Ticket to Work and Work Incentives Improvement Act (P.L. 106-170) (Title V--Tax Relief Extension Act of 1999)
Ticket to Work and Work Incentives Improvement Act (P.L. 106-170) (Title V--Tax Relief Extension Act of 1999)
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H.R. 1180, Enrolled Bill
H.R.1180
One Hundred Sixth Congress
of the
United States of America
AT THE FIRST SESSION
Begun and held at the City of Washington on Wednesday, the sixth day of January,
one thousand nine hundred and ninety-nine
An Act
To amend the Social Security Act to expand the availability of health care coverage for working individuals with disabilities, to establish a Ticket to Work and Self-Sufficiency Program in the Social Security Administration to provide such individuals with meaningful opportunities to work, and for other purposes.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; TABLE OF CONTENTS.
(a) SHORT TITLE.--This Act may be cited as the 'Ticket to Work and Work Incentives Improvement Act of 1999'.
(b) TABLE OF CONTENTS.--The table of contents is as follows:
* * * * * * *
Sec. 502. Research credit.
Sec. 503. Subpart F exemption for active financing income.
Sec. 504. Taxable income limit on percentage depletion for marginal production.
Sec. 505. Work opportunity credit and welfare-to-work credit.
Sec. 506. Employer-provided educational assistance.
Sec. 507. Extension and modification of credit for producing electricity from certain renewable resources.
Sec. 508. Extension of duty-free treatment under Generalized System of Preferences.
Sec. 509. Extension of credit for holders of qualified zone academy bonds.
Sec. 510. Extension of first-time homebuyer credit for District of Columbia.
Sec. 511. Extension of expensing of environmental remediation costs.
Sec. 512. Temporary increase in amount of rum excise tax covered over to Puerto Rico and Virgin Islands.
Sec. 522. Authority to postpone certain tax-related deadlines by reason of Y2K failures.
Sec. 523. Inclusion of certain vaccines against streptococcus pneumoniae to list of taxable vaccines.
Sec. 524. Delay in effective date of requirement for approved diesel or kerosene terminals.
Part I--General Provisions
Sec. 531. Modification of estimated tax safe harbor.
Sec. 532. Clarification of tax treatment of income and loss on derivatives.
Sec. 533. Expansion of reporting of cancellation of indebtedness income.
Sec. 534. Limitation on conversion of character of income from constructive ownership transactions.
Sec. 535. Treatment of excess pension assets used for retiree health benefits.
Sec. 536. Modification of installment method and repeal of installment method for accrual method taxpayers.
Sec. 538. Distributions by a partnership to a corporate partner of stock in another corporation.
Part II--Provisions Relating to Real Estate Investment Trusts
Sec. 542. Treatment of income and services provided by taxable REIT subsidiaries.
Sec. 543. Taxable REIT subsidiary.
Sec. 544. Limitation on earnings stripping.
Sec. 545. 100 percent tax on improperly allocated amounts.
Sec. 546. Effective date.
SEC. 2. FINDINGS AND PURPOSES.
(a) FINDINGS.--The Congress makes the following findings:
(1) It is the policy of the United States to provide assistance to individuals with disabilities to lead productive work lives.
(2) Health care is important to all Americans.
(3) Health care is particularly important to individuals with disabilities and special health care needs who often cannot afford the insurance available to them through the private market, are uninsurable by the plans available in the private sector, and are at great risk of incurring very high and economically devastating health care costs.
(4) Americans with significant disabilities often are unable to obtain health care insurance that provides coverage of the services and supports that enable them to live independently and enter or rejoin the workforce. Personal assistance services (such as attendant services, personal assistance with transportation to and from work, reader services, job coaches, and related assistance) remove many of the barriers between significant disability and work. Coverage for such services, as well as for prescription drugs, durable medical equipment, and basic health care are powerful and proven tools for individuals with significant disabilities to obtain and retain employment.
(5) For individuals with disabilities, the fear of losing health care and related services is one of the greatest barriers keeping the individuals from maximizing their employment, earning potential, and independence.
(6) Social Security Disability Insurance and Supplemental Security Income beneficiaries risk losing medicare or medicaid coverage that is linked to their cash benefits, a risk that is an equal, or greater, work disincentive than the loss of cash benefits associated with working.
(7) Individuals with disabilities have greater opportunities for employment than ever before, aided by important public policy initiatives such as the Americans with Disabilities Act of 1990 (42 U.S.C. 12101 et seq.), advancements in public understanding of disability, and innovations in assistive technology, medical treatment, and rehabilitation.
(8) Despite such historic opportunities and the desire of millions of disability recipients to work and support themselves, fewer than one-half of one percent of Social Security Disability Insurance and Supplemental Security Income beneficiaries leave the disability rolls and return to work.
(9) In addition to the fear of loss of health care coverage, beneficiaries cite financial disincentives to work and earn income and lack of adequate employment training and placement services as barriers to employment.
(10) Eliminating such barriers to work by creating financial incentives to work and by providing individuals with disabilities real choice in obtaining the services and technology they need to find, enter, and maintain employment can greatly improve their short and long-term financial independence and personal well-being.
(11) In addition to the enormous advantages such changes promise for individuals with disabilities, redesigning government programs to help individuals with disabilities return to work may result in significant savings and extend the life of the Social Security Disability Insurance Trust Fund.
(12) If only an additional one-half of one percent of the current Social Security Disability Insurance and Supplemental Security Income recipients were to cease receiving benefits as a result of employment, the savings to the Social Security Trust Funds and to the Treasury in cash assistance would total $3,500,000,000 over the worklife of such individuals, far exceeding the cost of providing incentives and services needed to assist them in entering work and achieving financial independence to the best of their abilities.
(b) PURPOSES.--The purposes of this Act are as follows:
(1) To provide health care and employment preparation and placement services to individuals with disabilities that will enable those individuals to reduce their dependency on cash benefit programs.
(2) To encourage States to adopt the option of allowing individuals with disabilities to purchase medicaid coverage that is necessary to enable such individuals to maintain employment.
(3) To provide individuals with disabilities the option of maintaining medicare coverage while working.
(4) To establish a return to work ticket program that will allow individuals with disabilities to seek the services necessary to obtain and retain employment and reduce their dependency on cash benefit programs.
SEC. 412. SIMPLIFICATION OF DEFINITION OF FOSTER CHILD UNDER EIC.
(a) IN GENERAL.--Section 32(c)(3)(B)(iii) of the Internal Revenue Code of 1986 (defining eligible foster child) is amended by redesignating subclauses (I) and (II) as subclauses (II) and (III), respectively, and by inserting before subclause (II), as so redesignated, the following:
SEC. 500. SHORT TITLE OF TITLE.
This title may be cited as the 'Tax Relief Extension Act of 1999'.
SEC. 501. ALLOWANCE OF NONREFUNDABLE PERSONAL CREDITS AGAINST REGULAR AND MINIMUM TAX LIABILITY.
(a) IN GENERAL.--Subsection (a) of section 26 of the Internal Revenue Code of 1986 (relating to limitation based on amount of tax) is amended to read as follows:
'(a) LIMITATION BASED ON AMOUNT OF TAX.--
'(1) IN GENERAL.--The aggregate amount of credits allowed by this subpart for the taxable year shall not exceed the excess (if any) of--
'(A) the taxpayer's regular tax liability for the taxable year, over
'(B) the tentative minimum tax for the taxable year (determined without regard to the alternative minimum tax foreign tax credit).
For purposes of subparagraph (B), the taxpayer's tentative minimum tax for any taxable year beginning during 1999 shall be treated as being zero.'.
'(2) SPECIAL RULE FOR 2000 AND 2001.--For purposes of any taxable year beginning during 2000 or 2001, the aggregate amount of credits allowed by this subpart for the taxable year shall not exceed the sum of--
'(A) the taxpayer's regular tax liability for the taxable year reduced by the foreign tax credit allowable under section 27(a), and
'(B) the tax imposed by section 55(a) for the taxable year.'.
(1) Section 24(d)(2) of such Code is amended by striking '1998' and inserting '2001'.
(2) Section 904(h) of such Code is amended by adding at the end the following: 'This subsection shall not apply to taxable years beginning during 2000 or 2001.'.
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to taxable years beginning after December 31, 1998.
SEC. 502. RESEARCH CREDIT.
(a) EXTENSION.--
(1) IN GENERAL.--Paragraph (1) of section 41(h) of the Internal Revenue Code of 1986 (relating to termination) is amended--
(A) by striking 'June 30, 1999' and inserting 'June 30, 2004'; and
(B) by striking the material following subparagraph (B).
(2) TECHNICAL AMENDMENT.--Subparagraph (D) of section 45C(b)(1) of such Code is amended by striking 'June 30, 1999' and inserting 'June 30, 2004'.
(3) EFFECTIVE DATE.--The amendments made by this subsection shall apply to amounts paid or incurred after June 30, 1999.
(b) INCREASE IN PERCENTAGES UNDER ALTERNATIVE INCREMENTAL CREDIT.--
(1) IN GENERAL.--Subparagraph (A) of section 41(c)(4) of such Code is amended--
(A) by striking '1.65 percent' and inserting '2.65 percent';
(B) by striking '2.2 percent' and inserting '3.2 percent'; and
(C) by striking '2.75 percent' and inserting '3.75 percent'.
(2) EFFECTIVE DATE.--The amendments made by this subsection shall apply to taxable years beginning after June 30, 1999.
(c) EXTENSION OF RESEARCH CREDIT TO RESEARCH IN PUERTO RICO AND THE POSSESSIONS OF THE UNITED STATES.--
(1) IN GENERAL.--Subsections (c)(6) and (d)(4)(F) of section 41 of such Code (relating to foreign research) are each amended by inserting ', the Commonwealth of Puerto Rico, or any possession of the United States' after 'United States'.
(2) DENIAL OF DOUBLE BENEFIT.--Section 280C(c)(1) of such Code is amended by inserting 'or credit' after 'deduction' each place it appears.
(3) EFFECTIVE DATE.--The amendments made by this subsection shall apply to amounts paid or incurred after June 30, 1999.
(d) SPECIAL RULE.--
(1) IN GENERAL.--For purposes of the Internal Revenue Code of 1986, the credit determined under section 41 of such Code which is otherwise allowable under such Code--
(A) shall not be taken into account prior to October 1, 2000, to the extent such credit is attributable to the first suspension period; and
(B) shall not be taken into account prior to October 1, 2001, to the extent such credit is attributable to the second suspension period.
On or after the earliest date that an amount of credit may be taken into account, such amount may be taken into account through the filing of an amended return, an application for expedited refund, an adjustment of estimated taxes, or other means allowed by such Code.
(2) SUSPENSION PERIODS.--For purposes of this subsection--
(A) the first suspension period is the period beginning on July 1, 1999, and ending on September 30, 2000; and
(B) the second suspension period is the period beginning on October 1, 2000, and ending on September 30, 2001.
(3) EXPEDITED REFUNDS.--
(A) IN GENERAL.--If there is an overpayment of tax with respect to a taxable year by reason of paragraph (1), the taxpayer may file an application for a tentative refund of such overpayment. Such application shall be in such manner and form, and contain such information, as the Secretary may prescribe.
(B) DEADLINE FOR APPLICATIONS.--Subparagraph (A) shall apply only to an application filed before the date which is 1 year after the close of the suspension period to which the application relates.
(C) ALLOWANCE OF ADJUSTMENTS.--Not later than 90 days after the date on which an application is filed under this paragraph, the Secretary shall--
(i) review the application;
(ii) determine the amount of the overpayment; and
(iii) apply, credit, or refund such overpayment,
in a manner similar to the manner provided in section 6411(b) of such Code.
(D) CONSOLIDATED RETURNS.--The provisions of section 6411(c) of such Code shall apply to an adjustment under this paragraph in such manner as the Secretary may provide.
(4) CREDIT ATTRIBUTABLE TO SUSPENSION PERIOD.--
(A) IN GENERAL.--For purposes of this subsection, in the case of a taxable year which includes a portion of the suspension period, the amount of credit determined under section 41 of such Code for such taxable year which is attributable to such period is the amount which bears the same ratio to the amount of credit determined under such section 41 for such taxable year as the number of months in the suspension period which are during such taxable year bears to the number of months in such taxable year.
(B) WAIVER OF ESTIMATED TAX PENALTIES.--No addition to tax shall be made under section 6654 or 6655 of such Code for any period before July 1, 1999, with respect to any underpayment of tax imposed by such Code to the extent such underpayment was created or increased by reason of subparagraph (A).
(5) SECRETARY.--For purposes of this subsection, the term 'Secretary' means the Secretary of the Treasury (or such Secretary's delegate).
(a) IN GENERAL.--Sections 953(e)(10) and 954(h)(9) of the Internal Revenue Code of 1986 (relating to application) are each amended--
(1) by striking 'the first taxable year' and inserting 'taxable years';
(2) by striking 'January 1, 2000' and inserting 'January 1, 2002'; and
(3) by striking 'within which such' and inserting 'within which any such'.
(b) TECHNICAL AMENDMENT.--Paragraph (10) of section 953(e) of such Code is amended by adding at the end the following new sentence: 'If this subsection does not apply to a taxable year of a foreign corporation beginning after December 31, 2001 (and taxable years of United States shareholders ending with or within such taxable year), then, notwithstanding the preceding sentence, subsection (a) shall be applied to such taxable years in the same manner as it would if the taxable year of the foreign corporation began in 1998.'.
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to taxable years beginning after December 31, 1999.
SEC. 504. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION FOR MARGINAL PRODUCTION.
(a) IN GENERAL.--Subparagraph (H) of section 613A(c)(6) of the Internal Revenue Code of 1986 (relating to temporary suspension of taxable limit with respect to marginal production) is amended by striking 'January 1, 2000' and inserting 'January 1, 2002'.
(b) EFFECTIVE DATE.--The amendment made by this section shall apply to taxable years beginning after December 31, 1999.
SEC. 505. WORK OPPORTUNITY CREDIT AND WELFARE-TO-WORK CREDIT.
(a) TEMPORARY EXTENSION.--Sections 51(c)(4)(B) and 51A(f) of the Internal Revenue Code of 1986 (relating to termination) are each amended by striking 'June 30, 1999' and inserting 'December 31, 2001'.
(b) CLARIFICATION OF FIRST YEAR OF EMPLOYMENT.--Paragraph (2) of section 51(i) of such Code is amended by striking 'during which he was not a member of a targeted group'.
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to individuals who begin work for the employer after June 30, 1999.
SEC. 506. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE.
(a) IN GENERAL.--Subsection (d) of section 127 of the Internal Revenue Code of 1986 (relating to termination) is amended by striking 'May 31, 2000' and inserting 'December 31, 2001'.
(b) EFFECTIVE DATE.--The amendment made by subsection (a) shall apply to courses beginning after May 31, 2000.
SEC. 507. EXTENSION AND MODIFICATION OF CREDIT FOR PRODUCING ELECTRICITY FROM CERTAIN RENEWABLE RESOURCES.
(a) EXTENSION AND MODIFICATION OF PLACED-IN-SERVICE RULES.--Paragraph (3) of section 45(c) of the Internal Revenue Code of 1986 is amended to read as follows:
'(3) QUALIFIED FACILITY.--
'(A) WIND FACILITY.--In the case of a facility using wind to produce electricity, the term 'qualified facility' means any facility owned by the taxpayer which is originally placed in service after December 31, 1993, and before January 1, 2002.
'(B) CLOSED-LOOP BIOMASS FACILITY.--In the case of a facility using closed-loop biomass to produce electricity, the term 'qualified facility' means any facility owned by the taxpayer which is originally placed in service after December 31, 1992, and before January 1, 2002.
'(C) POULTRY WASTE FACILITY.--In the case of a facility using poultry waste to produce electricity, the term 'qualified facility' means any facility of the taxpayer which is originally placed in service after December 31, 1999, and before January 1, 2002.'.
(1) IN GENERAL.--Section 45(c)(1) of such Code (defining qualified energy resources) is amended by striking 'and' at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ', and', and by adding at the end the following new subparagraph:
'(C) poultry waste.'.
(2) DEFINITION.--Section 45(c) of such Code is amended by adding at the end the following new paragraph:
'(4) POULTRY WASTE.--The term 'poultry waste' means poultry manure and litter, including wood shavings, straw, rice hulls, and other bedding material for the disposition of manure.'.
(c) SPECIAL RULES.--Section 45(d) of such Code (relating to definitions and special rules) is amended by adding at the end the following new paragraphs:
'(6) CREDIT ELIGIBILITY IN THE CASE OF GOVERNMENT-OWNED FACILITIES USING POULTRY WASTE.--In the case of a facility using poultry waste to produce electricity and owned by a governmental unit, the person eligible for the credit under subsection (a) is the lessee or the operator of such facility.
'(7) CREDIT NOT TO APPLY TO ELECTRICITY SOLD TO UTILITIES UNDER CERTAIN CONTRACTS.--
'(A) IN GENERAL.--The credit determined under subsection (a) shall not apply to electricity--
'(i) produced at a qualified facility described in paragraph (3)(A) which is placed in service by the taxpayer after June 30, 1999, and
'(ii) sold to a utility pursuant to a contract originally entered into before January 1, 1987 (whether or not amended or restated after that date).
'(B) EXCEPTION.--Subparagraph (A) shall not apply if--
'(i) the prices for energy and capacity from such facility are established pursuant to an amendment to the contract referred to in subparagraph (A)(ii),
'(ii) such amendment provides that the prices set forth in the contract which exceed avoided cost prices determined at the time of delivery shall apply only to annual quantities of electricity (prorated for partial years) which do not exceed the greater of--
'(I) the average annual quantity of electricity sold to the utility under the contract during calendar years 1994, 1995, 1996, 1997, and 1998, or
'(II) the estimate of the annual electricity production set forth in the contract, or, if there is no such estimate, the greatest annual quantity of electricity sold to the utility under the contract in any of the calendar years 1996, 1997, or 1998, and
'(iii) such amendment provides that energy and capacity in excess of the limitation in clause (ii) may be--
'(I) sold to the utility only at prices that do not exceed avoided cost prices determined at the time of delivery, or
'(II) sold to a third party subject to a mutually agreed upon advance notice to the utility.
For purposes of this subparagraph, avoided cost prices shall be determined as provided for in 18 CFR 292.304(d)(1) or any successor regulation.'.
SEC. 508. EXTENSION OF DUTY-FREE TREATMENT UNDER GENERALIZED SYSTEM OF PREFERENCES.
(a) IN GENERAL.--Section 505 of the Trade Act of 1974 (19 U.S.C. 2465) is amended by striking 'June 30, 1999' and inserting 'September 30, 2001'.
(b) EFFECTIVE DATE.--
(1) IN GENERAL.--The amendment made by this section applies to articles entered on or after the date of the enactment of this Act.
(2) RETROACTIVE APPLICATION FOR CERTAIN LIQUIDATIONS AND RELIQUIDATIONS.--
(A) GENERAL RULE.--Notwithstanding section 514 of the Tariff Act of 1930 or any other provision of law, and subject to paragraph (3), any entry--
(i) of an article to which duty-free treatment under title V of the Trade Act of 1974 would have applied if such entry had been made on July 1, 1999, and such title had been in effect on July 1, 1999; and
(ii) that was made--
(I) after June 30, 1999; and
(II) before the date of the enactment of this Act,
(B) ENTRY.--As used in this paragraph, the term 'entry' includes a withdrawal from warehouse for consumption.
(3) REQUESTS.--Liquidation or reliquidation may be made under paragraph (2) with respect to an entry only if a request therefore is filed with the Customs Service, within 180 days after the date of the enactment of this Act, that contains sufficient information to enable the Customs Service--
(A) to locate the entry; or
(B) to reconstruct the entry if it cannot be located.
(a) IN GENERAL.--Section 1397E(e)(1) of the Internal Revenue Code of 1986 (relating to national limitation) is amended by striking 'and 1999' and inserting ', 1999, 2000, and 2001'.
(b) LIMITATION ON CARRYOVER PERIODS.--Paragraph (4) of section 1397E(e) of such Code is amended by adding at the end the following flush sentences:
'Any carryforward of a limitation amount may be carried only to the first 2 years (3 years for carryforwards from 1998 or 1999) following the unused limitation year. For purposes of the preceding sentence, a limitation amount shall be treated as used on a first-in first-out basis.'.
Section 1400C(i) of the Internal Revenue Code of 1986 is amended by striking '2001' and inserting '2002'.
SEC. 511. EXTENSION OF EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.
Section 198(h) of the Internal Revenue Code of 1986 is amended by striking '2000' and inserting '2001'.
SEC. 512. TEMPORARY INCREASE IN AMOUNT OF RUM EXCISE TAX COVERED OVER TO PUERTO RICO AND VIRGIN ISLANDS.
(a) IN GENERAL.--Section 7652(f)(1) of the Internal Revenue Code of 1986 (relating to limitation on cover over of tax on distilled spirits) is amended to read as follows:
'(1) $10.50 ($13.25 in the case of distilled spirits brought into the United States after June 30, 1999, and before January 1, 2002), or'.
(b) SPECIAL COVER OVER TRANSFER RULES.--Notwithstanding section 7652 of the Internal Revenue Code of 1986, the following rules shall apply with respect to any transfer before October 1, 2000, of amounts relating to the increase in the cover over of taxes by reason of the amendment made by subsection (a):
(1) INITIAL TRANSFER OF INCREMENTAL INCREASE IN COVER OVER.--The Secretary of the Treasury shall, within 15 days after the date of the enactment of this Act, transfer an amount equal to the lesser of--
(A) the amount of such increase otherwise required to be covered over after June 30, 1999, and before the date of the enactment of this Act; or
(B) $20,000,000.
(2) TRANSFER OF INCREMENTAL INCREASE FOR FISCAL YEAR 2001.--The Secretary of the Treasury shall on October 1, 2000, transfer an amount equal to the excess of--
(A) the amount of such increase otherwise required to be covered over after June 30, 1999, and before October 1, 2000, over
(B) the amount of the transfer described in paragraph (1).
SEC. 521. ADVANCE PRICING AGREEMENTS TREATED AS CONFIDENTIAL TAXPAYER INFORMATION.
(a) IN GENERAL.--
(1) TREATMENT AS RETURN INFORMATION.--Paragraph (2) of section 6103(b) of the Internal Revenue Code of 1986 (defining return information) is amended by striking 'and' at the end of subparagraph (A), by inserting 'and' at the end of subparagraph (B), and by inserting after subparagraph (B) the following new subparagraph:
'(C) any advance pricing agreement entered into by a taxpayer and the Secretary and any background information related to such agreement or any application for an advance pricing agreement,'.
(2) EXCEPTION FROM PUBLIC INSPECTION AS WRITTEN DETERMINATION.--Paragraph (1) of section 6110(b) of such Code (defining written determination) is amended by adding at the end the following new sentence: 'Such term shall not include any advance pricing agreement entered into by a taxpayer and the Secretary and any background information related to such agreement or any application for an advance pricing agreement.'.
(3) EFFECTIVE DATE.--The amendments made by this subsection shall take effect on the date of the enactment of this Act.
(b) ANNUAL REPORT REGARDING ADVANCE PRICING AGREEMENTS.--
(1) IN GENERAL.--Not later than 90 days after the end of each calendar year, the Secretary of the Treasury shall prepare and publish a report regarding advance pricing agreements.
(2) CONTENTS OF REPORT.--The report shall include the following for the calendar year to which such report relates:
(A) Information about the structure, composition, and operation of the advance pricing agreement program office.
(B) A copy of each model advance pricing agreement.
(C) The number of--
(i) applications filed during such calendar year for advance pricing agreements;
(ii) advance pricing agreements executed cumulatively to date and during such calendar year;
(iii) renewals of advance pricing agreements issued;
(iv) pending requests for advance pricing agreements;
(v) pending renewals of advance pricing agreements;
(vi) for each of the items in clauses (ii) through (v), the number that are unilateral, bilateral, and multilateral, respectively;
(vii) advance pricing agreements revoked or canceled, and the number of withdrawals from the advance pricing agreement program; and
(viii) advance pricing agreements finalized or renewed by industry.
(D) General descriptions of--
(i) the nature of the relationships between the related organizations, trades, or businesses covered by advance pricing agreements;
(ii) the covered transactions and the business functions performed and risks assumed by such organizations, trades, or businesses;
(iii) the related organizations, trades, or businesses whose prices or results are tested to determine compliance with transfer pricing methodologies prescribed in advance pricing agreements;
(iv) methodologies used to evaluate tested parties and transactions and the circumstances leading to the use of those methodologies;
(v) critical assumptions made and sources of comparables used;
(vi) comparable selection criteria and the rationale used in determining such criteria;
(vii) the nature of adjustments to comparables or tested parties;
(viii) the nature of any ranges agreed to, including information regarding when no range was used and why, when interquartile ranges were used, and when there was a statistical narrowing of the comparables;
(ix) adjustment mechanisms provided to rectify results that fall outside of the agreed upon advance pricing agreement range;
(x) the various term lengths for advance pricing agreements, including rollback years, and the number of advance pricing agreements with each such term length;
(xi) the nature of documentation required; and
(xii) approaches for sharing of currency or other risks.
(E) Statistics regarding the amount of time taken to complete new and renewal advance pricing agreements.
(F) A detailed description of the Secretary of the Treasury's efforts to ensure compliance with existing advance pricing agreements.
(3) CONFIDENTIALITY.--The reports required by this subsection shall be treated as authorized by the Internal Revenue Code of 1986 for purposes of section 6103 of such Code, but the reports shall not include information--
(A) which would not be permitted to be disclosed under section 6110(c) of such Code if such report were a written determination as defined in section 6110 of such Code; or
(B) which can be associated with, or otherwise identify, directly or indirectly, a particular taxpayer.
(4) FIRST REPORT.--The report for calendar year 1999 shall include prior calendar years after 1990.
(c) REGULATIONS.--The Secretary of the Treasury or the Secretary's delegate shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of section 6103(b)(2)(C), and the last sentence of section 6110(b)(1), of the Internal Revenue Code of 1986, as added by this section.
SEC. 522. AUTHORITY TO POSTPONE CERTAIN TAX-RELATED DEADLINES BY REASON OF Y2K FAILURES.
(a) IN GENERAL.--In the case of a taxpayer determined by the Secretary of the Treasury (or the Secretary's delegate) to be affected by a Y2K failure, the Secretary may disregard a period of up to 90 days in determining, under the internal revenue laws, in respect of any tax liability (including any interest, penalty, additional amount, or addition to the tax) of such taxpayer--
(1) whether any of the acts described in paragraph (1) of section 7508(a) of the Internal Revenue Code of 1986 (without regard to the exceptions in parentheses in subparagraphs (A) and (B)) were performed within the time prescribed therefor; and
(2) the amount of any credit or refund.
(b) APPLICABILITY OF CERTAIN RULES.--For purposes of this section, rules similar to the rules of subsections (b) and (e) of section 7508 of the Internal Revenue Code of 1986 shall apply.
SEC. 523. INCLUSION OF CERTAIN VACCINES AGAINST STREPTOCOCCUS PNEUMONIAE TO LIST OF TAXABLE VACCINES.
(a) INCLUSION OF VACCINES.--
(1) IN GENERAL.--Section 4132(a)(1) of the Internal Revenue Code of 1986 (defining taxable vaccine) is amended by adding at the end the following new subparagraph:
'(L) Any conjugate vaccine against streptococcus pneumoniae.'.
(2) EFFECTIVE DATE.--
(A) SALES.--The amendment made by this subsection shall apply to vaccine sales after the date of the enactment of this Act, but shall not take effect if subsection (b) does not take effect.
(B) DELIVERIES.--For purposes of subparagraph (A), in the case of sales on or before the date described in such subparagraph for which delivery is made after such date, the delivery date shall be considered the sale date.
(1) Sections 1503 and 1504 of the Vaccine Injury Compensation Program Modification Act (and the amendments made by such sections) are hereby repealed.
(2) Subparagraph (A) of section 9510(c)(1) of such Code is amended by striking 'August 5, 1997' and inserting 'December 31, 1999'.
(3) The amendments made by this subsection shall take effect as if included in the provisions of the Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999 to which they relate.
(c) REPORT.--Not later than January 31, 2000, the Comptroller General of the United States shall prepare and submit a report to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate on the operation of the Vaccine Injury Compensation Trust Fund and on the adequacy of such Fund to meet future claims made under the Vaccine Injury Compensation Program.
SEC. 524. DELAY IN EFFECTIVE DATE OF REQUIREMENT FOR APPROVED DIESEL OR KEROSENE TERMINALS.
Paragraph (2) of section 1032(f) of the Taxpayer Relief Act of 1997 is amended by striking 'July 1, 2000' and inserting 'January 1, 2002'.
SEC. 525. PRODUCTION FLEXIBILITY CONTRACT PAYMENTS.
Any option to accelerate the receipt of any payment under a production flexibility contract which is payable under the Federal Agriculture Improvement and Reform Act of 1996 (7 U.S.C. 7200 et seq.), as in effect on the date of the enactment of this Act, shall be disregarded in determining the taxable year for which such payment is properly includible in gross income for purposes of the Internal Revenue Code of 1986.
SEC. 531. MODIFICATION OF ESTIMATED TAX SAFE HARBOR.
(a) IN GENERAL.--The table contained in clause (i) of section 6654(d)(1)(C) of the Internal Revenue Code of 1986 (relating to limitation on use of preceding year's tax) is amended by striking the items relating to 1999 and 2000 and inserting the following new items:
'1999 108.6
2000 110'.
SEC. 532. CLARIFICATION OF TAX TREATMENT OF INCOME AND LOSS ON DERIVATIVES.
(a) IN GENERAL.--Section 1221 of the Internal Revenue Code of 1986 (defining capital assets) is amended--
(1) by striking 'For purposes' and inserting the following:
'(a) IN GENERAL.--For purposes';
(2) by striking the period at the end of paragraph (5) and inserting a semicolon; and
(3) by adding at the end the following:
'(6) any commodities derivative financial instrument held by a commodities derivatives dealer, unless--
'(A) it is established to the satisfaction of the Secretary that such instrument has no connection to the activities of such dealer as a dealer, and
'(B) such instrument is clearly identified in such dealer's records as being described in subparagraph (A) before the close of the day on which it was acquired, originated, or entered into (or such other time as the Secretary may by regulations prescribe);
'(7) any hedging transaction which is clearly identified as such before the close of the day on which it was acquired, originated, or entered into (or such other time as the Secretary may by regulations prescribe); or
'(8) supplies of a type regularly used or consumed by the taxpayer in the ordinary course of a trade or business of the taxpayer.
'(b) DEFINITIONS AND SPECIAL RULES.--
'(1) COMMODITIES DERIVATIVE FINANCIAL INSTRUMENTS.--For purposes of subsection (a)(6)--
'(A) COMMODITIES DERIVATIVES DEALER.--The term 'commodities derivatives dealer' means a person which regularly offers to enter into, assume, offset, assign, or terminate positions in commodities derivative financial instruments with customers in the ordinary course of a trade or business.
'(B) COMMODITIES DERIVATIVE FINANCIAL INSTRUMENT.--
'(i) IN GENERAL.--The term 'commodities derivative financial instrument' means any contract or financial instrument with respect to commodities (other than a share of stock in a corporation, a beneficial interest in a partnership or trust, a note, bond, debenture, or other evidence of indebtedness, or a section 1256 contract (as defined in section 1256(b)), the value or settlement price of which is calculated by or determined by reference to a specified index.
'(ii) SPECIFIED INDEX.--The term 'specified index' means any one or more or any combination of--
'(I) a fixed rate, price, or amount, or
'(II) a variable rate, price, or amount,
which is based on any current, objectively determinable financial or economic information with respect to commodities which is not within the control of any of the parties to the contract or instrument and is not unique to any of the parties' circumstances.
'(A) IN GENERAL.--For purposes of this section, the term 'hedging transaction' means any transaction entered into by the taxpayer in the normal course of the taxpayer's trade or business primarily--
'(i) to manage risk of price changes or currency fluctuations with respect to ordinary property which is held or to be held by the taxpayer,
'(ii) to manage risk of interest rate or price changes or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, by the taxpayer, or
'(iii) to manage such other risks as the Secretary may prescribe in regulations.
'(B) TREATMENT OF NONIDENTIFICATION OR IMPROPER IDENTIFICATION OF HEDGING TRANSACTIONS.--Notwithstanding subsection (a)(7), the Secretary shall prescribe regulations to properly characterize any income, gain, expense, or loss arising from a transaction--
'(i) which is a hedging transaction but which was not identified as such in accordance with subsection (a)(7), or
'(ii) which was so identified but is not a hedging transaction.
(b) MANAGEMENT OF RISK.--
(1) Section 475(c)(3) of such Code is amended by striking 'reduces' and inserting 'manages'.
(2) Section 871(h)(4)(C)(iv) of such Code is amended by striking 'to reduce' and inserting 'to manage'.
(3) Clauses (i) and (ii) of section 988(d)(2)(A) of such Code are each amended by striking 'to reduce' and inserting 'to manage'.
(4) Paragraph (2) of section 1256(e) of such Code is amended to read as follows:
'(2) DEFINITION OF HEDGING TRANSACTION.--For purposes of this subsection, the term 'hedging transaction' means any hedging transaction (as defined in section 1221(b)(2)(A)) if, before the close of the day on which such transaction was entered into (or such earlier time as the Secretary may prescribe by regulations), the taxpayer clearly identifies such transaction as being a hedging transaction.'.
(c) CONFORMING AMENDMENTS.--
(1) Each of the following sections of such Code are amended by striking 'section 1221' and inserting 'section 1221(a)':
(A) Section 170(e)(3)(A).
(B) Section 170(e)(4)(B).
(C) Section 367(a)(3)(B)(i).
(D) Section 818(c)(3).
(E) Section 865(i)(1).
(F) Section 1092(a)(3)(B)(ii)(II).
(G) Subparagraphs (C) and (D) of section 1231(b)(1).
(H) Section 1234(a)(3)(A).
(2) Each of the following sections of such Code are amended by striking 'section 1221(1)' and inserting 'section 1221(a)(1)':
(A) Section 198(c)(1)(A)(i).
(B) Section 263A(b)(2)(A).
(C) Clauses (i) and (iii) of section 267(f)(3)(B).
(D) Section 341(d)(3).
(E) Section 543(a)(1)(D)(i).
(F) Section 751(d)(1).
(G) Section 775(c).
(H) Section 856(c)(2)(D).
(I) Section 856(c)(3)(C).
(J) Section 856(e)(1).
(K) Section 856(j)(2)(B).
(L) Section 857(b)(4)(B)(i).
(M) Section 857(b)(6)(B)(iii).
(N) Section 864(c)(4)(B)(iii).
(O) Section 864(d)(3)(A).
(P) Section 864(d)(6)(A).
(Q) Section 954(c)(1)(B)(iii).
(R) Section 995(b)(1)(C).
(S) Section 1017(b)(3)(E)(i).
(T) Section 1362(d)(3)(C)(ii).
(U) Section 4662(c)(2)(C).
(V) Section 7704(c)(3).
(W) Section 7704(d)(1)(D).
(X) Section 7704(d)(1)(G).
(Y) Section 7704(d)(5).
(3) Section 818(b)(2) of such Code is amended by striking 'section 1221(2)' and inserting 'section 1221(a)(2)'.
(4) Section 1397B(e)(2) of such Code is amended by striking 'section 1221(4)' and inserting 'section 1221(a)(4)'.
(d) EFFECTIVE DATE.--The amendments made by this section shall apply to any instrument held, acquired, or entered into, any transaction entered into, and supplies held or acquired on or after the date of the enactment of this Act.
SEC. 533. EXPANSION OF REPORTING OF CANCELLATION OF INDEBTEDNESS INCOME.
(a) IN GENERAL.--Paragraph (2) of section 6050P(c) of the Internal Revenue Code of 1986 (relating to definitions and special rules) is amended by striking 'and' at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and inserting ', and', and by inserting after subparagraph (C) the following new subparagraph:
SEC. 534. LIMITATION ON CONVERSION OF CHARACTER OF INCOME FROM CONSTRUCTIVE OWNERSHIP TRANSACTIONS.
(a) IN GENERAL.--Part IV of subchapter P of chapter 1 of the Internal Revenue Code of 1986 (relating to special rules for determining capital gains and losses) is amended by inserting after section 1259 the following new section:
'SEC. 1260. GAINS FROM CONSTRUCTIVE OWNERSHIP TRANSACTIONS.
'(a) IN GENERAL.--If the taxpayer has gain from a constructive ownership transaction with respect to any financial asset and such gain would (without regard to this section) be treated as a long-term capital gain--
'(1) such gain shall be treated as ordinary income to the extent that such gain exceeds the net underlying long-term capital gain, and
'(2) to the extent such gain is treated as a long-term capital gain after the application of paragraph (1), the determination of the capital gain rate (or rates) applicable to such gain under section 1(h) shall be determined on the basis of the respective rate (or rates) that would have been applicable to the net underlying long-term capital gain.
'(b) INTEREST CHARGE ON DEFERRAL OF GAIN RECOGNITION.--
'(1) IN GENERAL.--If any gain is treated as ordinary income for any taxable year by reason of subsection (a)(1), the tax imposed by this chapter for such taxable year shall be increased by the amount of interest determined under paragraph (2) with respect to each prior taxable year during any portion of which the constructive ownership transaction was open. Any amount payable under this paragraph shall be taken into account in computing the amount of any deduction allowable to the taxpayer for interest paid or accrued during such taxable year.
'(2) AMOUNT OF INTEREST.--The amount of interest determined under this paragraph with respect to a prior taxable year is the amount of interest which would have been imposed under section 6601 on the underpayment of tax for such year which would have resulted if the gain (which is treated as ordinary income by reason of subsection (a)(1)) had been included in gross income in the taxable years in which it accrued (determined by treating the income as accruing at a constant rate equal to the applicable Federal rate as in effect on the day the transaction closed). The period during which such interest shall accrue shall end on the due date (without extensions) for the return of tax imposed by this chapter for the taxable year in which such transaction closed.
'(3) APPLICABLE FEDERAL RATE.--For purposes of paragraph (2), the applicable Federal rate is the applicable Federal rate determined under section 1274(d) (compounded semiannually) which would apply to a debt instrument with a term equal to the period the transaction was open.
'(4) NO CREDITS AGAINST INCREASE IN TAX.--Any increase in tax under paragraph (1) shall not be treated as tax imposed by this chapter for purposes of determining--
'(A) the amount of any credit allowable under this chapter, or
'(B) the amount of the tax imposed by section 55.
'(1) IN GENERAL.--The term 'financial asset' means--
'(A) any equity interest in any pass-thru entity, and
'(B) to the extent provided in regulations--
'(i) any debt instrument, and
'(ii) any stock in a corporation which is not a pass-thru entity.
'(A) a regulated investment company,
'(B) a real estate investment trust,
'(C) an S corporation,
'(D) a partnership,
'(E) a trust,
'(F) a common trust fund,
'(G) a passive foreign investment company (as defined in section 1297 without regard to subsection (e) thereof),
'(H) a foreign personal holding company,
'(I) a foreign investment company (as defined in section 1246(b)), and
'(J) a REMIC.
'(1) IN GENERAL.--The taxpayer shall be treated as having entered into a constructive ownership transaction with respect to any financial asset if the taxpayer--
'(A) holds a long position under a notional principal contract with respect to the financial asset,
'(B) enters into a forward or futures contract to acquire the financial asset,
'(C) is the holder of a call option, and is the grantor of a put option, with respect to the financial asset and such options have substantially equal strike prices and substantially contemporaneous maturity dates, or
'(D) to the extent provided in regulations prescribed by the Secretary, enters into one or more other transactions (or acquires one or more positions) that have substantially the same effect as a transaction described in any of the preceding subparagraphs.
'(2) EXCEPTION FOR POSITIONS WHICH ARE MARKED TO MARKET.--This section shall not apply to any constructive ownership transaction if all of the positions which are part of such transaction are marked to market under any provision of this title or the regulations thereunder.
'(3) LONG POSITION UNDER NOTIONAL PRINCIPAL CONTRACT.--A person shall be treated as holding a long position under a notional principal contract with respect to any financial asset if such person--
'(A) has the right to be paid (or receive credit for) all or substantially all of the investment yield (including appreciation) on such financial asset for a specified period, and
'(B) is obligated to reimburse (or provide credit for) all or substantially all of any decline in the value of such financial asset.
'(4) FORWARD CONTRACT.--The term 'forward contract' means any contract to acquire in the future (or provide or receive credit for the future value of) any financial asset.
'(e) NET UNDERLYING LONG-TERM CAPITAL GAIN.--For purposes of this section, in the case of any constructive ownership transaction with respect to any financial asset, the term 'net underlying long-term capital gain' means the aggregate net capital gain that the taxpayer would have had if--
'(1) the financial asset had been acquired for fair market value on the date such transaction was opened and sold for fair market value on the date such transaction was closed, and
'(2) only gains and losses that would have resulted from the deemed ownership under paragraph (1) were taken into account.
The amount of the net underlying long-term capital gain with respect to any financial asset shall be treated as zero unless the amount thereof is established by clear and convincing evidence.
'(f) SPECIAL RULE WHERE TAXPAYER TAKES DELIVERY.--Except as provided in regulations prescribed by the Secretary, if a constructive ownership transaction is closed by reason of taking delivery, this section shall be applied as if the taxpayer had sold all the contracts, options, or other positions which are part of such transaction for fair market value on the closing date. The amount of gain recognized under the preceding sentence shall not exceed the amount of gain treated as ordinary income under subsection (a). Proper adjustments shall be made in the amount of any gain or loss subsequently realized for gain recognized and treated as ordinary income under this subsection.
'(g) REGULATIONS.--The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section, including regulations--
'(1) to permit taxpayers to mark to market constructive ownership transactions in lieu of applying this section, and
'(2) to exclude certain forward contracts which do not convey substantially all of the economic return with respect to a financial asset.'.
(b) CLERICAL AMENDMENT.--The table of sections for part IV of subchapter P of chapter 1 of such Code is amended by adding at the end the following new item:
'Sec. 1260. Gains from constructive ownership transactions.'.
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to transactions entered into after July 11, 1999.
SEC. 535. TREATMENT OF EXCESS PENSION ASSETS USED FOR RETIREE HEALTH BENEFITS.
(a) EXTENSION.--
(1) IN GENERAL.--Paragraph (5) of section 420(b) of the Internal Revenue Code of 1986 (relating to expiration) is amended by striking 'in any taxable year beginning after December 31, 2000' and inserting 'made after December 31, 2005'.
(2) CONFORMING AMENDMENTS.--
(A) Section 101(e)(3) of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1021(e)(3)) is amended by striking 'January 1, 1995' and inserting 'the date of the enactment of the Tax Relief Extension Act of 1999'.
(B) Section 403(c)(1) of such Act (29 U.S.C. 1103(c)(1)) is amended by striking 'January 1, 1995' and inserting 'the date of the enactment of the Tax Relief Extension Act of 1999'.
(C) Paragraph (13) of section 408(b) of such Act (29 U.S.C. 1108(b)(13)) is amended--
(i) by striking 'in a taxable year beginning before January 1, 2001' and inserting 'made before January 1, 2006'; and
(ii) by striking 'January 1, 1995' and inserting 'the date of the enactment of the Tax Relief Extension Act of 1999'.
(1) IN GENERAL.--Paragraph (3) of section 420(c) of the Internal Revenue Code of 1986 is amended to read as follows:
'(3) MINIMUM COST REQUIREMENTS.--
'(A) IN GENERAL.--The requirements of this paragraph are met if each group health plan or arrangement under which applicable health benefits are provided provides that the applicable employer cost for each taxable year during the cost maintenance period shall not be less than the higher of the applicable employer costs for each of the 2 taxable years immediately preceding the taxable year of the qualified transfer.
'(B) APPLICABLE EMPLOYER COST.--For purposes of this paragraph, the term 'applicable employer cost' means, with respect to any taxable year, the amount determined by dividing--
'(i) the qualified current retiree health liabilities of the employer for such taxable year determined--
'(I) without regard to any reduction under subsection (e)(1)(B), and
'(II) in the case of a taxable year in which there was no qualified transfer, in the same manner as if there had been such a transfer at the end of the taxable year, by
'(ii) the number of individuals to whom coverage for applicable health benefits was provided during such taxable year.
'(C) ELECTION TO COMPUTE COST SEPARATELY.--An employer may elect to have this paragraph applied separately with respect to individuals eligible for benefits under title XVIII of the Social Security Act at any time during the taxable year and with respect to individuals not so eligible.
'(D) COST MAINTENANCE PERIOD.--For purposes of this paragraph, the term 'cost maintenance period' means the period of 5 taxable years beginning with the taxable year in which the qualified transfer occurs. If a taxable year is in two or more overlapping cost maintenance periods, this paragraph shall be applied by taking into account the highest applicable employer cost required to be provided under subparagraph (A) for such taxable year.
'(E) REGULATIONS.--The Secretary shall prescribe such regulations as may be necessary to prevent an employer who significantly reduces retiree health coverage during the cost maintenance period from being treated as satisfying the minimum cost requirement of this subsection.'.
(2) CONFORMING AMENDMENTS.--
(A) Clause (iii) of section 420(b)(1)(C) of such Code is amended by striking 'benefits' and inserting 'cost'.
(B) Subparagraph (D) of section 420(e)(1) of such Code is amended by striking 'and shall not be subject to the minimum benefit requirements of subsection (c)(3)' and inserting 'or in calculating applicable employer cost under subsection (c)(3)(B)'.
(1) IN GENERAL.--The amendments made by this section shall apply to qualified transfers occurring after the date of the enactment of this Act.
(2) TRANSITION RULE.--If the cost maintenance period for any qualified transfer after the date of the enactment of this Act includes any portion of a benefit maintenance period for any qualified transfer on or before such date, the amendments made by subsection (b) shall not apply to such portion of the cost maintenance period (and such portion shall be treated as a benefit maintenance period).
(a) REPEAL OF INSTALLMENT METHOD FOR ACCRUAL BASIS TAXPAYERS.--
(1) IN GENERAL.--Subsection (a) of section 453 of the Internal Revenue Code of 1986 (relating to installment method) is amended to read as follows:
'(a) USE OF INSTALLMENT METHOD.--
'(1) IN GENERAL.--Except as otherwise provided in this section, income from an installment sale shall be taken into account for purposes of this title under the installment method.
'(2) ACCRUAL METHOD TAXPAYER.--The installment method shall not apply to income from an installment sale if such income would be reported under an accrual method of accounting without regard to this section. The preceding sentence shall not apply to a disposition described in subparagraph (A) or (B) of subsection (l)(2).'.
(2) CONFORMING AMENDMENTS.--Sections 453(d)(1), 453(i)(1), and 453(k) of such Code are each amended by striking '(a)' each place it appears and inserting '(a)(1)'.
(b) MODIFICATION OF PLEDGE RULES.--Paragraph (4) of section 453A(d) of such Code (relating to pledges, etc., of installment obligations) is amended by adding at the end the following: 'A payment shall be treated as directly secured by an interest in an installment obligation to the extent an arrangement allows the taxpayer to satisfy all or a portion of the indebtedness with the installment obligation.'.
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to sales or other dispositions occurring on or after the date of the enactment of this Act.
SEC. 537. DENIAL OF CHARITABLE CONTRIBUTION DEDUCTION FOR TRANSFERS ASSOCIATED WITH SPLIT-DOLLAR INSURANCE ARRANGEMENTS.
(a) IN GENERAL.--Subsection (f) of section 170 of the Internal Revenue Code of 1986 (relating to disallowance of deduction in certain cases and special rules) is amended by adding at the end the following new paragraph:
'(10) SPLIT-DOLLAR LIFE INSURANCE, ANNUITY, AND ENDOWMENT CONTRACTS.--
'(A) IN GENERAL.--Nothing in this section or in section 545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), or 2522 shall be construed to allow a deduction, and no deduction shall be allowed, for any transfer to or for the use of an organization described in subsection (c) if in connection with such transfer--
'(i) the organization directly or indirectly pays, or has previously paid, any premium on any personal benefit contract with respect to the transferor, or
'(ii) there is an understanding or expectation that any person will directly or indirectly pay any premium on any personal benefit contract with respect to the transferor.
'(B) PERSONAL BENEFIT CONTRACT.--For purposes of subparagraph (A), the term 'personal benefit contract' means, with respect to the transferor, any life insurance, annuity, or endowment contract if any direct or indirect beneficiary under such contract is the transferor, any member of the transferor's family, or any other person (other than an organization described in subsection (c)) designated by the transferor.
'(C) APPLICATION TO CHARITABLE REMAINDER TRUSTS.--In the case of a transfer to a trust referred to in subparagraph (E), references in subparagraphs (A) and (F) to an organization described in subsection (c) shall be treated as a reference to such trust.
'(D) EXCEPTION FOR CERTAIN ANNUITY CONTRACTS.--If, in connection with a transfer to or for the use of an organization described in subsection (c), such organization incurs an obligation to pay a charitable gift annuity (as defined in section 501(m)) and such organization purchases any annuity contract to fund such obligation, persons receiving payments under the charitable gift annuity shall not be treated for purposes of subparagraph (B) as indirect beneficiaries under such contract if--
'(i) such organization possesses all of the incidents of ownership under such contract,
'(ii) such organization is entitled to all the payments under such contract, and
'(iii) the timing and amount of payments under such contract are substantially the same as the timing and amount of payments to each such person under such obligation (as such obligation is in effect at the time of such transfer).
'(E) EXCEPTION FOR CERTAIN CONTRACTS HELD BY CHARITABLE REMAINDER TRUSTS.--A person shall not be treated for purposes of subparagraph (B) as an indirect beneficiary under any life insurance, annuity, or endowment contract held by a charitable remainder annuity trust or a charitable remainder unitrust (as defined in section 664(d)) solely by reason of being entitled to any payment referred to in paragraph (1)(A) or (2)(A) of section 664(d) if--
'(i) such trust possesses all of the incidents of ownership under such contract, and
'(ii) such trust is entitled to all the payments under such contract.
'(F) EXCISE TAX ON PREMIUMS PAID.--
'(i) IN GENERAL.--There is hereby imposed on any organization described in subsection (c) an excise tax equal to the premiums paid by such organization on any life insurance, annuity, or endowment contract if the payment of premiums on such contract is in connection with a transfer for which a deduction is not allowable under subparagraph (A), determined without regard to when such transfer is made.
'(ii) PAYMENTS BY OTHER PERSONS.--For purposes of clause (i), payments made by any other person pursuant to an understanding or expectation referred to in subparagraph (A) shall be treated as made by the organization.
'(iii) REPORTING.--Any organization on which tax is imposed by clause (i) with respect to any premium shall file an annual return which includes--
'(I) the amount of such premiums paid during the year and the name and TIN of each beneficiary under the contract to which the premium relates, and
'(II) such other information as the Secretary may require.
The penalties applicable to returns required under section 6033 shall apply to returns required under this clause. Returns required under this clause shall be furnished at such time and in such manner as the Secretary shall by forms or regulations require.
'(iv) CERTAIN RULES TO APPLY.--The tax imposed by this subparagraph shall be treated as imposed by chapter 42 for purposes of this title other than subchapter B of chapter 42.
'(G) SPECIAL RULE WHERE STATE REQUIRES SPECIFICATION OF CHARITABLE GIFT ANNUITANT IN CONTRACT.--In the case of an obligation to pay a charitable gift annuity referred to in subparagraph (D) which is entered into under the laws of a State which requires, in order for the charitable gift annuity to be exempt from insurance regulation by such State, that each beneficiary under the charitable gift annuity be named as a beneficiary under an annuity contract issued by an insurance company authorized to transact business in such State, the requirements of clauses (i) and (ii) of subparagraph (D) shall be treated as met if--
'(i) such State law requirement was in effect on February 8, 1999,
'(ii) each such beneficiary under the charitable gift annuity is a bona fide resident of such State at the time the obligation to pay a charitable gift annuity is entered into, and
'(iii) the only persons entitled to payments under such contract are persons entitled to payments as beneficiaries under such obligation on the date such obligation is entered into.
'(H) MEMBER OF FAMILY.--For purposes of this paragraph, an individual's family consists of the individual's grandparents, the grandparents of such individual's spouse, the lineal descendants of such grandparents, and any spouse of such a lineal descendant.
'(I) REGULATIONS.--The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph, including regulations to prevent the avoidance of such purposes.'.
(1) IN GENERAL.--Except as otherwise provided in this section, the amendment made by this section shall apply to transfers made after February 8, 1999.
(2) EXCISE TAX.--Except as provided in paragraph (3) of this subsection, section 170(f)(10)(F) of the Internal Revenue Code of 1986 (as added by this section) shall apply to premiums paid after the date of the enactment of this Act.
(3) REPORTING.--Clause (iii) of such section 170(f)(10)(F) shall apply to premiums paid after February 8, 1999 (determined as if the tax imposed by such section applies to premiums paid after such date).
(a) IN GENERAL.--Section 732 of the Internal Revenue Code of 1986 (relating to basis of distributed property other than money) is amended by adding at the end the following new subsection:
'(f) CORRESPONDING ADJUSTMENT TO BASIS OF ASSETS OF A DISTRIBUTED CORPORATION CONTROLLED BY A CORPORATE PARTNER.--
'(1) IN GENERAL.--If--
'(A) a corporation (hereafter in this subsection referred to as the 'corporate partner') receives a distribution from a partnership of stock in another corporation (hereafter in this subsection referred to as the 'distributed corporation'),
'(B) the corporate partner has control of the distributed corporation immediately after the distribution or at any time thereafter, and
'(C) the partnership's adjusted basis in such stock immediately before the distribution exceeded the corporate partner's adjusted basis in such stock immediately after the distribution,
then an amount equal to such excess shall be applied to reduce (in accordance with subsection (c)) the basis of property held by the distributed corporation at such time (or, if the corporate partner does not control the distributed corporation at such time, at the time the corporate partner first has such control).
'(2) EXCEPTION FOR CERTAIN DISTRIBUTIONS BEFORE CONTROL ACQUIRED.--Paragraph (1) shall not apply to any distribution of stock in the distributed corporation if--
'(A) the corporate partner does not have control of such corporation immediately after such distribution, and
'(B) the corporate partner establishes to the satisfaction of the Secretary that such distribution was not part of a plan or arrangement to acquire control of the distributed corporation.
'(3) LIMITATIONS ON BASIS REDUCTION.--
'(A) IN GENERAL.--The amount of the reduction under paragraph (1) shall not exceed the amount by which the sum of the aggregate adjusted bases of the property and the amount of money of the distributed corporation exceeds the corporate partner's adjusted basis in the stock of the distributed corporation.
'(B) REDUCTION NOT TO EXCEED ADJUSTED BASIS OF PROPERTY.--No reduction under paragraph (1) in the basis of any property shall exceed the adjusted basis of such property (determined without regard to such reduction).
'(4) GAIN RECOGNITION WHERE REDUCTION LIMITED.--If the amount of any reduction under paragraph (1) (determined after the application of paragraph (3)(A)) exceeds the aggregate adjusted bases of the property of the distributed corporation--
'(A) such excess shall be recognized by the corporate partner as long-term capital gain, and
'(B) the corporate partner's adjusted basis in the stock of the distributed corporation shall be increased by such excess.
'(5) CONTROL.--For purposes of this subsection, the term 'control' means ownership of stock meeting the requirements of section 1504(a)(2).
'(6) INDIRECT DISTRIBUTIONS.--For purposes of paragraph (1), if a corporation acquires (other than in a distribution from a partnership) stock the basis of which is determined (by reason of being distributed from a partnership) in whole or in part by reference to subsection (a)(2) or (b), the corporation shall be treated as receiving a distribution of such stock from a partnership.
'(7) SPECIAL RULE FOR STOCK IN CONTROLLED CORPORATION.--If the property held by a distributed corporation is stock in a corporation which the distributed corporation controls, this subsection shall be applied to reduce the basis of the property of such controlled corporation. This subsection shall be reapplied to any property of any controlled corporation which is stock in a corporation which it controls.
'(8) REGULATIONS.--The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations to avoid double counting and to prevent the abuse of such purposes.'.
(b) EFFECTIVE DATES.--
(1) IN GENERAL.--Except as provided in paragraph (2), the amendment made by this section shall apply to distributions made after July 14, 1999.
(2) PARTNERSHIPS IN EXISTENCE ON JULY 14, 1999.--In the case of a corporation which is a partner in a partnership as of July 14, 1999, the amendment made by this section shall apply to any distribution made (or treated as made) to such partner from such partnership after June 30, 2001, except that this paragraph shall not apply to any distribution after the date of the enactment of this Act unless the partner makes an election to have this paragraph apply to such distribution on the partner's return of Federal income tax for the taxable year in which such distribution occurs.
Subpart A--Treatment of Income and Services Provided by Taxable REIT Subsidiaries
SEC. 541. MODIFICATIONS TO ASSET DIVERSIFICATION TEST.
(a) IN GENERAL.--Subparagraph (B) of section 856(c)(4) of the Internal Revenue Code of 1986 is amended to read as follows:
'(ii) not more than 20 percent of the value of its total assets is represented by securities of one or more taxable REIT subsidiaries, and
'(iii) except with respect to a taxable REIT subsidiary and securities includible under subparagraph (A)--
'(I) not more than 5 percent of the value of its total assets is represented by securities of any one issuer,
'(II) the trust does not hold securities possessing more than 10 percent of the total voting power of the outstanding securities of any one issuer, and
'(III) the trust does not hold securities having a value of more than 10 percent of the total value of the outstanding securities of any one issuer.'.
'(7) STRAIGHT DEBT SAFE HARBOR IN APPLYING PARAGRAPH (4).--Securities of an issuer which are straight debt (as defined in section 1361(c)(5) without regard to subparagraph (B)(iii) thereof) shall not be taken into account in applying paragraph (4)(B)(ii)(III) if--
'(A) the issuer is an individual, or
'(B) the only securities of such issuer which are held by the trust or a taxable REIT subsidiary of the trust are straight debt (as so defined), or
'(C) the issuer is a partnership and the trust holds at least a 20 percent profits interest in the partnership.'.
(a) INCOME FROM TAXABLE REIT SUBSIDIARIES NOT TREATED AS IMPERMISSIBLE TENANT SERVICE INCOME.--Clause (i) of section 856(d)(7)(C) of the Internal Revenue Code of 1986 (relating to exceptions to impermissible tenant service income) is amended by inserting 'or through a taxable REIT subsidiary of such trust' after 'income'.
(b) CERTAIN INCOME FROM TAXABLE REIT SUBSIDIARIES NOT EXCLUDED FROM RENTS FROM REAL PROPERTY.--
(1) IN GENERAL.--Subsection (d) of section 856 of such Code (relating to rents from real property defined) is amended by adding at the end the following new paragraphs:
'(8) SPECIAL RULE FOR TAXABLE REIT SUBSIDIARIES.--For purposes of this subsection, amounts paid to a real estate investment trust by a taxable REIT subsidiary of such trust shall not be excluded from rents from real property by reason of paragraph (2)(B) if the requirements of either of the following subparagraphs are met:
'(A) LIMITED RENTAL EXCEPTION.--The requirements of this subparagraph are met with respect to any property if at least 90 percent of the leased space of the property is rented to persons other than taxable REIT subsidiaries of such trust and other than persons described in section 856(d)(2)(B). The preceding sentence shall apply only to the extent that the amounts paid to the trust as rents from real property (as defined in paragraph (1) without regard to paragraph (2)(B)) from such property are substantially comparable to such rents made by the other tenants of the trust's property for comparable space.
'(B) EXCEPTION FOR CERTAIN LODGING FACILITIES.--The requirements of this subparagraph are met with respect to an interest in real property which is a qualified lodging facility leased by the trust to a taxable REIT subsidiary of the trust if the property is operated on behalf of such subsidiary by a person who is an eligible independent contractor.
'(9) ELIGIBLE INDEPENDENT CONTRACTOR.--For purposes of paragraph (8)(B)--
'(A) IN GENERAL.--The term 'eligible independent contractor' means, with respect to any qualified lodging facility, any independent contractor if, at the time such contractor enters into a management agreement or other similar service contract with the taxable REIT subsidiary to operate the facility, such contractor (or any related person) is actively engaged in the trade or business of operating qualified lodging facilities for any person who is not a related person with respect to the real estate investment trust or the taxable REIT subsidiary.
'(B) SPECIAL RULES.--Solely for purposes of this paragraph and paragraph (8)(B), a person shall not fail to be treated as an independent contractor with respect to any qualified lodging facility by reason of any of the following:
'(i) The taxable REIT subsidiary bears the expenses for the operation of the facility pursuant to the management agreement or other similar service contract.
'(ii) The taxable REIT subsidiary receives the revenues from the operation of such facility, net of expenses for such operation and fees payable to the operator pursuant to such agreement or contract.
'(iii) The real estate investment trust receives income from such person with respect to another property that is attributable to a lease of such other property to such person that was in effect as of the later of--
'(I) January 1, 1999, or
'(II) the earliest date that any taxable REIT subsidiary of such trust entered into a management agreement or other similar service contract with such person with respect to such qualified lodging facility.
'(i) a lease shall be treated as in effect on January 1, 1999, without regard to its renewal after such date, so long as such renewal is pursuant to the terms of such lease as in effect on whichever of the dates under subparagraph (B)(iii) is the latest, and
'(ii) a lease of a property entered into after whichever of the dates under subparagraph (B)(iii) is the latest shall be treated as in effect on such date if--
'(I) on such date, a lease of such property from the trust was in effect, and
'(II) under the terms of the new lease, such trust receives a substantially similar or lesser benefit in comparison to the lease referred to in subclause (I).
'(i) IN GENERAL.--The term 'qualified lodging facility' means any lodging facility unless wagering activities are conducted at or in connection with such facility by any person who is engaged in the business of accepting wagers and who is legally authorized to engage in such business at or in connection with such facility.
'(ii) LODGING FACILITY.--The term 'lodging facility' means a hotel, motel, or other establishment more than one-half of the dwelling units in which are used on a transient basis.
'(iii) CUSTOMARY AMENITIES AND FACILITIES.--The term 'lodging facility' includes customary amenities and facilities operated as part of, or associated with, the lodging facility so long as such amenities and facilities are customary for other properties of a comparable size and class owned by other owners unrelated to such real estate investment trust.
'(E) OPERATE INCLUDES MANAGE.--References in this paragraph to operating a property shall be treated as including a reference to managing the property.
'(F) RELATED PERSON.--Persons shall be treated as related to each other if such persons are treated as a single employer under subsection (a) or (b) of section 52.'.
(2) CONFORMING AMENDMENT.--Subparagraph (B) of section 856(d)(2) of such Code is amended by inserting 'except as provided in paragraph (8),' after '(B)'.
(3) DETERMINING RENTS FROM REAL PROPERTY.--
(A)(i) Paragraph (1) of section 856(d) of such Code is amended by striking 'adjusted bases' each place it occurs and inserting 'fair market values'.
(ii) The amendment made by this subparagraph shall apply to taxable years beginning after December 31, 2000.
(B)(i) Clause (i) of section 856(d)(2)(B) of such Code is amended by striking 'number' and inserting 'value'.
(ii) The amendment made by this subparagraph shall apply to amounts received or accrued in taxable years beginning after December 31, 2000, except for amounts paid pursuant to leases in effect on July 12, 1999, or pursuant to a binding contract in effect on such date and at all times thereafter.
(a) IN GENERAL.--Section 856 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:
'(l) TAXABLE REIT SUBSIDIARY.--For purposes of this part--
'(1) IN GENERAL.--The term 'taxable REIT subsidiary' means, with respect to a real estate investment trust, a corporation (other than a real estate investment trust) if--
'(A) such trust directly or indirectly owns stock in such corporation, and
'(B) such trust and such corporation jointly elect that such corporation shall be treated as a taxable REIT subsidiary of such trust for purposes of this part.
Such an election, once made, shall be irrevocable unless both such trust and corporation consent to its revocation. Such election, and any revocation thereof, may be made without the consent of the Secretary.
'(2) THIRTY-FIVE PERCENT OWNERSHIP IN ANOTHER TAXABLE REIT SUBSIDIARY.--The term 'taxable REIT subsidiary' includes, with respect to any real estate investment trust, any corporation (other than a real estate investment trust) with respect to which a taxable REIT subsidiary of such trust owns directly or indirectly--
'(A) securities possessing more than 35 percent of the total voting power of the outstanding securities of such corporation, or
'(B) securities having a value of more than 35 percent of the total value of the outstanding securities of such corporation.
The preceding sentence shall not apply to a qualified REIT subsidiary (as defined in subsection (i)(2)). The rule of section 856(c)(7) shall apply for purposes of subparagraph (B).
'(3) EXCEPTIONS.--The term 'taxable REIT subsidiary' shall not include--
'(A) any corporation which directly or indirectly operates or manages a lodging facility or a health care facility, and
'(B) any corporation which directly or indirectly provides to any other person (under a franchise, license, or otherwise) rights to any brand name under which any lodging facility or health care facility is operated.
Subparagraph (B) shall not apply to rights provided to an eligible independent contractor to operate or manage a lodging facility if such rights are held by such corporation as a franchisee, licensee, or in a similar capacity and such lodging facility is either owned by such corporation or is leased to such corporation from the real estate investment trust.
'(4) DEFINITIONS.--For purposes of paragraph (3)--
'(A) LODGING FACILITY.--The term 'lodging facility' has the meaning given to such term by paragraph (9)(D)(ii).
'(B) HEALTH CARE FACILITY.--The term 'health care facility' has the meaning given to such term by subsection (e)(6)(D)(ii).'.
SEC. 544. LIMITATION ON EARNINGS STRIPPING.
Paragraph (3) of section 163(j) of the Internal Revenue Code of 1986 (relating to limitation on deduction for interest on certain indebtedness) is amended by striking 'and' at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting ', and', and by adding at the end the following new subparagraph:
(a) IN GENERAL.--Subsection (b) of section 857 of the Internal Revenue Code of 1986 (relating to method of taxation of real estate investment trusts and holders of shares or certificates of beneficial interest) is amended by redesignating paragraphs (7) and (8) as paragraphs (8) and (9), respectively, and by inserting after paragraph (6) the following new paragraph:
'(7) INCOME FROM REDETERMINED RENTS, REDETERMINED DEDUCTIONS, AND EXCESS INTEREST.--
'(A) IMPOSITION OF TAX.--There is hereby imposed for each taxable year of the real estate investment trust a tax equal to 100 percent of redetermined rents, redetermined deductions, and excess interest.
'(B) REDETERMINED RENTS.--
'(i) IN GENERAL.--The term 'redetermined rents' means rents from real property (as defined in subsection 856(d)) the amount of which would (but for subparagraph (E)) be reduced on distribution, apportionment, or allocation under section 482 to clearly reflect income as a result of services furnished or rendered by a taxable REIT subsidiary of the real estate investment trust to a tenant of such trust.
'(ii) EXCEPTION FOR CERTAIN SERVICES.--Clause (i) shall not apply to amounts received directly or indirectly by a real estate investment trust for services described in paragraph (1)(B) or (7)(C)(i) of section 856(d).
'(iii) EXCEPTION FOR DE MINIMIS AMOUNTS.--Clause (i) shall not apply to amounts described in section 856(d)(7)(A) with respect to a property to the extent such amounts do not exceed the one percent threshold described in section 856(d)(7)(B) with respect to such property.
'(iv) EXCEPTION FOR COMPARABLY PRICED SERVICES.--Clause (i) shall not apply to any service rendered by a taxable REIT subsidiary of a real estate investment trust to a tenant of such trust if--
'(I) such subsidiary renders a significant amount of similar services to persons other than such trust and tenants of such trust who are unrelated (within the meaning of section 856(d)(8)(F)) to such subsidiary, trust, and tenants, but
'(II) only to the extent the charge for such service so rendered is substantially comparable to the charge for the similar services rendered to persons referred to in subclause (I).
'(v) EXCEPTION FOR CERTAIN SEPARATELY CHARGED SERVICES.--Clause (i) shall not apply to any service rendered by a taxable REIT subsidiary of a real estate investment trust to a tenant of such trust if--
'(I) the rents paid to the trust by tenants (leasing at least 25 percent of the net leasable space in the trust's property) who are not receiving such service from such subsidiary are substantially comparable to the rents paid by tenants leasing comparable space who are receiving such service from such subsidiary, and
'(II) the charge for such service from such subsidiary is separately stated.
'(vi) EXCEPTION FOR CERTAIN SERVICES BASED ON SUBSIDIARY'S INCOME FROM THE SERVICES.--Clause (i) shall not apply to any service rendered by a taxable REIT subsidiary of a real estate investment trust to a tenant of such trust if the gross income of such subsidiary from such service is not less than 150 percent of such subsidiary's direct cost in furnishing or rendering the service.
'(vii) EXCEPTIONS GRANTED BY SECRETARY.--The Secretary may waive the tax otherwise imposed by subparagraph (A) if the trust establishes to the satisfaction of the Secretary that rents charged to tenants were established on an arms' length basis even though a taxable REIT subsidiary of the trust provided services to such tenants.
'(C) REDETERMINED DEDUCTIONS.--The term 'redetermined deductions' means deductions (other than redetermined rents) of a taxable REIT subsidiary of a real estate investment trust if the amount of such deductions would (but for subparagraph (E)) be decreased on distribution, apportionment, or allocation under section 482 to clearly reflect income as between such subsidiary and such trust.
'(D) EXCESS INTEREST.--The term 'excess interest' means any deductions for interest payments by a taxable REIT subsidiary of a real estate investment trust to such trust to the extent that the interest payments are in excess of a rate that is commercially reasonable.
'(E) COORDINATION WITH SECTION 482.--The imposition of tax under subparagraph (A) shall be in lieu of any distribution, apportionment, or allocation under section 482.
'(F) REGULATORY AUTHORITY.--The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this paragraph. Until the Secretary prescribes such regulations, real estate investment trusts and their taxable REIT subsidiaries may base their allocations on any reasonable method.'.
SEC. 546. EFFECTIVE DATE.
(a) IN GENERAL.--The amendments made by this subpart shall apply to taxable years beginning after December 31, 2000.
(b) TRANSITIONAL RULES RELATED TO SECTION 541.--
(1) EXISTING ARRANGEMENTS.--
(A) IN GENERAL.--Except as otherwise provided in this paragraph, the amendment made by section 541 shall not apply to a real estate investment trust with respect to--
(i) securities of a corporation held directly or indirectly by such trust on July 12, 1999;
(ii) securities of a corporation held by an entity on July 12, 1999, if such trust acquires control of such entity pursuant to a written binding contract in effect on such date and at all times thereafter before such acquisition;
(iii) securities received by such trust (or a successor) in exchange for, or with respect to, securities described in clause (i) or (ii) in a transaction in which gain or loss is not recognized; and
(iv) securities acquired directly or indirectly by such trust as part of a reorganization (as defined in section 368(a)(1) of the Internal Revenue Code of 1986) with respect to such trust if such securities are described in clause (i), (ii), or (iii) with respect to any other real estate investment trust.
(B) NEW TRADE OR BUSINESS OR SUBSTANTIAL NEW ASSETS.--Subparagraph (A) shall cease to apply to securities of a corporation as of the first day after July 12, 1999, on which such corporation engages in a substantial new line of business, or acquires any substantial asset, other than--
(i) pursuant to a binding contract in effect on such date and at all times thereafter before the acquisition of such asset;
(ii) in a transaction in which gain or loss is not recognized by reason of section 1031 or 1033 of the Internal Revenue Code of 1986; or
(iii) in a reorganization (as so defined) with another corporation the securities of which are described in paragraph (1)(A) of this subsection.
(C) LIMITATION ON TRANSITION RULES.--Subparagraph (A) shall cease to apply to securities of a corporation held, acquired, or received, directly or indirectly, by a real estate investment trust as of the first day after July 12, 1999, on which such trust acquires any additional securities of such corporation other than--
(i) pursuant to a binding contract in effect on July 12, 1999, and at all times thereafter; or
(ii) in a reorganization (as so defined) with another corporation the securities of which are described in paragraph (1)(A) of this subsection.
(A) at the time of an election for a corporation to become a taxable REIT subsidiary, the amendment made by section 541 does not apply to such corporation by reason of paragraph (1); and
(B) such election first takes effect before January 1, 2004,
such election shall be treated as a reorganization qualifying under section 368(a)(1)(A) of such Code.
The Secretary of the Treasury shall conduct a study to determine how many taxable REIT subsidiaries are in existence and the aggregate amount of taxes paid by such subsidiaries. The Secretary shall submit a report to the Congress describing the results of such study.
SEC. 551. HEALTH CARE REITs.
(a) SPECIAL FORECLOSURE RULE FOR HEALTH CARE PROPERTIES.--Subsection (e) of section 856 of the Internal Revenue Code of 1986 (relating to special rules for foreclosure property) is amended by adding at the end the following new paragraph:
'(6) SPECIAL RULE FOR QUALIFIED HEALTH CARE PROPERTIES.--For purposes of this subsection--
'(A) ACQUISITION AT EXPIRATION OF LEASE.--The term 'foreclosure property' shall include any qualified health care property acquired by a real estate investment trust as the result of the termination of a lease of such property (other than a termination by reason of a default, or the imminence of a default, on the lease).
'(B) GRACE PERIOD.--In the case of a qualified health care property which is foreclosure property solely by reason of subparagraph (A), in lieu of applying paragraphs (2) and (3)--
'(i) the qualified health care property shall cease to be foreclosure property as of the close of the second taxable year after the taxable year in which such trust acquired such property, and
'(ii) if the real estate investment trust establishes to the satisfaction of the Secretary that an extension of the grace period in clause (i) is necessary to the orderly leasing or liquidation of the trust's interest in such qualified health care property, the Secretary may grant one or more extensions of the grace period for such qualified health care property.
Any such extension shall not extend the grace period beyond the close of the 6th year after the taxable year in which such trust acquired such qualified health care property.
'(C) INCOME FROM INDEPENDENT CONTRACTORS.--For purposes of applying paragraph (4)(C) with respect to qualified health care property which is foreclosure property by reason of subparagraph (A) or paragraph (1), income derived or received by the trust from an independent contractor shall be disregarded to the extent such income is attributable to--
'(i) any lease of property in effect on the date the real estate investment trust acquired the qualified health care property (without regard to its renewal after such date so long as such renewal is pursuant to the terms of such lease as in effect on such date), or
'(ii) any lease of property entered into after such date if--
'(I) on such date, a lease of such property from the trust was in effect, and
'(II) under the terms of the new lease, such trust receives a substantially similar or lesser benefit in comparison to the lease referred to in subclause (I).
'(i) IN GENERAL.--The term 'qualified health care property' means any real property (including interests therein), and any personal property incident to such real property, which--
'(I) is a health care facility, or
'(II) is necessary or incidental to the use of a health care facility.
'(ii) HEALTH CARE FACILITY.--For purposes of clause (i), the term 'health care facility' means a hospital, nursing facility, assisted living facility, congregate care facility, qualified continuing care facility (as defined in section 7872(g)(4)), or other licensed facility which extends medical or nursing or ancillary services to patients and which, immediately before the termination, expiration, default, or breach of the lease of or mortgage secured by such facility, was operated by a provider of such services which was eligible for participation in the medicare program under title XVIII of the Social Security Act with respect to such facility.'.
SEC. 556. CONFORMITY WITH REGULATED INVESTMENT COMPANY RULES.
(a) DISTRIBUTION REQUIREMENT.--Clauses (i) and (ii) of section 857(a)(1)(A) of the Internal Revenue Code of 1986 (relating to requirements applicable to real estate investment trusts) are each amended by striking '95 percent (90 percent for taxable years beginning before January 1, 1980)' and inserting '90 percent'.
(b) IMPOSITION OF TAX.--Clause (i) of section 857(b)(5)(A) of such Code (relating to imposition of tax in case of failure to meet certain requirements) is amended by striking '95 percent (90 percent in the case of taxable years beginning before January 1, 1980)' and inserting '90 percent'.
(c) EFFECTIVE DATE.--The amendments made by this section shall apply to taxable years beginning after December 31, 2000.
SEC. 561. CLARIFICATION OF EXCEPTION FOR INDEPENDENT OPERATORS.
(a) IN GENERAL.--Paragraph (3) of section 856(d) of the Internal Revenue Code of 1986 (relating to independent contractor defined) is amended by adding at the end the following flush sentence:
'In the event that any class of stock of either the real estate investment trust or such person is regularly traded on an established securities market, only persons who own, directly or indirectly, more than 5 percent of such class of stock shall be taken into account as owning any of the stock of such class for purposes of applying the 35 percent limitation set forth in subparagraph (B) (but all of the outstanding stock of such class shall be considered outstanding in order to compute the denominator for purpose of determining the applicable percentage of ownership).'.
(b) EFFECTIVE DATE.--The amendment made by this section shall apply to taxable years beginning after December 31, 2000.
SEC. 566. MODIFICATION OF EARNINGS AND PROFITS RULES.
(a) RULES FOR DETERMINING WHETHER REGULATED INVESTMENT COMPANY HAS EARNINGS AND PROFITS FROM NON-RIC YEAR.--
(1) IN GENERAL.--Subsection (c) of section 852 of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:
'(3) DISTRIBUTIONS TO MEET REQUIREMENTS OF SUBSECTION (a)(2)(B).--Any distribution which is made in order to comply with the requirements of subsection (a)(2)(B)--
'(A) shall be treated for purposes of this subsection and subsection (a)(2)(B) as made from earnings and profits which, but for the distribution, would result in a failure to meet such requirements (and allocated to such earnings on a first-in, first-out basis), and
'(B) to the extent treated under subparagraph (A) as made from accumulated earnings and profits, shall not be treated as a distribution for purposes of subsection (b)(2)(D) and section 855.'.
(2) CONFORMING AMENDMENT.--Subparagraph (A) of section 857(d)(3) of such Code is amended to read as follows:
'(A) shall be treated for purposes of this subsection and subsection (a)(2)(B) as made from earnings and profits which, but for the distribution, would result in a failure to meet such requirements (and allocated to such earnings on a first-in, first-out basis), and'.
(c) APPLICATION OF DEFICIENCY DIVIDEND PROCEDURES.--Paragraph (1) of section 852(e) of such Code is amended by adding at the end the following new sentence: 'If the determination under subparagraph (A) is solely as a result of the failure to meet the requirements of subsection (a)(2), the preceding sentence shall also apply for purposes of applying subsection (a)(2) to the non-RIC year and the amount referred to in paragraph (2)(A)(i) shall be the portion of the accumulated earnings and profits which resulted in such failure.'.
(d) EFFECTIVE DATE.--The amendments made by this section shall apply to distributions after December 31, 2000.
SEC. 571. MODIFICATION OF ESTIMATED TAX RULES FOR CLOSELY HELD REAL ESTATE INVESTMENT TRUSTS.
(a) IN GENERAL.--Subsection (e) of section 6655 of the Internal Revenue Code of 1986 (relating to estimated tax by corporations) is amended by adding at the end the following new paragraph:
'(5) TREATMENT OF CERTAIN REIT DIVIDENDS.--
'(A) IN GENERAL.--Any dividend received from a closely held real estate investment trust by any person which owns (after application of subsections (d)(5) and (l)(3)(B) of section 856) 10 percent or more (by vote or value) of the stock or beneficial interests in the trust shall be taken into account in computing annualized income installments under paragraph (2) in a manner similar to the manner under which partnership income inclusions are taken into account.
'(B) CLOSELY HELD REIT.--For purposes of subparagraph (A), the term 'closely held real estate investment trust' means a real estate investment trust with respect to which 5 or fewer persons own (after application of subsections (d)(5) and (l)(3)(B) of section 856) 50 percent or more (by vote or value) of the stock or beneficial interests in the trust.'.
Speaker of the House of Representatives.
Vice President of the United States and President of the Senate.
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