL INCOME TAX RATE REDUCTIONS
Sec. 101. Reduction in income tax rates for individuals.
Sec. 102. Repeal of phaseout of personal exemptions.
Sec. 103. Phaseout of overall limitation on itemized deductions.
TITLE II--TAX BENEFITS RELATING TO CHILDREN
Sec. 201. Modifications to child tax credit.
Sec. 202. Expansion of adoption credit and adoption assistance programs.
Sec. 203. Refunds disregarded in the administration of Federal programs and federally assisted programs.
Sec. 204. Dependent care credit.
Sec. 205. Allowance of credit for employer expenses for child care assistance.
TITLE III--MARRIAGE PENALTY RELIEF
Sec. 301. Elimination of marriage penalty in standard deduction.
Sec. 302. Phaseout of marriage penalty in 15-percent bracket.
Sec. 303. Marriage penalty relief for earned income credit; earned income to include only amounts includible in gross income; simplification of earned income credit.
TITLE IV--AFFORDABLE EDUCATION PROVISIONS
Subtitle A--Education Savings Incentives
Sec. 401. Modifications to education individual retirement accounts.
Sec. 402. Modifications to qualified tuition programs.
Subtitle B--Educational Assistance
Sec. 411. Extension of exclusion for employer-provided educational assistance.
Sec. 412. Elimination of 60-month limit and increase in income limitation on student loan interest deduction.
Sec. 413. Exclusion of certain amounts received under the National Health Service Corps Scholarship Program and the F. Edward Hebert Armed Forces Health Professions Scholarship and Financial Assistance Program.
Subtitle C--Liberalization of Tax-Exempt Financing Rules for Public School Construction
Sec. 421. Additional increase in arbitrage rebate exception for governmental bonds used to finance educational facilities.
Sec. 422. Treatment of qualified public educational facility bonds as exempt facility bonds.
Subtitle D--Other Provisions
Sec. 431. Deduction for higher education expenses.
TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAX PROVISIONS
Subtitle A--Repeal of Estate and Generation-Skipping Transfer Taxes
Sec. 501. Repeal of estate and generation-skipping transfer taxes.
Subtitle B--Reductions of Estate and Gift Tax Rates
Sec. 511. Additional reductions of estate and gift tax rates.
Subtitle C--Increase in Exemption Amounts
Sec. 521. Increase in exemption equivalent of unified credit, lifetime gifts exemption, and GST exemption amounts.
Subtitle D--Credit for State Death Taxes
Sec. 531. Reduction of credit for State death taxes.
Sec. 532. Credit for State death taxes replaced with deduction for such taxes.
Subtitle E--Carryover Basis at Death; Other Changes Taking Effect With Repeal
Sec. 541. Termination of step-up in basis at death.
Sec. 542. Treatment of property acquired from a decedent dying after December 31, 2009.
Subtitle F--Conservation Easements
Sec. 551. Expansion of estate tax rule for conservation easements.
Subtitle G--Modifications of Generation-Skipping Transfer Tax
Sec. 561. Deemed allocation of GST exemption to lifetime transfers to trusts; retroactive allocations.
Sec. 562. Severing of trusts.
Sec. 563. Modification of certain valuation rules.
Sec. 564. Relief provisions.
Subtitle H--Extension of Time for Payment of Estate Tax
Sec. 571. Increase in number of allowable partners and shareholders in closely held businesses.
Sec. 572. Expansion of availability of installment payment for estates with interests qualifying lending and finance businesses.
Sec. 573. Clarification of availability of installment payment.
Subtitle I--Other Provisions
Sec. 581. Waiver of statute of limitation for taxes on certain farm valuations.
TITLE VI--PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS
Subtitle A--Individual Retirement Accounts
Sec. 601. Modification of IRA contribution limits.
Sec. 602. Deemed IRAs under employer plans.
Subtitle B--Expanding Coverage
Sec. 611. Increase in benefit and contribution limits.
Sec. 612. Plan loans for subchapter S owners, partners, and sole proprietors.
Sec. 613. Modification of top-heavy rules.
Sec. 614. Elective deferrals not taken into account for purposes of deduction limits.
Sec. 615. Repeal of coordination requirements for deferred compensation plans of State and local governments and tax-exempt organizations.
Sec. 616. Deduction limits.
Sec. 617. Option to treat elective deferrals as after-tax Roth contributions.
Sec. 618. Nonrefundable credit to certain individuals for elective deferrals and IRA contributions.
Sec. 619. Credit for pension plan startup costs of small employers.
Sec. 620. Elimination of user fee for requests to IRS regarding pension plans.
Sec. 621. Treatment of nonresident aliens engaged in international transportation services.
Subtitle C--Enhancing Fairness for Women
Sec. 631. Catch-up contributions for individuals age 50 or over.
Sec. 632. Equitable treatment for contributions of employees to defined contribution plans.
Sec. 633. Faster vesting of certain employer matching contributions.
Sec. 634. Modification to minimum distribution rules.
Sec. 635. Clarification of tax treatment of division of section 457 plan benefits upon divorce.
Sec. 636. Provisions relating to hardship distributions.
Sec. 637. Waiver of tax on nondeductible contributions for domestic or similar workers.
Subtitle D--Increasing Portability for Participants
Sec. 641. Rollovers allowed among various types of plans.
Sec. 642. Rollovers of IRAs into workplace retirement plans.
Sec. 643. Rollovers of after-tax contributions.
Sec. 644. Hardship exception to 60-day rule.
Sec. 645. Treatment of forms of distribution.
Sec. 646. Rationalization of restrictions on distributions.
Sec. 647. Purchase of service credit in governmental defined benefit plans.
Sec. 648. Employers may disregard rollovers for purposes of cash-out amounts.
Sec. 649. Minimum distribution and inclusion requirements for section 457 plans.
Subtitle E--Strengthening Pension Security and Enforcement
Part I--General Provisions
Sec. 651. Repeal of 160 percent of current liability funding limit.
Sec. 652. Maximum contribution deduction rules modified and applied to all defined benefit plans.
Sec. 653. Excise tax relief for sound pension funding.
Sec. 654. Treatment of multiemployer plans under section 415.
Sec. 655. Protection of investment of employee contributions to 401(k) plans.
Sec. 656. Prohibited allocations of stock in S corporation ESOP.
Sec. 657. Automatic rollovers of certain mandatory distributions.
Sec. 658. Clarification of treatment of contributions to multiemployer plan.
Part II--Treatment of Plan Amendments Reducing Future Benefit Accruals
Sec. 659. Excise tax on failure to provide notice by defined benefit plans significantly reducing future benefit accruals.
Subtitle F--Reducing Regulatory Burdens
Sec. 661. Modification of timing of plan valuations.
Sec. 662. ESOP dividends may be reinvested without loss of dividend deduction.
Sec. 663. Repeal of transition rule relating to certain highly compensated employees.
Sec. 664. Employees of tax-exempt entities.
Sec. 665. Clarification of treatment of employer-provided retirement advice.
Sec. 666. Repeal of the multiple use test.
Subtitle G--Miscellaneous Provisions
Sec. 671. Tax treatment and information requirements of Alaska Native Settlement Trusts.
TITLE VII--ALTERNATIVE MINIMUM TAX
Sec. 701. Increase in alternative minimum tax exemption.
TITLE VIII--OTHER PROVISIONS
Sec. 801. Time for payment of corporate estimated taxes.
Sec. 802. Expansion of authority to postpone certain tax-related deadlines by reason of Presidentially declared disaster.
Sec. 803. No Federal income tax on restitution received by victims of the Nazi regime or their heirs or estates.
TITLE IX--COMPLIANCE WITH CONGRESSIONAL BUDGET ACT
Sec. 901. Sunset of provisions of Act.
TITLE I--INDIVIDUAL INCOME TAX RATE REDUCTIONS
SEC. 101. REDUCTION IN INCOME TAX RATES FOR INDIVIDUALS.
(a) IN GENERAL- Section 1 (relating to tax imposed) is amended by adding at the end the following new subsection:
`(i) RATE REDUCTIONS AFTER 2000-
`(1) 10-PERCENT RATE BRACKET-
`(A) IN GENERAL- In the case of taxable years beginning after December 31, 2000--
`(i) the rate of tax under subsections (a), (b), (c), and (d) on taxable income not over the initial bracket amount shall be 10 percent, and
`(ii) the 15 percent rate of tax shall apply only to taxable income over the initial bracket amount but not over the maximum dollar amount for the 15-percent rate bracket.
`(B) INITIAL BRACKET AMOUNT- For purposes of this paragraph, the initial bracket amount is--
`(i) $14,000 ($12,000 in the case of taxable years beginning before January 1, 2008) in the case of subsection (a),
`(ii) $10,000 in the case of subsection (b), and
`(iii) 1/2 the amount applicable under clause (i) (after adjustment, if any, under subparagraph (C)) in the case of subsections (c) and (d).
`(C) INFLATION ADJUSTMENT- In prescribing the tables under subsection (f) which apply with respect to taxable years beginning in calendar years after 2000--
`(i) the Secretary shall make no adjustment to the initial bracket amount for any taxable year beginning before January 1, 2009,
`(ii) the cost-of-living adjustment used in making adjustments to the initial bracket amount for any taxable year beginning after December 31, 2008, shall be determined under subsection (f)(3) by substituting `2007' for `1992' in subparagraph (B) thereof, and
`(iii) such adjustment shall not apply to the amount referred to in subparagraph (B)(iii).
If any amount after adjustment under the preceding sentence is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.
`(D) COORDINATION WITH ACCELERATION OF 10 PERCENT RATE BRACKET BENEFIT FOR 2001- This paragraph shall not apply to any taxable year to which section 6428 applies.
`(2) REDUCTIONS IN RATES AFTER JUNE 30, 2001- In the case of taxable years beginning in a calendar year after 2000, the corresponding percentage specified for such calendar year in the following table shall be substituted for the otherwise applicable tax rate in the tables under subsections (a), (b), (c), (d), and (e).
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'In the case of taxable years beginning during calendar year:
The corresponding percentages shall be substituted for the
following percentages:
28% 31% 36% 39.6%
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2001 27.5% 30.5% 35.5% 39.1%
2002 and 2003 27.0% 30.0% 35.0% 38.6%
2004 and 2005 26.0% 29.0% 34.0% 37.6%
2006 and thereafter 25.0% 28.0% 33.0% 35.0%
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`(3) ADJUSTMENT OF TABLES- The Secretary shall adjust the tables prescribed under subsection (f) to carry out this subsection.'.
(b) ACCELERATION OF 10 PERCENT RATE BRACKET BENEFIT FOR 2001-
(1) IN GENERAL- Subchapter B of chapter 65 (relating to abatements, credits, and refunds) is amended by adding at the end the following new section:
`SEC. 6428. ACCELERATION OF 10 PERCENT INCOME TAX RATE BRACKET BENEFIT FOR 2001.
`(a) IN GENERAL- In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by chapter 1 for the taxpayer's first taxable year beginning in 2001 an amount equal to 5 percent of so much of the taxpayer's taxable income as does not exceed the initial bracket amount (as defined in section 1(i)(1)(B)).
`(b) LIMITATION BASED ON AMOUNT OF TAX- The credit allowed by subsection (a) shall not exceed the excess (if any) of--
`(1) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over
`(2) the sum of the credits allowable under part IV of subchapter A of chapter 1 (other than the credits allowable under subpart C thereof, relating to refundable credits).
`(c) ELIGIBLE INDIVIDUAL- For purposes of this section, the term `eligible individual' means any individual other than--
`(1) any estate or trust,
`(2) any nonresident alien individual, and
`(3) any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual's taxable year begins.
`(1) COORDINATION WITH ADVANCE REFUNDS OF CREDIT-
`(A) IN GENERAL- The amount of credit which would (but for this paragraph) be allowable under this section shall be reduced (but not below zero) by the aggregate refunds and credits made or allowed to the taxpayer under subsection (e). Any failure to so reduce the credit shall be treated as arising out of a mathematical or clerical error and assessed according to section 6213(b)(1).
`(B) JOINT RETURNS- In the case of a refund or credit made or allowed under subsection (e) with respect to a joint return, half of such refund or credit shall be treated as having been made or allowed to each individual filing such return.
`(2) COORDINATION WITH ESTIMATED TAX- The credit under this section shall be treated for purposes of section 6654(f) in the same manner as a credit under subpart A of part IV of subchapter A of chapter 1.
`(e) ADVANCE REFUNDS OF CREDIT BASED ON PRIOR YEAR DATA-
`(1) IN GENERAL- Each individual who was an eligible individual for such individual's first taxable year beginning in 2000 shall be treated as having made a payment against the tax imposed by chapter 1 for such first taxable year in an amount equal to the advance refund amount for such taxable year.
`(2) ADVANCE REFUND AMOUNT- For purposes of paragraph (1), the advance refund amount is the amount that would have been allowed as a credit under this section for such first taxable year if this section (other than subsection (d) and this subsection) had applied to such taxable year.
`(3) TIMING OF PAYMENTS- In the case of any overpayment attributable to this subsection, the Secretary shall, subject to the provisions of this title, refund or credit such overpayment as rapidly as possible and, to the extent practicable, before October 1, 2001. No refund or credit shall be made or allowed under this subsection after December 31, 2001.
`(4) NO INTEREST- No interest shall be allowed on any overpayment attributable to this subsection.'.
(2) CLERICAL AMENDMENT- The table of sections for subchapter B of chapter 65 is amended by adding at the end the following new item:
`Sec. 6428. Acceleration of 10 percent income tax rate bracket benefit for 2001.'.
(c) CONFORMING AMENDMENTS-
(1) Subparagraph (B) of section 1(g)(7) is amended by striking `15 percent' in clause (ii)(II) and inserting `10 percent.'.
(2) Section 1(h) is amended--
(A) by striking `28 percent' both places it appears in paragraphs (1)(A)(ii)(I) and (1)(B)(i) and inserting `25 percent', and
(B) by striking paragraph (13).
(3) Section 15 is amended by adding at the end the following new subsection:
`(f) RATE REDUCTIONS ENACTED BY ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001- This section shall not apply to any change in rates under subsection (i) of section 1 (relating to rate reductions after 2000).'.
(4) Section 531 is amended by striking `equal to' and all that follows and inserting `equal to the product of the highest rate of tax under section 1(c) and the accumulated taxable income.'.
(5) Section 541 is amended by striking `equal to' and all that follows and inserting `equal to the product of the highest rate of tax under section 1(c) and the undistributed personal holding company income.'.
(6) Section 3402(p)(1)(B) is amended by striking `7, 15, 28, or 31 percent' and inserting `7 percent, any percentage applicable to any of the 3 lowest income brackets in the table under section 1(c),'.
(7) Section 3402(p)(2) is amended by striking `15 percent' and inserting `10 percent'.
(8) Section 3402(q)(1) is amended by striking `equal to 28 percent of such payment' and inserting `equal to the product of the third lowest rate of tax applicable under section 1(c) and such payment'.
(9) Section 3402(r)(3) is amended by striking `31 percent' and inserting `the fourth lowest rate of tax applicable under section 1(c)'.
(10) Section 3406(a)(1) is amended by striking `equal to 31 percent of such payment' and inserting `equal to the product of the fourth lowest rate of tax applicable under section 1(c) and such payment'.
(11) Section 13273 of the Revenue Reconciliation Act of 1993 is amended by striking `28 percent' and inserting `the third lowest rate of tax applicable under section 1(c) of the Internal Revenue Code of 1986'.
(1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2000.
(2) AMENDMENTS TO WITHHOLDING PROVISIONS- The amendments made by paragraphs (6), (7), (8), (9), (10), and (11) of subsection (c) shall apply to amounts paid after the 60th day after the date of the enactment of this Act. References to income brackets and rates of tax in such paragraphs shall be applied without regard to section 1(i)(1)(D) of the Internal Revenue Code of 1986.
SEC. 102. REPEAL OF PHASEOUT OF PERSONAL EXEMPTIONS.
(a) IN GENERAL- Paragraph (3) of section 151(d) (relating to exemption amount) is amended by adding at the end the following new subparagraphs:
`(E) REDUCTION OF PHASEOUT-
`(i) IN GENERAL- In the case of taxable years beginning after December 31, 2005, and before January 1, 2010, the reduction under subparagraph (A) shall be equal to the applicable fraction of the amount which would (but for this subparagraph) be the amount of such reduction.
`(ii) APPLICABLE FRACTION- For purposes of clause (i), the applicable fraction shall be determined in accordance with the following table:
`For taxable years beginning
--The applicable
in calendar year--
--fraction is--
-- 2/3
-- 1/3 .
`(F) TERMINATION- This paragraph shall not apply to any taxable year beginning after December 31, 2009.'.
(b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 2005.
SEC. 103. PHASEOUT OF OVERALL LIMITATION ON ITEMIZED DEDUCTIONS.
(a) IN GENERAL- Section 68 is amended by adding at the end the following new subsections:
`(f) PHASEOUT OF LIMITATION-
`(1) IN GENERAL- In the case of taxable years beginning after December 31, 2005, and before January 1, 2010, the reduction under subsection (a) shall be equal to the applicable fraction of the amount which would (but for this subsection) be the amount of such reduction.
`(2) APPLICABLE FRACTION- For purposes of paragraph (1), the applicable fraction shall be determined in accordance with the following table:
`For taxable years beginning
--The applicable
in calendar year--
--fraction is--
-- 2/3
-- 1/3 .
`(g) TERMINATION- This section shall not apply to any taxable year beginning after December 31, 2009.'.
(b) EFFECTIVE DATE- The amendment made by this section shall apply to taxable years beginning after December 31, 2005.
TITLE II--TAX BENEFITS RELATING TO CHILDREN
SEC. 201. MODIFICATIONS TO CHILD TAX CREDIT.
(a) INCREASE IN PER CHILD AMOUNT- Subsection (a) of section 24 (relating to child tax credit) is amended to read as follows:
`(a) ALLOWANCE OF CREDIT-
`(1) IN GENERAL- There shall be allowed as a credit against the tax imposed by this chapter for the taxable year with respect to each qualifying child of the taxpayer an amount equal to the per child amount.
`(2) PER CHILD AMOUNT- For purposes of paragraph (1), the per child amount shall be determined as follows:
`In the case of any taxable year beginning in--
The per child amount is--
2001, 2002, 2003, or 2004
$ 600
2005, 2006, 2007, or 2008
700
2009
800
2010 or thereafter
1,000.'.
(b) CREDIT ALLOWED AGAINST ALTERNATIVE MINIMUM TAX-
(1) IN GENERAL- Subsection (b) of section 24 (relating to child tax credit) is amended by adding at the end the following new paragraph:
`(3) LIMITATION BASED ON AMOUNT OF TAX- The credit allowed under subsection (a) for any taxable year shall not exceed the excess of--
`(A) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over
`(B) the sum of the credits allowable under this subpart (other than this section) and section 27 for the taxable year.'.
(2) CONFORMING AMENDMENTS-
(A) The heading for section 24(b) is amended to read as follows: `LIMITATIONS- '.
(B) The heading for section 24(b)(1) is amended to read as follows: `LIMITATION BASED ON ADJUSTED GROSS INCOME- '.
(C) Section 24(d), as amended by subsection (c), is amended--
(i) by striking `section 26(a)' each place it appears and inserting `subsection (b)(3)', and
(ii) in paragraph (1)(B) by striking `aggregate amount of credits allowed by this subpart' and inserting `amount of credit allowed by this section'.
(D) Paragraph (1) of section 26(a) is amended by inserting `(other than section 24)' after `this subpart'.
(E) Subsection (c) of section 23 is amended by striking `and section 1400C' and inserting `and sections 24 and 1400C'.
(F) Subparagraph (C) of section 25(e)(1) is amended by inserting `, 24,' after `sections 23'.
(G) Section 904(h) is amended by inserting `(other than section 24)' after `chapter'.
(H) Subsection (d) of section 1400C is amended by inserting `and section 24' after `this section'.
(c) REFUNDABLE CHILD CREDIT-
(1) IN GENERAL- So much of section 24(d) (relating to additional credit for families with 3 or more children) as precedes paragraph (2) is amended to read as follows:
`(d) PORTION OF CREDIT REFUNDABLE-
`(1) IN GENERAL- The aggregate credits allowed to a taxpayer under subpart C shall be increased by the lesser of--
`(A) the credit which would be allowed under this section without regard to this subsection and the limitation under section 26(a), or
`(B) the amount by which the amount of credit allowed by this section (determined without regard to this subsection) would increase if the limitation imposed by section 26(a) were increased by the greater of--
`(i) 15 percent (10 percent in the case of taxable years beginning before January 1, 2005) of so much of the taxpayer's earned income (within the meaning of section 32) which is taken into account in computing taxable income for the taxable year as exceeds $10,000, or
`(ii) in the case of a taxpayer with 3 or more qualifying children, the excess (if any) of--
`(I) the taxpayer's social security taxes for the taxable year, over
`(II) the credit allowed under section 32 for the taxable year.
The amount of the credit allowed under this subsection shall not be treated as a credit allowed under this subpart and shall reduce the amount of credit otherwise allowable under subsection (a) without regard to section 26(a).'.
(2) INFLATION ADJUSTMENT- Subsection (d) of section 24 is amended by adding at the end the following new paragraph:
`(4) INFLATION ADJUSTMENT- In the case of any taxable year beginning in a calendar year after 2001, the $10,000 amount contained in paragraph (1)(B) shall be increased by an amount equal to--
`(A) such dollar amount, multiplied by
`(B) 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 2000' for `calendar year 1992' in subparagraph (B) thereof.
Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $50.'.
(3) CONFORMING AMENDMENT- Section 32 is amended by striking subsection (n).
(d) ELIMINATION OF REDUCTION OF CREDIT TO TAXPAYER SUBJECT TO ALTERNATIVE MINIMUM TAX PROVISION- Section 24(d) is amended--
(1) by striking paragraph (2), and
(2) by redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively.
(1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2000.
(2) SUBSECTION (b)- The amendments made by subsection (b) shall apply to taxable years beginning after December 31, 2001.
SEC. 202. EXPANSION OF ADOPTION CREDIT AND ADOPTION ASSISTANCE PROGRAMS.
(1) ADOPTION CREDIT- Section 23(a)(1) (relating to allowance of credit) is amended to read as follows:
`(1) IN GENERAL- In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter--
`(A) in the case of an adoption of a child other than a child with special needs, the amount of the qualified adoption expenses paid or incurred by the taxpayer, and
`(B) in the case of an adoption of a child with special needs, $10,000.'.
(2) ADOPTION ASSISTANCE PROGRAMS- Section 137(a) (relating to adoption assistance programs) is amended to read as follows:
`(a) IN GENERAL- Gross income of an employee does not include amounts paid or expenses incurred by the employer for adoption expenses in connection with the adoption of a child by an employee if such amounts are furnished pursuant to an adoption assistance program. The amount of the exclusion shall be--
`(1) in the case of an adoption of a child other than a child with special needs, the amount of the qualified adoption expenses paid or incurred by the taxpayer, and
`(2) in the case of an adoption of a child with special needs, $10,000.'.
(1) DOLLAR AMOUNT OF ALLOWED EXPENSES-
(A) ADOPTION EXPENSES- Section 23(b)(1) (relating to allowance of credit) is amended--
(i) by striking `$5,000' and inserting `$10,000',
(ii) by striking `($6,000, in the case of a child with special needs)', and
(iii) by striking `subsection (a)' and inserting `subsection (a)(1)(A)'.
(B) ADOPTION ASSISTANCE PROGRAMS- Section 137(b)(1) (relating to dollar limitations for adoption assistance programs) is amended--
(i) by striking `$5,000' and inserting `$10,000', and
(ii) by striking `($6,000, in the case of a child with special needs)', and
(iii) by striking `subsection (a)' and inserting `subsection (a)(1)'.
(2) PHASE-OUT LIMITATION-
(A) ADOPTION EXPENSES- Clause (i) of section 23(b)(2)(A) (relating to income limitation) is amended by striking `$75,000' and inserting `$150,000'.
(B) ADOPTION ASSISTANCE PROGRAMS- Section 137(b)(2)(A) (relating to income limitation) is amended by striking `$75,000' and inserting `$150,000'.
(c) YEAR CREDIT ALLOWED- Section 23(a)(2) (relating to year credit allowed) is amended by adding at the end the following new flush sentence:
`In the case of the adoption of a child with special needs, the credit allowed under paragraph (1) shall be allowed for the taxable year in which the adoption becomes final.'.
(d) REPEAL OF TERMINATIONS-
(1) CHILDREN WITHOUT SPECIAL NEEDS- Paragraph (2) of section 23(d) (relating to definition of eligible child) is amended to read as follows:
`(2) ELIGIBLE CHILD- The term `eligible child' means any individual who--
`(A) has not attained age 18, or
`(B) is physically or mentally incapable of caring for himself.'.
(2) ADOPTION ASSISTANCE PROGRAMS- Section 137 (relating to adoption assistance programs) is amended by striking subsection (f).
(e) ADJUSTMENT OF DOLLAR AND INCOME LIMITATIONS FOR INFLATION-
(1) ADOPTION CREDIT- Section 23 (relating to adoption expenses) is amended by redesignating subsection (h) as subsection (i) and by inserting after subsection (g) the following new subsection:
`(h) ADJUSTMENTS FOR INFLATION- In the case of a taxable year beginning after December 31, 2002, each of the dollar amounts in subsection (a)(1)(B) and paragraphs (1) and (2)(A)(i) of subsection (b) shall be increased by an amount equal to--
`(1) such dollar amount, multiplied by
`(2) 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 2001' for `calendar year 1992' in subparagraph (B) thereof.'.
(2) ADOPTION ASSISTANCE PROGRAMS- Section 137 (relating to adoption assistance programs), as amended by subsection (d), is amended by adding at the end the following new subsection:
`(f) ADJUSTMENTS FOR INFLATION- In the case of a taxable year beginning after December 31, 2002, each of the dollar amounts in subsection (a)(2) and paragraphs (1) and (2)(A) of subsection (b) shall be increased by an amount equal to--
`(1) such dollar amount, multiplied by
`(2) 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 2001' for `calendar year 1992' in subparagraph (B) thereof.'.
(f) CREDIT ALLOWED AGAINST ALTERNATIVE MINIMUM TAX-
(1) IN GENERAL- Subsection (b) of section 23 is amended by adding at the end the following new paragraph:
`(4) LIMITATION BASED ON AMOUNT OF TAX- The credit allowed under subsection (a) for any taxable year shall not exceed the excess of--
`(A) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over
`(B) the sum of the credits allowable under this subpart (other than this section) and section 27 for the taxable year.'.
(2) CONFORMING AMENDMENTS-
(A) Section 23(c), as amended by section 201(b), is amended--
(i) by striking `section 26(a)' and inserting `subsection (b)(4)', and
(ii) by striking `reduced by the sum of the credits allowable under this subpart (other than this section and sections 24 and 1400C)'.
(B) Section 24(b)(3)(B), as added by section 201(b), is amended by striking `this section' and inserting `this section and section 23'.
(C) Sections 26(a)(1), 904(h), and 1400C(d), as amended by section 201(b), are each amended by striking `section 24' and inserting `sections 23 and 24'.
(1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2001.
(2) SUBSECTION (a)- The amendments made by subsection (a) shall apply to taxable years beginning after December 31, 2002.
SEC. 203. REFUNDS DISREGARDED IN THE ADMINISTRATION OF FEDERAL PROGRAMS AND FEDERALLY ASSISTED PROGRAMS.
Any payment considered to have been made to any individual by reason of section 24 of the Internal Revenue Code of 1986, as amended by section 201, shall not be taken into account as income and shall not be taken into account as resources for the month of receipt and the following month, for purposes of determining the eligibility of such individual or any other individual for benefits or assistance, or the amount or extent of benefits or assistance, under any Federal program or under any State or local program financed in whole or in part with Federal funds.
SEC. 204. DEPENDENT CARE CREDIT.
(a) INCREASE IN DOLLAR LIMIT- Subsection (c) of section 21 (relating to expenses for household and dependent care services necessary for gainful employment) is amended--
(1) by striking `$2,400' in paragraph (1) and inserting `$3,000', and
(2) by striking `$4,800' in paragraph (2) and inserting `$6,000'.
(b) INCREASE IN APPLICABLE PERCENTAGE- Section 21(a)(2) (defining applicable percentage) is amended--
(1) by striking `30 percent' and inserting `35 percent', and
(2) by striking `$10,000' and inserting `$15,000'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2002.
SEC. 205. ALLOWANCE OF CREDIT FOR EMPLOYER EXPENSES FOR CHILD CARE ASSISTANCE.
(a) IN GENERAL- Subpart D of part IV of subchapter A of chapter 1 (relating to business related credits), as amended by section 619, is further amended by adding at the end the following:
`SEC. 45F. EMPLOYER-PROVIDED CHILD CARE CREDIT.
`(a) IN GENERAL- For purposes of section 38, the employer-provided child care credit determined under this section for the taxable year is an amount equal to the sum of--
`(1) 25 percent of the qualified child care expenditures, and
`(2) 10 percent of the qualified child care resource and referral expenditures,
of the taxpayer for such taxable year.
`(b) DOLLAR LIMITATION- The credit allowable under subsection (a) for any taxable year shall not exceed $150,000.
`(c) DEFINITIONS- For purposes of this section--
`(1) QUALIFIED CHILD CARE EXPENDITURE-
`(A) IN GENERAL- The term `qualified child care expenditure' means any amount paid or incurred--
`(i) to acquire, construct, rehabilitate, or expand property--
`(I) which is to be used as part of a qualified child care facility of the taxpayer,
`(II) with respect to which a deduction for depreciation (or amortization in lieu of depreciation) is allowable, and
`(III) which does not constitute part of the principal residence (within the meaning of section 121) of the taxpayer or any employee of the taxpayer,
`(ii) for the operating costs of a qualified child care facility of the taxpayer, including costs related to the training of employees, to scholarship programs, and to the providing of increased compensation to employees with higher levels of child care training, or
`(iii) under a contract with a qualified child care facility to provide child care services to employees of the taxpayer.
`(B) FAIR MARKET VALUE- The term `qualified child care expenditures' shall not include expenses in excess of the fair market value of such care.
`(2) QUALIFIED CHILD CARE FACILITY-
`(A) IN GENERAL- The term `qualified child care facility' means a facility--
`(i) the principal use of which is to provide child care assistance, and
`(ii) which meets the requirements of all applicable laws and regulations of the State or local government in which it is located, including the licensing of the facility as a child care facility.
Clause (i) shall not apply to a facility which is the principal residence (within the meaning of section 121) of the operator of the facility.
`(B) SPECIAL RULES WITH RESPECT TO A TAXPAYER- A facility shall not be treated as a qualified child care facility with respect to a taxpayer unless--
`(i) enrollment in the facility is open to employees of the taxpayer during the taxable year,
`(ii) if the facility is the principal trade or business of the taxpayer, at least 30 percent of the enrollees of such facility are dependents of employees of the taxpayer, and
`(iii) the use of such facility (or the eligibility to use such facility) does not discriminate in favor of employees of the taxpayer who are highly compensated employees (within the meaning of section 414(q)).
`(3) QUALIFIED CHILD CARE RESOURCE AND REFERRAL EXPENDITURE-
`(A) IN GENERAL- The term `qualified child care resource and referral expenditure' means any amount paid or incurred under a contract to provide child care resource and referral services to an employee of the taxpayer.
`(B) NONDISCRIMINATION- The services shall not be treated as qualified unless the provision of such services (or the eligibility to use such services) does not discriminate in favor of employees of the taxpayer who are highly compensated employees (within the meaning of section 414(q)).
`(d) RECAPTURE OF ACQUISITION AND CONSTRUCTION CREDIT-
`(1) IN GENERAL- If, as of the close of any taxable year, there is a recapture event with respect to any qualified child care facility of the taxpayer, then the tax of the taxpayer under this chapter for such taxable year shall be increased by an amount equal to the product of--
`(A) the applicable recapture percentage, and
`(B) the aggregate decrease in the credits allowed under section 38 for all prior taxable years which would have resulted if the qualified child care expenditures of the taxpayer described in subsection (c)(1)(A) with respect to such facility had been zero.
`(2) APPLICABLE RECAPTURE PERCENTAGE-
`(A) IN GENERAL- For purposes of this subsection, the applicable recapture percentage shall be determined from the following table:
--The applicable
--recapture
`If the recapture event occurs in:
--percentage is:
Years 1-3
--100
Year 4
--85
Year 5
--70
Year 6
--55
Year 7
--40
Year 8
--25
Years 9 and 10
--10
Years 11 and thereafter
--0.
`(B) YEARS- For purposes of subparagraph (A), year 1 shall begin on the first day of the taxable year in which the qualified child care facility is placed in service by the taxpayer.
`(3) RECAPTURE EVENT DEFINED- For purposes of this subsection, the term `recapture event' means--
`(A) CESSATION OF OPERATION- The cessation of the operation of the facility as a qualified child care facility.
`(B) Change in ownership-
`(i) IN GENERAL- Except as provided in clause (ii), the disposition of a taxpayer's interest in a qualified child care facility with respect to which the credit described in subsection (a) was allowable.
`(ii) AGREEMENT TO ASSUME RECAPTURE LIABILITY- Clause (i) shall not apply if the person acquiring such interest in the facility agrees in writing to assume the recapture liability of the person disposing of such interest in effect immediately before such disposition. In the event of such an assumption, the person acquiring the interest in the facility shall be treated as the taxpayer for purposes of assessing any recapture liability (computed as if there had been no change in ownership).
`(A) TAX BENEFIT RULE- The tax for the taxable year shall be increased under paragraph (1) only with respect to credits allowed by reason of this section which were used to reduce tax liability. In the case of credits not so used to reduce tax liability, the carryforwards and carrybacks under section 39 shall be appropriately adjusted.
`(B) NO CREDITS AGAINST TAX- Any increase in tax under this subsection shall not be treated as a tax imposed by this chapter for purposes of determining the amount of any credit under subpart A, B, or D of this part.
`(C) NO RECAPTURE BY REASON OF CASUALTY LOSS- The increase in tax under this subsection shall not apply to a cessation of operation of the facility as a qualified child care facility by reason of a casualty loss to the extent such loss is restored by reconstruction or replacement within a reasonable period established by the Secretary.
`(e) SPECIAL RULES- For purposes of this section--
`(1) AGGREGATION RULES- All persons which are treated as a single employer under subsections (a) and (b) of section 52 shall be treated as a single taxpayer.
`(2) PASS-THRU IN THE CASE OF ESTATES AND TRUSTS- Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.
`(3) ALLOCATION IN THE CASE OF PARTNERSHIPS- In the case of partnerships, the credit shall be allocated among partners under regulations prescribed by the Secretary.
`(1) REDUCTION IN BASIS- For purposes of this subtitle--
`(A) IN GENERAL- If a credit is determined under this section with respect to any property by reason of expenditures described in subsection (c)(1)(A), the basis of such property shall be reduced by the amount of the credit so determined.
`(B) CERTAIN DISPOSITIONS- If, during any taxable year, there is a recapture amount determined with respect to any property the basis of which was reduced under subparagraph (A), the basis of such property (immediately before the event resulting in such recapture) shall be increased by an amount equal to such recapture amount. For purposes of the preceding sentence, the term `recapture amount' means any increase in tax (or adjustment in carrybacks or carryovers) determined under subsection (d).
`(2) OTHER DEDUCTIONS AND CREDITS- No deduction or credit shall be allowed under any other provision of this chapter with respect to the amount of the credit determined under this section.'.
(b) CONFORMING AMENDMENTS-
(1) Section 38(b), as amended by section 619, is amended by striking `plus' at the end of paragraph (13), by striking the period at the end of paragraph (14) and inserting `, plus', and by adding at the end the following:
`(15) the employer-provided child care credit determined under section 45F.'.
(2) The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by adding at the end the following:
`Sec. 45F. Employer-provided child care credit.'.
(3) Section 1016(a) is amended by striking `and' at the end of paragraph (26), by striking the period at the end of paragraph (27) and inserting `, and', and by adding at the end the following:
`(28) in the case of a facility with respect to which a credit was allowed under section 45F, to the extent provided in section 45F(f)(1).'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.
TITLE III--MARRIAGE PENALTY RELIEF
SEC. 301. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUCTION.
(a) IN GENERAL- Paragraph (2) of section 63(c) (relating to standard deduction) is amended--
(1) by striking `$5,000' in subparagraph (A) and inserting `the applicable percentage of the dollar amount in effect under subparagraph (C) for the taxable year';
(2) by adding `or' at the end of subparagraph (B);
(3) by striking `in the case of' and all that follows in subparagraph (C) and inserting `in any other case.'; and
(4) by striking subparagraph (D).
(b) APPLICABLE PERCENTAGE- Section 63(c) (relating to standard deduction) is amended by adding at the end the following new paragraph:
`(7) APPLICABLE PERCENTAGE- For purposes of paragraph (2), the applicable percentage shall be determined in accordance with the following table:
`For taxable years beginning
--The applicable
in calendar year--
--percentage is--
--174
--184
--187
--190
--200.'.
(c) TECHNICAL AMENDMENTS-
(1) Subparagraph (B) of section 1(f)(6) is amended by striking `(other than with' and all that follows through `shall be applied' and inserting `(other than with respect to sections 63(c)(4) and 151(d)(4)(A)) shall be applied'.
(2) Paragraph (4) of section 63(c) is amended by adding at the end the following flush sentence:
`The preceding sentence shall not apply to the amount referred to in paragraph (2)(A).'.
(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2004.
SEC. 302. PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT BRACKET.
(a) IN GENERAL- Section 1(f) (relating to adjustments in tax tables so that inflation will not result in tax increases) is amended by adding at the end the following new paragraph:
`(8) PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT BRACKET-
`(A) IN GENERAL- With respect to taxable years beginning after December 31, 2004, in prescribing the tables under paragraph (1)--
`(i) the maximum taxable income in the 15-percent rate bracket in the table contained in subsection (a) (and the minimum taxable income in the next higher taxable income bracket in such table) shall be the applicable percentage of the maximum taxable income in the 15-percent rate bracket in the table contained in subsection (c) (after any other adjustment under this subsection), and
`(ii) the comparable taxable income amounts in the table contained in subsection (d) shall be 1/2 of the amounts determined under clause (i).
`(B) APPLICABLE PERCENTAGE- For purposes of subparagraph (A), the applicable percentage shall be determined in accordance with the following table:
`For taxable years beginning
--The applicable
in calendar year--
--percentage is--
--180
--187
--193
--200.
`(C) ROUNDING- If any amount determined under subparagraph (A)(i) is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.'.
(b) TECHNICAL AMENDMENTS-
(1) Subparagraph (A) of section 1(f)(2) is amended by inserting `except as provided in paragraph (8),' before `by increasing'.
(2) The heading for subsection (f) of section 1 is amended by inserting `PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT BRACKET;' before `ADJUSTMENTS'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2004.
SEC. 303. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT; EARNED INCOME TO INCLUDE ONLY AMOUNTS INCLUDIBLE IN GROSS INCOME; SIMPLIFICATION OF EARNED INCOME CREDIT.
(a) INCREASED PHASEOUT AMOUNT-
(1) IN GENERAL- Section 32(b)(2) (relating to amounts) is amended--
(A) by striking `AMOUNTS- The earned' and inserting `AMOUNTS-
`(A) IN GENERAL- Subject to subparagraph (B), the earned', and
(B) by adding at the end the following new subparagraph:
`(B) JOINT RETURNS- In the case of a joint return filed by an eligible individual and such individual's spouse, the phaseout amount determined under subparagraph (A) shall be increased by--
`(i) $1,000 in the case of taxable years beginning in 2002, 2003, and 2004,
`(ii) $2,000 in the case of taxable years beginning in 2005, 2006, and 2007, and
`(iii) $3,000 in the case of taxable years beginning after 2007.'.
(2) INFLATION ADJUSTMENT- Paragraph (1)(B) of section 32(j) (relating to inflation adjustments) is amended to read as follows:
`(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined--
`(i) in the case of amounts in subsections (b)(2)(A) and (i)(1), by substituting `calendar year 1995' for `calendar year 1992' in subparagraph (B) thereof, and
`(ii) in the case of the $3,000 amount in subsection (b)(2)(B)(iii), by substituting `calendar year 2007' for `calendar year 1992' in subparagraph (B) of such section 1.'.
(3) ROUNDING- Section 32(j)(2)(A) (relating to rounding) is amended by striking `subsection (b)(2)' and inserting `subsection (b)(2)(A) (after being increased under subparagraph (B) thereof)'.
(b) EARNED INCOME TO INCLUDE ONLY AMOUNTS INCLUDIBLE IN GROSS INCOME- Clause (i) of section 32(c)(2)(A) (defining earned income) is amended by inserting `, but only if such amounts are includible in gross income for the taxable year' after `other employee compensation'.
(c) REPEAL OF REDUCTION OF CREDIT TO TAXPAYERS SUBJECT TO ALTERNATIVE MINIMUM TAX- Section 32(h) is repealed.
(d) REPLACEMENT OF MODIFIED ADJUSTED GROSS INCOME WITH ADJUSTED GROSS INCOME-
(1) IN GENERAL- Section 32(a)(2)(B) is amended by striking `modified'.
(2) CONFORMING AMENDMENTS-
(A) Section 32(c) is amended by striking paragraph (5).
(B) Section 32(f)(2)(B) is amended by striking `modified' each place it appears.
(1) IN GENERAL- Clause (i) of section 32(c)(3)(B) (relating to relationship test) is amended to read as follows:
`(i) IN GENERAL- An individual bears a relationship to the taxpayer described in this subparagraph if such individual is--
`(I) a son, daughter, stepson, or stepdaughter, or a descendant of any such individual,
`(II) a brother, sister, stepbrother, or stepsister, or a descendant of any such individual, who the taxpayer cares for as the taxpayer's own child, or
`(III) an eligible foster child of the taxpayer.'.
(2) ELIGIBLE FOSTER CHILD-
(A) IN GENERAL- Clause (iii) of section 32(c)(3)(B) is amended to read as follows:
`(iii) ELIGIBLE FOSTER CHILD- For purposes of clause (i), the term `eligible foster child' means an individual not described in subclause (I) or (II) of clause (i) who--
`(I) is placed with the taxpayer by an authorized placement agency, and
`(II) the taxpayer cares for as the taxpayer's own child.'.
(B) CONFORMING AMENDMENT- Section 32(c)(3)(A)(ii) is amended by striking `except as provided in subparagraph (B)(iii),'.
(f) 2 OR MORE CLAIMING QUALIFYING CHILD- Section 32(c)(1)(C) is amended to read as follows:
`(C) 2 OR MORE CLAIMING QUALIFYING CHILD-
`(i) IN GENERAL- Except as provided in clause (ii), if (but for this paragraph) an individual may be claimed, and is claimed, as a qualifying child by 2 or more taxpayers for a taxable year beginning in the same calendar year, such individual shall be treated as the qualifying child of the taxpayer who is--
`(I) a parent of the individual, or
`(II) if subclause (I) does not apply, the taxpayer with the highest adjusted gross income for such taxable year.
`(ii) MORE THAN 1 CLAIMING CREDIT- If the parents claiming the credit with respect to any qualifying child do not file a joint return together, such child shall be treated as the qualifying child of--
`(I) the parent with whom the child resided for the longest period of time during the taxable year, or
`(II) if the child resides with both parents for the same amount of time during such taxable year, the parent with the highest adjusted gross income.'.
(g) EXPANSION OF MATHEMATICAL ERROR AUTHORITY- Paragraph (2) of section 6213(g) is amended by striking `and' at the end of subparagraph (K), by striking the period at the end of subparagraph (L) and inserting `, and', and by inserting after subparagraph (L) the following new subparagraph:
`(M) the entry on the return claiming the credit under section 32 with respect to a child if, according to the Federal Case Registry of Child Support Orders established under section 453(h) of the Social Security Act, the taxpayer is a noncustodial parent of such child.'.
(h) CLERICAL AMENDMENT- Subparagraph (E) of section 32(c)(3) is amended by striking `subparagraphs (A)(ii) and (B)(iii)(II)' and inserting `subparagraph (A)(ii)'.
(1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2001.
(2) SUBSECTION (g)- The amendment made by subsection (g) shall take effect on January 1, 2004.
TITLE IV--AFFORDABLE EDUCATION PROVISIONS
Subtitle A--Education Savings Incentives
SEC. 401. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.
(a) MAXIMUM ANNUAL CONTRIBUTIONS-
(1) IN GENERAL- Section 530(b)(1)(A)(iii) (defining education individual retirement account) is amended by striking `$500' and inserting `$2,000'.
(2) CONFORMING AMENDMENT- Section 4973(e)(1)(A) is amended by striking `$500' and inserting `$2,000'.
(b) MODIFICATION OF AGI LIMITS TO REMOVE MARRIAGE PENALTY- Section 530(c)(1) (relating to reduction in permitted contributions based on adjusted gross income) is amended--
(1) by striking `$150,000' in subparagraph (A)(ii) and inserting `$190,000', and
(2) by striking `$10,000' in subparagraph (B) and inserting `$30,000'.
(c) TAX-FREE EXPENDITURES FOR ELEMENTARY AND SECONDARY SCHOOL EXPENSES-
(1) IN GENERAL- Section 530(b)(2) (defining qualified higher education expenses) is amended to read as follows:
`(2) QUALIFIED EDUCATION EXPENSES-
`(A) IN GENERAL- The term `qualified education expenses' means--
`(i) qualified higher education expenses (as defined in section 529(e)(3)), and
`(ii) qualified elementary and secondary education expenses (as defined in paragraph (4)).
`(B) QUALIFIED STATE TUITION PROGRAMS- Such term shall include any contribution to a qualified State tuition program (as defined in section 529(b)) on behalf of the designated beneficiary (as defined in section 529(e)(1)); but there shall be no increase in the investment in the contract for purposes of applying section 72 by reason of any portion of such contribution which is not includible in gross income by reason of subsection (d)(2).'.
(2) QUALIFIED ELEMENTARY AND SECONDARY EDUCATION EXPENSES- Section 530(b) (relating to definitions and special rules) is amended by adding at the end the following new paragraph:
`(4) QUALIFIED ELEMENTARY AND SECONDARY EDUCATION EXPENSES-
`(A) IN GENERAL- The term `qualified elementary and secondary education expenses' means--
`(i) expenses for tuition, fees, academic tutoring, special needs services in the case of a special needs beneficiary, books, supplies, and other equipment which are incurred in connection with the enrollment or attendance of the designated beneficiary of the trust as an elementary or secondary school student at a public, private, or religious school,
`(ii) expenses for room and board, uniforms, transportation, and supplementary items and services (including extended day programs) which are required or provided by a public, private, or religious school in connection with such enrollment or attendance, and
`(iii) expenses for the purchase of any computer technology or equipment (as defined in section 170(e)(6)(F)(i)) or Internet access and related services, if such technology, equipment, or services are to be used by the beneficiary and the beneficiary's family during any of the years the beneficiary is in school.
Clause (iii) shall not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature.
`(B) SCHOOL- The term `school' means any school which provides elementary education or secondary education (kindergarten through grade 12), as determined under State law.'.
(3) CONFORMING AMENDMENTS- Section 530 is amended--
(A) by striking `higher' each place it appears in subsections (b)(1) and (d)(2), and
(B) by striking `HIGHER' in the heading for subsection (d)(2).
(d) WAIVER OF AGE LIMITATIONS FOR CHILDREN WITH SPECIAL NEEDS- Section 530(b)(1) (defining education individual retirement account) is amended by adding at the end the following flush sentence:
`The age limitations in subparagraphs (A)(ii) and (E), and paragraphs (5) and (6) of subsection (d), shall not apply to any designated beneficiary with special needs (as determined under regulations prescribed by the Secretary).'.
(e) ENTITIES PERMITTED TO CONTRIBUTE TO ACCOUNTS- Section 530(c)(1) (relating to reduction in permitted contributions based on adjusted gross income) is amended by striking `The maximum amount which a contributor' and inserting `In the case of a contributor who is an individual, the maximum amount the contributor'.
(f) TIME WHEN CONTRIBUTIONS DEEMED MADE-
(1) IN GENERAL- Section 530(b) (relating to definitions and special rules), as amended by subsection (c)(2), is amended by adding at the end the following new paragraph:
`(5) TIME WHEN CONTRIBUTIONS DEEMED MADE- An individual shall be deemed to have made a contribution to an education individual retirement account on the last day of the preceding taxable year if the contribution is made on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (not including extensions thereof).'.
(2) EXTENSION OF TIME TO RETURN EXCESS CONTRIBUTIONS- Subparagraph (C) of section 530(d)(4) (relating to additional tax for distributions not used for educational expenses) is amended--
(A) by striking clause (i) and inserting the following new clause:
`(i) such distribution is made before the first day of the sixth month of the taxable year following the taxable year, and', and
(B) by striking `DUE DATE OF RETURN' in the heading and inserting `CERTAIN DATE'.
(g) COORDINATION WITH HOPE AND LIFETIME LEARNING CREDITS AND QUALIFIED TUITION PROGRAMS-
(1) IN GENERAL- Section 530(d)(2)(C) is amended to read as follows:
`(C) COORDINATION WITH HOPE AND LIFETIME LEARNING CREDITS AND QUALIFIED TUITION PROGRAMS- For purposes of subparagraph (A)--
`(i) CREDIT COORDINATION- The total amount of qualified higher education expenses with respect to an individual for the taxable year shall be reduced--
`(I) as provided in section 25A(g)(2), and
`(II) by the amount of such expenses which were taken into account in determining the credit allowed to the taxpayer or any other person under section 25A.
`(ii) COORDINATION WITH QUALIFIED TUITION PROGRAMS- If, with respect to an individual for any taxable year--
`(I) the aggregate distributions during such year to which subparagraph (A) and section 529(c)(3)(B) apply, exceed
`(II) the total amount of qualified education expenses (after the application of clause (i)) for such year,
the taxpayer shall allocate such expenses among such distributions for purposes of determining the amount of the exclusion under subparagraph (A) and section 529(c)(3)(B).'.
(2) CONFORMING AMENDMENTS-
(A) Subsection (e) of section 25A is amended to read as follows:
`(e) ELECTION NOT TO HAVE SECTION APPLY- A taxpayer may elect not to have this section apply with respect to the qualified tuition and related expenses of an individual for any taxable year.'.
(B) Section 135(d)(2)(A) is amended by striking `allowable' and inserting `allowed'.
(C) Section 530(d)(2)(D) is amended--
(i) by striking `or credit' and inserting `, credit, or exclusion', and
(ii) by striking `CREDIT OR DEDUCTION' in the heading and inserting `DEDUCTION, CREDIT, OR EXCLUSION'.
(D) Section 4973(e)(1) is amended by adding `and' at the end of subparagraph (A), by striking subparagraph (B), and by redesignating subparagraph (C) as subparagraph (B).
(h) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.
SEC. 402. MODIFICATIONS TO QUALIFIED TUITION PROGRAMS.
(a) ELIGIBLE EDUCATIONAL INSTITUTIONS PERMITTED TO MAINTAIN QUALIFIED TUITION PROGRAMS-
(1) IN GENERAL- Section 529(b)(1) (defining qualified State tuition program) is amended--
(A) by inserting `or by 1 or more eligible educational institutions' after `maintained by a State or agency or instrumentality thereof' in the matter preceding subparagraph (A), and
(B) by adding at the end the following new flush sentence:
`Except to the extent provided in regulations, a program established and maintained by 1 or more eligible educational institutions shall not be treated as a qualified tuition program unless such program provides that amounts are held in a qualified trust and such program has received a ruling or determination that such program meets the applicable requirements for a qualified tuition program. For purposes of the preceding sentence, the term `qualified trust' means a trust which is created or organized in the United States for the exclusive benefit of designated beneficiaries and with respect to which the requirements of paragraphs (2) and (5) of section 408(a) are met.'.
(2) PRIVATE QUALIFIED TUITION PROGRAMS LIMITED TO BENEFIT PLANS- Clause (ii) of section 529(b)(1)(A) is amended by inserting `in the case of a program established and maintained by a State or agency or instrumentality thereof,' before `may make'.
(3) ADDITIONAL TAX ON NONQUALIFIED WITHDRAWALS- Section 529 is amended--
(A) by striking paragraph (3) of subsection (b) and by redesignating paragraphs (4), (5), (6), and (7) of such subsection as paragraphs (3), (4), (5), and (6), respectively, and
(B) by adding at the end of subsection (c) the following new paragraph:
`(6) ADDITIONAL TAX- The tax imposed by section 530(d)(4) shall apply to any payment or distribution from a qualified tuition program in the same manner as such tax applies to a payment or distribution from an education individual retirement account. This paragraph shall not apply to any payment or distribution in any taxable year beginning before January 1, 2004, which is includible in gross income but used for qualified higher education expenses of the designated beneficiary.'.
(4) CONFORMING AMENDMENTS-
(A) Sections 72(e)(9), 135(c)(2)(C), 135(d)(1)(D), 529, 530(b)(2)(B), 4973(e), and 6693(a)(2)(C) are amended by striking `qualified State tuition' each place it appears and inserting `qualified tuition'.
(B) The headings for sections 72(e)(9) and 135(c)(2)(C) are amended by striking `QUALIFIED STATE TUITION' each place it appears and inserting `QUALIFIED TUITION'.
(C) The headings for sections 529(b) and 530(b)(2)(B) are amended by striking `QUALIFIED STATE TUITION' each place it appears and inserting `QUALIFIED TUITION'.
(D) The heading for section 529 is amended by striking `state'.
(E) The item relating to section 529 in the table of sections for part VIII of subchapter F of chapter 1 is amended by striking `State'.
(b) EXCLUSION FROM GROSS INCOME OF EDUCATION DISTRIBUTIONS FROM QUALIFIED TUITION PROGRAMS-
(1) IN GENERAL- Section 529(c)(3)(B) (relating to distributions) is amended to read as follows:
`(B) DISTRIBUTIONS FOR QUALIFIED HIGHER EDUCATION EXPENSES- For purposes of this paragraph--
`(i) IN-KIND DISTRIBUTIONS- No amount shall be includible in gross income under subparagraph (A) by reason of a distribution which consists of providing a benefit to the distributee which, if paid for by the distributee, would constitute payment of a qualified higher education expense.
`(ii) CASH DISTRIBUTIONS- In the case of distributions not described in clause (i), if--
`(I) such distributions do not exceed the qualified higher education expenses (reduced by expenses described in clause (i)), no amount shall be includible in gross income, and
`(II) in any other case, the amount otherwise includible in gross income shall be reduced by an amount which bears the same ratio to such amount as such expenses bear to such distributions.
`(iii) EXCEPTION FOR INSTITUTIONAL PROGRAMS- In the case of any taxable year beginning before January 1, 2004, clauses (i) and (ii) shall not apply with respect to any distribution during such taxable year under a qualified tuition program established and maintained by 1 or more eligible educational institutions.
`(iv) TREATMENT AS DISTRIBUTIONS- Any benefit furnished to a designated beneficiary under a qualified tuition program shall be treated as a distribution to the beneficiary for purposes of this paragraph.
`(v) COORDINATION WITH HOPE AND LIFETIME LEARNING CREDITS- The total amount of qualified higher education expenses with respect to an individual for the taxable year shall be reduced--
`(I) as provided in section 25A(g)(2), and
`(II) by the amount of such expenses which were taken into account in determining the credit allowed to the taxpayer or any other person under section 25A.
`(vi) COORDINATION WITH EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS- If, with respect to an individual for any taxable year--
`(I) the aggregate distributions to which clauses (i) and (ii) and section 530(d)(2)(A) apply, exceed
`(II) the total amount of qualified higher education expenses otherwise taken into account under clauses (i) and (ii) (after the application of clause (v)) for such year,
the taxpayer shall allocate such expenses among such distributions for purposes of determining the amount of the exclusion under clauses (i) and (ii) and section 530(d)(2)(A).'.
(2) CONFORMING AMENDMENTS-
(A) Section 135(d)(2)(B) is amended by striking `the exclusion under section 530(d)(2)' and inserting `the exclusions under sections 529(c)(3)(B) and 530(d)(2)'.
(B) Section 221(e)(2)(A) is amended by inserting `529,' after `135,'.
(c) ROLLOVER TO DIFFERENT PROGRAM FOR BENEFIT OF SAME DESIGNATED BENEFICIARY- Section 529(c)(3)(C) (relating to change in beneficiaries) is amended--
(1) by striking `transferred to the credit' in clause (i) and inserting `transferred--
`(I) to another qualified tuition program for the benefit of the designated beneficiary, or
(2) by adding at the end the following new clause:
`(iii) LIMITATION ON CERTAIN ROLLOVERS- Clause (i)(I) shall not apply to any transfer if such transfer occurs within 12 months from the date of a previous transfer to any qualified tuition program for the benefit of the designated beneficiary.', and
(3) by inserting `OR PROGRAMS' after `BENEFICIARIES' in the heading.
(d) MEMBER OF FAMILY INCLUDES FIRST COUSIN- Section 529(e)(2) (defining member of family) is amended by striking `and' at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and by inserting `; and', and by adding at the end the following new subparagraph:
`(D) any first cousin of such beneficiary.'.
(e) ADJUSTMENT OF LIMITATION ON ROOM AND BOARD DISTRIBUTIONS- Section 529(e)(3)(B)(ii) is amended to read as follows:
`(ii) LIMITATION- The amount treated as qualified higher education expenses by reason of clause (i) shall not exceed--
`(I) the allowance (applicable to the student) for room and board included in the cost of attendance (as defined in section 472 of the Higher Education Act of 1965 (20 U.S.C. 1087ll), as in effect on the date of the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001) as determined by the eligible educational institution for such period, or
`(II) if greater, the actual invoice amount the student residing in housing owned or operated by the eligible educational institution is charged by such institution for room and board costs for such period.'.
(f) SPECIAL NEEDS SERVICES- Subparagraph (A) of section 529(e)(3) (defining qualified higher education expenses) is amended to read as follows:
`(A) IN GENERAL- The term `qualified higher education expenses' means--
`(i) tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary at an eligible educational institution; and
`(ii) expenses for special needs services in the case of a special needs beneficiary which are incurred in connection with such enrollment or attendance.'.
(g) TECHNICAL AMENDMENTS- Section 529(c)(3)(D) is amended--
(1) by inserting `except to the extent provided by the Secretary,' before `all distributions' in clause (ii), and
(2) by inserting `except to the extent provided by the Secretary,' before `the value' in clause (iii).
(h) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.
Subtitle B--Educational Assistance
SEC. 411. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE.
(a) IN GENERAL- Section 127 (relating to exclusion for educational assistance programs) is amended by striking subsection (d) and by redesignating subsection (e) as subsection (d).
(b) REPEAL OF LIMITATION ON GRADUATE EDUCATION- The last sentence of section 127(c)(1) is amended by striking `, and such term also does not include any payment for, or the provision of any benefits with respect to, any graduate level course of a kind normally taken by an individual pursuing a program leading to a law, business, medical, or other advanced academic or professional degree'.
(c) CONFORMING AMENDMENT- Section 51A(b)(5)(B)(iii) is amended by striking `or would be so excludable but for section 127(d)'.
(d) EFFECTIVE DATE- The amendments made by this section shall apply with respect to expenses relating to courses beginning after December 31, 2001.
SEC. 412. ELIMINATION OF 60-MONTH LIMIT AND INCREASE IN INCOME LIMITATION ON STUDENT LOAN INTEREST DEDUCTION.
(a) ELIMINATION OF 60-MONTH LIMIT-
(1) IN GENERAL- Section 221 (relating to interest on education loans), as amended by section 402(b)(2)(B), is amended by striking subsection (d) and by redesignating subsections (e), (f), and (g) as subsections (d), (e), and (f), respectively.
(2) CONFORMING AMENDMENT- Section 6050S(e) is amended by striking `section 221(e)(1)' and inserting `section 221(d)(1)'.
(3) EFFECTIVE DATE- The amendments made by this subsection shall apply with respect to any loan interest paid after December 31, 2001, in taxable years ending after such date.
(b) INCREASE IN INCOME LIMITATION-
(1) IN GENERAL- Section 221(b)(2)(B) (relating to amount of reduction) is amended by striking clauses (i) and (ii) and inserting the following:
`(I) the taxpayer's modified adjusted gross income for such taxable year, over
`(II) $50,000 ($100,000 in the case of a joint return), bears to
`(ii) $15,000 ($30,000 in the case of a joint return).'.
(2) CONFORMING AMENDMENT- Section 221(g)(1) is amended by striking `$40,000 and $60,000 amounts' and inserting `$50,000 and $100,000 amounts'.
(3) EFFECTIVE DATE- The amendments made by this subsection shall apply to taxable years ending after December 31, 2001.
SEC. 413. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE NATIONAL HEALTH SERVICE CORPS SCHOLARSHIP PROGRAM AND THE F. EDWARD HEBERT ARMED FORCES HEALTH PROFESSIONS SCHOLARSHIP AND FINANCIAL ASSISTANCE PROGRAM.
(a) IN GENERAL- Section 117(c) (relating to the exclusion from gross income amounts received as a qualified scholarship) is amended--
(1) by striking `Subsections (a)' and inserting the following:
`(1) IN GENERAL- Except as provided in paragraph (2), subsections (a)', and
(2) by adding at the end the following new paragraph:
`(2) EXCEPTIONS- Paragraph (1) shall not apply to any amount received by an individual under--
`(A) the National Health Service Corps Scholarship Program under section 338A(g)(1)(A) of the Public Health Service Act, or
`(B) the Armed Forces Health Professions Scholarship and Financial Assistance program under subchapter I of chapter 105 of title 10, United States Code.'.
(b) EFFECTIVE DATE- The amendments made by subsection (a) shall apply to amounts received in taxable years beginning after December 31, 2001.
Subtitle C--Liberalization of Tax-Exempt Financing Rules for Public School Construction
SEC. 421. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION FOR GOVERNMENTAL BONDS USED TO FINANCE EDUCATIONAL FACILITIES.
(a) IN GENERAL- Section 148(f)(4)(D)(vii) (relating to increase in exception for bonds financing public school capital expenditures) is amended by striking `$5,000,000' the second place it appears and inserting `$10,000,000'.
(b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to obligations issued in calendar years beginning after December 31, 2001.
SEC. 422. TREATMENT OF QUALIFIED PUBLIC EDUCATIONAL FACILITY BONDS AS EXEMPT FACILITY BONDS.
(a) TREATMENT AS EXEMPT FACILITY BOND- Subsection (a) of section 142 (relating to exempt facility bond) is amended by striking `or' at the end of paragraph (11), by striking the period at the end of paragraph (12) and inserting `, or', and by adding at the end the following new paragraph:
`(13) qualified public educational facilities.'.
(b) QUALIFIED PUBLIC EDUCATIONAL FACILITIES- Section 142 (relating to exempt facility bond) is amended by adding at the end the following new subsection:
`(k) QUALIFIED PUBLIC EDUCATIONAL FACILITIES-
`(1) IN GENERAL- For purposes of subsection (a)(13), the term `qualified public educational facility' means any school facility which is--
`(A) part of a public elementary school or a public secondary school, and
`(B) owned by a private, for-profit corporation pursuant to a public-private partnership agreement with a State or local educational agency described in paragraph (2).
`(2) PUBLIC-PRIVATE PARTNERSHIP AGREEMENT DESCRIBED- A public-private partnership agreement is described in this paragraph if it is an agreement--
`(A) under which the corporation agrees--
`(i) to do 1 or more of the following: construct, rehabilitate, refurbish, or equip a school facility, and
`(ii) at the end of the term of the agreement, to transfer the school facility to such agency for no additional consideration, and
`(B) the term of which does not exceed the term of the issue to be used to provide the school facility.
`(3) SCHOOL FACILITY- For purposes of this subsection, the term `school facility' means--
`(A) any school building,
`(B) any functionally related and subordinate facility and land with respect to such building, including any stadium or other facility primarily used for school events, and
`(C) any property, to which section 168 applies (or would apply but for section 179), for use in a facility described in subparagraph (A) or (B).
`(4) PUBLIC SCHOOLS- For purposes of this subsection, the terms `elementary school' and `secondary school' have the meanings given such terms by section 14101 of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 8801), as in effect on the date of the enactment of this subsection.
`(5) ANNUAL AGGREGATE FACE AMOUNT OF TAX-EXEMPT FINANCING-
`(A) IN GENERAL- An issue shall not be treated as an issue described in subsection (a)(13) if the aggregate face amount of bonds issued by the State pursuant thereto (when added to the aggregate face amount of bonds previously so issued during the calendar year) exceeds an amount equal to the greater of--
`(i) $10 multiplied by the State population, or
`(i) IN GENERAL- Except as otherwise provided in this subparagraph, the State may allocate the amount described in subparagraph (A) for any calendar year in such manner as the State determines appropriate.
`(ii) RULES FOR CARRYFORWARD OF UNUSED LIMITATION- A State may elect to carry forward an unused limitation for any calendar year for 3 calendar years following the calendar year in which the unused limitation arose under rules similar to the rules of section 146(f), except that the only purpose for which the carryforward may be elected is the issuance of exempt facility bonds described in subsection (a)(13).'.
(c) EXEMPTION FROM GENERAL STATE VOLUME CAPS- Paragraph (3) of section 146(g) (relating to exception for certain bonds) is amended--
(1) by striking `or (12)' and inserting `(12), or (13)', and
(2) by striking `and environmental enhancements of hydroelectric generating facilities' and inserting `environmental enhancements of hydroelectric generating facilities, and qualified public educational facilities'.
(d) EXEMPTION FROM LIMITATION ON USE FOR LAND ACQUISITION- Section 147(h) (relating to certain rules not to apply to mortgage revenue bonds, qualified student loan bonds, and qualified 501(c)(3) bonds) is amended by adding at the end the following new paragraph:
`(3) EXEMPT FACILITY BONDS FOR QUALIFIED PUBLIC-PRIVATE SCHOOLS- Subsection (c) shall not apply to any exempt facility bond issued as part of an issue described in section 142(a)(13) (relating to qualified public educational facilities).'.
(e) CONFORMING AMENDMENT- The heading for section 147(h) is amended by striking `MORTGAGE REVENUE BONDS, QUALIFIED STUDENT LOAN BONDS, AND QUALIFIED 501(c)(3) BONDS' and inserting `CERTAIN BONDS'.
(f) EFFECTIVE DATE- The amendments made by this section shall apply to bonds issued after December 31, 2001.
Subtitle D--Other Provisions
SEC. 431. DEDUCTION FOR HIGHER EDUCATION EXPENSES.
(a) DEDUCTION ALLOWED- Part VII of subchapter B of chapter 1 (relating to additional itemized deductions for individuals) is amended by redesignating section 222 as section 223 and by inserting after section 221 the following:
`SEC. 222. QUALIFIED TUITION AND RELATED EXPENSES.
`(a) ALLOWANCE OF DEDUCTION- In the case of an individual, there shall be allowed as a deduction an amount equal to the qualified tuition and related expenses paid by the taxpayer during the taxable year.
`(1) IN GENERAL- The amount allowed as a deduction under subsection (a) with respect to the taxpayer for any taxable year shall not exceed the applicable dollar limit.
`(2) APPLICABLE DOLLAR LIMIT-
`(A) 2002 AND 2003- In the case of a taxable year beginning in 2002 or 2003, the applicable dollar limit shall be equal to--
`(i) in the case of a taxpayer whose adjusted gross income for the taxable year does not exceed $65,000 ($130,000 in the case of a joint return), $3,000, and--
`(ii) in the case of any other taxpayer, zero.
`(B) 2004 AND 2005- In the case of a taxable year beginning in 2004 or 2005, the applicable dollar amount shall be equal to--
`(i) in the case of a taxpayer whose adjusted gross income for the taxable year does not exceed $65,000 ($130,000 in the case of a joint return), $4,000,
`(ii) in the case of a taxpayer not described in clause (i) whose adjusted gross income for the taxable year does not exceed $80,000 ($160,000 in the case of a joint return), $2,000, and
`(iii) in the case of any other taxpayer, zero.
`(C) ADJUSTED GROSS INCOME- For purposes of this paragraph, adjusted gross income shall be determined--
`(i) without regard to this section and sections 911, 931, and 933, and
`(ii) after application of sections 86, 135, 137, 219, 221, and 469.
`(1) IN GENERAL- No deduction shall be allowed under subsection (a) for any expense for which a deduction is allowed to the taxpayer under any other provision of this chapter.
`(2) COORDINATION WITH OTHER EDUCATION INCENTIVES-
`(A) DENIAL OF DEDUCTION IF CREDIT ELECTED- No deduction shall be allowed under subsection (a) for a taxable year with respect to the qualified tuition and related expenses with respect to an individual if the taxpayer or any other person elects to have section 25A apply with respect to such individual for such year.
`(B) COORDINATION WITH EXCLUSIONS- The total amount of qualified tuition and related expenses shall be reduced by the amount of such expenses taken into account in determining any amount excluded under section 135, 529(c)(1), or 530(d)(2). For purposes of the preceding sentence, the amount taken into account in determining the amount excluded under section 529(c)(1) shall not include that portion of the distribution which represents a return of any contributions to the plan.
`(3) DEPENDENTS- No deduction shall be allowed under subsection (a) to any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such individual's taxable year begins.
`(d) DEFINITIONS AND SPECIAL RULES- For purposes of this section--
`(1) QUALIFIED TUITION AND RELATED EXPENSES- The term `qualified tuition and related expenses' has the meaning given such term by section 25A(f). Such expenses shall be reduced in the same manner as under section 25A(g)(2).
`(2) IDENTIFICATION REQUIREMENT- No deduction shall be allowed under subsection (a) to a taxpayer with respect to the qualified tuition and related expenses of an individual unless the taxpayer includes the name and taxpayer identification number of the individual on the return of tax for the taxable year.
`(3) LIMITATION ON TAXABLE YEAR OF DEDUCTION-
`(A) IN GENERAL- A deduction shall be allowed under subsection (a) for qualified tuition and related expenses for any taxable year only to the extent such expenses are in connection with enrollment at an institution of higher education during the taxable year.
`(B) CERTAIN PREPAYMENTS ALLOWED- Subparagraph (A) shall not apply to qualified tuition and related expenses paid during a taxable year if such expenses are in connection with an academic term beginning during such taxable year or during the first 3 months of the next taxable year.
`(4) NO DEDUCTION FOR MARRIED INDIVIDUALS FILING SEPARATE RETURNS- If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayer's spouse file a joint return for the taxable year.
`(5) NONRESIDENT ALIENS- If the taxpayer is a nonresident alien individual for any portion of the taxable year, this section shall apply only if such individual is treated as a resident alien of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013.
`(6) REGULATIONS- The Secretary may prescribe such regulations as may be necessary or appropriate to carry out this section, including regulations requiring recordkeeping and information reporting.
`(e) TERMINATION- This section shall not apply to taxable years beginning after December 31, 2005.'.
(b) DEDUCTION ALLOWED IN COMPUTING ADJUSTED GROSS INCOME- Section 62(a) is amended by inserting after paragraph (17) the following:
`(18) HIGHER EDUCATION EXPENSES- The deduction allowed by section 222.'.
(c) CONFORMING AMENDMENTS-
(1) Sections 86(b)(2), 135(c)(4), 137(b)(3), and 219(g)(3) are each amended by inserting `222,' after `221,'.
(2) Section 221(b)(2)(C) is amended by inserting `222,' before `911'.
(3) Section 469(i)(3)(F) is amended by striking `and 221' and inserting `, 221, and 222'.
(4) The table of sections for part VII of subchapter B of chapter 1 is amended by striking the item relating to section 222 and inserting the following:
`Sec. 222. Qualified tuition and related expenses.
`Sec. 223. Cross reference.'.
(d) EFFECTIVE DATE- The amendments made by this section shall apply to payments made in taxable years beginning after December 31, 2001.
TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAX PROVISIONS
Subtitle A--Repeal of Estate and Generation-Skipping Transfer Taxes
SEC. 501. REPEAL OF ESTATE AND GENERATION-SKIPPING TRANSFER TAXES.
(a) ESTATE TAX REPEAL- Subchapter C of chapter 11 of subtitle B (relating to miscellaneous) is amended by adding at the end the following new section:
`SEC. 2210. TERMINATION.
`(a) IN GENERAL- Except as provided in subsection (b), this chapter shall not apply to the estates of decedents dying after December 31, 2009.
`(b) CERTAIN DISTRIBUTIONS FROM QUALIFIED DOMESTIC TRUSTS- In applying section 2056A with respect to the surviving spouse of a decedent dying before January 1, 2010--
`(1) section 2056A(b)(1)(A) shall not apply to distributions made after December 31, 2020, and
`(2) section 2056A(b)(1)(B) shall not apply after December 31, 2009.'.
(b) GENERATION-SKIPPING TRANSFER TAX REPEAL- Subchapter G of chapter 13 of subtitle B (relating to administration) is amended by adding at the end the following new section:
`SEC. 2664. TERMINATION.
`This chapter shall not apply to generation-skipping transfers after December 31, 2009.'.
(c) CONFORMING AMENDMENTS-
(1) The table of sections for subchapter C of chapter 11 is amended by adding at the end the following new item:
`Sec. 2210. Termination.'.
(2) The table of sections for subchapter G of chapter 13 is amended by adding at the end the following new item:
`Sec. 2664. Termination.'.
(d) EFFECTIVE DATE- The amendments made by this section shall apply to the estates of decedents dying, and generation-skipping transfers, after December 31, 2009.
Subtitle B--Reductions of Estate and Gift Tax Rates
SEC. 511. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT TAX RATES.
(a) MAXIMUM RATE OF TAX REDUCED TO 50 PERCENT- The table contained in section 2001(c)(1) is amended by striking the two highest brackets and inserting the following:
`Over $2,500,000
$1,025,800, plus 50% of the excess over $2,500,000.'.
(b) REPEAL OF PHASEOUT OF GRADUATED RATES- Subsection (c) of section 2001 is amended by striking paragraph (2).
(c) ADDITIONAL REDUCTIONS OF MAXIMUM RATE OF TAX- Subsection (c) of section 2001, as amended by subsection (b), is amended by adding at the end the following new paragraph:
`(2) PHASEDOWN OF MAXIMUM RATE OF TAX-
`(A) IN GENERAL- In the case of estates of decedents dying, and gifts made, in calendar years after 2002 and before 2010, the tentative tax under this subsection shall be determined by using a table prescribed by the Secretary (in lieu of using the table contained in paragraph (1)) which is the same as such table; except that--
`(i) the maximum rate of tax for any calendar year shall be determined in the table under subparagraph (B), and
`(ii) the brackets and the amounts setting forth the tax shall be adjusted to the extent necessary to reflect the adjustments under subparagraph (A).
The maximum
`In calendar year:
rate is:
2003
49 percent
2004
48 percent
2005
47 percent
2006
46 percent
2007, 2008, and 2009
45 percent.'.
(d) MAXIMUM GIFT TAX RATE REDUCED TO MAXIMUM INDIVIDUAL RATE AFTER 2009- Subsection (a) of section 2502 (relating to rate of tax) is amended to read as follows:
`(1) IN GENERAL- The tax imposed by section 2501 for each calendar year shall be an amount equal to the excess of--
`(A) a tentative tax, computed under paragraph (2), on the aggregate sum of the taxable gifts for such calendar year and for each of the preceding calendar periods, over
`(B) a tentative tax, computed under paragraph (2), on the aggregate sum of the taxable gifts for each of the preceding calendar periods.
`If the amount with respect to which the tentative tax to be computed is:
The tentative tax is:
Not over $10,000
18% of such amount.
Over $10,000 but not over $20,000
$1,800, plus 20% of the excess over $10,000.
Over $20,000 but not over $40,000
$3,800, plus 22% of the excess over $20,000.
Over $40,000 but not over $60,000
$8,200, plus 24% of the excess over $40,000.
Over $60,000 but not over $80,000
$13,000, plus 26% of the excess over $60,000.
Over $80,000 but not over $100,000
$18,200, plus 28% of the excess over $80,000.
Over $100,000 but not over $150,000
$23,800, plus 30% of the excess over $100,000.
Over $150,000 but not over $250,000
$38,800, plus 32% of the excess over $150,000.
Over $250,000 but not over $500,000
$70,800, plus 34% of the excess over $250,000.
Over $500,000
$155,800, plus 35% of the excess over $500,000.'.
(e) TREATMENT OF CERTAIN TRANSFERS IN TRUST- Section 2511 (relating to transfers in general) is amended by adding at the end the following new subsection:
`(c) TREATMENT OF CERTAIN TRANSFERS IN TRUST- Notwithstanding any other provision of this section and except as provided in regulations, a transfer in trust shall be treated as a taxable gift under section 2503, unless the trust is treated as wholly owned by the donor or the donor's spouse under subpart E of part I of subchapter J of chapter 1.'.
(1) SUBSECTIONS (a) AND (b)- The amendments made by subsections (a) and (b) shall apply to estates of decedents dying, and gifts made, after December 31, 2001.
(2) SUBSECTION (c)- The amendment made by subsection (c) shall apply to estates of decedents dying, and gifts made, after December 31, 2002.
(3) SUBSECTIONS (d) AND (e)- The amendments made by subsections (d) and (e) shall apply to gifts made after December 31, 2009.
Subtitle C--Increase in Exemption Amounts
SEC. 521. INCREASE IN EXEMPTION EQUIVALENT OF UNIFIED CREDIT, LIFETIME GIFTS EXEMPTION, AND GST EXEMPTION AMOUNTS.
(a) IN GENERAL- Subsection (c) of section 2010 (relating to applicable credit amount) is amended by striking the table and inserting the following new table:
`In the case of estates of decedents
--The applicable
dying during:
--exclusion amount is:
2002 and 2003
--$1,000,000
2004 and 2005
--$1,500,000
2006, 2007, and 2008
--$2,000,000
2009
--$3,500,000.'.
(b) LIFETIME GIFT EXEMPTION INCREASED TO $1,000,000-
(1) FOR PERIODS BEFORE ESTATE TAX REPEAL- Paragraph (1) of section 2505(a) (relating to unified credit against gift tax) is amended by inserting `(determined as if the applicable exclusion amount were $1,000,000)' after `calendar year'.
(2) FOR PERIODS AFTER ESTATE TAX REPEAL- Paragraph (1) of section 2505(a) (relating to unified credit against gift tax), as amended by paragraph (1), is amended to read as follows:
`(1) the amount of the tentative tax which would be determined under the rate schedule set forth in section 2502(a)(2) if the amount with respect to which such tentative tax is to be computed were $1,000,000, reduced by'.
(1) IN GENERAL- Subsection (a) of 2631 (relating to GST exemption) is amended by striking `of $1,000,000' and inserting `amount'.
(2) EXEMPTION AMOUNT- Subsection (c) of section 2631 is amended to read as follows:
`(c) GST EXEMPTION AMOUNT- For purposes of subsection (a), the GST exemption amount for any calendar year shall be equal to the applicable exclusion amount under section 2010(c) for such calendar year.'.
(d) REPEAL OF SPECIAL BENEFIT FOR FAMILY-OWNED BUSINESS INTERESTS- Section 2057 (relating to family-owned business interests) is amended by adding at the end the following new subsection:
`(j) TERMINATION- This section shall not apply to the estates of decedents dying after December 31, 2003.'.
(1) IN GENERAL- Except as provided in paragraphs (2) and (3), the amendments made by this section shall apply to estates of decedents dying, and gifts made, after December 31, 2001.
(2) SUBSECTION (b)(2)- The amendments made by subsection (b)(2) shall apply to gifts made after December 31, 2009.
(3) SUBSECTIONS (c) AND (d)- The amendments made by subsections (c) and (d) shall apply to estates of decedents dying, and generation-skipping transfers, after December 31, 2003.
Subtitle D--Credit for State Death Taxes
SEC. 531. REDUCTION OF CREDIT FOR STATE DEATH TAXES.
(a) IN GENERAL- Section 2011(b) (relating to amount of credit) is amended--
(1) by striking `CREDIT- The credit allowed' and inserting `CREDIT-
`(1) IN GENERAL- Except as provided in paragraph (2), the credit allowed',
(2) by striking `For purposes' and inserting the following:
`(3) ADJUSTED TAXABLE ESTATE- For purposes', and
(3) by inserting after paragraph (1) the following new paragraph:
`(2) REDUCTION OF MAXIMUM CREDIT-
`(A) IN GENERAL- In the case of estates of decedents dying after December 31, 2001, the credit allowed by this section shall not exceed the applicable percentage of the credit otherwise determined under paragraph (1).
`(B) APPLICABLE PERCENTAGE-
`In the case of estates of decedents
--The applicable
dying during:
--percentage is:
2002
--75 percent
2003
--50 percent
2004
--25 percent.'.
(b) EFFECTIVE DATE- The amendments made by this subsection shall apply to estates of decedents dying after December 31, 2001.
SEC. 532. CREDIT FOR STATE DEATH TAXES REPLACED WITH DEDUCTION FOR SUCH TAXES.
(a) REPEAL OF CREDIT- Section 2011 (relating to credit for State death taxes) is amended by adding at the end the following new subsection:
`(g) TERMINATION- This section shall not apply to the estates of decedents dying after December 31, 2004.'.
(b) DEDUCTION FOR STATE DEATH TAXES- Part IV of subchapter A of chapter 11 is amended by adding at the end the following new section:
`SEC. 2058. STATE DEATH TAXES.
`(a) ALLOWANCE OF DEDUCTION- For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate the amount of any estate, inheritance, legacy, or succession taxes actually paid to any State or the District of Columbia, in respect of any property included in the gross estate (not including any such taxes paid with respect to the estate of a person other than the decedent).
`(b) PERIOD OF LIMITATIONS- The deduction allowed by this section shall include only such taxes as were actually paid and deduction therefor claimed before the later of--
`(1) 4 years after the filing of the return required by section 6018, or
`(A) a petition for redetermination of a deficiency has been filed with the Tax Court within the time prescribed in section 6213(a), the expiration of 60 days after the decision of the Tax Court becomes final,
`(B) an extension of time has been granted under section 6161 or 6166 for payment of the tax shown on the return, or of a deficiency, the date of the expiration of the period of the extension, or
`(C) a claim for refund or credit of an overpayment of tax imposed by this chapter has been filed within the time prescribed in section 6511, the latest of the expiration of--
`(i) 60 days from the date of mailing by certified mail or registered mail by the Secretary to the taxpayer of a notice of the disallowance of any part of such claim,
`(ii) 60 days after a decision by any court of competent jurisdiction becomes final with respect to a timely suit instituted upon such claim, or
`(iii) 2 years after a notice of the waiver of disallowance is filed under section 6532(a)(3).
Notwithstanding sections 6511 and 6512, refund based on the deduction may be made if the claim for refund is filed within the period provided in the preceding sentence. Any such refund shall be made without interest.'.
(c) CONFORMING AMENDMENTS-
(1) Subsection (a) of section 2012 is amended by striking `the credit for State death taxes provided by section 2011 and'.
(2) Subparagraph (A) of section 2013(c)(1) is amended by striking `2011,'.
(3) Paragraph (2) of section 2014(b) is amended by striking `, 2011,'.
(4) Sections 2015 and 2016 are each amended by striking `2011 or'.
(5) Subsection (d) of section 2053 is amended to read as follows:
`(d) CERTAIN FOREIGN DEATH TAXES-
`(1) IN GENERAL- Notwithstanding the provisions of subsection (c)(1)(B), for purposes of the tax imposed by section 2001, the value of the taxable estate may be determined, if the executor so elects before the expiration of the period of limitation for assessment provided in section 6501, by deducting from the value of the gross estate the amount (as determined in accordance with regulations prescribed by the Secretary) of any estate, succession, legacy, or inheritance tax imposed by and actually paid to any foreign country, in respect of any property situated within such foreign country and included in the gross estate of a citizen or resident of the United States, upon a transfer by the decedent for public, charitable, or religious uses described in section 2055. The determination under this paragraph of the country within which property is situated shall be made in accordance with the rules applicable under subchapter B (sec. 2101 and following) in determining whether property is situated within or without the United States. Any election under this paragraph shall be exercised in accordance with regulations prescribed by the Secretary.
`(2) CONDITION FOR ALLOWANCE OF DEDUCTION- No deduction shall be allowed under paragraph (1) for a foreign death tax specified therein unless the decrease in the tax imposed by section 2001 which results from the deduction provided in paragraph (1) will inure solely for the benefit of the public, charitable, or religious transferees described in section 2055 or section 2106(a)(2). In any case where the tax imposed by section 2001 is equitably apportioned among all the transferees of property included in the gross estate, including those described in sections 2055 and 2106(a)(2) (taking into account any exemptions, credits, or deductions allowed by this chapter), in determining such decrease, there shall be disregarded any decrease in the Federal estate tax which any transferees other than those described in sections 2055 and 2106(a)(2) are required to pay.
`(3) EFFECT ON CREDIT FOR FOREIGN DEATH TAXES OF DEDUCTION UNDER THIS SUBSECTION-
`(A) ELECTION- An election under this subsection shall be deemed a waiver of the right to claim a credit, against the Federal estate tax, under a death tax convention with any foreign country for any tax or portion thereof in respect of which a deduction is taken under this subsection.
`See section 2014(f) for the effect of a deduction taken under this paragraph on the credit for foreign death taxes.'.
(6) Subparagraph (A) of section 2056A(b)(10) is amended--
(A) by striking `2011,', and
(B) by inserting `2058,' after `2056,'.
(7)(A) Subsection (a) of section 2102 is amended to read as follows:
`(a) IN GENERAL- The tax imposed by section 2101 shall be credited with the amounts determined in accordance with sections 2012 and 2013 (relating to gift tax and tax on prior transfers).'.
(B) Section 2102 is amended by striking subsection (b) and by redesignating subsection (c) as subsection (b).
(C) Section 2102(b)(5) (as redesignated by subparagraph (B)) and section 2107(c)(3) are each amended by striking `2011 to 2013, inclusive,' and inserting `2012 and 2013'.
(8) Subsection (a) of section 2106 is amended by adding at the end the following new paragraph:
`(4) STATE DEATH TAXES- The amount which bears the same ratio to the State death taxes as the value of the property, as determined for purposes of this chapter, upon which State death taxes were paid and which is included in the gross estate under section 2103 bears to the value of the total gross estate under section 2103. For purposes of this paragraph, the term `State death taxes' means the taxes described in section 2011(a).'.
(9) Section 2201 is amended--
(A) by striking `as defined in section 2011(d)', and
(B) by adding at the end the following new flush sentence:
`For purposes of this section, the additional estate tax is the difference between the tax imposed by section 2001 or 2101 and the amount equal to 125 percent of the maximum credit provided by section 2011(b), as in effect before its repeal by the Economic Growth and Tax Relief Reconciliation Act of 2001.'.
(10) Section 2604 (relating to credit for certain State taxes) is amended by adding at the end the following new subsection:
`(c) TERMINATION- This section shall not apply to the generation-skipping transfers after December 31, 2004.'.
(11) Paragraph (2) of section 6511(i) is amended by striking `2011(c), 2014(b),' and inserting `2014(b)'.
(12) Subsection (c) of section 6612 is amended by striking `section 2011(c) (relating to refunds due to credit for State taxes),'.
(13) The table of sections for part II of subchapter A of chapter 11 is amended by striking the item relating to section 2011.
(14) The table of sections for part IV of subchapter A of chapter 11 is amended by adding at the end the following new item:
`Sec. 2058. State death taxes.'.
(15) The table of sections for subchapter A of chapter 13 is amended by striking the item relating to section 2604.
(d) EFFECTIVE DATE- The amendments made by this section shall apply to estates of decedents dying, and generation-skipping transfers, after December 31, 2004.
Subtitle E--Carryover Basis at Death; Other Changes Taking Effect With Repeal
SEC. 541. TERMINATION OF STEP-UP IN BASIS AT DEATH.
Section 1014 (relating to basis of property acquired from a decedent) is amended by adding at the end the following new subsection:
`(f) TERMINATION- This section shall not apply with respect to decedents dying after December 31, 2009.'.
SEC. 542. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER DECEMBER 31, 2009.
(a) GENERAL RULE- 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. TREATMENT OF PROPERTY ACQUIRED FROM A DECEDENT DYING AFTER DECEMBER 31, 2009.
`(a) IN GENERAL- Except as otherwise provided in this section--
`(1) property acquired from a decedent dying after December 31, 2009, shall be treated for purposes of this subtitle as transferred by gift, and
`(2) the basis of the person acquiring property from such a decedent shall be the lesser of--
`(A) the adjusted basis of the decedent, or
`(B) the fair market value of the property at the date of the decedent's death.
`(b) BASIS INCREASE FOR CERTAIN PROPERTY-
`(1) IN GENERAL- In the case of property to which this subsection applies, the basis of such property under subsection (a) shall be increased by its basis increase under this subsection.
`(2) BASIS INCREASE- For purposes of this subsection--
`(A) IN GENERAL- The basis increase under this subsection for any property is the portion of the aggregate basis increase which is allocated to the property pursuant to this section.
`(B) AGGREGATE BASIS INCREASE- In the case of any estate, the aggregate basis increase under this subsection is $1,300,000.
`(C) LIMIT INCREASED BY UNUSED BUILT-IN LOSSES AND LOSS CARRYOVERS- The limitation under subparagraph (B) shall be increased by--
`(i) the sum of the amount of any capital loss carryover under section 1212(b), and the amount of any net operating loss carryover under section 172, which would (but for the decedent's death) be carried from the decedent's last taxable year to a later taxable year of the decedent, plus
`(ii) the sum of the amount of any losses that would have been allowable under section 165 if the property acquired from the decedent had been sold at fair market value immediately before the decedent's death.
`(3) DECEDENT NONRESIDENTS WHO ARE NOT CITIZENS OF THE UNITED STATES- In the case of a decedent nonresident not a citizen of the United States--
`(A) paragraph (2)(B) shall be applied by substituting `$60,000' for `$1,300,000', and
`(B) paragraph (2)(C) shall not apply.
`(c) ADDITIONAL BASIS INCREASE FOR PROPERTY ACQUIRED BY SURVIVING SPOUSE-
`(1) IN GENERAL- In the case of property to which this subsection applies and which is qualified spousal property, the basis of such property under subsection (a) (as increased under subsection (b)) shall be increased by its spousal property basis increase.
`(2) SPOUSAL PROPERTY BASIS INCREASE- For purposes of this subsection--
`(A) IN GENERAL- The spousal property basis increase for property referred to in paragraph (1) is the portion of the aggregate spousal property basis increase which is allocated to the property pursuant to this section.
`(B) AGGREGATE SPOUSAL PROPERTY BASIS INCREASE- In the case of any estate, the aggregate spousal property basis increase is $3,000,000.
`(3) QUALIFIED SPOUSAL PROPERTY- For purposes of this subsection, the term `qualified spousal property' means--
`(A) outright transfer property, and
`(B) qualified terminable interest property.
`(4) OUTRIGHT TRANSFER PROPERTY- For purposes of this subsection--
`(A) IN GENERAL- The term `outright transfer property' means any interest in property acquired from the decedent by the decedent's surviving spouse.
`(B) EXCEPTION- Subparagraph (A) shall not apply where, on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur, an interest passing to the surviving spouse will terminate or fail--
`(i)(I) if an interest in such property passes or has passed (for less than an adequate and full consideration in money or money's worth) from the decedent to any person other than such surviving spouse (or the estate of such spouse), and
`(II) if by reason of such passing such person (or his heirs or assigns) may possess or enjoy any part of such property after such termination or failure of the interest so passing to the surviving spouse, or
`(ii) if such interest is to be acquired for the surviving spouse, pursuant to directions of the decedent, by his executor or by the trustee of a trust.
For purposes of this subparagraph, an interest shall not be considered as an interest which will terminate or fail merely because it is the ownership of a bond, note, or similar contractual obligation, the discharge of which would not have the effect of an annuity for life or for a term.
`(C) INTEREST OF SPOUSE CONDITIONAL ON SURVIVAL FOR LIMITED PERIOD- For purposes of this paragraph, an interest passing to the surviving spouse shall not be considered as an interest which will terminate or fail on the death of such spouse if--
`(i) such death will cause a termination or failure of such interest only if it occurs within a period not exceeding 6 months after the decedent's death, or only if it occurs as a result of a common disaster resulting in the death of the decedent and the surviving spouse, or only if it occurs in the case of either such event, and
`(ii) such termination or failure does not in fact occur.
`(5) QUALIFIED TERMINABLE INTEREST PROPERTY- For purposes of this subsection--
`(A) IN GENERAL- The term `qualified terminable interest property' means property--
`(i) which passes from the decedent, and
`(ii) in which the surviving spouse has a qualifying income interest for life.
`(B) QUALIFYING INCOME INTEREST FOR LIFE- The surviving spouse has a qualifying income interest for life if--
`(i) the surviving spouse is entitled to all the income from the property, payable annually or at more frequent intervals, or has a usufruct interest for life in the property, and
`(ii) no person has a power to appoint any part of the property to any person other than the surviving spouse.
Clause (ii) shall not apply to a power exercisable only at or after the death of the surviving spouse. To the extent provided in regulations, an annuity shall be treated in a manner similar to an income interest in property (regardless of whether the property from which the annuity is payable can be separately identified).
`(C) PROPERTY INCLUDES INTEREST THEREIN- The term `property' includes an interest in property.
`(D) SPECIFIC PORTION TREATED AS SEPARATE PROPERTY- A specific portion of property shall be treated as separate property. For purposes of the preceding sentence, the term `specific portion' only includes a portion determined on a fractional or percentage basis.
`(d) DEFINITIONS AND SPECIAL RULES FOR APPLICATION OF SUBSECTIONS (b) AND (c)-
`(1) PROPERTY TO WHICH SUBSECTIONS (b) AND (c) APPLY-
`(A) IN GENERAL- The basis of property acquired from a decedent may be increased under subsection (b) or (c) only if the property was owned by the decedent at the time of death.
`(B) RULES RELATING TO OWNERSHIP-
`(i) JOINTLY HELD PROPERTY- In the case of property which was owned by the decedent and another person as joint tenants with right of survivorship or tenants by the entirety--
`(I) if the only such other person is the surviving spouse, the decedent shall be treated as the owner of only 50 percent of the property,
`(II) in any case (to which subclause (I) does not apply) in which the decedent furnished consideration for the acquisition of the property, the decedent shall be treated as the owner to the extent of the portion of the property which is proportionate to such consideration, and
`(III) in any case (to which subclause (I) does not apply) in which the property has been acquired by gift, bequest, devise, or inheritance by the decedent and any other person as joint tenants with right of survivorship and their interests are not otherwise specified or fixed by law, the decedent shall be treated as the owner to the extent of the value of a fractional part to be determined by dividing the value of the property by the number of joint tenants with right of survivorship.
`(ii) REVOCABLE TRUSTS- The decedent shall be treated as owning property transferred by the decedent during life to a qualified revocable trust (as defined in section 645(b)(1)).
`(iii) POWERS OF APPOINTMENT- The decedent shall not be treated as owning any property by reason of holding a power of appointment with respect to such property.
`(iv) COMMUNITY PROPERTY- Property which represents the surviving spouse's one-half share of community property held by the decedent and the surviving spouse under the community property laws of any State or possession of the United States or any foreign country shall be treated for purposes of this section as owned by, and acquired from, the decedent if at least one-half of the whole of the community interest in such property is treated as owned by, and acquired from, the decedent without regard to this clause.
`(C) PROPERTY ACQUIRED BY DECEDENT BY GIFT WITHIN 3 YEARS OF DEATH-
`(i) IN GENERAL- Subsections (b) and (c) shall not apply to property acquired by the decedent by gift or by inter vivos transfer for less than adequate and full consideration in money or money's worth during the 3-year period ending on the date of the decedent's death.
`(ii) EXCEPTION FOR CERTAIN GIFTS FROM SPOUSE- Clause (i) shall not apply to property acquired by the decedent from the decedent's spouse unless, during such 3-year period, such spouse acquired the property in whole or in part by gift or by inter vivos transfer for less than adequate and full consideration in money or money's worth.
`(D) STOCK OF CERTAIN ENTITIES- Subsections (b) and (c) shall not apply to--
`(i) stock or securities of a foreign personal holding company,
`(ii) stock of a DISC or former DISC,
`(iii) stock of a foreign investment company, or
`(iv) stock of a passive foreign investment company unless such company is a qualified electing fund (as defined in section 1295) with respect to the decedent.
`(2) FAIR MARKET VALUE LIMITATION- The adjustments under subsections (b) and (c) shall not increase the basis of any interest in property acquired from the decedent above its fair market value in the hands of the decedent as of the date of the decedent's death.
`(A) IN GENERAL- The executor shall allocate the adjustments under subsections (b) and (c) on the return required by section 6018.
`(B) CHANGES IN ALLOCATION- Any allocation made pursuant to subparagraph (A) may be changed only as provided by the Secretary.
`(4) INFLATION ADJUSTMENT OF BASIS ADJUSTMENT AMOUNTS-
`(A) IN GENERAL- In the case of decedents dying in a calendar year after 2010, the $1,300,000, $60,000, and $3,000,000 dollar amounts in subsections (b) and (c)(2)(B) shall each 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 such calendar year, determined by substituting `2009' for `1992' in subparagraph (B) thereof.
`(B) ROUNDING- If any increase determined under subparagraph (A) is not a multiple of--
`(i) $100,000 in the case of the $1,300,000 amount,
`(ii) $5,000 in the case of the $60,000 amount, and
`(iii) $250,000 in the case of the $3,000,000 amount,
such increase shall be rounded to the next lowest multiple thereof.
`(e) PROPERTY ACQUIRED FROM THE DECEDENT- For purposes of this section, the following property shall be considered to have been acquired from the decedent:
`(1) Property acquired by bequest, devise, or inheritance, or by the decedent's estate from the decedent.
`(2) Property transferred by the decedent during his lifetime--
`(A) to a qualified revocable trust (as defined in section 645(b)(1)), or
`(B) to any other trust with respect to which the decedent reserved the right to make any change in the enjoyment thereof through the exercise of a power to alter, amend, or terminate the trust.
`(3) Any other property passing from the decedent by reason of death to the extent that such property passed without consideration.
`(f) COORDINATION WITH SECTION 691- This section shall not apply to property which constitutes a right to receive an item of income in respect of a decedent under section 691.
`(g) CERTAIN LIABILITIES DISREGARDED-
`(1) IN GENERAL- In determining whether gain is recognized on the acquisition of property--
`(A) from a decedent by a decedent's estate or any beneficiary other than a tax-exempt beneficiary, and
`(B) from the decedent's estate by any beneficiary other than a tax-exempt beneficiary,
and in determining the adjusted basis of such property, liabilities in excess of basis shall be disregarded.
`(2) TAX-EXEMPT BENEFICIARY- For purposes of paragraph (1), the term `tax-exempt beneficiary' means--
`(A) the United States, any State or political subdivision thereof, any possession of the United States, any Indian tribal government (within the meaning of section 7871), or any agency or instrumentality of any of the foregoing,
`(B) an organization (other than a cooperative described in section 521) which is exempt from tax imposed by chapter 1,
`(C) any foreign person or entity (within the meaning of section 168(h)(2)), and
`(D) to the extent provided in regulations, any person to whom property is transferred for the principal purpose of tax avoidance.
`(h) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section.'.
(b) INFORMATION RETURNS, ETC-
(1) LARGE TRANSFERS AT DEATH- So much of subpart C of part II of subchapter A of chapter 61 as precedes section 6019 is amended to read as follows:
`Subpart C--Returns Relating to Transfers During Life or at Death
`Sec. 6018. Returns relating to large transfers at death.
`Sec. 6019. Gift tax returns.
`SEC. 6018. RETURNS RELATING TO LARGE TRANSFERS AT DEATH.
`(a) IN GENERAL- If this section applies to property acquired from a decedent, the executor of the estate of such decedent shall make a return containing the information specified in subsection (c) with respect to such property.
`(b) PROPERTY TO WHICH SECTION APPLIES-
`(1) LARGE TRANSFERS- This section shall apply to all property (other than cash) acquired from a decedent if the fair market value of such property acquired from the decedent exceeds the dollar amount applicable under section 1022(b)(2)(B) (without regard to section 1022(b)(2)(C)).
`(2) TRANSFERS OF CERTAIN GIFTS RECEIVED BY DECEDENT WITHIN 3 YEARS OF DEATH- This section shall apply to any appreciated property acquired from the decedent if--
`(A) subsections (b) and (c) of section 1022 do not apply to such property by reason of section 1022(d)(1)(C), and
`(B) such property was required to be included on a return required to be filed under section 6019.
`(3) NONRESIDENTS NOT CITIZENS OF THE UNITED STATES- In the case of a decedent who is a nonresident not a citizen of the United States, paragraphs (1) and (2) shall be applied--
`(A) by taking into account only--
`(i) tangible property situated in the United States, and
`(ii) other property acquired from the decedent by a United States person, and
`(B) by substituting the dollar amount applicable under section 1022(b)(3) for the dollar amount referred to in paragraph (1).
`(4) RETURNS BY TRUSTEES OR BENEFICIARIES- If the executor is unable to make a complete return as to any property acquired from or passing from the decedent, the executor shall include in the return a description of such property and the name of every person holding a legal or beneficial interest therein. Upon notice from the Secretary, such person shall in like manner make a return as to such property.
`(c) INFORMATION REQUIRED TO BE FURNISHED- The information specified in this subsection with respect to any property acquired from the decedent is--
`(1) the name and TIN of the recipient of such property,
`(2) an accurate description of such property,
`(3) the adjusted basis of such property in the hands of the decedent and its fair market value at the time of death,
`(4) the decedent's holding period for such property,
`(5) sufficient information to determine whether any gain on the sale of the property would be treated as ordinary income,
`(6) the amount of basis increase allocated to the property under subsection (b) or (c) of section 1022, and
`(7) such other information as the Secretary may by regulations prescribe.
`(d) PROPERTY ACQUIRED FROM DECEDENT- For purposes of this section, section 1022 shall apply for purposes of determining the property acquired from a decedent.
`(e) STATEMENTS TO BE FURNISHED TO CERTAIN PERSONS- Every person required to make a return under subsection (a) shall furnish to each person whose name is required to be set forth in such return (other than the person required to make such return) a written statement showing--
`(1) the name, address, and phone number of the person required to make such return, and
`(2) the information specified in subsection (c) with respect to property acquired from, or passing from, the decedent to the person required to receive such statement.
The written statement required under the preceding sentence shall be furnished not later than 30 days after the date that the return required by subsection (a) is filed.'.
(2) GIFTS- Section 6019 (relating to gift tax returns) is amended--
(A) by striking `Any individual' and inserting `(a) IN GENERAL- Any individual', and
(B) by adding at the end the following new subsection:
`(b) STATEMENTS TO BE FURNISHED TO CERTAIN PERSONS- Every person required to make a return under subsection (a) shall furnish to each person whose name is required to be set forth in such return (other than the person required to make such return) a written statement showing--
`(1) the name, address, and phone number of the person required to make such return, and
`(2) the information specified in such return with respect to property received by the person required to receive such statement.
The written statement required under the preceding sentence shall be furnished not later than 30 days after the date that the return required by subsection (a) is filed.'.
(3) TIME FOR FILING SECTION 6018 RETURNS-
(A) RETURNS RELATING TO LARGE TRANSFERS AT DEATH- Subsection (a) of section 6075 is amended to read as follows:
`(a) RETURNS RELATING TO LARGE TRANSFERS AT DEATH- The return required by section 6018 with respect to a decedent shall be filed with the return of the tax imposed by chapter 1 for the decedent's last taxable year or such later date specified in regulations prescribed by the Secretary.'.
(B) CONFORMING AMENDMENTS- Paragraph (3) of section 6075(b) is amended--
(i) by striking `ESTATE TAX RETURN' in the heading and inserting `SECTION 6018 RETURN', and
(ii) by striking `(relating to estate tax returns)' and inserting `(relating to returns relating to large transfers at death)'.
(4) PENALTIES- Part I of subchapter B of chapter 68 (relating to assessable penalties) is amended by adding at the end the following new section:
`SEC. 6716. FAILURE TO FILE INFORMATION WITH RESPECT TO CERTAIN TRANSFERS AT DEATH AND GIFTS.
`(a) INFORMATION REQUIRED TO BE FURNISHED TO THE SECRETARY- Any person required to furnish any information under section 6018 who fails to furnish such information on the date prescribed therefor (determined with regard to any extension of time for filing) shall pay a penalty of $10,000 ($500 in the case of information required to be furnished under section 6018(b)(2)) for each such failure.
`(b) INFORMATION REQUIRED TO BE FURNISHED TO BENEFICIARIES- Any person required to furnish in writing to each person described in section 6018(e) or 6019(b) the information required under such section who fails to furnish such information shall pay a penalty of $50 for each such failure.
`(c) REASONABLE CAUSE EXCEPTION- No penalty shall be imposed under subsection (a) or (b) with respect to any failure if it is shown that such failure is due to reasonable cause.
`(d) INTENTIONAL DISREGARD- If any failure under subsection (a) or (b) is due to intentional disregard of the requirements under sections 6018 and 6019(b), the penalty under such subsection shall be 5 percent of the fair market value (as of the date of death or, in the case of section 6019(b), the date of the gift) of the property with respect to which the information is required.
`(e) DEFICIENCY PROCEDURES NOT TO APPLY- Subchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by this section.'.
(A) The table of sections for part I of subchapter B of chapter 68 is amended by adding at the end the following new item:
`Sec. 6716. Failure to file information with respect to certain transfers at death and gifts.'.
(B) The item relating to subpart C in the table of subparts for part II of subchapter A of chapter 61 is amended to read as follows:
`Subpart C. Returns relating to transfers during life or at death.'.
(c) EXCLUSION OF GAIN ON SALE OF PRINCIPAL RESIDENCE MADE AVAILABLE TO HEIR OF DECEDENT IN CERTAIN CASES- Subsection (d) of section 121 (relating to exclusion of gain from sale of principal residence) is amended by adding at the end the following new paragraph:
`(9) PROPERTY ACQUIRED FROM A DECEDENT- The exclusion under this section shall apply to property sold by--
`(A) the estate of a decedent,
`(B) any individual who acquired such property from the decedent (within the meaning of section 1022), and
`(C) a trust which, immediately before the death of the decedent, was a qualified revocable trust (as defined in section 645(b)(1)) established by the decedent,
determined by taking into account the ownership and use by the decedent.'.
(d) TRANSFERS OF APPRECIATED CARRYOVER BASIS PROPERTY TO SATISFY PECUNIARY BEQUEST-
(1) IN GENERAL- Section 1040 (relating to transfer of certain farm, etc., real property) is amended to read as follows:
`SEC. 1040. USE OF APPRECIATED CARRYOVER BASIS PROPERTY TO SATISFY PECUNIARY BEQUEST.
`(a) IN GENERAL- If the executor of the estate of any decedent satisfies the right of any person to receive a pecuniary bequest with appreciated property, then gain on such exchange shall be recognized to the estate only to the extent that, on the date of such exchange, the fair market value of such property exceeds such value on the date of death.
`(b) SIMILAR RULE FOR CERTAIN TRUSTS- To the extent provided in regulations prescribed by the Secretary, a rule similar to the rule provided in subsection (a) shall apply where--
`(1) by reason of the death of the decedent, a person has a right to receive from a trust a specific dollar amount which is the equivalent of a pecuniary bequest, and
`(2) the trustee of a trust satisfies such right with property.
`(c) BASIS OF PROPERTY ACQUIRED IN EXCHANGE DESCRIBED IN SUBSECTION (a) OR (b)- The basis of property acquired in an exchange with respect to which gain realized is not recognized by reason of subsection (a) or (b) shall be the basis of such property immediately before the exchange increased by the amount of the gain recognized to the estate or trust on the exchange.'.
(2) The item relating to section 1040 in the table of sections for part III of subchapter O of chapter 1 is amended to read as follows:
`Sec. 1040. Use of appreciated carryover basis property to satisfy pecuniary bequest.'.
(e) AMENDMENTS RELATED TO CARRYOVER BASIS-
(1) RECOGNITION OF GAIN ON TRANSFERS TO NONRESIDENTS-
(A) Subsection (a) of section 684 is amended by inserting `or to a nonresident alien' after `or trust'.
(B) Subsection (b) of section 684 is amended to read as follows:
`(1) TRANSFERS TO CERTAIN TRUSTS- Subsection (a) shall not apply to a transfer to a trust by a United States person to the extent that any United States person is treated as the owner of such trust under section 671.
`(2) LIFETIME TRANSFERS TO NONRESIDENT ALIENS- Subsection (a) shall not apply to a lifetime transfer to a nonresident alien.'.
(C) The section heading for section 684 is amended by inserting `and nonresident aliens' after `estates'.
(D) The item relating to section 684 in the table of sections for subpart F of part I of subchapter J of chapter 1 is amended by inserting `and nonresident aliens' after `estates'.
(2) CAPITAL GAIN TREATMENT FOR INHERITED ART WORK OR SIMILAR PROPERTY-
(A) IN GENERAL- Subparagraph (C) of section 1221(a)(3) (defining capital asset) is amended by inserting `(other than by reason of section 1022)' after `is determined'.
(B) COORDINATION WITH SECTION 170- Paragraph (1) of section 170(e) (relating to certain contributions of ordinary income and capital gain property) is amended by adding at the end the following: `For purposes of this paragraph, the determination of whether property is a capital asset shall be made without regard to the exception contained in section 1221(a)(3)(C) for basis determined under section 1022.'.
(3) DEFINITION OF EXECUTOR- Section 7701(a) (relating to definitions) is amended by adding at the end the following:
`(47) EXECUTOR- The term `executor' means the executor or administrator of the decedent, or, if there is no executor or administrator appointed, qualified, and acting within the United States, then any person in actual or constructive possession of any property of the decedent.'.
(4) CERTAIN TRUSTS- Subparagraph (A) of section 4947(a)(2) is amended by inserting `642(c),' after `170(f)(2)(B),'.
(A) Section 1246 is amended by striking sub-section (e).
(B) Subsection (e) of section 1291 is amended--
(i) by striking `(e),'; and
(ii) by striking `; except that' and all that follows and inserting a period.
(C) Section 1296 is amended by striking sub-section (i).
(6) 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. Treatment of property acquired from a decedent dying after December 31, 2009.'.
(1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to estates of decedents dying after December 31, 2009.
(2) TRANSFERS TO NONRESIDENTS- The amendments made by subsection (e)(1) shall apply to transfers after December 31, 2009.
(3) SECTION 4947- The amendment made by subsection (e)(4) shall apply to deductions for taxable years beginning after December 31, 2009.
Subtitle F--Conservation Easements
SEC. 551. EXPANSION OF ESTATE TAX RULE FOR CONSERVATION EASEMENTS.
(a) REPEAL OF CERTAIN RESTRICTIONS ON WHERE LAND IS LOCATED- Clause (i) of section 2031(c)(8)(A) (defining land subject to a qualified conservation easement) is amended to read as follows:
`(i) which is located in the United States or any possession of the United States,'.
(b) CLARIFICATION OF DATE FOR DETERMINING VALUE OF LAND AND EASEMENT- Section 2031(c)(2) (defining applicable percentage) is amended by adding at the end the following new sentence: `The values taken into account under the preceding sentence shall be such values as of the date of the contribution referred to in paragraph (8)(B).'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to estates of decedents dying after December 31, 2000.
Subtitle G--Modifications of Generation-Skipping Transfer Tax
SEC. 561. DEEMED ALLOCATION OF GST EXEMPTION TO LIFETIME TRANSFERS TO TRUSTS; RETROACTIVE ALLOCATIONS.
(a) IN GENERAL- Section 2632 (relating to special rules for allocation of GST exemption) is amended by redesignating subsection (c) as subsection (e) and by inserting after subsection (b) the following new subsections:
`(c) DEEMED ALLOCATION TO CERTAIN LIFETIME TRANSFERS TO GST TRUSTS-
`(1) IN GENERAL- If any individual makes an indirect skip during such individual's lifetime, any unused portion of such individual's GST exemption shall be allocated to the property transferred to the extent necessary to make the inclusion ratio for such property zero. If the amount of the indirect skip exceeds such unused portion, the entire unused portion shall be allocated to the property transferred.
`(2) UNUSED PORTION- For purposes of paragraph (1), the unused portion of an individual's GST exemption is that portion of such exemption which has not previously been--
`(A) allocated by such individual,
`(B) treated as allocated under subsection (b) with respect to a direct skip occurring during or before the calendar year in which the indirect skip is made, or
`(C) treated as allocated under paragraph (1) with respect to a prior indirect skip.
`(A) INDIRECT SKIP- For purposes of this subsection, the term `indirect skip' means any transfer of property (other than a direct skip) subject to the tax imposed by chapter 12 made to a GST trust.
`(B) GST TRUST- The term `GST trust' means a trust that could have a generation-skipping transfer with respect to the transferor unless--
`(i) the trust instrument provides that more than 25 percent of the trust corpus must be distributed to or may be withdrawn by one or more individuals who are non-skip persons--
`(I) before the date that the individual attains age 46,
`(II) on or before one or more dates specified in the trust instrument that will occur before the date that such individual attains age 46, or
`(III) upon the occurrence of an event that, in accordance with regulations prescribed by the Secretary, may reasonably be expected to occur before the date that such individual attains age 46,
`(ii) the trust instrument provides that more than 25 percent of the trust corpus must be distributed to or may be withdrawn by one or more individuals who are non-skip persons and who are living on the date of death of another person identified in the instrument (by name or by class) who is more than 10 years older than such individuals,
`(iii) the trust instrument provides that, if one or more individuals who are non-skip persons die on or before a date or event described in clause (i) or (ii), more than 25 percent of the trust corpus either must be distributed to the estate or estates of one or more of such individuals or is subject to a general power of appointment exercisable by one or more of such individuals,
`(iv) the trust is a trust any portion of which would be included in the gross estate of a non-skip person (other than the transferor) if such person died immediately after the transfer,
`(v) the trust is a charitable lead annuity trust (within the meaning of section 2642(e)(3)(A)) or a charitable remainder annuity trust or a charitable remainder unitrust (within the meaning of section 664(d)), or
`(vi) the trust is a trust with respect to which a deduction was allowed under section 2522 for the amount of an interest in the form of the right to receive annual payments of a fixed percentage of the net fair market value of the trust property (determined yearly) and which is required to pay principal to a non-skip person if such person is alive when the yearly payments for which the deduction was allowed terminate.
For purposes of this subparagraph, the value of transferred property shall not be considered to be includible in the gross estate of a non-skip person or subject to a right of withdrawal by reason of such person holding a right to withdraw so much of such property as does not exceed the amount referred to in section 2503(b) with respect to any transferor, and it shall be assumed that powers of appointment held by non-skip persons will not be exercised.
`(4) AUTOMATIC ALLOCATIONS TO CERTAIN GST TRUSTS- For purposes of this subsection, an indirect skip to which section 2642(f) applies shall be deemed to have been made only at the close of the estate tax inclusion period. The fair market value of such transfer shall be the fair market value of the trust property at the close of the estate tax inclusion period.
`(5) APPLICABILITY AND EFFECT-
`(A) IN GENERAL- An individual--
`(i) may elect to have this subsection not apply to--
`(I) an indirect skip, or
`(II) any or all transfers made by such individual to a particular trust, and
`(ii) may elect to treat any trust as a GST trust for purposes of this subsection with respect to any or all transfers made by such individual to such trust.
`(i) ELECTIONS WITH RESPECT TO INDIRECT SKIPS- An election under subparagraph (A)(i)(I) shall be deemed to be timely if filed on a timely filed gift tax return for the calendar year in which the transfer was made or deemed to have been made pursuant to paragraph (4) or on such later date or dates as may be prescribed by the Secretary.
`(ii) OTHER ELECTIONS- An election under clause (i)(II) or (ii) of subparagraph (A) may be made on a timely filed gift tax return for the calendar year for which the election is to become effective.
`(d) RETROACTIVE ALLOCATIONS-
`(A) a non-skip person has an interest or a future interest in a trust to which any transfer has been made,
`(i) is a lineal descendant of a grandparent of the transferor or of a grandparent of the transferor's spouse or former spouse, and
`(ii) is assigned to a generation below the generation assignment of the transferor, and
`(C) such person predeceases the transferor,
then the transferor may make an allocation of any of such transferor's unused GST exemption to any previous transfer or transfers to the trust on a chronological basis.
`(2) SPECIAL RULES- If the allocation under paragraph (1) by the transferor is made on a gift tax return filed on or before the date prescribed by section 6075(b) for gifts made within the calendar year within which the non-skip person's death occurred--
`(A) the value of such transfer or transfers for purposes of section 2642(a) shall be determined as if such allocation had been made on a timely filed gift tax return for each calendar year within which each transfer was made,
`(B) such allocation shall be effective immediately before such death, and
`(C) the amount of the transferor's unused GST exemption available to be allocated shall be determined immediately before such death.
`(3) FUTURE INTEREST- For purposes of this subsection, a person has a future interest in a trust if the trust may permit income or corpus to be paid to such person on a date or dates in the future.'.
(b) CONFORMING AMENDMENT- Paragraph (2) of section 2632(b) is amended by striking `with respect to a prior direct skip' and inserting `or subsection (c)(1)'.
(1) DEEMED ALLOCATION- Section 2632(c) of the Internal Revenue Code of 1986 (as added by subsection (a)), and the amendment made by subsection (b), shall apply to transfers subject to chapter 11 or 12 made after December 31, 2000, and to estate tax inclusion periods ending after December 31, 2000.
(2) RETROACTIVE ALLOCATIONS- Section 2632(d) of the Internal Revenue Code of 1986 (as added by subsection (a)) shall apply to deaths of non-skip persons occurring after December 31, 2000.
SEC. 562. SEVERING OF TRUSTS.
(a) IN GENERAL- Subsection (a) of section 2642 (relating to inclusion ratio) is amended by adding at the end the following new paragraph:
`(A) IN GENERAL- If a trust is severed in a qualified severance, the trusts resulting from such severance shall be treated as separate trusts thereafter for purposes of this chapter.
`(B) QUALIFIED SEVERANCE- For purposes of subparagraph (A)--
`(i) IN GENERAL- The term `qualified severance' means the division of a single trust and the creation (by any means available under the governing instrument or under local law) of two or more trusts if--
`(I) the single trust was divided on a fractional basis, and
`(II) the terms of the new trusts, in the aggregate, provide for the same succession of interests of beneficiaries as are provided in the original trust.
`(ii) TRUSTS WITH INCLUSION RATIO GREATER THAN ZERO- If a trust has an inclusion ratio of greater than zero and less than 1, a severance is a qualified severance only if the single trust is divided into two trusts, one of which receives a fractional share of the total value of all trust assets equal to the applicable fraction of the single trust immediately before the severance. In such case, the trust receiving such fractional share shall have an inclusion ratio of zero and the other trust shall have an inclusion ratio of 1.
`(iii) REGULATIONS- The term `qualified severance' includes any other severance permitted under regulations prescribed by the Secretary.
`(C) TIMING AND MANNER OF SEVERANCES- A severance pursuant to this paragraph may be made at any time. The Secretary shall prescribe by forms or regulations the manner in which the qualified severance shall be reported to the Secretary.'.
(b) EFFECTIVE DATE- The amendment made by this section shall apply to severances after December 31, 2000.
SEC. 563. MODIFICATION OF CERTAIN VALUATION RULES.
(a) GIFTS FOR WHICH GIFT TAX RETURN FILED OR DEEMED ALLOCATION MADE- Paragraph (1) of section 2642(b) (relating to valuation rules, etc.) is amended to read as follows:
`(1) GIFTS FOR WHICH GIFT TAX RETURN FILED OR DEEMED ALLOCATION MADE- If the allocation of the GST exemption to any transfers of property is made on a gift tax return filed on or before the date prescribed by section 6075(b) for such transfer or is deemed to be made under section 2632 (b)(1) or (c)(1)--
`(A) the value of such property for purposes of subsection (a) shall be its value as finally determined for purposes of chapter 12 (within the meaning of section 2001(f)(2)), or, in the case of an allocation deemed to have been made at the close of an estate tax inclusion period, its value at the time of the close of the estate tax inclusion period, and
`(B) such allocation shall be effective on and after the date of such transfer, or, in the case of an allocation deemed to have been made at the close of an estate tax inclusion period, on and after the close of such estate tax inclusion period.'.
(b) TRANSFERS AT DEATH- Subparagraph (A) of section 2642(b)(2) is amended to read as follows:
`(A) TRANSFERS AT DEATH- If property is transferred as a result of the death of the transferor, the value of such property for purposes of subsection (a) shall be its value as finally determined for purposes of chapter 11; except that, if the requirements prescribed by the Secretary respecting allocation of post-death changes in value are not met, the value of such property shall be determined as of the time of the distribution concerned.'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to transfers subject to chapter 11 or 12 of the Internal Revenue Code of 1986 made after December 31, 2000.
SEC. 564. RELIEF PROVISIONS.
(a) IN GENERAL- Section 2642 is amended by adding at the end the following new subsection:
`(1) RELIEF FROM LATE ELECTIONS-
`(A) IN GENERAL- The Secretary shall by regulation prescribe such circumstances and procedures under which extensions of time will be granted to make--
`(i) an allocation of GST exemption described in paragraph (1) or (2) of subsection (b), and
`(ii) an election under subsection (b)(3) or (c)(5) of section 2632.
Such regulations shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of this paragraph.
`(B) BASIS FOR DETERMINATIONS- In determining whether to grant relief under this paragraph, the Secretary shall take into account all relevant circumstances, including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the Secretary deems relevant. For purposes of determining whether to grant relief under this paragraph, the time for making the allocation (or election) shall be treated as if not expressly prescribed by statute.
`(2) SUBSTANTIAL COMPLIANCE- An allocation of GST exemption under section 2632 that demonstrates an intent to have the lowest possible inclusion ratio with respect to a transfer or a trust shall be deemed to be an allocation of so much of the transferor's unused GST exemption as produces the lowest possible inclusion ratio. In determining whether there has been substantial compliance, all relevant circumstances shall be taken into account, including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the Secretary deems relevant.'.
(1) RELIEF FROM LATE ELECTIONS- Section 2642(g)(1) of the Internal Revenue Code of 1986 (as added by subsection (a)) shall apply to requests pending on, or filed after, December 31, 2000.
(2) SUBSTANTIAL COMPLIANCE- Section 2642(g)(2) of such Code (as so added) shall apply to transfers subject to chapter 11 or 12 of the Internal Revenue Code of 1986 made after December 31, 2000. No implication is intended with respect to the availability of relief from late elections or the application of a rule of substantial compliance on or before such date.
Subtitle H--Extension of Time for Payment of Estate Tax
SEC. 571. INCREASE IN NUMBER OF ALLOWABLE PARTNERS AND SHAREHOLDERS IN CLOSELY HELD BUSINESSES.
(a) IN GENERAL- Paragraphs (1)(B)(ii), (1)(C)(ii), and (9)(B)(iii)(I) of section 6166(b) (relating to definitions and special rules) are each amended by striking `15' and inserting `45'.
(b) EFFECTIVE DATE- The amendments made by this section shall apply to estates of decedents dying after December 31, 2001.
SEC. 572. EXPANSION OF AVAILABILITY OF INSTALLMENT PAYMENT FOR ESTATES WITH INTERESTS QUALIFYING LENDING AND FINANCE BUSINESSES.
(a) IN GENERAL- Section 6166(b) (relating to definitions and special rules) is amended by adding at the end the following new paragraph:
`(10) STOCK IN QUALIFYING LENDING AND FINANCE BUSINESS TREATED AS STOCK IN AN ACTIVE TRADE OR BUSINESS COMPANY-
`(A) IN GENERAL- If the executor elects the benefits of this paragraph, then--
`(i) STOCK IN QUALIFYING LENDING AND FINANCE BUSINESS TREATED AS STOCK IN AN ACTIVE TRADE OR BUSINESS COMPANY- For purposes of this section, any asset used in a qualifying lending and finance business shall be treated as an asset which is used in carrying on a trade or business.
`(ii) 5-YEAR DEFERRAL FOR PRINCIPAL NOT TO APPLY- The executor shall be treated as having selected under subsection (a)(3) the date prescribed by section 6151(a).
`(iii) 5 EQUAL INSTALLMENTS ALLOWED- For purposes of applying subsection (a)(1), `5' shall be substituted for `10'.
`(B) DEFINITIONS- For purposes of this paragraph--
`(i) QUALIFYING LENDING AND FINANCE BUSINESS- The term `qualifying lending and finance business' means a lending and finance business, if--
`(I) based on all the facts and circumstances immediately before the date of the decedent's death, there was substantial activity with respect to the lending and finance business, or
`(II) during at least 3 of the 5 taxable years ending before the date of the decedent's death, such business had at least 1 full-time employee substantially all of whose services were the active management of such business, 10 full-time, nonowner employees substantially all of whose services were directly related to such business, and $5,000,000 in gross receipts from activities described in clause (ii).
`(ii) LENDING AND FINANCE BUSINESS- The term `lending and finance business' means a trade or business of--
`(II) purchasing or discounting accounts receivable, notes, or installment obligations,
`(III) engaging in rental and leasing of real and tangible personal property, including entering into leases and purchasing, servicing, and disposing of leases and leased assets,
`(IV) rendering services or making facilities available in the ordinary course of a lending or finance business, and
`(V) rendering services or making facilities available in connection with activities described in subclauses (I) through (IV) carried on by the corporation rendering services or making facilities available, or another corporation which is a member of the same affiliated group (as defined in section 1504 without regard to section 1504(b)(3)).
`(iii) LIMITATION- The term `qualifying lending and finance business' shall not include any interest in an entity, if the stock or debt of such entity or a controlled group (as defined in section 267(f)(1)) of which such entity was a member was readily tradable on an established securities market or secondary market (as defined by the Secretary) at any time within 3 years before the date of the decedent's death.'.
(b) EFFECTIVE DATE- The amendment made by this section shall apply to estates of decedents dying after December 31, 2001.
SEC. 573. CLARIFICATION OF AVAILABILITY OF INSTALLMENT PAYMENT.
(a) IN GENERAL- Subparagraph (B) of section 6166(b)(8) (relating to all stock must be non-readily-tradable stock) is amended to read as follows:
`(B) ALL STOCK MUST BE NON-READILY-TRADABLE STOCK-
`(i) IN GENERAL- No stock shall be taken into account for purposes of applying this paragraph unless it is non-readily-tradable stock (within the meaning of paragraph (7)(B)).
`(ii) SPECIAL APPLICATION WHERE ONLY HOLDING COMPANY STOCK IS NON-READILY-TRADABLE STOCK- If the requirements of clause (i) are not met, but all of the stock of each holding company taken into account is non-readily-tradable, then this paragraph shall apply, but subsection (a)(1) shall be applied by substituting `5' for `10'.'.
(b) EFFECTIVE DATE- The amendment made by this section shall apply to estates of decedents dying after December 31, 2001.
Subtitle I--Other Provisions
SEC. 581. WAIVER OF STATUTE OF LIMITATION FOR TAXES ON CERTAIN FARM VALUATIONS.
If on the date of the enactment of this Act (or at any time within 1 year after the date of the enactment) a refund or credit of any overpayment of tax resulting from the application of section 2032A(c)(7)(E) of the Internal Revenue Code of 1986 is barred by any law or rule of law, the refund or credit of such overpayment shall, nevertheless, be made or allowed if claim therefor is filed before the date 1 year after the date of the enactment of this Act.
TITLE VI--PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS
Subtitle A--Individual Retirement Accounts
SEC. 601. MODIFICATION OF IRA CONTRIBUTION LIMITS.
(a) INCREASE IN CONTRIBUTION LIMIT-
(1) IN GENERAL- Paragraph (1)(A) of section 219(b) (relating to maximum amount of deduction) is amended by striking `$2,000' and inserting `the deductible amount'.
(2) DEDUCTIBLE AMOUNT- Section 219(b) is amended by adding at the end the following new paragraph:
`(5) DEDUCTIBLE AMOUNT- For purposes of paragraph (1)(A)--
`(A) IN GENERAL- The deductible amount shall be determined in accordance with the following table:
`For taxable years
--The deductible
beginning in:
--amount is:
$3,000
$4,000
$5,000.
`(B) CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS 50 OR OLDER-
`(i) IN GENERAL- In the case of an individual who has attained the age of 50 before the close of the taxable year, the deductible amount for such taxable year shall be increased by the applicable amount.
`(ii) APPLICABLE AMOUNT- For purposes of clause (i), the applicable amount shall be the amount determined in accordance with the following table:
`For taxable years
--The applicable
beginning in:
--amount is:
$500
$1,000.
`(C) COST-OF-LIVING ADJUSTMENT-
`(i) IN GENERAL- In the case of any taxable year beginning in a calendar year after 2008, the $5,000 amount under subparagraph (A) shall be increased by an amount equal to--
`(I) such dollar amount, multiplied by
`(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 2007' for `calendar year 1992' in subparagraph (B) thereof.
`(ii) ROUNDING RULES- If any amount after adjustment under clause (i) is not a multiple of $500, such amount shall be rounded to the next lower multiple of $500.'.
(b) CONFORMING AMENDMENTS-
(1) Section 408(a)(1) is amended by striking `in excess of $2,000 on behalf of any individual' and inserting `on behalf of any individual in excess of the amount in effect for such taxable year under section 219(b)(1)(A)'.
(2) Section 408(b)(2)(B) is amended by striking `$2,000' and inserting `the dollar amount in effect under section 219(b)(1)(A)'.
(3) Section 408(b) is amended by striking `$2,000' in the matter following paragraph (4) and inserting `the dollar amount in effect under section 219(b)(1)(A)'.
(4) Section 408(j) is amended by striking `$2,000'.
(5) Section 408(p)(8) is amended by striking `$2,000' and inserting `the dollar amount in effect under section 219(b)(1)(A)'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.
SEC. 602. DEEMED IRAs UNDER EMPLOYER PLANS.
(a) IN GENERAL- Section 408 (relating to individual retirement accounts) is amended by redesignating subsection (q) as subsection (r) and by inserting after subsection (p) the following new subsection:
`(q) DEEMED IRAS UNDER QUALIFIED EMPLOYER PLANS-
`(A) a qualified employer plan elects to allow employees to make voluntary employee contributions to a separate account or annuity established under the plan, and
`(B) under the terms of the qualified employer plan, such account or annuity meets the applicable requirements of this section or section 408A for an individual retirement account or annuity,
then such account or annuity shall be treated for purposes of this title in the same manner as an individual retirement plan and not as a qualified employer plan (and contributions to such account or annuity as contributions to an individual retirement plan and not to the qualified employer plan). For purposes of subparagraph (B), the requirements of subsection (a)(5) shall not apply.
`(2) SPECIAL RULES FOR QUALIFIED EMPLOYER PLANS- For purposes of this title, a qualified employer plan shall not fail to meet any requirement of this title solely by reason of establishing and maintaining a program described in paragraph (1).
`(3) DEFINITIONS- For purposes of this subsection--
`(A) QUALIFIED EMPLOYER PLAN- The term `qualified employer plan' has the meaning given such term by section 72(p)(4); except such term shall not include a government plan which is not a qualified plan unless the plan is an eligible deferred compensation plan (as defined in section 457(b)).
`(B) VOLUNTARY EMPLOYEE CONTRIBUTION- The term `voluntary employee contribution' means any contribution (other than a mandatory contribution within the meaning of section 411(c)(2)(C))--
`(i) which is made by an individual as an employee under a qualified employer plan which allows employees to elect to make contributions described in paragraph (1), and
`(ii) with respect to which the individual has designated the contribution as a contribution to which this subsection applies.'.
(1) IN GENERAL- Section 4 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1003) is amended by adding at the end the following new subsection:
`(c) If a pension plan allows an employee to elect to make voluntary employee contributions to accounts and annuities as provided in section 408(q) of the Internal Revenue Code of 1986, such accounts and annuities (and contributions thereto) shall not be treated as part of such plan (or as a separate pension plan) for purposes of any provision of this title other than section 403(c), 404, or 405 (relating to exclusive benefit, and fiduciary and co-fiduciary responsibilities).'.
(2) CONFORMING AMENDMENT- Section 4(a) of such Act (29 U.S.C. 1003(a)) is amended by inserting `or (c)' after `subsection (b)'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to plan years beginning after December 31, 2002.
Subtitle B--Expanding Coverage
SEC. 611. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.
(a) DEFINED BENEFIT PLANS-
(A) Subparagraph (A) of section 415(b)(1) (relating to limitation for defined benefit plans) is amended by striking `$90,000' and inserting `$160,000'.
(B) Subparagraphs (C) and (D) of section 415(b)(2) are each amended in the headings and the text, by striking `$90,000' and inserting `$160,000',
(C) Paragraph (7) of section 415(b) (relating to benefits under certain collectively bargained plans) is amended by striking `the greater of $68,212 or one-half the amount otherwise applicable for such year under paragraph (1)(A) for `$90,000' and inserting `one-half the amount otherwise applicable for such year under paragraph (1)(A) for `$160,000'.
(2) LIMIT REDUCED WHEN BENEFIT BEGINS BEFORE AGE 62- Subparagraph (C) of section 415(b)(2) is amended by striking `the social security retirement age' each place it appears in the heading and text and inserting `age 62' and by striking the second sentence.
(3) LIMIT INCREASED WHEN BENEFIT BEGINS AFTER AGE 65- Subparagraph (D) of section 415(b)(2) is amended by striking `the social security retirement age' each place it appears in the heading and text and inserting `age 65'.
(4) COST-OF-LIVING ADJUSTMENTS- Subsection (d) of section 415 (related to cost-of-living adjustments) is amended--
(A) by striking `$90,000' in paragraph (1)(A) and inserting `$160,000'; and
(B) in paragraph (3)(A)--
(i) by striking `$90,000' in the heading and inserting `$160,000'; and
(ii) by striking `October 1, 1986' and inserting `July 1, 2001'.
(5) CONFORMING AMENDMENTS-
(A) Section 415(b)(2) is amended by striking subparagraph (F).
(B) Section 415(b)(9) is amended to read as follows:
`(9) SPECIAL RULE FOR COMMERCIAL AIRLINE PILOTS-
`(A) IN GENERAL- Except as provided in subparagraph (B), in the case of any participant who is a commercial airline pilot, if, as of the time of the participant's retirement, regulations prescribed by the Federal Aviation Administration require an individual to separate from service as a commercial airline pilot after attaining any age occurring on or after age 60 and before age 62, paragraph (2)(C) shall be applied by substituting such age for age 62.
`(B) INDIVIDUALS WHO SEPARATE FROM SERVICE BEFORE AGE 60- If a participant described in subparagraph (A) separates from service before age 60, the rules of paragraph (2)(C) shall apply.'.
(C) Section 415(b)(10)(C)(i) is amended by striking `applied without regard to paragraph (2)(F)'.
(b) DEFINED CONTRIBUTION PLANS-
(1) DOLLAR LIMIT- Subparagraph (A) of section 415(c)(1) (relating to limitation for defined contribution plans) is amended by striking `$30,000' and inserting `$40,000'.
(2) COST-OF-LIVING ADJUSTMENTS- Subsection (d) of section 415 (related to cost-of-living adjustments) is amended--
(A) by striking `$30,000' in paragraph (1)(C) and inserting `$40,000'; and
(B) in paragraph (3)(D)--
(i) by striking `$30,000' in the heading and inserting `$40,000'; and
(ii) by striking `October 1, 1993' and inserting `July 1, 2001'.
(1) COMPENSATION LIMIT- Sections 401(a)(17), 404(l), 408(k), and 505(b)(7) are each amended by striking `$150,000' each place it appears and inserting `$200,000'.
(2) BASE PERIOD AND ROUNDING OF COST-OF-LIVING ADJUSTMENT- Subparagraph (B) of section 401(a)(17) is amended--
(A) by striking `October 1, 1993' and inserting `July 1, 2001'; and
(B) by striking `$10,000' both places it appears and inserting `$5,000'.
(1) IN GENERAL- Paragraph (1) of section 402(g) (relating to limitation on exclusion for elective deferrals) is amended to read as follows:
`(A) LIMITATION- Notwithstanding subsections (e)(3) and (h)(1)(B), the elective deferrals of any individual for any taxable year shall be included in such individual's gross income to the extent the amount of such deferrals for the taxable year exceeds the applicable dollar amount.
`(B) APPLICABLE DOLLAR AMOUNT- For purposes of subparagraph (A), the applicable dollar amount shall be the amount determined in accordance with the following table:
`For taxable years
--The applicable
beginning in
-- dollar amount:
calendar year:
--$11,000
--$12,000
--$13,000
--$14,000
--$15,000.'.
(2) COST-OF-LIVING ADJUSTMENT- Paragraph (5) of section 402(g) is amended to read as follows:
`(5) COST-OF-LIVING ADJUSTMENT- In the case of taxable years beginning after December 31, 2006, the Secretary shall adjust the $15,000 amount under paragraph (1)(B) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2005, and any increase under this paragraph which is not a multiple of $500 shall be rounded to the next lowest multiple of $500.'.
(3) CONFORMING AMENDMENTS-
(A) Section 402(g) (relating to limitation on exclusion for elective deferrals), as amended by paragraphs (1) and (2), is further amended by striking paragraph (4) and redesignating paragraphs (5), (6), (7), (8), and (9) as paragraphs (4), (5), (6), (7), and (8), respectively.
(B) Paragraph (2) of section 457(c) is amended by striking `402(g)(8)(A)(iii)' and inserting `402(g)(7)(A)(iii)'.
(C) Clause (iii) of section 501(c)(18)(D) is amended by striking `(other than paragraph (4) thereof)'.
(e) DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS-
(1) IN GENERAL- Section 457 (relating to deferred compensation plans of State and local governments and tax-exempt organizations) is amended--
(A) in subsections (b)(2)(A) and (c)(1) by striking `$7,500' each place it appears and inserting `the applicable dollar amount'; and
(B) in subsection (b)(3)(A) by striking `$15,000' and inserting `twice the dollar amount in effect under subsection (b)(2)(A)'.
(2) APPLICABLE DOLLAR AMOUNT; COST-OF-LIVING ADJUSTMENT- Paragraph (15) of section 457(e) is amended to read as follows:
`(15) APPLICABLE DOLLAR AMOUNT-
`(A) IN GENERAL- The applicable dollar amount shall be the amount determined in accordance with the following table:
`For taxable years
--The applicable
beginning in
-- dollar amount:
calendar year:
--$11,000
--$12,000
--$13,000
--$14,000
--$15,000.
`(B) COST-OF-LIVING ADJUSTMENTS- In the case of taxable years beginning after December 31, 2006, the Secretary shall adjust the $15,000 amount under subparagraph (A) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2005, and any increase under this paragraph which is not a multiple of $500 shall be rounded to the next lowest multiple of $500.'.
(f) SIMPLE RETIREMENT ACCOUNTS-
(1) LIMITATION- Clause (ii) of section 408(p)(2)(A) (relating to general rule for qualified salary reduction arrangement) is amended by striking `$6,000' and inserting `the applicable dollar amount'.
(2) APPLICABLE DOLLAR AMOUNT- Subparagraph (E) of 408(p)(2) is amended to read as follows:
`(E) APPLICABLE DOLLAR AMOUNT; COST-OF-LIVING ADJUSTMENT-
`(i) IN GENERAL- For purposes of subparagraph (A)(ii), the applicable dollar amount shall be the amount determined in accordance with the following table:
`For years
--The applicable
beginning in
-- dollar amount:
calendar year:
2002
--$7,000
2003
--$8,000
2004
--$9,000
2005 or thereafter
--$10,000.
`(ii) COST-OF-LIVING ADJUSTMENT- In the case of a year beginning after December 31, 2005, the Secretary shall adjust the $10,000 amount under clause (i) at the same time and in the same manner as under section 415(d), except that the base period taken into account shall be the calendar quarter beginning July 1, 2004, and any increase under this subparagraph which is not a multiple of $500 shall be rounded to the next lower multiple of $500.'.
(3) CONFORMING AMENDMENTS-
(A) Subclause (I) of section 401(k)(11)(B)(i) is amended by striking `$6,000' and inserting `the amount in effect under section 408(p)(2)(A)(ii)'.
(B) Section 401(k)(11) is amended by striking subparagraph (E).
(g) CERTAIN COMPENSATION LIMITS-
(1) IN GENERAL- Subparagraph (A) of section 401(c)(2) (defining earned income) is amended by adding at the end thereof the following new sentence: `For purposes of this part only (other than sections 419 and 419A), this subparagraph shall be applied as if the term `trade or business' for purposes of section 1402 included service described in section 1402(c)(6).'.
(2) SIMPLE RETIREMENT ACCOUNTS- Clause (ii) of section 408(p)(6)(A) (defining self-employed) is amended by adding at the end the following new sentence: `The preceding sentence shall be applied as if the term `trade or business' for purposes of section 1402 included service described in section 1402(c)(6).'.
(h) ROUNDING RULE RELATING TO DEFINED BENEFIT PLANS AND DEFINED CONTRIBUTION PLANS- Paragraph (4) of section 415(d) is amended to read as follows:
`(A) $160,000 AMOUNT- Any increase under subparagraph (A) of paragraph (1) which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000.
`(B) $40,000 AMOUNT- Any increase under subparagraph (C) of paragraph (1) which is not a multiple of $1,000 shall be rounded to the next lowest multiple of $1,000.'.
(1) IN GENERAL- The amendments made by this section shall apply to years beginning after December 31, 2001.
(2) DEFINED BENEFIT PLANS- The amendments made by subsection (a) shall apply to years ending after December 31, 2001.
SEC. 612. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND SOLE PROPRIETORS.
(a) IN GENERAL- Subparagraph (B) of section 4975(f)(6) (relating to exemptions not to apply to certain transactions) is amended by adding at the end the following new clause:
`(iii) LOAN EXCEPTION- For purposes of subparagraph (A)(i), the term `owner-employee' shall only include a person described in subclause (II) or (III) of clause (i).'.
(b) AMENDMENT OF ERISA- Section 408(d)(2) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1108(d)(2)) is amended by adding at the end the following new subparagraph:
`(C) For purposes of paragraph (1)(A), the term `owner-employee' shall only include a person described in clause (ii) or (iii) of subparagraph (A).'.
(c) EFFECTIVE DATE- The amendment made by this section shall apply to years beginning after December 31, 2001.
SEC. 613. MODIFICATION OF TOP-HEAVY RULES.
(a) SIMPLIFICATION OF DEFINITION OF KEY EMPLOYEE-
(1) IN GENERAL- Section 416(i)(1)(A) (defining key employee) is amended--
(A) by striking `or any of the 4 preceding plan years' in the matter preceding clause (i);
(B) by striking clause (i) and inserting the following:
`(i) an officer of the employer having an annual compensation greater than $130,000,';
(C) by striking clause (ii) and redesignating clauses (iii) and (iv) as clauses (ii) and (iii), respectively; and
(D) by striking the second sentence in the matter following clause (iii), as redesignated by subparagraph (C), and by inserting the following: `in the case of plan years beginning after December 31, 2002, the $130,000 amount in clause (i) shall be adjusted at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning July 1, 2001, and any increase under this sentence which is not a multiple of $5,000 shall be rounded to the next lower multiple of $5,000.'.
(2) CONFORMING AMENDMENT- Section 416(i)(1)(B)(iii) is amended by striking `and subparagraph (A)(ii)'.
(b) MATCHING CONTRIBUTIONS TAKEN INTO ACCOUNT FOR MINIMUM CONTRIBUTION REQUIREMENTS- Section 416(c)(2)(A) (relating to defined contribution plans) is amended by adding at the end the following: `Employer matching contributions (as defined in section 401(m)(4)(A)) shall be taken into account for purposes of this subparagraph (and any reduction under this sentence shall not be taken into account in determining whether section 401(k)(4)(A) applies).'.
(c) DISTRIBUTIONS DURING LAST YEAR BEFORE DETERMINATION DATE TAKEN INTO ACCOUNT-
(1) IN GENERAL- Paragraph (3) of section 416(g) is amended to read as follows:
`(3) DISTRIBUTIONS DURING LAST YEAR BEFORE DETERMINATION DATE TAKEN INTO ACCOUNT-
`(A) IN GENERAL- For purposes of determining--
`(i) the present value of the cumulative accrued benefit for any employee, or
`(ii) the amount of the account of any employee,
such present value or amount shall be increased by the aggregate distributions made with respect to such employee under the plan during the 1-year period ending on the determination date. The preceding sentence shall also apply to distributions under a terminated plan which if it had not been terminated would have been required to be included in an aggregation group.
`(B) 5-YEAR PERIOD IN CASE OF IN-SERVICE DISTRIBUTION- In the case of any distribution made for a reason other than separation from service, death, or disability, subparagraph (A) shall be applied by substituting `5-year period' for `1-year period'.'.
(2) BENEFITS NOT TAKEN INTO ACCOUNT- Subparagraph (E) of section 416(g)(4) is amended--
(A) by striking `LAST 5 YEARS' in the heading and inserting `LAST YEAR BEFORE DETERMINATION DATE'; and
(B) by striking `5-year period' and inserting `1-year period'.
(d) DEFINITION OF TOP-HEAVY PLANS- Paragraph (4) of section 416(g) (relating to other special rules for top-heavy plans) is amended by adding at the end the following new subparagraph:
`(H) CASH OR DEFERRED ARRANGEMENTS USING ALTERNATIVE METHODS OF MEETING NONDISCRIMINATION REQUIREMENTS- The term `top-heavy plan' shall not include a plan which consists solely of--
`(i) a cash or deferred arrangement which meets the requirements of section 401(k)(12), and
`(ii) matching contributions with respect to which the requirements of section 401(m)(11) are met.
If, but for this subparagraph, a plan would be treated as a top-heavy plan because it is a member of an aggregation group which is a top-heavy group, contributions under the plan may be taken into account in determining whether any other plan in the group meets the requirements of subsection (c)(2).'.
(e) FROZEN PLAN EXEMPT FROM MINIMUM BENEFIT REQUIREMENT- Subparagraph (C) of section 416(c)(1) (relating to defined benefit plans) is amended--
(A) by striking `clause (ii)' in clause (i) and inserting `clause (ii) or (iii)'; and
(B) by adding at the end the following:
`(iii) EXCEPTION FOR FROZEN PLAN- For purposes of determining an employee's years of service with the employer, any service with the employer shall be disregarded to the extent that such service occurs during a plan year when the plan benefits (within the meaning of section 410(b)) no key employee or former key employee.'.
(f) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 2001.
SEC. 614. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF DEDUCTION LIMITS.
(a) IN GENERAL- Section 404 (relating to deduction for contributions of an employer to an employees' trust or annuity plan and compensation under a deferred payment plan) is amended by adding at the end the following new subsection:
`(n) ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR PURPOSES OF DEDUCTION LIMITS- Elective deferrals (as defined in section 402(g)(3)) shall not be subject to any limitation contained in paragraph (3), (7), or (9) of subsection (a), and such elective deferrals shall not be taken into account in applying any such limitation to any other contributions.'.
(b) EFFECTIVE DATE- The amendment made by this section shall apply to years beginning after December 31, 2001.
SEC. 615. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.
(a) IN GENERAL- Subsection (c) of section 457 (relating to deferred compensation plans of State and local governments and tax-exempt organizations), as amended by section 611, is amended to read as follows:
`(c) LIMITATION- The maximum amount of the compensation of any one individual which may be deferred under subsection (a) during any taxable year shall not exceed the amount in effect under subsection (b)(2)(A) (as modified by any adjustment provided under subsection (b)(3)).'.
(b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to years beginning after December 31, 2001.
SEC. 616. DEDUCTION LIMITS.
(a) MODIFICATION OF LIMITS-
(1) STOCK BONUS AND PROFIT SHARING TRUSTS-
(A) IN GENERAL- Subclause (I) of section 404(a)(3)(A)(i) (relating to stock bonus and profit sharing trusts) is amended by striking `15 percent' and inserting `25 percent'.
(B) CONFORMING AMENDMENT- Subparagraph (C) of section 404(h)(1) is amended by striking `15 percent' each place it appears and inserting `25 percent'.
(2) DEFINED CONTRIBUTION PLANS-
(A) IN GENERAL- Clause (v) of section 404(a)(3)(A) (relating to stock bonus and profit sharing trusts) is amended to read as follows:
`(v) DEFINED CONTRIBUTION PLANS SUBJECT TO THE FUNDING STANDARDS- Except as provided by the Secretary, a defined contribution plan which is subject to the funding standards of section 412 shall be treated in the same manner as a stock bonus or profit-sharing plan for purposes of this subparagraph.'.
(B) CONFORMING AMENDMENTS-
(i) Section 404(a)(1)(A) is amended by inserting `(other than a trust to which paragraph (3) applies)' after `pension trust'.
(ii) Section 404(h)(2) is amended by striking `stock bonus or profit-sharing trust' and inserting `trust subject to subsection (a)(3)(A)'.
(iii) The heading of section 404(h)(2) is amended by striking `STOCK BONUS AND PROFIT-SHARING TRUST' and inserting `CERTAIN TRUSTS'.
(1) IN GENERAL- Section 404(a) (relating to general rule) is amended by adding at the end the following:
`(12) DEFINITION OF COMPENSATION- For purposes of paragraphs (3), (7), (8), and (9), the term `compensation' shall include amounts treated as `participant's compensation' under subparagraph (C) or (D) of section 415(c)(3).'.
(2) CONFORMING AMENDMENTS-
(A) Subparagraph (B) of section 404(a)(3) is amended by striking the last sentence thereof.
(B) Clause (i) of section 4972(c)(6)(B) is amended by striking `(within the meaning of section 404(a))' and inserting `(within the meaning of section 404(a) and as adjusted under section 404(a)(12))'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 2001.
SEC. 617. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX ROTH CONTRIBUTIONS.
(a) IN GENERAL- Subpart A of part I of subchapter D of chapter 1 (relating to deferred compensation, etc.) is amended by inserting after section 402 the following new section:
`SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS ROTH CONTRIBUTIONS.
`(a) GENERAL RULE- If an applicable retirement plan includes a qualified Roth contribution program--
`(1) any designated Roth contribution made by an employee pursuant to the program shall be treated as an elective deferral for purposes of this chapter, except that such contribution shall not be excludable from gross income, and
`(2) such plan (and any arrangement which is part of such plan) shall not be treated as failing to meet any requirement of this chapter solely by reason of including such program.
`(b) QUALIFIED ROTH CONTRIBUTION PROGRAM- For purposes of this section--
`(1) IN GENERAL- The term `qualified Roth contribution program' means a program under which an employee may elect to make designated Roth contributions in lieu of all or a portion of elective deferrals the employee is otherwise eligible to make under the applicable retirement plan.
`(2) SEPARATE ACCOUNTING REQUIRED- A program shall not be treated as a qualified Roth contribution program unless the applicable retirement plan--
`(A) establishes separate accounts (`designated Roth accounts') for the designated Roth contributions of each employee and any earnings properly allocable to the contributions, and
`(B) maintains separate recordkeeping with respect to each account.
`(c) DEFINITIONS AND RULES RELATING TO DESIGNATED ROTH CONTRIBUTIONS- For purposes of this section--
`(1) DESIGNATED ROTH CONTRIBUTION- The term `designated Roth contribution' means any elective deferral which--
`(A) is excludable from gross income of an employee without regard to this section, and
`(B) the employee designates (at such time and in such manner as the Secretary may prescribe) as not being so excludable.
`(2) DESIGNATION LIMITS- The amount of elective deferrals which an employee may designate under paragraph (1) shall not exceed the excess (if any) of--
`(A) the maximum amount of elective deferrals excludable from gross income of the employee for the taxable year (without regard to this section), over
`(B) the aggregate amount of elective deferrals of the employee for the taxable year which the employee does not designate under paragraph (1).
`(3) ROLLOVER CONTRIBUTIONS-
`(A) IN GENERAL- A rollover contribution of any payment or distribution from a designated Roth account which is otherwise allowable under this chapter may be made only if the contribution is to--
`(i) another designated Roth account of the individual from whose account the payment or distribution was made, or
`(ii) a Roth IRA of such individual.
`(B) COORDINATION WITH LIMIT- Any rollover contribution to a designated Roth account under subparagraph (A) shall not be taken into account for purposes of paragraph (1).
`(d) DISTRIBUTION RULES- For purposes of this title--
`(1) EXCLUSION- Any qualified distribution from a designated Roth account shall not be includible in gross income.
`(2) QUALIFIED DISTRIBUTION- For purposes of this subsection--
`(A) IN GENERAL- The term `qualified distribution' has the meaning given such term by section 408A(d)(2)(A) (without regard to clause (iv) thereof).
`(B) DISTRIBUTIONS WITHIN NONEXCLUSION PERIOD- A payment or distribution from a designated Roth account shall not be treated as a qualified distribution if such payment or distribution is made within the 5-taxable-year period beginning with the earlier of--
`(i) the first taxable year for which the individual made a designated Roth contribution to any designated Roth account established for such individual under the same applicable retirement plan, or
`(ii) if a rollover contribution was made to such designated Roth account from a designated Roth account previously established for such individual under another applicable retirement plan, the first taxable year for which the individual made a designated Roth contribution to such previously established account.
`(C) DISTRIBUTIONS OF EXCESS DEFERRALS AND CONTRIBUTIONS AND EARNINGS THEREON- The term `qualified distribution' shall not include any distribution of any excess deferral under section 402(g)(2) or any excess contribution under section 401(k)(8), and any income on the excess deferral or contribution.
`(3) TREATMENT OF DISTRIBUTIONS OF CERTAIN EXCESS DEFERRALS- Notwithstanding section 72, if any excess deferral under section 402(g)(2) attributable to a designated Roth contribution is not distributed on or before the 1st April 15 following the close of the taxable year in which such excess deferral is made, the amount of such excess deferral shall--
`(A) not be treated as investment in the contract, and
`(B) be included in gross income for the taxable year in which such excess is distributed.
`(4) AGGREGATION RULES- Section 72 shall be applied separately with respect to distributions and payments from a designated Roth account and other distributions and payments from the plan.
`(e) OTHER DEFINITIONS- For purposes of this section--
`(1) APPLICABLE RETIREMENT PLAN- The term `applicable retirement plan' means--
`(A) an employees' trust described in section 401(a) which is exempt from tax under section 501(a), and
`(B) a plan under which amounts are contributed by an individual's employer for an annuity contract described in section 403(b).
`(2) ELECTIVE DEFERRAL- The term `elective deferral' means any elective deferral described in subparagraph (A) or (C) of section 402(g)(3).'.
(b) EXCESS DEFERRALS- Section 402(g) (relating to limitation on exclusion for elective deferrals) is amended--
(1) by adding at the end of paragraph (1)(A) (as added by section 201(c)(1)) the following new sentence: `The preceding sentence shall not apply the portion of such excess as does not exceed the designated Roth contributions of the individual for the taxable year.'; and
(2) by inserting `(or would be included but for the last sentence thereof)' after `paragraph (1)' in paragraph (2)(A).
(c) ROLLOVERS- Subparagraph (B) of section 402(c)(8) is amended by adding at the end the following:
`If any portion of an eligible rollover distribution is attributable to payments or distributions from a designated Roth account (as defined in section 402A), an eligible retirement plan with respect to such portion shall include only another designated Roth account and a Roth IRA.'.
(d) REPORTING REQUIREMENTS-
(1) W-2 INFORMATION- Section 6051(a)(8) is amended by inserting `, including the amount of designated Roth contributions (as defined in section 402A)' before the comma at the end.
(2) INFORMATION- Section 6047 is amended by redesignating subsection (f) as subsection (g) and by inserting after subsection (e) the following new subsection:
`(f) DESIGNATED ROTH CONTRIBUTIONS- The Secretary shall require the plan administrator of each applicable retirement plan (as defined in section 402A) to make such returns and reports regarding designated Roth contributions (as defined in section 402A) to the Secretary, participants and beneficiaries of the plan, and such other persons as the Secretary may prescribe.'.
(e) CONFORMING AMENDMENTS-
(1) Section 408A(e) is amended by adding after the first sentence the following new sentence: `Such term includes a rollover contribution described in section 402A(c)(3)(A).'.
(2) The table of sections for subpart A of part I of subchapter D of chapter 1 is amended by inserting after the item relating to section 402 the following new item:
`Sec. 402A. Optional treatment of elective deferrals as Roth contributions.'.
(f) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2005.
SEC. 618. NONREFUNDABLE CREDIT TO CERTAIN INDIVIDUALS FOR ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS.
(a) IN GENERAL- Subpart A of part IV of subchapter A of chapter 1 (relating to nonrefundable personal credits) is amended by inserting after section 25A the following new section:
`SEC. 25B. ELECTIVE DEFERRALS AND IRA CONTRIBUTIONS BY CERTAIN INDIVIDUALS.
`(a) ALLOWANCE OF CREDIT- In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by this subtitle for the taxable year an amount equal to the applicable percentage of so much of the qualified retirement savings contributions of the eligible individual for the taxable year as do not exceed $2,000.
`(b) APPLICABLE PERCENTAGE- For purposes of this section, the applicable percentage is the percentage determined in accordance with the following table:
-----------------------------------------------------------
Adjusted Gross Income
Joint return Head of a household All other cases
Over Not over Over Not over Over Not over Applicable %
----------------------------------------------------------------
$30,000 $22,500 $15,000 50
30,000 32,500 22,500 24,375 15,000 16,250 20
32,500 50,000 24,375 37,500 16,250 25,000 10
50,000 37,500 25,000 0
-----------------------------------------------------------------
`(c) ELIGIBLE INDIVIDUAL- For purposes of this section--
`(1) IN GENERAL- The term `eligible individual' means any individual if such individual has attained the age of 18 as of the close of the taxable year.
`(2) DEPENDENTS AND FULL-TIME STUDENTS NOT ELIGIBLE- The term `eligible individual' shall not include--
`(A) any individual with respect to whom a deduction under section 151 is allowed to another taxpayer for a taxable year beginning in the calendar year in which such individual's taxable year begins, and
`(B) any individual who is a student (as defined in section 151(c)(4)).
`(d) QUALIFIED RETIREMENT SAVINGS CONTRIBUTIONS- For purposes of this section--
`(1) IN GENERAL- The term `qualified retirement savings contributions' means, with respect to any taxable year, the sum of--
`(A) the amount of the qualified retirement contributions (as defined in section 219(e)) made by the eligible individual,
`(i) any elective deferrals (as defined in section 402(g)(3)) of such individual, and
`(ii) any elective deferral of compensation by such individual under an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A), and
`(C) the amount of voluntary employee contributions by such individual to any qualified retirement plan (as defined in section 4974(c)).
`(2) REDUCTION FOR CERTAIN DISTRIBUTIONS-
`(A) IN GENERAL- The qualified retirement savings contributions determined under paragraph (1) shall be reduced (but not below zero) by the sum of--
`(i) any distribution from a qualified retirement plan (as defined in section 4974(c)), or from an eligible deferred compensation plan (as defined in section 457(b)), received by the individual during the testing period which is includible in gross income, and
`(ii) any distribution from a Roth IRA or a Roth account received by the individual during the testing period which is not a qualified rollover contribution (as defined in section 408A(e)) to a Roth IRA or a rollover under section 402(c)(8)(B) to a Roth account.
`(B) TESTING PERIOD- For purposes of subparagraph (A), the testing period, with respect to a taxable year, is the period which includes--
`(ii) the 2 preceding taxable years, and
`(iii) the period after such taxable year and before the due date (including extensions) for filing the return of tax for such taxable year.
`(C) EXCEPTED DISTRIBUTIONS- There shall not be taken into account under subparagraph (A)--
`(i) any distribution referred to in section 72(p), 401(k)(8), 401(m)(6), 402(g)(2), 404(k), or 408(d)(4), and
`(ii) any distribution to which section 408A(d)(3) applies.
`(D) TREATMENT OF DISTRIBUTIONS RECEIVED BY SPOUSE OF INDIVIDUAL- For purposes of determining distributions received by an individual under subparagraph (A) for any taxable year, any distribution received by the spouse of such individual shall be treated as received by such individual if such individual and spouse file a joint return for such taxable year and for the taxable year during which the spouse receives the distribution.
`(e) ADJUSTED GROSS INCOME- For purposes of this section, adjusted gross income shall be determined without regard to sections 911, 931, and 933.
`(f) INVESTMENT IN THE CONTRACT- Notwithstanding any other provision of law, a qualified retirement savings contribution shall not fail to be included in determining the investment in the contract for purposes of section 72 by reason of the credit under this section.
`(g) TERMINATION- This section shall not apply to taxable years beginning after December 31, 2006.'.
(b) CREDIT ALLOWED AGAINST REGULAR TAX AND ALTERNATIVE MINIMUM TAX-
(1) IN GENERAL- Section 25B, as added by subsection (a), is amended by inserting after subsection (f) the following new subsection:
`(g) LIMITATION BASED ON AMOUNT OF TAX- The credit allowed under subsection (a) for the taxable year shall not exceed the excess of--
`(1) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over
`(2) the sum of the credits allowable under this subpart (other than this section and section 23) and section 27 for the taxable year.'.
(2) CONFORMING AMENDMENTS-
(A) Section 24(b)(3)(B), as amended by sections 201(b) and 203(d), is amended by striking `section 23' and inserting `sections 23 and 25B'.
(B) Section 25(e)(1)(C), as amended by section 201(b), is amended by inserting `25B,' after `24,'.
(C) Section 26(a)(1), as amended by sections 201(b) and 203, is amended by striking `and 24' and inserting `, 24, and 25B'.
(D) Section 904(h), as amended by sections 201(b) and 203, is amended by striking `and 24' and inserting `, 24, and 25B'.
(E) Section 1400C(d), as amended by sections 201(b) and 203, is amended by striking `and 24' and inserting `, 24, and 25B'.
(c) CONFORMING AMENDMENT- The table of sections for subpart A of part IV of subchapter A of chapter 1, as amended by section 432, is amended by inserting after the item relating to section 25A the following new item:
`Sec. 25B. Elective deferrals and IRA contributions by certain individuals.'.
(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.
SEC. 619. CREDIT FOR PENSION PLAN STARTUP COSTS OF SMALL EMPLOYERS.
(a) IN GENERAL- Subpart D of part IV of subchapter A of chapter 1 (relating to business related credits) is amended by adding at the end the following new section:
`SEC. 45E. SMALL EMPLOYER PENSION PLAN STARTUP COSTS.
`(a) GENERAL RULE- For purposes of section 38, in the case of an eligible employer, the small employer pension plan startup cost credit determined under this section for any taxable year is an amount equal to 50 percent of the qualified startup costs paid or incurred by the taxpayer during the taxable year.
`(b) DOLLAR LIMITATION- The amount of the credit determined under this section for any taxable year shall not exceed--
`(1) $500 for the first credit year and each of the 2 taxable years immediately following the first credit year, and
`(2) zero for any other taxable year.
`(c) ELIGIBLE EMPLOYER- For purposes of this section--
`(1) IN GENERAL- The term `eligible employer' has the meaning given such term by section 408(p)(2)(C)(i).
`(2) REQUIREMENT FOR NEW QUALIFIED EMPLOYER PLANS- Such term shall not include an employer if, during the 3-taxable year period immediately preceding the 1st taxable year for which the credit under this section is otherwise allowable for a qualified employer plan of the employer, the employer or any member of any controlled group including the employer (or any predecessor of either) established or maintained a qualified employer plan with respect to which contributions were made, or benefits were accrued, for substantially the same employees as are in the qualified employer plan.
`(d) OTHER DEFINITIONS- For purposes of this section--
`(1) QUALIFIED STARTUP COSTS-
`(A) IN GENERAL- The term `qualified startup costs' means any ordinary and necessary expenses of an eligible employer which are paid or incurred in connection with--
`(i) the establishment or administration of an eligible employer plan, or
`(ii) the retirement-related education of employees with respect to such plan.
`(B) PLAN MUST HAVE AT LEAST 1 PARTICIPANT- Such term shall not include any expense in connection with a plan that does not have at least 1 employee eligible to participate who is not a highly compensated employee.
`(2) ELIGIBLE EMPLOYER PLAN- The term `eligible employer plan' means a qualified employer plan within the meaning of section 4972(d).
`(3) FIRST CREDIT YEAR- The term `first credit year' means--
`(A) the taxable year which includes the date that the eligible employer plan to which such costs relate becomes effective, or
`(B) at the election of the eligible employer, the taxable year preceding the taxable year referred to in subparagraph (A).
`(e) SPECIAL RULES- For purposes of this section--
`(1) AGGREGATION RULES- All persons treated as a single employer under subsection (a) or (b) of section 52, or subsection (n) or (o) of section 414, shall be treated as one person. All eligible employer plans shall be treated as 1 eligible employer plan.
`(2) DISALLOWANCE OF DEDUCTION- No deduction shall be allowed for that portion of the qualified startup costs paid or incurred for the taxable year which is equal to the credit determined under subsection (a).
`(3) ELECTION NOT TO CLAIM CREDIT- This section shall not apply to a taxpayer for any taxable year if such taxpayer elects to have this section not apply for such taxable year.'.
(b) CREDIT ALLOWED AS PART OF GENERAL BUSINESS CREDIT- Section 38(b) (defining current year business credit) is amended by striking `plus' at the end of paragraph (12), by striking the period at the end of paragraph (13) and inserting `, plus', and by adding at the end the following new paragraph:
`(14) in the case of an eligible employer (as defined in section 45E(c)), the small employer pension plan startup cost credit determined under section 45E(a).'.
(c) CONFORMING AMENDMENTS-
(1) Section 39(d) is amended by adding at the end the following new paragraph:
`(10) NO CARRYBACK OF SMALL EMPLOYER PENSION PLAN STARTUP COST CREDIT BEFORE JANUARY 1, 2002- No portion of the unused business credit for any taxable year which is attributable to the small employer pension plan startup cost credit determined under section 45E may be carried back to a taxable year beginning before January 1, 2002.'.
(2) Subsection (c) of section 196 is amended by striking `and' at the end of paragraph (8), by striking the period at the end of paragraph (9) and inserting `, and', and by adding at the end the following new paragraph:
`(10) the small employer pension plan startup cost credit determined under section 45E(a).'.
(3) The table of sections for subpart D of part IV of subchapter A of chapter 1 is amended by adding at the end the following new item:
`Sec. 45E. Small employer pension plan startup costs.'.
(d) EFFECTIVE DATE- The amendments made by this section shall apply to costs paid or incurred in taxable years beginning after December 31, 2001, with respect to qualified employer plans established after such date.
SEC. 620. ELIMINATION OF USER FEE FOR REQUESTS TO IRS REGARDING PENSION PLANS.
(a) ELIMINATION OF CERTAIN USER FEES- The Secretary of the Treasury or the Secretary's delegate shall not require payment of user fees under the program established under section 10511 of the Revenue Act of 1987 for requests to the Internal Revenue Service for determination letters with respect to the qualified status of a pension benefit plan maintained solely by one or more eligible employers or any trust which is part of the plan. The preceding sentence shall not apply to any request--
(1) made after the later of--
(A) the fifth plan year the pension benefit plan is in existence; or
(B) the end of any remedial amendment period with respect to the plan beginning within the first 5 plan years; or
(2) made by the sponsor of any prototype or similar plan which the sponsor intends to market to participating employers.
(b) PENSION BENEFIT PLAN- For purposes of this section, the term `pension benefit plan' means a pension, profit-sharing, stock bonus, annuity, or employee stock ownership plan.
(c) ELIGIBLE EMPLOYER- For purposes of this section, the term `eligible employer' means an eligible employer (as defined in section 408(p)(2)(C)(i)(I) of the Internal Revenue Code of 1986) which has at least one employee who is not a highly compensated employee (as defined in section 414(q)) and is participating in the plan. The determination of whether an employer is an eligible employer under this section shall be made as of the date of the request described in subsection (a).
(d) DETERMINATION OF AVERAGE FEES CHARGED- For purposes of any determination of average fees charged, any request to which subsection (a) applies shall not be taken into account.
(e) EFFECTIVE DATE- The provisions of this section shall apply with respect to requests made after December 31, 2001.
SEC. 621. TREATMENT OF NONRESIDENT ALIENS ENGAGED IN INTERNATIONAL TRANSPORTATION SERVICES.
(a) EXCLUSION FROM INCOME SOURCING RULES- The second sentence of section 861(a)(3) (relating to gross income from sources within the United States) is amended by striking `except for purposes of sections 79 and 105 and subchapter D,'.
(b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to remuneration for services performed in plan years beginning after December 31, 2001.
Subtitle C--Enhancing Fairness for Women
SEC. 631. CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR OVER.
(a) IN GENERAL- Section 414 (relating to definitions and special rules) is amended by adding at the end the following new subsection:
`(v) CATCH-UP CONTRIBUTIONS FOR INDIVIDUALS AGE 50 OR OVER-
`(1) IN GENERAL- An applicable employer plan shall not be treated as failing to meet any requirement of this title solely because the plan permits an eligible participant to make additional elective deferrals in any plan year.
`(2) LIMITATION ON AMOUNT OF ADDITIONAL DEFERRALS-
`(A) IN GENERAL- A plan shall not permit additional elective deferrals under paragraph (1) for any year in an amount greater than the lesser of--
`(i) the applicable dollar amount, or
`(ii) the excess (if any) of--
`(I) the participant's compensation (as defined in section 415(c)(3)) for the year, over
`(II) any other elective deferrals of the participant for such year which are made without regard to this subsection.
`(B) APPLICABLE DOLLAR AMOUNT- For purposes of this paragraph--
`(i) In the case of an applicable employer plan other than a plan described in section 401(k)(11) or 408(p), the applicable dollar amount shall be determined in accordance with the following table:
`For taxable years
The applicable
beginning in:
dollar amount is:
2002
$1,000
2003
$2,000
2004
$3,000
2005
$4,000
2006 and thereafter
$5,000.
`(ii) In the case of an applicable employer plan described in section 401(k)(11) or 408(p), the applicable dollar amount shall be determined in accordance with the following table:
`For taxable years
The applicable
beginning in:
dollar amount is:
2002
$500
2003
$1,000
2004
$1,500
2005
$2,000
2006 and thereafter
$2,500.
`(C) COST-OF-LIVING ADJUSTMENT- In the case of a year beginning after December 31, 2006, the Secretary shall adjust annually the $5,000 amount in subparagraph (B)(i) and the $2,500 amount in subparagraph (B)(ii) for increases in the cost-of-living at the same time and in the same manner as adjustments under section 415(d); except that the base period taken into account shall be the calendar quarter beginning July 1, 2005, and any increase under this subparagraph which is not a multiple of $500 shall be rounded to the next lower multiple of $500.'.
`(3) TREATMENT OF CONTRIBUTIONS- In the case of any contribution to a plan under paragraph (1)--
`(A) such contribution shall not, with respect to the year in which the contribution is made--
`(i) be subject to any otherwise applicable limitation contained in section 402(g), 402(h), 403(b), 404(a), 404(h), 408(k), 408(p), 415, or 457, or
`(ii) be taken into account in applying such limitations to other contributions or benefits under such plan or any other such plan, and
`(B) except as provided in paragraph (4), such plan shall not be treated as failing to meet the requirements of section 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12), 403(b)(12), 408(k), 408(p), 408B, 410(b), or 416 by reason of the making of (or the right to make) such contribution.
`(4) APPLICATION OF NONDISCRIMINATION RULES-
`(A) IN GENERAL- An applicable employer plan shall be treated as failing to meet the nondiscrimination requirements under section 401(a)(4) with respect to benefits, rights, and features unless the plan allows all eligible participants to make the same election with respect to the additional elective deferrals under this subsection.
`(B) AGGREGATION- For purposes of subparagraph (A), all plans maintained by employers who are treated as a single employer under subsection (b), (c), (m), or (o) of section 414 shall be treated as 1 plan.
`(5) ELIGIBLE PARTICIPANT- For purposes of this subsection, the term `eligible participant' means, with respect to any plan year, a participant in a plan--
`(A) who has attained the age of 50 before the close of the plan year, and
`(B) with respect to whom no other elective deferrals may (without regard to this subsection) be made to the plan for the plan year by reason of the application of any limitation or other restriction described in paragraph (3) or comparable limitation or restriction contained in the terms of the plan.
`(6) OTHER DEFINITIONS AND RULES- For purposes of this subsection--
`(A) APPLICABLE EMPLOYER PLAN- The term `applicable employer plan' means--
`(i) an employees' trust described in section 401(a) which is exempt from tax under section 501(a),
`(ii) a plan under which amounts are contributed by an individual's employer for an annuity contract described in section 403(b),
`(iii) an eligible deferred compensation plan under section 457 of an eligible employer described in section 457(e)(1)(A), and
`(iv) an arrangement meeting the requirements of section 408 (k) or (p).
`(B) ELECTIVE DEFERRAL- The term `elective deferral' has the meaning given such term by subsection (u)(2)(C).
`(C) EXCEPTION FOR SECTION 457 PLANS- This subsection shall not apply to an applicable employer plan described in subparagraph (A)(iii) for any year to which section 457(b)(3) applies.'.
(b) EFFECTIVE DATE- The amendment made by this section shall apply to contributions in taxable years beginning after December 31, 2001.
SEC. 632. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES TO DEFINED CONTRIBUTION PLANS.
(1) IN GENERAL- Subparagraph (B) of section 415(c)(1) (relating to limitation for defined contribution plans) is amended by striking `25 percent' and inserting `100 percent'.
(2) APPLICATION TO SECTION 403(b)- Section 403(b) is amended--
(A) by striking `the exclusion allowance for such taxable year' in paragraph (1) and inserting `the applicable limit under section 415',
(B) by striking paragraph (2), and
(C) by inserting `or any amount received by a former employee after the fifth taxable year following the taxable year in which such employee was terminated' before the period at the end of the second sentence of paragraph (3).
(3) CONFORMING AMENDMENTS-
(A) Subsection (f) of section 72 is amended by striking `section 403(b)(2)(D)(iii))' and inserting `section 403(b)(2)(D)(iii), as in effect before the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001'.
(B) Section 404(a)(10)(B) is amended by striking `, the exclusion allowance under section 403(b)(2),'.
(C) Section 415(a)(2) is amended by striking `, and the amount of the contribution for such portion shall reduce the exclusion allowance as provided in section 403(b)(2)'.
(D) Section 415(c)(3) is amended by adding at the end the following new subparagraph:
`(E) ANNUITY CONTRACTS- In the case of an annuity contract described in section 403(b), the term `participant's compensation' means the participant's includible compensation determined under section 403(b)(3).'.
(E) Section 415(c) is amended by striking paragraph (4).
(F) Section 415(c)(7) is amended to read as follows:
`(7) CERTAIN CONTRIBUTIONS BY CHURCH PLANS NOT TREATED AS EXCEEDING LIMIT-
`(A) IN GENERAL- Notwithstanding any other provision of this subsection, at the election of a participant who is an employee of a church or a convention or association of churches, including an organization described in section 414(e)(3)(B)(ii), contributions and other additions for an annuity contract or retirement income account described in section 403(b) with respect to such participant, when expressed as an annual addition to such participant's account, shall be treated as not exceeding the limitation of paragraph (1) if such annual addition is not in excess of $10,000.
`(B) $40,000 AGGREGATE LIMITATION- The total amount of additions with respect to any participant which may be taken into account for purposes of this subparagraph for all years may not exceed $40,000.
`(C) ANNUAL ADDITION- For purposes of this paragraph, the term `annual addition' has the meaning given such term by paragraph (2).'.
(G) Subparagraph (B) of section 402(g)(7) (as redesignated by section 611(c)(3)) is amended by inserting before the period at the end the following: `(as in effect before the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001'.
(H) Section 664(g) is amended--
(i) in paragraph (3)(E) by striking `limitations under section 415(c)' and inserting `applicable limitation under paragraph (7)', and
(ii) by adding at the end the following new paragraph:
`(7) APPLICABLE LIMITATION-
`(A) IN GENERAL- For purposes of paragraph (3)(E), the applicable limitation under this paragraph with respect to a participant is an amount equal to the lesser of--
`(ii) 25 percent of the participant's compensation (as defined in section 415(c)(3)).
`(B) COST-OF-LIVING ADJUSTMENT- The Secretary shall adjust annually the $30,000 amount under subparagraph (A)(i) at the same time and in the same manner as under section 415(d), except that the base period shall be the calendar quarter beginning October 1, 1993, and any increase under this subparagraph which is not a multiple of $5,000 shall be rounded to the next lowest multiple of $5,000.'.
(4) EFFECTIVE DATE- The amendments made by this subsection shall apply to years beginning after December 31, 2001.
(b) SPECIAL RULES FOR SECTIONS 403(b) AND 408-
(1) IN GENERAL- Subsection (k) of section 415 is amended by adding at the end the following new paragraph:
`(4) SPECIAL RULES FOR SECTIONS 403(b) AND 408- For purposes of this section, any annuity contract described in section 403(b) for the benefit of a participant shall be treated as a defined contribution plan maintained by each employer with respect to which the participant has the control required under subsection (b) or (c) of section 414 (as modified by subsection (h)). For purposes of this section, any contribution by an employer to a simplified employee pension plan for an individual for a taxable year shall be treated as an employer contribution to a defined contribution plan for such individual for such year.'.
(A) IN GENERAL- The amendment made by paragraph (1) shall apply to limitation years beginning after December 31, 1999.
(B) EXCLUSION ALLOWANCE- Effective for limitation years beginning in 2000, in the case of any annuity contract described in section 403(b) of the Internal Revenue Code of 1986, the amount of the contribution disqualified by reason of section 415(g) of such Code shall reduce the exclusion allowance as provided in section 403(b)(2) of such Code.
(3) ELECTION TO MODIFY SECTION 403(b) EXCLUSION ALLOWANCE TO CONFORM TO SECTION 415 MODIFICATION- In the case of taxable years beginning after December 31, 1999, and before January 1, 2002, a plan may disregard the requirement in the regulations regarding the exclusion allowance under section 403(b)(2) of the Internal Revenue Code of 1986 that contributions to a defined benefit pension plan be treated as previously excluded amounts for purposes of the exclusion allowance.
(c) DEFERRED COMPENSATION PLANS OF STATE AND LOCAL GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS-
(1) IN GENERAL- Subparagraph (B) of section 457(b)(2) (relating to salary limitation on eligible deferred compensation plans) is amended by striking `33 1/3 percent' and inserting `100 percent'.
(2) EFFECTIVE DATE- The amendment made by this subsection shall apply to years beginning after December 31, 2001.
SEC. 633. FASTER VESTING OF CERTAIN EMPLOYER MATCHING CONTRIBUTIONS.
(a) IN GENERAL- Section 411(a) (relating to minimum vesting standards) is amended--
(1) in paragraph (2), by striking `A plan' and inserting `Except as provided in paragraph (12), a plan'; and
(2) by adding at the end the following:
`(12) FASTER VESTING FOR MATCHING CONTRIBUTIONS- In the case of matching contributions (as defined in section 401(m)(4)(A)), paragraph (2) shall be applied--
`(A) by substituting `3 years' for `5 years' in subparagraph (A), and
`(B) by substituting the following table for the table contained in subparagraph (B):
--The nonforfeitable
`Years of service:
--percentage is:
--20
--40
--60
--80
--100.'.
(b) AMENDMENT OF ERISA- Section 203(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(a)) is amended--
(1) in paragraph (2), by striking `A plan' and inserting `Except as provided in paragraph (4), a plan', and
(2) by adding at the end the following:
`(4) In the case of matching contributions (as defined in section 401(m)(4)(A) of the Internal Revenue Code of 1986), paragraph (2) shall be applied--
`(A) by substituting `3 years' for `5 years' in subparagraph (A), and
`(B) by substituting the following table for the table contained in subparagraph (B):
--The nonforfeitable
`Years of service:
--percentage is:
--20
--40
--60
--80
--100.'.
(1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to contributions for plan years beginning after December 31, 2001.
(2) COLLECTIVE BARGAINING AGREEMENTS- In the case of a plan maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers ratified by the date of the enactment of this Act, the amendments made by this section shall not apply to contributions on behalf of employees covered by any such agreement for plan years beginning before the earlier of--
(i) the date on which the last of such collective bargaining agreements terminates (determined without regard to any extension thereof on or after such date of the enactment); or
(3) SERVICE REQUIRED- With respect to any plan, the amendments made by this section shall not apply to any employee before the date that such employee has 1 hour of service under such plan in any plan year to which the amendments made by this section apply.
SEC. 634. MODIFICATION TO MINIMUM DISTRIBUTION RULES.
The Secretary of the Treasury shall modify the life expectancy tables under the regulations relating to minimum distribution requirements under sections 401(a)(9), 408(a)(6) and (b)(3), 403(b)(10), and 457(d)(2) of the Internal Revenue Code to reflect current life expectancy.
SEC. 635. CLARIFICATION OF TAX TREATMENT OF DIVISION OF SECTION 457 PLAN BENEFITS UPON DIVORCE.
(a) IN GENERAL- Section 414(p)(11) (relating to application of rules to governmental and church plans) is amended--
(1) by inserting `or an eligible deferred compensation plan (within the meaning of section 457(b))' after `subsection (e))'; and
(2) in the heading, by striking `GOVERNMENTAL AND CHURCH PLANS' and inserting `CERTAIN OTHER PLANS'.
(b) WAIVER OF CERTAIN DISTRIBUTION REQUIREMENTS- Paragraph (10) of section 414(p) is amended by striking `and section 409(d)' and inserting `section 409(d), and section 457(d)'.
(c) TAX TREATMENT OF PAYMENTS FROM A SECTION 457 PLAN- Subsection (p) of section 414 is amended by redesignating paragraph (12) as paragraph (13) and inserting after paragraph (11) the following new paragraph:
`(12) TAX TREATMENT OF PAYMENTS FROM A SECTION 457 PLAN- If a distribution or payment from an eligible deferred compensation plan described in section 457(b) is made pursuant to a qualified domestic relations order, rules similar to the rules of section 402(e)(1)(A) shall apply to such distribution or payment.'.
(d) EFFECTIVE DATE- The amendment made by this section shall apply to transfers, distributions, and payments made after December 31, 2001.
SEC. 636. PROVISIONS RELATING TO HARDSHIP DISTRIBUTIONS.
(1) IN GENERAL- The Secretary of the Treasury shall revise the regulations relating to hardship distributions under section 401(k)(2)(B)(i)(IV) of the Internal Revenue Code of 1986 to provide that the period an employee is prohibited from making elective and employee contributions in order for a distribution to be deemed necessary to satisfy financial need shall be equal to 6 months.
(2) EFFECTIVE DATE- The revised regulations under this subsection shall apply to years beginning after December 31, 2001.
(b) HARDSHIP DISTRIBUTIONS NOT TREATED AS ELIGIBLE ROLLOVER DISTRIBUTIONS-
(1) MODIFICATION OF DEFINITION OF ELIGIBLE ROLLOVER- Subparagraph (C) of section 402(c)(4) (relating to eligible rollover distribution) is amended to read as follows:
`(C) any distribution which is made upon hardship of the employee.'.
(2) EFFECTIVE DATE- The amendment made by this subsection shall apply to distributions made after December 31, 2001.
SEC. 637. WAIVER OF TAX ON NONDEDUCTIBLE CONTRIBUTIONS FOR DOMESTIC OR SIMILAR WORKERS.
(a) IN GENERAL- Section 4972(c)(6) (relating to exceptions to nondeductible contributions), as amended by section 616, is amended by striking `and' at the end of subparagraph (A), by striking the period and inserting `, or' at the end of subparagraph (B), and by inserting after subparagraph (B) the following new subparagraph:
`(C) so much of the contributions to a simple retirement account (within the meaning of section 408(p)) or a simple plan (within the meaning of section 401(k)(11)) which are not deductible when contributed solely because such contributions are not made in connection with a trade or business of the employer.'.
(b) EXCLUSION OF CERTAIN CONTRIBUTIONS- Section 4972(c)(6), as amended by subsection (a), is amended by adding at the end the following new sentence: `Subparagraph (C) shall not apply to contributions made on behalf of the employer or a member of the employer's family (as defined in section 447(e)(1)).'.
(c) NO INFERENCE- Nothing in the amendments made by this section shall be construed to infer the proper treatment of nondeductible contributions under the laws in effect before such amendments.
(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.
Subtitle D--Increasing Portability for Participants
SEC. 641. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.
(a) ROLLOVERS FROM AND TO SECTION 457 PLANS-
(1) ROLLOVERS FROM SECTION 457 PLANS-
(A) IN GENERAL- Section 457(e) (relating to other definitions and special rules) is amended by adding at the end the following:
`(A) GENERAL RULE- In the case of an eligible deferred compensation plan established and maintained by an employer described in subsection (e)(1)(A), if--
`(i) any portion of the balance to the credit of an employee in such plan is paid to such employee in an eligible rollover distribution (within the meaning of section 402(c)(4)),
`(ii) the employee transfers any portion of the property such employee receives in such distribution to an eligible retirement plan described in section 402(c)(8)(B), and
`(iii) in the case of a distribution of property other than money, the amount so transferred consists of the property distributed,
then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid.
`(B) CERTAIN RULES MADE APPLICABLE- The rules of paragraphs (2) through (7) and (9) of section 402(c) and section 402(f) shall apply for purposes of subparagraph (A).
`(C) REPORTING- Rollovers under this paragraph shall be reported to the Secretary in the same manner as rollovers from qualified retirement plans (as defined in section 4974(c)).'.
(B) DEFERRAL LIMIT DETERMINED WITHOUT REGARD TO ROLLOVER AMOUNTS- Section 457(b)(2) (defining eligible deferred compensation plan) is amended by inserting `(other than rollover amounts)' after `taxable year'.
(C) DIRECT ROLLOVER- Paragraph (1) of section 457(d) is amended by striking `and' at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting `, and', and by inserting after subparagraph (B) the following:
`(C) in the case of a plan maintained by an employer described in subsection (e)(1)(A), the plan meets requirements similar to the requirements of section 401(a)(31).
Any amount transferred in a direct trustee-to-trustee transfer in accordance with section 401(a)(31) shall not be includible in gross income for the taxable year of transfer.'.
(i) Paragraph (12) of section 3401(a) is amended by adding at the end the following:
`(E) under or to an eligible deferred compensation plan which, at the time of such payment, is a plan described in section 457(b) which is maintained by an eligible employer described in section 457(e)(1)(A), or'.
(ii) Paragraph (3) of section 3405(c) is amended to read as follows:
`(3) ELIGIBLE ROLLOVER DISTRIBUTION- For purposes of this subsection, the term `eligible rollover distribution' has the meaning given such term by section 402(f)(2)(A).'.
(iii) LIABILITY FOR WITHHOLDING- Subparagraph (B) of section 3405(d)(2) is amended by striking `or' at the end of clause (ii), by striking the period at the end of clause (iii) and inserting `, or', and by adding at the end the following:
`(iv) section 457(b) and which is maintained by an eligible employer described in section 457(e)(1)(A).'.
(2) ROLLOVERS TO SECTION 457 PLANS-
(A) IN GENERAL- Section 402(c)(8)(B) (defining eligible retirement plan) is amended by striking `and' at the end of clause (iii), by striking the period at the end of clause (iv) and inserting `, and', and by inserting after clause (iv) the following new clause:
`(v) an eligible deferred compensation plan described in section 457(b) which is maintained by an eligible employer described in section 457(e)(1)(A).'.
(B) SEPARATE ACCOUNTING- Section 402(c) is amended by adding at the end the following new paragraph:
`(10) SEPARATE ACCOUNTING- Unless a plan described in clause (v) of paragraph (8)(B) agrees to separately account for amounts rolled into such plan from eligible retirement plans not described in such clause, the plan described in such clause may not accept transfers or rollovers from such retirement plans.'.
(C) 10 PERCENT ADDITIONAL TAX- Subsection (t) of section 72 (relating to 10-percent additional tax on early distributions from qualified retirement plans) is amended by adding at the end the following new paragraph:
`(9) SPECIAL RULE FOR ROLLOVERS TO SECTION 457 PLANS- For purposes of this subsection, a distribution from an eligible deferred compensation plan (as defined in section 457(b)) of an eligible employer described in section 457(e)(1)(A) shall be treated as a distribution from a qualified retirement plan described in 4974(c)(1) to the extent that such distribution is attributable to an amount transferred to an eligible deferred compensation plan from a qualified retirement plan (as defined in section 4974(c)).'.
(b) ALLOWANCE OF ROLLOVERS FROM AND TO 403(b) PLANS-
(1) ROLLOVERS FROM SECTION 403(b) PLANS- Section 403(b)(8)(A)(ii) (relating to rollover amounts) is amended by striking `such distribution' and all that follows and inserting `such distribution to an eligible retirement plan described in section 402(c)(8)(B), and'.
(2) ROLLOVERS TO SECTION 403(b) PLANS- Section 402(c)(8)(B) (defining eligible retirement plan), as amended by subsection (a), is amended by striking `and' at the end of clause (iv), by striking the period at the end of clause (v) and inserting `, and', and by inserting after clause (v) the following new clause:
`(vi) an annuity contract described in section 403(b).'.
(c) EXPANDED EXPLANATION TO RECIPIENTS OF ROLLOVER DISTRIBUTIONS- Paragraph (1) of section 402(f) (relating to written explanation to recipients of distributions eligible for rollover treatment) is amended by striking `and' at the end of subparagraph (C), by striking the period at the end of subparagraph (D) and inserting `, and', and by adding at the end the following new subparagraph:
`(E) of the provisions under which distributions from the eligible retirement plan receiving the distribution may be subject to restrictions and tax consequences which are different from those applicable to distributions from the plan making such distribution.'.
(d) SPOUSAL ROLLOVERS- Section 402(c)(9) (relating to rollover where spouse receives distribution after death of employee) is amended by striking `; except that' and all that follows up to the end period.
(e) CONFORMING AMENDMENTS-
(1) Section 72(o)(4) is amended by striking `and 408(d)(3)' and inserting `403(b)(8), 408(d)(3), and 457(e)(16)'.
(2) Section 219(d)(2) is amended by striking `or 408(d)(3)' and inserting `408(d)(3), or 457(e)(16)'.
(3) Section 401(a)(31)(B) is amended by striking `and 403(a)(4)' and inserting `, 403(a)(4), 403(b)(8), and 457(e)(16)'.
(4) Subparagraph (A) of section 402(f)(2) is amended by striking `or paragraph (4) of section 403(a)' and inserting `, paragraph (4) of section 403(a), subparagraph (A) of section 403(b)(8), or subparagraph (A) of section 457(e)(16)'.
(5) Paragraph (1) of section 402(f) is amended by striking `from an eligible retirement plan'.
(6) Subparagraphs (A) and (B) of section 402(f)(1) are amended by striking `another eligible retirement plan' and inserting `an eligible retirement plan'.
(7) Subparagraph (B) of section 403(b)(8) is amended to read as follows:
`(B) CERTAIN RULES MADE APPLICABLE- The rules of paragraphs (2) through (7) and (9) of section 402(c) and section 402(f) shall apply for purposes of subparagraph (A), except that section 402(f) shall be applied to the payor in lieu of the plan administrator.'.
(8) Section 408(a)(1) is amended by striking `or 403(b)(8),' and inserting `403(b)(8), or 457(e)(16)'.
(9) Subparagraphs (A) and (B) of section 415(b)(2) are each amended by striking `and 408(d)(3)' and inserting `403(b)(8), 408(d)(3), and 457(e)(16)'.
(10) Section 415(c)(2) is amended by striking `and 408(d)(3)' and inserting `408(d)(3), and 457(e)(16)'.
(11) Section 4973(b)(1)(A) is amended by striking `or 408(d)(3)' and inserting `408(d)(3), or 457(e)(16)'.
(f) EFFECTIVE DATE; SPECIAL RULE-
(1) EFFECTIVE DATE- The amendments made by this section shall apply to distributions after December 31, 2001.
(2) REASONABLE NOTICE- No penalty shall be imposed on a plan for the failure to provide the information required by the amendment made by subsection (c) with respect to any distribution made before the date that is 90 days after the date on which the Secretary of the Treasury issues a safe harbor rollover notice after the date of the enactment of this Act, if the administrator of such plan makes a reasonable attempt to comply with such requirement.
(3) SPECIAL RULE- Notwithstanding any other provision of law, subsections (h)(3) and (h)(5) of section 1122 of the Tax Reform Act of 1986 shall not apply to any distribution from an eligible retirement plan (as defined in clause (iii) or (iv) of section 402(c)(8)(B) of the Internal Revenue Code of 1986) on behalf of an individual if there was a rollover to such plan on behalf of such individual which is permitted solely by reason of any amendment made by this section.
SEC. 642. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.
(a) IN GENERAL- Subparagraph (A) of section 408(d)(3) (relating to rollover amounts) is amended by adding `or' at the end of clause (i), by striking clauses (ii) and (iii), and by adding at the end the following:
`(ii) the entire amount received (including money and any other property) is paid into an eligible retirement plan for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received, except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross income (determined without regard to this paragraph).
For purposes of clause (ii), the term `eligible retirement plan' means an eligible retirement plan described in clause (iii), (iv), (v), or (vi) of section 402(c)(8)(B).'.
(b) CONFORMING AMENDMENTS-
(1) Paragraph (1) of section 403(b) is amended by striking `section 408(d)(3)(A)(iii)' and inserting `section 408(d)(3)(A)(ii)'.
(2) Clause (i) of section 408(d)(3)(D) is amended by striking `(i), (ii), or (iii)' and inserting `(i) or (ii)'.
(3) Subparagraph (G) of section 408(d)(3) is amended to read as follows:
`(G) SIMPLE RETIREMENT ACCOUNTS- In the case of any payment or distribution out of a simple retirement account (as defined in subsection (p)) to which section 72(t)(6) applies, this paragraph shall not apply unless such payment or distribution is paid into another simple retirement account.'.
(c) EFFECTIVE DATE; SPECIAL RULE-
(1) EFFECTIVE DATE- The amendments made by this section shall apply to distributions after December 31, 2001.
(2) SPECIAL RULE- Notwithstanding any other provision of law, subsections (h)(3) and (h)(5) of section 1122 of the Tax Reform Act of 1986 shall not apply to any distribution from an eligible retirement plan (as defined in clause (iii) or (iv) of section 402(c)(8)(B) of the Internal Revenue Code of 1986) on behalf of an individual if there was a rollover to such plan on behalf of such individual which is permitted solely by reason of the amendments made by this section.
SEC. 643. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.
(a) ROLLOVERS FROM EXEMPT TRUSTS- Paragraph (2) of section 402(c) (relating to maximum amount which may be rolled over) is amended by adding at the end the following: `The preceding sentence shall not apply to such distribution to the extent--
`(A) such portion is transferred in a direct trustee-to-trustee transfer to a qualified trust which is part of a plan which is a defined contribution plan and which agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible, or
`(B) such portion is transferred to an eligible retirement plan described in clause (i) or (ii) of paragraph (8)(B).'.
(b) OPTIONAL DIRECT TRANSFER OF ELIGIBLE ROLLOVER DISTRIBUTIONS- Subparagraph (B) of section 401(a)(31) (relating to limitation) is amended by adding at the end the following: `The preceding sentence shall not apply to such distribution if the plan to which such distribution is transferred--
`(i) agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible, or
`(ii) is an eligible retirement plan described in clause (i) or (ii) of section 402(c)(8)(B).'.
(c) RULES FOR APPLYING SECTION 72 TO IRAS- Paragraph (3) of section 408(d) (relating to special rules for applying section 72) is amended by inserting at the end the following:
`(H) APPLICATION OF SECTION 72-
`(I) a distribution is made from an individual retirement plan, and
`(II) a rollover contribution is made to an eligible retirement plan described in section 402(c)(8)(B)(iii), (iv), (v), or (vi) with respect to all or part of such distribution,
then, notwithstanding paragraph (2), the rules of clause (ii) shall apply for purposes of applying section 72.
`(ii) APPLICABLE RULES- In the case of a distribution described in clause (i)--
`(I) section 72 shall be applied separately to such distribution,
`(II) notwithstanding the pro rata allocation of income on, and investment in, the contract to distributions under section 72, the portion of such distribution rolled over to an eligible retirement plan described in clause (i) shall be treated as from income on the contract (to the extent of the aggregate income on the contract from all individual retirement plans of the distributee), and
`(III) appropriate adjustments shall be made in applying section 72 to other distributions in such taxable year and subsequent taxable years.'.
(d) EFFECTIVE DATE- The amendments made by this section shall apply to distributions made after December 31, 2001.
SEC. 644. HARDSHIP EXCEPTION TO 60-DAY RULE.
(a) EXEMPT TRUSTS- Paragraph (3) of section 402(c) (relating to transfer must be made within 60 days of receipt) is amended to read as follows:
`(3) TRANSFER MUST BE MADE WITHIN 60 DAYS OF RECEIPT-
`(A) IN GENERAL- Except as provided in subparagraph (B), paragraph (1) shall not apply to any transfer of a distribution made after the 60th day following the day on which the distributee received the property distributed.
`(B) HARDSHIP EXCEPTION- The Secretary may waive the 60-day requirement under subparagraph (A) where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.'.
(b) IRAS- Paragraph (3) of section 408(d) (relating to rollover contributions), as amended by section 643, is amended by adding after subparagraph (H) the following new subparagraph:
`(I) WAIVER OF 60-DAY REQUIREMENT- The Secretary may waive the 60-day requirement under subparagraphs (A) and (D) where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to distributions after December 31, 2001.
SEC. 645. TREATMENT OF FORMS OF DISTRIBUTION.
(1) AMENDMENT OF INTERNAL REVENUE CODE- Paragraph (6) of section 411(d) (relating to accrued benefit not to be decreased by amendment) is amended by adding at the end the following:
`(i) IN GENERAL- A defined contribution plan (in this subparagraph referred to as the `transferee plan') shall not be treated as failing to meet the requirements of this subsection merely because the transferee plan does not provide some or all of the forms of distribution previously available under another defined contribution plan (in this subparagraph referred to as the `transferor plan') to the extent that--
`(I) the forms of distribution previously available under the transferor plan applied to the account of a participant or beneficiary under the transferor plan that was transferred from the transferor plan to the transferee plan pursuant to a direct transfer rather than pursuant to a distribution from the transferor plan,
`(II) the terms of both the transferor plan and the transferee plan authorize the transfer described in subclause (I),
`(III) the transfer described in subclause (I) was made pursuant to a voluntary election by the participant or beneficiary whose account was transferred to the transferee plan,
`(IV) the election described in subclause (III) was made after the participant or beneficiary received a notice describing the consequences of making the election, and
`(V) the transferee plan allows the participant or beneficiary described in subclause (III) to receive any distribution to which the participant or beneficiary is entitled under the transferee plan in the form of a single sum distribution.
`(ii) SPECIAL RULE FOR MERGERS, ETC- Clause (i) shall apply to plan mergers and other transactions having the effect of a direct transfer, including consolidations of benefits attributable to different employers within a multiple employer plan.
`(E) ELIMINATION OF FORM OF DISTRIBUTION- Except to the extent provided in regulations, a defined contribution plan shall not be treated as failing to meet the requirements of this section merely because of the elimination of a form of distribution previously available thereunder. This subparagraph shall not apply to the elimination of a form of distribution with respect to any participant unless--
`(i) a single sum payment is available to such participant at the same time or times as the form of distribution being eliminated, and
`(ii) such single sum payment is based on the same or greater portion of the participant's account as the form of distribution being eliminated.'.
(2) AMENDMENT OF ERISA- Section 204(g) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)) is amended by adding at the end the following:
`(4)(A) A defined contribution plan (in this subparagraph referred to as the `transferee plan') shall not be treated as failing to meet the requirements of this subsection merely because the transferee plan does not provide some or all of the forms of distribution previously available under another defined contribution plan (in this subparagraph referred to as the `transferor plan') to the extent that--
`(i) the forms of distribution previously available under the transferor plan applied to the account of a participant or beneficiary under the transferor plan that was transferred from the transferor plan to the transferee plan pursuant to a direct transfer rather than pursuant to a distribution from the transferor plan;
`(ii) the terms of both the transferor plan and the transferee plan authorize the transfer described in clause (i);
`(iii) the transfer described in clause (i) was made pursuant to a voluntary election by the participant or beneficiary whose account was transferred to the transferee plan;
`(iv) the election described in clause (iii) was made after the participant or beneficiary received a notice describing the consequences of making the election; and
`(v) the transferee plan allows the participant or beneficiary described in clause (iii) to receive any distribution to which the participant or beneficiary is entitled under the transferee plan in the form of a single sum distribution.
`(B) Subparagraph (A) shall apply to plan mergers and other transactions having the effect of a direct transfer, including consolidations of benefits attributable to different employers within a multiple employer plan.
`(5) Except to the extent provided in regulations promulgated by the Secretary of the Treasury, a defined contribution plan shall not be treated as failing to meet the requirements of this subsection merely because of the elimination of a form of distribution previously available thereunder. This paragraph shall not apply to the elimination of a form of distribution with respect to any participant unless--
`(A) a single sum payment is available to such participant at the same time or times as the form of distribution being eliminated; and
`(B) such single sum payment is based on the same or greater portion of the participant's account as the form of distribution being eliminated.'.
(3) EFFECTIVE DATE- The amendments made by this subsection shall apply to years beginning after December 31, 2001.
(1) AMENDMENT OF INTERNAL REVENUE CODE- Paragraph (6)(B) of section 411(d) (relating to accrued benefit not to be decreased by amendment) is amended by inserting after the second sentence the following: `The Secretary shall by regulations provide that this subparagraph shall not apply to any plan amendment which reduces or eliminates benefits or subsidies which create significant burdens or complexities for the plan and plan participants, unless such amendment adversely affects the rights of any participant in a more than de minimis manner.'.
(2) AMENDMENT OF ERISA- Section 204(g)(2) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1054(g)(2)) is amended by inserting after the second sentence the following: `The Secretary of the Treasury shall by regulations provide that this paragraph shall not apply to any plan amendment which reduces or eliminates benefits or subsidies which create significant burdens or complexities for the plan and plan participants, unless such amendment adversely affects the rights of any participant in a more than de minimis manner.'.
(3) SECRETARY DIRECTED- Not later than December 31, 2003, the Secretary of the Treasury is directed to issue regulations under section 411(d)(6) of the Internal Revenue Code of 1986 and section 204(g) of the Employee Retirement Income Security Act of 1974, including the regulations required by the amendment made by this subsection. Such regulations shall apply to plan years beginning after December 31, 2003, or such earlier date as is specified by the Secretary of the Treasury.
SEC. 646. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.
(a) MODIFICATION OF SAME DESK EXCEPTION-
(A) Section 401(k)(2)(B)(i)(I) (relating to qualified cash or deferred arrangements) is amended by striking `separation from service' and inserting `severance from employment'.
(B) Subparagraph (A) of section 401(k)(10) (relating to distributions upon termination of plan or disposition of assets or subsidiary) is amended to read as follows:
`(A) IN GENERAL- An event described in this subparagraph is the termination of the plan without establishment or maintenance of another defined contribution plan (other than an employee stock ownership plan as defined in section 4975(e)(7)).'.
(C) Section 401(k)(10) is amended--
(i) in subparagraph (B)--
(I) by striking `An event' in clause (i) and inserting `A termination'; and
(II) by striking `the event' in clause (i) and inserting `the termination';
(ii) by striking subparagraph (C); and
(iii) by striking `OR DISPOSITION OF ASSETS OR SUBSIDIARY' in the heading.
(A) Paragraphs (7)(A)(ii) and (11)(A) of section 403(b) are each amended by striking `separates from service' and inserting `has a severance from employment'.
(B) The heading for paragraph (11) of section 403(b) is amended by striking `SEPARATION FROM SERVICE' and inserting `SEVERANCE FROM EMPLOYMENT'.
(3) SECTION 457- Clause (ii) of section 457(d)(1)(A) is amended by striking `is separated from service' and inserting `has a severance from employment'.
(b) EFFECTIVE DATE- The amendments made by this section shall apply to distributions after December 31, 2001.
SEC. 647. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED BENEFIT PLANS.
(a) SECTION 403(b) PLANS- Subsection (b) of section 403 is amended by adding at the end the following new paragraph:
`(13) TRUSTEE-TO-TRUSTEE TRANSFERS TO PURCHASE PERMISSIVE SERVICE CREDIT- No amount shall be includible in gross income by reason of a direct trustee-to-trustee transfer to a defined benefit governmental plan (as defined in section 414(d)) if such transfer is--
`(A) for the purchase of permissive service credit (as defined in section 415(n)(3)(A)) under such plan, or
`(B) a repayment to which section 415 does not apply by reason of subsection (k)(3) thereof.'.
(b) SECTION 457 PLANS- Subsection (e) of section 457, as amended by section 641, is amended by adding after paragraph (16) the following new paragraph:
`(17) TRUSTEE-TO-TRUSTEE TRANSFERS TO PURCHASE PERMISSIVE SERVICE CREDIT- No amount shall be includible in gross income by reason of a direct trustee-to-trustee transfer to a defined benefit governmental plan (as defined in section 414(d)) if such transfer is--
`(A) for the purchase of permissive service credit (as defined in section 415(n)(3)(A)) under such plan, or
`(B) a repayment to which section 415 does not apply by reason of subsection (k)(3) thereof.'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to trustee-to-trustee transfers after December 31, 2001.
SEC. 648. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF CASH-OUT AMOUNTS.
(1) AMENDMENT OF INTERNAL REVENUE CODE- Section 411(a)(11) (relating to restrictions on certain mandatory distributions) is amended by adding at the end the following:
`(D) SPECIAL RULE FOR ROLLOVER CONTRIBUTIONS- A plan shall not fail to meet the requirements of this paragraph if, under the terms of the plan, the present value of the nonforfeitable accrued benefit is determined without regard to that portion of such benefit which is attributable to rollover contributions (and earnings allocable thereto). For purposes of this subparagraph, the term `rollover contributions' means any rollover contribution under sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16).'.
(2) AMENDMENT OF ERISA- Section 203(e) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(c)) is amended by adding at the end the following:
`(4) A plan shall not fail to meet the requirements of this subsection if, under the terms of the plan, the present value of the nonforfeitable accrued benefit is determined without regard to that portion of such benefit which is attributable to rollover contributions (and earnings allocable thereto). For purposes of this subparagraph, the term `rollover contributions' means any rollover contribution under sections 402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16) of the Internal Revenue Code of 1986.'.
(b) ELIGIBLE DEFERRED COMPENSATION PLANS- Clause (i) of section 457(e)(9)(A) is amended by striking `such amount' and inserting `the portion of such amount which is not attributable to rollover contributions (as defined in section 411(a)(11)(D))'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to distributions after December 31, 2001.
SEC. 649. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS FOR SECTION 457 PLANS.
(a) MINIMUM DISTRIBUTION REQUIREMENTS- Paragraph (2) of section 457(d) (relating to distribution requirements) is amended to read as follows:
`(2) MINIMUM DISTRIBUTION REQUIREMENTS- A plan meets the minimum distribution requirements of this paragraph if such plan meets the requirements of section 401(a)(9).'.
(b) INCLUSION IN GROSS INCOME-
(1) YEAR OF INCLUSION- Subsection (a) of section 457 (relating to year of inclusion in gross income) is amended to read as follows:
`(a) YEAR OF INCLUSION IN GROSS INCOME-
`(1) IN GENERAL- Any amount of compensation deferred under an eligible deferred compensation plan, and any income attributable to the amounts so deferred, shall be includible in gross income only for the taxable year in which such compensation or other income--
`(A) is paid to the participant or other beneficiary, in the case of a plan of an eligible employer described in subsection (e)(1)(A), and
`(B) is paid or otherwise made available to the participant or other beneficiary, in the case of a plan of an eligible employer described in subsection (e)(1)(B).
`(2) SPECIAL RULE FOR ROLLOVER AMOUNTS- To the extent provided in section 72(t)(9), section 72(t) shall apply to any amount includible in gross income under this subsection.'.
(2) CONFORMING AMENDMENTS-
(A) So much of paragraph (9) of section 457(e) as precedes subparagraph (A) is amended to read as follows:
`(9) BENEFITS OF TAX EXEMPT ORGANIZATION PLANS NOT TREATED AS MADE AVAILABLE BY REASON OF CERTAIN ELECTIONS, ETC- In the case of an eligible deferred compensation plan of an employer described in subsection (e)(1)(B)--'.
(B) Section 457(d) is amended by adding at the end the following new paragraph:
`(3) SPECIAL RULE FOR GOVERNMENT PLAN- An eligible deferred compensation plan of an employer described in subsection (e)(1)(A) shall not be treated as failing to meet the requirements of this subsection solely by reason of making a distribution described in subsection (e)(9)(A).'.
(c) EFFECTIVE DATE- The amendments made by subsections (a) and (b) shall apply to distributions after December 31, 2001.
Subtitle E--Strengthening Pension Security and Enforcement
PART I--GENERAL PROVISIONS
SEC. 651. REPEAL OF 160 PERCENT OF CURRENT LIABILITY FUNDING LIMIT.
(a) AMENDMENTS TO INTERNAL REVENUE CODE- Section 412(c)(7) (relating to full-funding limitation) is amended--
(1) by striking `the applicable percentage' in subparagraph (A)(i)(I) and inserting `in the case of plan years beginning before January 1, 2004, the applicable percentage'; and
(2) by amending subparagraph (F) to read as follows:
`(F) APPLICABLE PERCENTAGE- For purposes of subparagraph (A)(i)(I), the applicable percentage shall be determined in accordance with the following table:
`In the case of any plan year
--The applicable
beginning in--
--percentage is--
--165
--170.'.
(b) AMENDMENT OF ERISA- Section 302(c)(7) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1082(c)(7)) is amended--
(1) by striking `the applicable percentage' in subparagraph (A)(i)(I) and inserting `in the case of plan years beginning before January 1, 2004, the applicable percentage', and
(2) by amending subparagraph (F) to read as follows:
`(F) APPLICABLE PERCENTAGE- For purposes of subparagraph (A)(i)(I), the applicable percentage shall be determined in accordance with the following table:
`In the case of any plan year
--The applicable
beginning in calendar year--
--percentage is--
--165
--170.'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to plan years beginning after December 31, 2001.
SEC. 652. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND APPLIED TO ALL DEFINED BENEFIT PLANS.
(a) IN GENERAL- Subparagraph (D) of section 404(a)(1) (relating to special rule in case of certain plans) is amended to read as follows:
`(D) SPECIAL RULE IN CASE OF CERTAIN PLANS-
`(i) IN GENERAL- In the case of any defined benefit plan, except as provided in regulations, the maximum amount deductible under the limitations of this paragraph shall not be less than the unfunded current liability determined under section 412(l).
`(ii) PLANS WITH 100 OR LESS PARTICIPANTS- For purposes of this subparagraph, in the case of a plan which has 100 or less participants for the plan year, unfunded current liability shall not include the liability attributable to benefit increases for highly compensated employees (as defined in section 414(q)) resulting from a plan amendment which is made or becomes effective, whichever is later, within the last 2 years.
`(iii) RULE FOR DETERMINING NUMBER OF PARTICIPANTS- For purposes of determining the number of plan participants, all defined benefit plans maintained by the same employer (or any member of such employer's controlled group (within the meaning of section 412(l)(8)(C))) shall be treated as one plan, but only employees of such member or employer shall be taken into account.
`(iv) PLANS MAINTAINED BY PROFESSIONAL SERVICE EMPLOYERS- In the case of a plan which, subject to section 4041 of the Employee Retirement Income Security Act of 1974, terminates during the plan year, clause (i) shall be applied by substituting for unfunded current liability the amount required to make the plan sufficient for benefit liabilities (within the meaning of section 4041(d) of such Act).'.
(b) CONFORMING AMENDMENT- Paragraph (6) of section 4972(c), as amended by sections 616 and 637, is amended--
(1) by striking subparagraph (A) and redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively,
(2) by striking the first sentence following subparagraph (B) (as so redesignated),
(3) by striking `subparagraph (B)' in the next to last sentence and inserting `subparagraph (A)', and
(4) by striking `Subparagraph (C)' in the last sentence and inserting `Subparagraph (B)'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to plan years beginning after December 31, 2001.
SEC. 653. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.
(a) IN GENERAL- Subsection (c) of section 4972 (relating to nondeductible contributions) is amended by adding at the end the following new paragraph:
`(7) DEFINED BENEFIT PLAN EXCEPTION- In determining the amount of nondeductible contributions for any taxable year, an employer may elect for such year not to take into account any contributions to a defined benefit plan except to the extent that such contributions exceed the full-funding limitation (as defined in section 412(c)(7), determined without regard to subparagraph (A)(i)(I) thereof). For purposes of this paragraph, the deductible limits under section 404(a)(7) shall first be applied to amounts contributed to defined contribution plans and then to amounts described in this paragraph. If an employer makes an election under this paragraph for a taxable year, paragraph (6) shall not apply to such employer for such taxable year.'.
(b) EFFECTIVE DATE- The amendment made by this section shall apply to years beginning after December 31, 2001.
SEC. 654. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.
(1) IN GENERAL- Paragraph (11) of section 415(b) (relating to limitation for defined benefit plans) is amended to read as follows:
`(11) SPECIAL LIMITATION RULE FOR GOVERNMENTAL AND MULTIEMPLOYER PLANS- In the case of a governmental plan (as defined in section 414(d)) or a multiemployer plan (as defined in section 414(f)), subparagraph (B) of paragraph (1) shall not apply.'.
(2) CONFORMING AMENDMENT- Section 415(b)(7) (relating to benefits under certain collectively bargained plans) is amended by inserting `(other than a multiemployer plan)' after `defined benefit plan' in the matter preceding subparagraph (A).
(b) COMBINING AND AGGREGATION OF PLANS-
(1) COMBINING OF PLANS- Subsection (f) of section 415 (relating to combining of plans) is amended by adding at the end the following:
`(3) EXCEPTION FOR MULTIEMPLOYER PLANS- Notwithstanding paragraph (1) and subsection (g), a multiemployer plan (as defined in section 414(f)) shall not be combined or aggregated--
`(A) with any other plan which is not a multiemployer plan for purposes of applying subsection (b)(1)(B) to such other plan, or
`(B) with any other multiemployer plan for purposes of applying the limitations established in this section.'.
(2) CONFORMING AMENDMENT FOR AGGREGATION OF PLANS- Subsection (g) of section 415 (relating to aggregation of plans) is amended by striking `The Secretary' and inserting `Except as provided in subsection (f)(3), the Secretary'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 2001.
SEC. 655. PROTECTION OF INVESTMENT OF EMPLOYEE CONTRIBUTIONS TO 401(k) PLANS.
(a) IN GENERAL- Section 1524(b) of the Taxpayer Relief Act of 1997 is amended to read as follows:
`(1) IN GENERAL- Except as provided in paragraph (2), the amendments made by this section shall apply to elective deferrals for plan years beginning after December 31, 1998.
`(2) NONAPPLICATION TO PREVIOUSLY ACQUIRED PROPERTY- The amendments made by this section shall not apply to any elective deferral which is invested in assets consisting of qualifying employer securities, qualifying employer real property, or both, if such assets were acquired before January 1, 1999.'.
(b) EFFECTIVE DATE- The amendment made by this section shall apply as if included in the provision of the Taxpayer Relief Act of 1997 to which it relates.
SEC. 656. PROHIBITED ALLOCATIONS OF STOCK IN S CORPORATION ESOP.
(a) IN GENERAL- Section 409 (relating to qualifications for tax credit employee stock ownership plans) is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection:
`(p) PROHIBITED ALLOCATIONS OF SECURITIES IN AN S CORPORATION-
`(1) IN GENERAL- An employee stock ownership plan holding employer securities consisting of stock in an S corporation shall provide that no portion of the assets of the plan attributable to (or allocable in lieu of) such employer securities may, during a nonallocation year, accrue (or be allocated directly or indirectly under any plan of the employer meeting the requirements of section 401(a)) for the benefit of any disqualified person.
`(2) FAILURE TO MEET REQUIREMENTS-
`(A) IN GENERAL- If a plan fails to meet the requirements of paragraph (1), the plan shall be treated as having distributed to any disqualified person the amount allocated to the account of such person in violation of paragraph (1) at the time of such allocation.
`For excise tax relating to violations of paragraph (1) and ownership of synthetic equity, see section 4979A.
`(3) NONALLOCATION YEAR- For purposes of this subsection--
`(A) IN GENERAL- The term `nonallocation year' means any plan year of an employee stock ownership plan if, at any time during such plan year--
`(i) such plan holds employer securities consisting of stock in an S corporation, and
`(ii) disqualified persons own at least 50 percent of the number of shares of stock in the S corporation.
`(B) ATTRIBUTION RULES- For purposes of subparagraph (A)--
`(i) IN GENERAL- The rules of section 318(a) shall apply for purposes of determining ownership, except that--
`(I) in applying paragraph (1) thereof, the members of an individual's family shall include members of the family described in paragraph (4)(D), and
`(II) paragraph (4) thereof shall not apply.
`(ii) DEEMED-OWNED SHARES- Notwithstanding the employee trust exception in section 318(a)(2)(B)(i), an individual shall be treated as owning deemed-owned shares of the individual.
Solely for purposes of applying paragraph (5), this subparagraph shall be applied after the attribution rules of paragraph (5) have been applied.
`(4) DISQUALIFIED PERSON- For purposes of this subsection--
`(A) IN GENERAL- The term `disqualified person' means any person if--
`(i) the aggregate number of deemed-owned shares of such person and the members of such person's family is at least 20 percent of the number of deemed-owned shares of stock in the S corporation, or
`(ii) in the case of a person not described in clause (i), the number of deemed-owned shares of such person is at least 10 percent of the number of deemed-owned shares of stock in such corporation.
`(B) TREATMENT OF FAMILY MEMBERS- In the case of a disqualified person described in subparagraph (A)(i), any member of such person's family with deemed-owned shares shall be treated as a disqualified person if not otherwise treated as a disqualified person under subparagraph (A).
`(C) DEEMED-OWNED SHARES-
`(i) IN GENERAL- The term `deemed-owned shares' means, with respect to any person--
`(I) the stock in the S corporation constituting employer securities of an employee stock ownership plan which is allocated to such person under the plan, and
`(II) such person's share of the stock in such corporation which is held by such plan but which is not allocated under the plan to participants.
`(ii) PERSON'S SHARE OF UNALLOCATED STOCK- For purposes of clause (i)(II), a person's share of unallocated S corporation stock held by such plan is the amount of the unallocated stock which would be allocated to such person if the unallocated stock were allocated to all participants in the same proportions as the most recent stock allocation under the plan.
`(D) MEMBER OF FAMILY- For purposes of this paragraph, the term `member of the family' means, with respect to any individual--
`(i) the spouse of the individual,
`(ii) an ancestor or lineal descendant of the individual or the individual's spouse,
`(iii) a brother or sister of the individual or the individual's spouse and any lineal descendant of the brother or sister, and
`(iv) the spouse of any individual described in clause (ii) or (iii).
A spouse of an individual who is legally separated from such individual under a decree of divorce or separate maintenance shall not be treated as such individual's spouse for purposes of this subparagraph.
`(5) TREATMENT OF SYNTHETIC EQUITY- For purposes of paragraphs (3) and (4), in the case of a person who owns synthetic equity in the S corporation, except to the extent provided in regulations, the shares of stock in such corporation on which such synthetic equity is based shall be treated as outstanding stock in such corporation and deemed-owned shares of such person if such treatment of synthetic equity of 1 or more such persons results in--
`(A) the treatment of any person as a disqualified person, or
`(B) the treatment of any year as a nonallocation year.
For purposes of this paragraph, synthetic equity shall be treated as owned by a person in the same manner as stock is treated as owned by a person under the rules of paragraphs (2) and (3) of section 318(a). If, without regard to this paragraph, a person is treated as a disqualified person or a year is treated as a nonallocation year, this paragraph shall not be construed to result in the person or year not being so treated.
`(6) DEFINITIONS- For purposes of this subsection--
`(A) EMPLOYEE STOCK OWNERSHIP PLAN- The term `employee stock ownership plan' has the meaning given such term by section 4975(e)(7).
`(B) EMPLOYER SECURITIES- The term `employer security' has the meaning given such term by section 409(l).
`(C) SYNTHETIC EQUITY- The term `synthetic equity' means any stock option, warrant, restricted stock, deferred issuance stock right, or similar interest or right that gives the holder the right to acquire or receive stock of the S corporation in the future. Except to the extent provided in regulations, synthetic equity also includes a stock appreciation right, phantom stock unit, or similar right to a future cash payment based on the value of such stock or appreciation in such value.
`(7) REGULATIONS AND GUIDANCE-
`(A) IN GENERAL- The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection.
`(B) AVOIDANCE OR EVASION- The Secretary may, by regulation or other guidance of general applicability, provide that a nonallocation year occurs in any case in which the principal purpose of the ownership structure of an S corporation constitutes an avoidance or evasion of this subsection.'.
(b) COORDINATION WITH SECTION 4975(e)(7)- The last sentence of section 4975(e)(7) (defining employee stock ownership plan) is amended by inserting `, section 409(p),' after `409(n)'.
(1) APPLICATION OF TAX- Subsection (a) of section 4979A (relating to tax on certain prohibited allocations of employer securities) is amended--
(A) by striking `or' at the end of paragraph (1), and
(B) by striking all that follows paragraph (2) and inserting the following:
`(3) there is any allocation of employer securities which violates the provisions of section 409(p), or a nonallocation year described in subsection (e)(2)(C) with respect to an employee stock ownership plan, or
`(4) any synthetic equity is owned by a disqualified person in any nonallocation year,
there is hereby imposed a tax on such allocation or ownership equal to 50 percent of the amount involved.'.
(2) LIABILITY- Section 4979A(c) (defining liability for tax) is amended to read as follows:
`(c) LIABILITY FOR TAX- The tax imposed by this section shall be paid--
`(1) in the case of an allocation referred to in paragraph (1) or (2) of subsection (a), by--
`(A) the employer sponsoring such plan, or
`(B) the eligible worker-owned cooperative,
which made the written statement described in section 664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may be), and
`(2) in the case of an allocation or ownership referred to in paragraph (3) or (4) of subsection (a), by the S corporation the stock in which was so allocated or owned.'.
(3) DEFINITIONS- Section 4979A(e) (relating to definitions) is amended to read as follows:
`(e) DEFINITIONS AND SPECIAL RULES- For purposes of this section--
`(1) DEFINITIONS- Except as provided in paragraph (2), terms used in this section have the same respective meanings as when used in sections 409 and 4978.
`(2) SPECIAL RULES RELATING TO TAX IMPOSED BY REASON OF PARAGRAPH (3) OR (4) OF SUBSECTION (a)-
`(A) PROHIBITED ALLOCATIONS- The amount involved with respect to any tax imposed by reason of subsection (a)(3) is the amount allocated to the account of any person in violation of section 409(p)(1).
`(B) SYNTHETIC EQUITY- The amount involved with respect to any tax imposed by reason of subsection (a)(4) is the value of the shares on which the synthetic equity is based.
`(C) SPECIAL RULE DURING FIRST NONALLOCATION YEAR- For purposes of subparagraph (A), the amount involved for the first nonallocation year of any employee stock ownership plan shall be determined by taking into account the total value of all the deemed-owned shares of all disqualified persons with respect to such plan.
`(D) STATUTE OF LIMITATIONS- The statutory period for the assessment of any tax imposed by this section by reason of paragraph (3) or (4) of subsection (a) shall not expire before the date which is 3 years from the later of--
`(i) the allocation or ownership referred to in such paragraph giving rise to such tax, or
`(ii) the date on which the Secretary is notified of such allocation or ownership.'.
(1) IN GENERAL- The amendments made by this section shall apply to plan years beginning after December 31, 2004.
(2) EXCEPTION FOR CERTAIN PLANS- In the case of any--
(A) employee stock ownership plan established after March 14, 2001, or
(B) employee stock ownership plan established on or before such date if employer securities held by the plan consist of stock in a corporation with respect to which an election under section 1362(a) of the Internal Revenue Code of 1986 is not in effect on such date,
the amendments made by this section shall apply to plan years ending after March 14, 2001.
SEC. 657. AUTOMATIC ROLLOVERS OF CERTAIN MANDATORY DISTRIBUTIONS.
(a) DIRECT TRANSFERS OF MANDATORY DISTRIBUTIONS-
(1) IN GENERAL- Section 401(a)(31) (relating to optional direct transfer of eligible rollover distributions), as amended by section 643, is amended by redesignating subparagraphs (B), (C), and (D) as subparagraphs (C), (D), and (E), respectively, and by inserting after subparagraph (A) the following new subparagraph:
`(B) CERTAIN MANDATORY DISTRIBUTIONS-
`(i) IN GENERAL- In case of a trust which is part of an eligible plan, such trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that if--
`(I) a distribution described in clause (ii) in excess of $1,000 is made, and
`(II) the distributee does not make an election under subparagraph (A) and does not elect to receive the distribution directly,
the plan administrator shall make such transfer to an individual retirement plan of a designated trustee or issuer and shall notify the distributee in writing (either separately or as part of the notice under section 402(f)) that the distribution may be transferred to another individual retirement plan.
`(ii) ELIGIBLE PLAN- For purposes of clause (i), the term `eligible plan' means a plan which provides that any nonforfeitable accrued benefit for which the present value (as determined under section 411(a)(11)) does not exceed $5,000 shall be immediately distributed to the participant.'.
(2) CONFORMING AMENDMENTS-
(A) The heading of section 401(a)(31) is amended by striking `OPTIONAL DIRECT' and inserting `DIRECT'.
(B) Section 401(a)(31)(C), as redesignated by paragraph (1), is amended by striking `Subparagraph (A)' and inserting `Subparagraphs (A) and (B)'.
(b) NOTICE REQUIREMENT- Subparagraph (A) of section 402(f)(1) is amended by inserting before the comma at the end the following: `and that the automatic distribution by direct transfer applies to certain distributions in accordance with section 401(a)(31)(B)'.
(1) IN GENERAL- Section 404(c) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104(c)) is amended by adding at the end the following new paragraph:
`(3) In the case of a pension plan which makes a transfer to an individual retirement account or annuity of a designated trustee or issuer under section 401(a)(31)(B) of the Internal Revenue Code of 1986, the participant or beneficiary shall, for purposes of paragraph (1), be treated as exercising control over the assets in the account or annuity upon--
`(A) the earlier of the earlier of--
`(i) a rollover of all or a portion of the amount to another individual retirement account or annuity; or
`(ii) one year after the transfer is made; or
`(B) if the transfer is made in a manner consistent with guidance provided by the Secretary.'.
(A) AUTOMATIC ROLLOVER SAFE HARBOR- Not later than 3 years after the date of enactment of this Act, the Secretary of Labor shall prescribe regulations providing for safe harbors under which the designation of an institution and investment of funds in accordance with section 401(a)(31)(B) of the Internal Revenue Code of 1986 is deemed to satisfy the fiduciary requirements of section 404(a) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1104(a)).
(B) USE OF LOW-COST INDIVIDUAL RETIREMENT PLANS- The Secretary of the Treasury and the Secretary of Labor may provide, and shall give consideration to providing, special relief with respect to the use of low-cost individual retirement plans for purposes of transfers under section 401(a)(31)(B) of the Internal Revenue Code of 1986 and for other uses that promote the preservation of assets for retirement income purposes.
(d) EFFECTIVE DATE- The amendments made by this section shall apply to distributions made after final regulations implementing subsection (c)(2)(A) are prescribed.
SEC. 658. CLARIFICATION OF TREATMENT OF CONTRIBUTIONS TO MULTIEMPLOYER PLAN.
(a) NOT CONSIDERED METHOD OF ACCOUNTING- For purposes of section 446 of the Internal Revenue Code of 1986, a determination under section 404(a)(6) of such Code regarding the taxable year with respect to which a contribution to a multiemployer pension plan is deemed made shall not be treated as a method of accounting of the taxpayer. No deduction shall be allowed for any taxable year for any contribution to a multiemployer pension plan with respect to which a deduction was previously allowed.
(b) REGULATIONS- The Secretary of the Treasury shall promulgate such regulations as necessary to clarify that a taxpayer shall not be allowed an aggregate amount of deductions for contributions to a multiemployer pension plan which exceeds the amount of such contributions made or deemed made under section 404(a)(6) of the Internal Revenue Code of 1986 to such plan.
(c) EFFECTIVE DATE- Subsection (a), and any regulations promulgated under subsection (b), shall be effective for years ending after the date of the enactment of this Act.
PART II--TREATMENT OF PLAN AMENDMENTS REDUCING FUTURE BENEFIT ACCRUALS
SEC. 659. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED BENEFIT PLANS SIGNIFICANTLY REDUCING FUTURE BENEFIT ACCRUALS.
(a) AMENDMENT OF INTERNAL REVENUE CODE-
(1) IN GENERAL- Chapter 43 (relating to qualified pension, etc., plans) is amended by adding at the end the following new section:
`SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT ACCRUALS TO SATISFY NOTICE REQUIREMENTS.
`(a) IMPOSITION OF TAX- There is hereby imposed a tax on the failure of any applicable pension plan to meet the requirements of subsection (e) with respect to any applicable individual.
`(1) IN GENERAL- The amount of the tax imposed by subsection (a) on any failure with respect to any applicable individual shall be $100 for each day in the noncompliance period with respect to such failure.
`(2) NONCOMPLIANCE PERIOD- For purposes of this section, the term `noncompliance period' means, with respect to any failure, the period beginning on the date the failure first occurs and ending on the date the notice to which the failure relates is provided or the failure is otherwise corrected.
`(c) LIMITATIONS ON AMOUNT OF TAX-
`(1) TAX NOT TO APPLY WHERE FAILURE NOT DISCOVERED AND REASONABLE DILIGENCE EXERCISED- No tax shall be imposed by subsection (a) on any failure during any period for which it is established to the satisfaction of the Secretary that any person subject to liability for the tax under subsection (d) did not know that the failure existed and exercised reasonable diligence to meet the requirements of subsection (e).
`(2) TAX NOT TO APPLY TO FAILURES CORRECTED WITHIN 30 DAYS- No tax shall be imposed by subsection (a) on any failure if--
`(A) any person subject to liability for the tax under subsection (d) exercised reasonable diligence to meet the requirements of subsection (e), and
`(B) such person provides the notice described in subsection (e) during the 30-day period beginning on the first date such person knew, or exercising reasonable diligence would have known, that such failure existed.
`(3) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES-
`(A) IN GENERAL- If the person subject to liability for tax under subsection (d) exercised reasonable diligence to meet the requirements of subsection (e), the tax imposed by subsection (a) for failures during the taxable year of the employer (or, in the case of a multiemployer plan, the taxable year of the trust forming part of the plan) shall not exceed $500,000. For purposes of the preceding sentence, all multiemployer plans of which the same trust forms a part shall be treated as 1 plan.
`(B) TAXABLE YEARS IN THE CASE OF CERTAIN CONTROLLED GROUPS- For purposes of this paragraph, if all persons who are treated as a single employer for purposes of this section do not have the same taxable year, the taxable years taken into account shall be determined under principles similar to the principles of section 1561.
`(4) WAIVER BY SECRETARY- In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive or otherwise inequitable relative to the failure involved.
`(d) LIABILITY FOR TAX- The following shall be liable for the tax imposed by subsection (a):
`(1) In the case of a plan other than a multiemployer plan, the employer.
`(2) In the case of a multiemployer plan, the plan.
`(e) NOTICE REQUIREMENTS FOR PLANS SIGNIFICANTLY REDUCING BENEFIT ACCRUALS-
`(1) IN GENERAL- If an applicable pension plan is amended to provide for a significant reduction in the rate of future benefit accrual, the plan administrator shall provide written notice to each applicable individual (and to each employee organization representing applicable individuals).
`(2) NOTICE- The notice required by paragraph (1) shall be written in a manner calculated to be understood by the average plan participant and shall provide sufficient information (as determined in accordance with regulations prescribed by the Secretary) to allow applicable individuals to understand the effect of the plan amendment. The Secretary may provide a simplified form of notice for, or exempt from any notice requirement, a plan--
`(A) which has fewer than 100 participants who have accrued a benefit under the plan, or
`(B) which offers participants the option to choose between the new benefit formula and the old benefit formula.
`(3) TIMING OF NOTICE- Except as provided in regulations, the notice required by paragraph (1) shall be provided within a reasonable time before the effective date of the plan amendment.
`(4) DESIGNEES- Any notice under paragraph (1) may be provided to a person designated, in writing, by the person to which it would otherwise be provided.
`(5) NOTICE BEFORE ADOPTION OF AMENDMENT- A plan shall not be treated as failing to meet the requirements of paragraph (1) merely because notice is provided before the adoption of the plan amendment if no material modification of the amendment occurs before the amendment is adopted.
`(f) DEFINITIONS AND SPECIAL RULES- For purposes of this section--
`(1) APPLICABLE INDIVIDUAL- The term `applicable individual' means, with respect to any plan amendment--
`(A) each participant in the plan, and
`(B) any beneficiary who is an alternate payee (within the meaning of section 414(p)(8)) under an applicable qualified domestic relations order (within the meaning of section 414(p)(1)(A)),
whose rate of future benefit accrual under the plan may reasonably be expected to be significantly reduced by such plan amendment.
`(2) APPLICABLE PENSION PLAN- The term `applicable pension plan' means--
`(A) any defined benefit plan, or
`(B) an individual account plan which is subject to the funding standards of section 412.
Such term shall not include a governmental plan (within the meaning of section 414(d)) or a church plan (within the meaning of section 414(e)) with respect to which the election provided by section 410(d) has not been made.
`(3) EARLY RETIREMENT- A plan amendment which eliminates or significantly reduces any early retirement benefit or retirement-type subsidy (within the meaning of section 411(d)(6)(B)(i)) shall be treated as having the effect of significantly reducing the rate of future benefit accrual.
`(g) NEW TECHNOLOGIES- The Secretary may by regulations allow any notice under subsection (e) to be provided by using new technologies.'.
(2) CLERICAL AMENDMENT- The table of sections for chapter 43 is amended by adding at the end the following new item:
`Sec. 4980F. Failure of applicable plans reducing benefit accruals to satisfy notice requirements.'.
(b) AMENDMENT OF ERISA- Subsection (h) of section 204 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1054) is amended to read as follows:
`(h)(1) An applicable pension plan may not be amended so as to provide for a significant reduction in the rate of future benefit accrual unless the plan administrator provides the notice described in paragraph (2) to each applicable individual (and to each employee organization representing applicable individuals).
`(2) The notice required by paragraph (1) shall be written in a manner calculated to be understood by the average plan participant and shall provide sufficient information (as determined in accordance with regulations prescribed by the Secretary of the Treasury) to allow applicable individuals to understand the effect of the plan amendment. The Secretary of the Treasury may provide a simplified form of notice for, or exempt from any notice requirement, a plan--
`(A) which has fewer than 100 participants who have accrued a benefit under the plan, or
`(B) which offers participants the option to choose between the new benefit formula and the old benefit formula.
`(3) Except as provided in regulations prescribed by the Secretary of the Treasury, the notice required by paragraph (1) shall be provided within a reasonable time before the effective date of the plan amendment.
`(4) Any notice under paragraph (1) may be provided to a person designated, in writing, by the person to which it would otherwise be provided.
`(5) A plan shall not be treated as failing to meet the requirements of paragraph (1) merely because notice is provided before the adoption of the plan amendment if no material modification of the amendment occurs before the amendment is adopted.
`(6)(A) In the case of any egregious failure to meet any requirement of this subsection with respect to any plan amendment, the provisions of the applicable pension plan shall be applied as if such plan amendment entitled all applicable individuals to the greater of--
`(i) the benefits to which they would have been entitled without regard to such amendment, or
`(ii) the benefits under the plan with regard to such amendment.
`(B) For purposes of subparagraph (A), there is an egregious failure to meet the requirements of this subsection if such failure is within the control of the plan sponsor and is--
`(i) an intentional failure (including any failure to promptly provide the required notice or information after the plan administrator discovers an unintentional failure to meet the requirements of this subsection),
`(ii) a failure to provide most of the individuals with most of the information they are entitled to receive under this subsection, or
`(iii) a failure which is determined to be egregious under regulations prescribed by the Secretary of the Treasury.
`(7) The Secretary of the Treasury may by regulations allow any notice under this subsection to be provided by using new technologies.
`(8) For purposes of this subsection--
`(A) The term `applicable individual' means, with respect to any plan amendment--
`(i) each participant in the plan; and
`(ii) any beneficiary who is an alternate payee (within the meaning of section 206(d)(3)(K)) under an applicable qualified domestic relations order (within the meaning of section 206(d)(3)(B)(i)),
whose rate of future benefit accrual under the plan may reasonably be expected to be significantly reduced by such plan amendment.
`(B) The term `applicable pension plan' means--
`(i) any defined benefit plan; or
`(ii) an individual account plan which is subject to the funding standards of section 412 of the Internal Revenue Code of 1986.
`(9) For purposes of this subsection, a plan amendment which eliminates or significantly reduces any early retirement benefit or retirement-type subsidy (within the meaning of subsection (g)(2)(A)) shall be treated as having the effect of significantly reducing the rate of future benefit accrual.'.
(1) IN GENERAL- The amendments made by this section shall apply to plan amendments taking effect on or after the date of the enactment of this Act.
(2) TRANSITION- Until such time as the Secretary of the Treasury issues regulations under sections 4980F(e)(2) and (3) of the Internal Revenue Code of 1986, and section 204(h) of the Employee Retirement Income Security Act of 1974, as added by the amendments made by this section, a plan shall be treated as meeting the requirements of such sections if it makes a good faith effort to comply with such requirements.
(A) IN GENERAL- The period for providing any notice required by the amendments made by this section shall not end before the date which is 3 months after the date of the enactment of this Act.
(B) REASONABLE NOTICE- The amendments made by this section shall not apply to any plan amendment taking effect on or after the date of the enactment of this Act if, before April 25, 2001, notice was provided to participants and beneficiaries adversely affected by the plan amendment (or their representatives) which was reasonably expected to notify them of the nature and effective date of the plan amendment.
Subtitle F--Reducing Regulatory Burdens
SEC. 661. MODIFICATION OF TIMING OF PLAN VALUATIONS.
(a) IN GENERAL- Paragraph (9) of section 412(c) (relating to annual valuation) is amended to read as follows:
`(A) IN GENERAL- For purposes of this section, a determination of experience gains and losses and a valuation of the plan's liability shall be made not less frequently than once every year, except that such determination shall be made more frequently to the extent required in particular cases under regulations prescribed by the Secretary.
`(i) CURRENT YEAR- Except as provided in clause (ii), the valuation referred to in subparagraph (A) shall be made as of a date within the plan year to which the valuation refers or within one month prior to the beginning of such year.
`(ii) USE OF PRIOR YEAR VALUATION- The valuation referred to in subparagraph (A) may be made as of a date within the plan year prior to the year to which the valuation refers if, as of such date, the value of the assets of the plan are not less than 125 percent of the plan's current liability (as defined in paragraph (7)(B)).
`(iii) ADJUSTMENTS- Information under clause (ii) shall, in accordance with regulations, be actuarially adjusted to reflect significant differences in participants.'.
(b) AMENDMENT OF ERISA- Paragraph (9) of section 302(c) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1053(c)) is amended--
(1) by inserting `(A)' after `(9)', and
(2) by adding at the end the following:
`(B)(i) Except as provided in clause (ii), the valuation referred to in subparagraph (A) shall be made as of a date within the plan year to which the valuation refers or within one month prior to the beginning of such year.
`(ii) The valuation referred to in subparagraph (A) may be made as of a date within the plan year prior to the year to which the valuation refers if, as of such date, the value of the assets of the plan are not less than 125 percent of the plan's current liability (as defined in paragraph (7)(B)).
`(iii) Information under clause (ii) shall, in accordance with regulations, be actuarially adjusted to reflect significant differences in participants.'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to plan years beginning after December 31, 2001.
SEC. 662. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF DIVIDEND DEDUCTION.
(a) IN GENERAL- Section 404(k)(2)(A) (defining applicable dividends) is amended by striking `or' at the end of clause (ii), by redesignating clause (iii) as clause (iv), and by inserting after clause (ii) the following new clause:
`(iii) is, at the election of such participants or their beneficiaries--
`(I) payable as provided in clause (i) or (ii), or
`(II) paid to the plan and reinvested in qualifying employer securities, or'.
(b) STANDARDS FOR DISALLOWANCE- Section 404(k)(5)(A) (relating to disallowance of deduction) is amended by inserting `avoidance or' before `evasion'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 2001.
SEC. 663. REPEAL OF TRANSITION RULE RELATING TO CERTAIN HIGHLY COMPENSATED EMPLOYEES.
(a) IN GENERAL- Paragraph (4) of section 1114(c) of the Tax Reform Act of 1986 is hereby repealed.
(b) EFFECTIVE DATE- The repeal made by subsection (a) shall apply to plan years beginning after December 31, 2001.
SEC. 664. EMPLOYEES OF TAX-EXEMPT ENTITIES.
(a) IN GENERAL- The Secretary of the Treasury shall modify Treasury Regulations section 1.410(b)-6(g) to provide that employees of an organization described in section 403(b)(1)(A)(i) of the Internal Revenue Code of 1986 who are eligible to make contributions under section 403(b) of such Code pursuant to a salary reduction agreement may be treated as excludable with respect to a plan under section 401(k) or (m) of such Code that is provided under the same general arrangement as a plan under such section 401(k), if--
(1) no employee of an organization described in section 403(b)(1)(A)(i) of such Code is eligible to participate in such section 401(k) plan or section 401(m) plan; and
(2) 95 percent of the employees who are not employees of an organization described in section 403(b)(1)(A)(i) of such Code are eligible to participate in such plan under such section 401(k) or (m).
(b) EFFECTIVE DATE- The modification required by subsection (a) shall apply as of the same date set forth in section 1426(b) of the Small Business Job Protection Act of 1996.
SEC. 665. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED RETIREMENT ADVICE.
(a) IN GENERAL- Subsection (a) of section 132 (relating to exclusion from gross income) is amended by striking `or' at the end of paragraph (5), by striking the period at the end of paragraph (6) and inserting `, or', and by adding at the end the following new paragraph:
`(7) qualified retirement planning services.'.
(b) QUALIFIED RETIREMENT PLANNING SERVICES DEFINED- Section 132 is amended by redesignating subsection (m) as subsection (n) and by inserting after subsection (l) the following:
`(m) QUALIFIED RETIREMENT PLANNING SERVICES-
`(1) IN GENERAL- For purposes of this section, the term `qualified retirement planning services' means any retirement planning advice or information provided to an employee and his spouse by an employer maintaining a qualified employer plan.
`(2) NONDISCRIMINATION RULE- Subsection (a)(7) shall apply in the case of highly compensated employees only if such services are available on substantially the same terms to each member of the group of employees normally provided education and information regarding the employer's qualified employer plan.
`(3) QUALIFIED EMPLOYER PLAN- For purposes of this subsection, the term `qualified employer plan' means a plan, contract, pension, or account described in section 219(g)(5).'.
(c) EFFECTIVE DATE- The amendments made by this section shall apply to years beginning after December 31, 2001.
SEC. 666. REPEAL OF THE MULTIPLE USE TEST.
(a) IN GENERAL- Paragraph (9) of section 401(m) is amended to read as follows:
`(9) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection and subsection (k), including regulations permitting appropriate aggregation of plans and contributions.'.
(b) EFFECTIVE DATE- The amendment made by this section shall apply to years beginning after December 31, 2001.
Subtitle G--Miscellaneous Provisions
SEC. 671. TAX TREATMENT AND INFORMATION REQUIREMENTS OF ALASKA NATIVE SETTLEMENT TRUSTS.
(a) TREATMENT OF ALASKA NATIVE SETTLEMENT TRUSTS- Subpart A of part I of subchapter J of chapter 1 (relating to general rules for taxation of trusts and estates) is amended by adding at the end the following new section:
`SEC. 646. TAX TREATMENT OF ELECTING ALASKA NATIVE SETTLEMENT TRUSTS.
`(a) IN GENERAL- If an election under this section is in effect with respect to any Settlement Trust, the provisions of this section shall apply in determining the income tax treatment of the Settlement Trust and its beneficiaries with respect to the Settlement Trust.
`(b) TAXATION OF INCOME OF TRUST- Except as provided in subsection (f)(1)(B)(ii)--
`(1) IN GENERAL- There is hereby imposed on the taxable income of an electing Settlement Trust, other than its net capital gain, a tax at the lowest rate specified in section 1(c).
`(2) CAPITAL GAIN- In the case of an electing Settlement Trust with a net capital gain for the taxable year, a tax is hereby imposed on such gain at the rate of tax which would apply to such gain if the taxpayer were subject to a tax on its other taxable income at only the lowest rate specified in section 1(c).
Any such tax shall be in lieu of the income tax otherwise imposed by this chapter on such income or gain.
`(1) IN GENERAL- A Settlement Trust may elect to have the provisions of this section apply to the trust and its beneficiaries.
`(2) TIME AND METHOD OF ELECTION- An election under paragraph (1) shall be made by the trustee of such trust--
`(A) on or before the due date (including extensions) for filing the Settlement Trust's return of tax for the first taxable year of such trust ending after the date of the enactment of this section, and
`(B) by attaching to such return of tax a statement specifically providing for such election.
`(3) PERIOD ELECTION IN EFFECT- Except as provided in subsection (f), an election under this subsection--
`(A) shall apply to the first taxable year described in paragraph (2)(A) and all subsequent taxable years, and
`(B) may not be revoked once it is made.
`(d) CONTRIBUTIONS TO TRUST-
`(1) BENEFICIARIES OF ELECTING TRUST NOT TAXED ON CONTRIBUTIONS- In the case of an electing Settlement Trust, no amount shall be includible in the gross income of a beneficiary of such trust by reason of a contribution to such trust.
`(2) EARNINGS AND PROFITS- The earnings and profits of the sponsoring Native Corporation shall not be reduced on account of any contribution to such Settlement Trust.
`(e) TAX TREATMENT OF DISTRIBUTIONS TO BENEFICIARIES- Amounts distributed by an electing Settlement Trust during any taxable year shall be considered as having the following characteristics in the hands of the recipient beneficiary:
`(1) First, as amounts excludable from gross income for the taxable year to the extent of the taxable income of such trust for such taxable year (decreased by any income tax paid by the trust with respect to the income) plus any amount excluded from gross income of the trust under section 103.
`(2) Second, as amounts excludable from gross income to the extent of the amount described in paragraph (1) for all taxable years for which an election is in effect under subsection (c) with respect to the trust, and not previously taken into account under paragraph (1).
`(3) Third, as amounts distributed by the sponsoring Native Corporation with respect to its stock (within the meaning of section 301(a)) during such taxable year and taxable to the recipient beneficiary as amounts described in section 301(c)(1), to the extent of current or accumulated earnings and profits of the sponsoring Native Corporation as of the close of such taxable year after proper adjustment is made for all distributions made by the sponsoring Native Corporation during such taxable year.
`(4) Fourth, as amounts distributed by the trust in excess of the distributable net income of such trust for such taxable year.
Amounts distributed to which paragraph (3) applies shall not be treated as a corporate distribution subject to section 311(b), and for purposes of determining the amount of a distribution for purposes of paragraph (3) and the basis to the recipients, section 643(e) and not section 301 (b) or (d) shall apply.
`(f) SPECIAL RULES WHERE TRANSFER RESTRICTIONS MODIFIED-
`(1) TRANSFER OF BENEFICIAL INTERESTS- If, at any time, a beneficial interest in an electing Settlement Trust may be disposed of to a person in a manner which would not be permitted by section 7(h) of the Alaska Native Claims Settlement Act (43 U.S.C. 1606(h)) if such interest were Settlement Common Stock--
`(A) no election may be made under subsection (c) with respect to such trust, and
`(B) if such an election is in effect as of such time--
`(i) such election shall cease to apply as of the first day of the taxable year in which such disposition is first permitted,
`(ii) the provisions of this section shall not apply to such trust for such taxable year and all taxable years thereafter, and
`(iii) the distributable net income of such trust shall be increased by the current or accumulated earnings and profits of the sponsoring Native Corporation as of the close of such taxable year after proper adjustment is made for all distributions made by the sponsoring Native Corporation during such taxable year.
In no event shall the increase under clause (iii) exceed the fair market value of the trust's assets as of the date the beneficial interest of the trust first becomes so disposable. The earnings and profits of the sponsoring Native Corporation shall be adjusted as of the last day of such taxable year by the amount of earnings and profits so included in the distributable net income of the trust.
`(2) STOCK IN CORPORATION- If--
`(A) stock in the sponsoring Native Corporation may be disposed of to a person in a manner which would not be permitted by section 7(h) of the Alaska Native Claims Settlement Act (43 U.S.C. 1606(h)) if such stock were Settlement Common Stock, and
`(B) at any time after such disposition of stock is first permitted, such corporation transfers assets to a Settlement Trust,
paragraph (1)(B) shall be applied to such trust on and after the date of the transfer in the same manner as if the trust permitted dispositions of beneficial interests in the trust in a manner not permitted by such section 7(h).
`(3) CERTAIN DISTRIBUTIONS- For purposes of this section, the surrender of an interest in a Native Corporation or an electing Settlement Trust in order to accomplish the whole or partial redemption of the interest of a shareholder or beneficiary in such corporation or trust, or to accomplish the whole or partial liquidation of such corporation or trust, shall be deemed to be a transfer permitted by section 7(h) of the Alaska Native Claims Settlement Act.
`(g) TAXABLE INCOME- For purposes of this title, the taxable income of an electing Settlement Trust shall be determined under section 641(b) without regard to any deduction under section 651 or 661.
`(h) DEFINITIONS- For purposes of this section--
`(1) ELECTING SETTLEMENT TRUST- The term `electing Settlement Trust' means a Settlement Trust which has made the election, effective for a taxable year, described in subsection (c).
`(2) NATIVE CORPORATION- The term `Native Corporation' has the meaning given such term by section 3(m) of the Alaska Native Claims Settlement Act (43 U.S.C. 1602(m)).
`(3) SETTLEMENT COMMON STOCK- The term `Settlement Common Stock' has the meaning given such term by section 3(p) of the Alaska Native Claims Settlement Act (43 U.S.C. 1602(p)).
`(4) SETTLEMENT TRUST- The term `Settlement Trust' means a trust that constitutes a settlement trust under section 3(t) of the Alaska Native Claims Settlement Act (43 U.S.C. 1602(t)).
`(5) SPONSORING NATIVE CORPORATION- The term `sponsoring Native Corporation' means the Native Corporation which transfers assets to an electing Settlement Trust.
`(i) SPECIAL LOSS DISALLOWANCE RULE- Any loss that would otherwise be recognized by a shareholder upon a disposition of a share of stock of a sponsoring Native Corporation shall be reduced (but not below zero) by the per share loss adjustment factor. The per share loss adjustment factor shall be the aggregate of all contributions to all electing Settlement Trusts sponsored by such Native Corporation made on or after the first day each trust is treated as an electing Settlement Trust expressed on a per share basis and determined as of the day of each such contribution.
`For information required with respect to electing Settlement Trusts and sponsoring Native Corporations, see section 6039H.'.
(b) REPORTING- Subpart A of part III of subchapter A of chapter 61 of subtitle F (relating to information concerning persons subject to special provisions) is amended by inserting after section 6039G the following new section:
`SEC. 6039H. INFORMATION WITH RESPECT TO ALASKA NATIVE SETTLEMENT TRUSTS AND SPONSORING NATIVE CORPORATIONS.
`(a) REQUIREMENT- The fiduciary of an electing Settlement Trust (as defined in section 646(h)(1)) shall include with the return of income of the trust a statement containing the information required under subsection (c).
`(b) APPLICATION WITH OTHER REQUIREMENTS- The filing of any statement under this section shall be in lieu of the reporting requirements under section 6034A to furnish any statement to a beneficiary regarding amounts distributed to such beneficiary (and such other reporting rules as the Secretary deems appropriate).
`(c) REQUIRED INFORMATION- The information required under this subsection shall include--
`(1) the amount of distributions made during the taxable year to each beneficiary,
`(2) the treatment of such distribution under the applicable provision of section 646, including the amount that is excludable from the recipient beneficiary's gross income under section 646, and
`(3) the amount (if any) of any distribution during such year that is deemed to have been made by the sponsoring Native Corporation (as defined in section 646(h)(5)).
`(d) SPONSORING NATIVE CORPORATION-
`(1) IN GENERAL- The electing Settlement Trust shall, on or before the date on which the statement under subsection (a) is required to be filed, furnish such statement to the sponsoring Native Corporation (as so defined).
`(2) DISTRIBUTEES- The sponsoring Native Corporation shall furnish each recipient of a distribution described in section 646(e)(3) a statement containing the amount deemed to have been distributed to such recipient by such corporation for the taxable year.'.
(1) The table of sections for subpart A of part I of subchapter J of chapter 1 of such Code is amended by adding at the end the following new item:
`Sec. 646. Tax treatment of electing Alaska Native Settlement Trusts.'.
(2) The table of sections for subpart A of part III of subchapter A of chapter 61 of subtitle F of such Code is amended by inserting after the item relating to section 6039G the following new item:
`Sec. 6039H. Information with respect to Alaska Native Settlement Trusts and sponsoring Native Corporations.'.
(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act and to contributions made to electing Settlement Trusts for such year or any subsequent year.
TITLE VII--ALTERNATIVE MINIMUM TAX
SEC. 701. INCREASE IN ALTERNATIVE MINIMUM TAX EXEMPTION.
(1) Subparagraph (A) of section 55(d)(1) (relating to exemption amount for taxpayers other than corporations) is amended by striking `$45,000' and inserting `$45,000 ($49,000 in the case of taxable years beginning in 2001, 2002, 2003, and 2004)'.
(2) Subparagraph (B) of section 55(d)(1) (relating to exemption amount for taxpayers other than corporations) is amended by striking `$33,750' and inserting `$33,750 ($35,750 in the case of taxable years beginning in 2001, 2002, 2003, and 2004)'.
(b) CONFORMING AMENDMENTS-
(1) Paragraph (1) of section 55(d) is amended by striking `and' at the end of subparagraph (B), by striking subparagraph (C), and by inserting after subparagraph (B) the following new subparagraphs:
`(C) 50 percent of the dollar amount applicable under paragraph (1)(A) in the case of a married individual who files a separate return, and
`(D) $22,500 in the case of an estate or trust.'.
(2) Subparagraph (C) of section 55(d)(3) is amended by striking `paragraph (1)(C)' and inserting `subparagraph (C) or (D) of paragraph (1)'.
(3) The last sentence of section 55(d)(3) is amended--
(A) by striking `paragraph (1)(C)(i)' and inserting `paragraph (1)(C)'; and
(B) 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, 2000.
TITLE VIII--OTHER PROVISIONS
SEC. 801. TIME FOR PAYMENT OF CORPORATE ESTIMATED TAXES.
Notwithstanding section 6655 of the Internal Revenue Code of 1986--
(1) 100 percent of the amount of any required installment of corporate estimated tax which is otherwise due in September 2001 shall not be due until October 1, 2001; and
(2) 20 percent of the amount of any required installment of corporate estimated tax which is otherwise due in September 2004 shall not be due until October 1, 2004.
SEC. 802. EXPANSION OF AUTHORITY TO POSTPONE CERTAIN TAX-RELATED DEADLINES BY REASON OF PRESIDENTIALLY DECLARED DISASTER.
(a) IN GENERAL- Section 7508A(a) (relating to authority to postpone certain tax-related deadlines by reason of presidentially declared disaster) is amended by striking `90 days' and inserting `120 days'.
(b) EFFECTIVE DATE- The amendment made by this section shall take effect on the date of enactment of this Act.
SEC. 803. NO FEDERAL INCOME TAX ON RESTITUTION RECEIVED BY VICTIMS OF THE NAZI REGIME OR THEIR HEIRS OR ESTATES.
(a) IN GENERAL- For purposes of the Internal Revenue Code of 1986, any excludable restitution payments received by an eligible individual (or the individual's heirs or estate) and any excludable interest--
(1) shall not be included in gross income; and
(2) shall not be taken into account for purposes of applying any provision of such Code which takes into account excludable income in computing adjusted gross income, including section 86 of such Code (relating to taxation of Social Security benefits).
For purposes of such Code, the basis of any property received by an eligible individual (or the individual's heirs or estate) as part of an excludable restitution payment shall be the fair market value of such property as of the time of the receipt.
(b) ELIGIBLE INDIVIDUAL- For purposes of this section, the term `eligible individual' means a person who was persecuted on the basis of race, religion, physical or mental disability, or sexual orientation by Nazi Germany, any other Axis regime, or any other Nazi-controlled or Nazi-allied country.
(c) EXCLUDABLE RESTITUTION PAYMENT- For purposes of this section, the term `excludable restitution payment' means any payment or distribution to an individual (or the individual's heirs or estate) which--
(1) is payable by reason of the individual's status as an eligible individual, including any amount payable by any foreign country, the United States of America, or any other foreign or domestic entity, or a fund established by any such country or entity, any amount payable as a result of a final resolution of a legal action, and any amount payable under a law providing for payments or restitution of property;
(2) constitutes the direct or indirect return of, or compensation or reparation for, assets stolen or hidden from, or otherwise lost to, the individual before, during, or immediately after World War II by reason of the individual's status as an eligible individual, including any proceeds of insurance under policies issued on eligible individuals by European insurance companies immediately before and during World War II; or
(3) consists of interest which is payable as part of any payment or distribution described in paragraph (1) or (2).
(d) EXCLUDABLE INTEREST- For purposes of this section, the term `excludable interest' means any interest earned by--
(1) escrow accounts or settlement funds established pursuant to the settlement of the action entitled `In re: Holocaust Victim Assets Litigation,' (E.D.N.Y.) C.A. No. 96-4849,
(2) funds to benefit eligible individuals or their heirs created by the International Commission on Holocaust Insurance Claims as a result of the Agreement between the Government of the United States of America and the Government of the Federal Republic of Germany concerning the Foundation `Remembrance, Responsibility, and Future,' dated July 17, 2000, or
(3) similar funds subject to the administration of the United States courts created to provide excludable restitution payments to eligible individuals (or eligible individuals' heirs or estates).
(1) IN GENERAL- This section shall apply to any amount received on or after January 1, 2000.
(2) NO INFERENCE- Nothing in this Act shall be construed to create any inference with respect to the proper tax treatment of any amount received before January 1, 2000.
TITLE IX--COMPLIANCE WITH CONGRESSIONAL BUDGET ACT
SEC. 901. SUNSET OF PROVISIONS OF ACT.
(a) IN GENERAL- All provisions of, and amendments made by, this Act shall not apply--
(1) to taxable, plan, or limitation years beginning after December 31, 2010, or
(2) in the case of title V, to estates of decedents dying, gifts made, or generation skipping transfers, after December 31, 2010.
(b) APPLICATION OF CERTAIN LAWS- The Internal Revenue Code of 1986 and the Employee Retirement Income Security Act of 1974 shall be applied and administered to years, estates, gifts, and transfers described in subsection (a) as if the provisions and amendments described in subsection (a) had never been enacted.
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.
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