[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 3448 Enrolled Bill (ENR)]
H.R.3448
One Hundred Fourth Congress
of the
United States of America
AT THE SECOND SESSION
Begun and held at the City of Washington on Wednesday,
the third day of January, one thousand nine hundred and ninety-six
An Act
To provide tax relief for small businesses, to protect jobs, to create
opportunities, to increase the take home pay of workers, to amend the
Portal-to-Portal Act of 1947 relating to the payment of wages to
employees who use employer owned vehicles, and to amend the Fair Labor
Standards Act of 1938 to increase the minimum wage rate and to prevent
job loss by providing flexibility to employers in complying with minimum
wage and overtime requirements under that Act.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,

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(a) Short Title.--This Act may be cited as the ``Small Business Job
Protection Act of 1996''.
(b) Table of Contents.--

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TITLE I

-SMALL BUSINESS AND OTHER TAX PROVISIONS

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are employees for purposes of employment taxes.

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centers.
Subtitle B--Extension of Certain Expiring Provisions

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in diesel-powered motorboats.
Subtitle C--Provisions Relating to S Corporations

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subdivided for sale by noncorporate taxpayers.

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Subtitle D--Pension Simplification
Chapter 1--Simplified Distribution Rules

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Chapter 2--Increased Access to Retirement Plans
SUBCHAPTER A--SIMPLE SAVINGS PLANS

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governments and tax-exempt organizations.

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defined contribution plan for same employee; excess distributions.

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performing fire fighting or prevention services, emergency medical
services, or ambulance services.

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passive assets.
Subtitle F--Revenue Offsets
Part I--General Provisions

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attributable to physical injuries or sickness.

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in corporation is replacement property under involuntary conversion
rules.

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subsidies with respect to dwelling units.
Part II--Financial Asset Securitization Investments

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trust funds to regulated investment companies.

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Subtitle J--Generalized System of Preferences

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Except as otherwise expressly provided, whenever in this title 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.

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No addition to the tax shall be made under section 6654 or 6655 of
the Internal Revenue Code of 1986 (relating to failure to pay estimated
tax) with respect to any underpayment of an installment required to be
paid before the date of the enactment of this Act to the extent such
underpayment was created or increased by any provision of this title.
Subtitle A--Expensing; Etc.

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(a) General Rule.--Paragraph (1) of section 179(b) (relating to
dollar limitation) is amended to read as follows:
``(1) Dollar limitation.--The aggregate cost which may be taken
into account under subsection (a) for any taxable year shall not
exceed the following applicable amount:
``If the taxable year
The applicable
begins in:
amount is:
1997..........................................
18,000
1998..........................................
18,500
1999..........................................
19,000
2000..........................................
20,000
2001 or 2002..................................
24,000
2003 or thereafter............................
25,000.''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 1996.

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(a) Employee Cash Tips.--
(1) Reporting requirement not considered.--Subparagraph (A) of
section 45B(b)(1) (relating to excess employer social security tax)
is amended by inserting ``(without regard to whether such tips are
reported under section 6053)'' after ``section 3121(q)''.
(2) Taxes paid.--Subsection (d) of section 13443 of the Revenue
Reconciliation Act of 1993 is amended by inserting ``, with respect
to services performed before, on, or after such date'' after
``1993''.
(3) Effective date.--The amendments made by this subsection
shall take effect as if included in the amendments made by, and the
provisions of, section 13443 of the Revenue Reconciliation Act of
1993.
(b) Tips for Employees Delivering Food or Beverages.--
(1) In general.--Paragraph (2) of section 45B(b) is amended to
read as follows:
``(2) Only tips received for food or beverages taken into
account.--In applying paragraph (1), there shall be taken into
account only tips received from customers in connection with the
providing, delivering, or serving of food or beverages for
consumption if the tipping of employees delivering or serving food
or beverages by customers is customary.''.
(2) Effective date.--The amendment made by paragraph (1) shall
apply to tips received for services performed after December 31,
1996.

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(a) In General.--Paragraph (2) of section 280A(c) is amended by
striking ``inventory'' and inserting ``inventory or product samples''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 1995.

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(a) General Rule.--Section 501 (relating to exemption from tax on
corporations, certain trusts, etc.) is amended by redesignating
subsection (n) as subsection (o) and by inserting after subsection (m)
the following new subsection:
``(n) Charitable Risk Pools.--
``(1) In general.--For purposes of this title--
``(A) a qualified charitable risk pool shall be treated as
an organization organized and operated exclusively for
charitable purposes, and
``(B) subsection (m) shall not apply to a qualified
charitable risk pool.
``(2) Qualified charitable risk pool.--For purposes of this
subsection, the term `qualified charitable risk pool' means any
organization--
``(A) which is organized and operated solely to pool
insurable risks of its members (other than risks related to
medical malpractice) and to provide information to its members
with respect to loss control and risk management,
``(B) which is comprised solely of members that are
organizations described in subsection (c)(3) and exempt from
tax under subsection (a), and
``(C) which meets the organizational requirements of
paragraph (3).
``(3) Organizational requirements.--An organization
(hereinafter in this subsection referred to as the `risk pool')
meets the organizational requirements of this paragraph if--
``(A) such risk pool is organized as a nonprofit
organization under State law provisions authorizing risk
pooling arrangements for charitable organizations,
``(B) such risk pool is exempt from any income tax imposed
by the State (or will be so exempt after such pool qualifies as
an organization exempt from tax under this title),
``(C) such risk pool has obtained at least $1,000,000 in
startup capital from nonmember charitable organizations,
``(D) such risk pool is controlled by a board of directors
elected by its members, and
``(E) the organizational documents of such risk pool
require that--
``(i) each member of such pool shall at all times be an
organization described in subsection (c)(3) and exempt from
tax under subsection (a),
``(ii) any member which receives a final determination
that it no longer qualifies as an organization described in
subsection (c)(3) shall immediately notify the pool of such
determination and the effective date of such determination,
and
``(iii) each policy of insurance issued by the risk
pool shall provide that such policy will not cover the
insured with respect to events occurring after the date
such final determination was issued to the insured.
An organization shall not cease to qualify as a qualified
charitable risk pool solely by reason of the failure of any of its
members to continue to be an organization described in subsection
(c)(3) if, within a reasonable period of time after such pool is
notified as required under subparagraph (C)(ii), such pool takes
such action as may be reasonably necessary to remove such member
from such pool.
``(4) Other definitions.--For purposes of this subsection--
``(A) Startup capital.--The term `startup capital' means
any capital contributed to, and any program-related investments
(within the meaning of section 4944(c)) made in, the risk pool
before such pool commences operations.
``(B) Nonmember charitable organization.--The term
`nonmember charitable organization' means any organization
which is described in subsection (c)(3) and exempt from tax
under subsection (a) and which is not a member of the risk pool
and does not benefit (directly or indirectly) from the
insurance coverage provided by the pool to its members.''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to taxable years beginning after the date of the enactment of
this Act.

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ORGANIZATIONS.
(a) General Rule.--Section 512 (defining unrelated business taxable
income) is amended by adding at the end the following new subsection:
``(d) Treatment of Dues of Agricultural or Horticultural
Organizations.--
``(1) In general.--If--
``(A) an agricultural or horticultural organization
described in section 501(c)(5) requires annual dues to be paid
in order to be a member of such organization, and
``(B) the amount of such required annual dues does not
exceed $100,
in no event shall any portion of such dues be treated as derived by
such organization from an unrelated trade or business by reason of
any benefits or privileges to which members of such organization
are entitled.
``(2) Indexation of $100 amount.--In the case of any taxable
year beginning in a calendar year after 1995, the $100 amount in
paragraph (1) shall be increased by an amount equal to--
``(A) $100, multiplied by
``(B) the cost-of-living adjustment determined under
section 1(f)(3) for the calendar year in which the taxable year
begins, by substituting `calendar year 1994' for `calendar year
1992' in subparagraph (B) thereof.
``(3) Dues.--For purposes of this subsection, the term `dues'
means any payment (whether or not designated as dues) which is
required to be made in order to be recognized by the organization
as a member of the organization.''.
(b) Effective Dates.--
(1) In general.--The amendment made by this section shall apply
to taxable years beginning after December 31, 1986.
(2) Transitional rule.--If--
(A) for purposes of applying part III of subchapter F of
chapter 1 of the Internal Revenue Code of 1986 to any taxable
year beginning before January 1, 1987, an agricultural or
horticultural organization did not treat any portion of
membership dues received by it as income derived in an
unrelated trade or business, and
(B) such organization had a reasonable basis for not
treating such dues as income derived in an unrelated trade or
business,
then, for purposes of applying such part III to any such taxable
year, in no event shall any portion of such dues be treated as
derived in an unrelated trade or business.
(3) Reasonable basis.--For purposes of paragraph (2), an
organization shall be treated as having a reasonable basis for not
treating membership dues as income derived in an unrelated trade or
business if the taxpayer's treatment of such dues was in reasonable
reliance on any of the following:
(A) Judicial precedent, published rulings, technical advice
with respect to the organization, or a letter ruling to the
organization.
(B) A past Internal Revenue Service audit of the
organization in which there was no assessment attributable to
the reclassification of membership dues for purposes of the tax
on unrelated business income.
(C) Long-standing recognized practice of agricultural or
horticultural organizations.

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(a) Clarification of Employment Tax Status.--
(1) Amendments of internal revenue code of 1986.--
(A) Determination of size of crew.--Subsection (b) of
section 3121 (defining employment) is amended by adding at the
end the following new sentence:
``For purposes of paragraph (20), the operating crew of a boat shall be
treated as normally made up of fewer than 10 individuals if the average
size of the operating crew on trips made during the preceding 4
calendar quarters consisted of fewer than 10 indi- viduals.''.
(B) Certain cash remuneration permitted.--Subparagraph (A)
of section 3121(b)(20) is amended to read as follows:
``(A) such individual does not receive any cash
remuneration other than as provided in subparagraph (B) and
other than cash remuneration--
``(i) which does not exceed $100 per trip;
``(ii) which is contingent on a minimum catch; and
``(iii) which is paid solely for additional duties
(such as mate, engineer, or cook) for which additional cash
remuneration is traditional in the industry,''.
(C) Conforming amendment.--Section 6050A(a) is amended by
striking ``and'' at the end of paragraph (3), by striking the
period at the end of paragraph (4) and inserting ``; and'', and
by adding at the end the following new paragraph:
``(5) any cash remuneration described in section
3121(b)(20)(A).''.
(2) Amendment of social security act.--
(A) Determination of size of crew.--Subsection (a) of
section 210 of the Social Security Act is amended by adding at
the end the following new sentence:
``For purposes of paragraph (20), the operating crew of a boat shall be
treated as normally made up of fewer than 10 individuals if the average
size of the operating crew on trips made during the preceding 4
calendar quarters consisted of fewer than 10 indi- viduals.''.
(B) Certain cash remuneration permitted.--Subparagraph (A)
of section 210(a)(20) of such Act is amended to read as
follows:
``(A) such individual does not receive any additional
compensation other than as provided in subparagraph (B) and
other than cash remuneration--
``(i) which does not exceed $100 per trip;
``(ii) which is contingent on a minimum catch; and
``(iii) which is paid solely for additional duties
(such as mate, engineer, or cook) for which additional cash
remuneration is traditional in the industry,''.
(3) Effective Dates.--
(A) In general.--The amendments made by this subsection
shall apply to remuneration paid--
(i) after December 31, 1994, and
(ii) after December 31, 1984, and before January 1,
1995, unless the payor treated such remuneration (when
paid) as being subject to tax under chapter 21 of the
Internal Revenue Code of 1986.
(B) Reporting requirement.--The amendment made by paragraph
(1)(C) shall apply to remuneration paid after December 31,
1996.
(b) Information Reporting.--
(1) In general.--Subpart B of part III of subchapter A of
chapter 68 (relating to information concerning transactions with
other persons) is amended by inserting after section 6050Q the
following new section:
``SEC. 6050R. RETURNS RELATING TO CERTAIN PURCHASES OF FISH.
``(a) Requirement of Reporting.--Every person--
``(1) who is engaged in the trade or business of purchasing
fish for resale from any person engaged in the trade or business of
catching fish; and
``(2) who makes payments in cash in the course of such trade or
business to such a person of $600 or more during any calendar year
for the purchase of fish,
shall make a return (at such times as the Secretary may prescribe)
described in subsection (b) with respect to each person to whom such a
payment was made during such calendar year.
``(b) Return.--A return is described in this subsection if such
return--
``(1) is in such form as the Secretary may prescribe, and
``(2) contains--
``(A) the name, address, and TIN of each person to whom a
payment described in subsection (a)(2) was made during the
calendar year;
``(B) the aggregate amount of such payments made to such
person during such calendar year and the date and amount of
each such payment, and
``(C) such other information as the Secretary may require.
``(c) Statement To Be Furnished With Respect to Whom Information Is
Required.--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 a written statement showing--
``(1) the name and address of the person required to make such
a return, and
``(2) the aggregate amount of payments to the person required
to be shown on the return.
The written statement required under the preceding sentence shall be
furnished to the person on or before January 31 of the year following
the calendar year for which the return under subsection (a) is required
to be made.
``(d) Definitions.--For purposes of this section:
``(1) Cash.--The term `cash' has the meaning given such term by
section 6050I(d).
``(2) Fish.--The term `fish' includes other forms of aquatic
life.''.
(2) Technical amendments.--
(A) Subparagraph (A) of section 6724(d)(1) is amended by
striking ``or'' at the end of clause (vi), by striking ``and''
at the end of clause (vii) and inserting ``or'', and by adding
at the end the following new clause:
``(viii) section 6050R (relating to returns relating to
certain purchases of fish), and''.
(B) Paragraph (2) of section 6724(d) is amended by
redesignating subparagraphs (R) through (U) as subparagraphs
(S) through (V), respectively, and by inserting after
subparagraph (Q) the following new subparagraph:
``(R) section 6050R(c) (relating to returns relating to
certain purchases of fish),''.
(C) The table of sections for subpart B of part III of
subchapter A of chapter 68 is amended by inserting after the
item relating to 6050Q the following new item:
``Sec. 6050R. Returns relating to certain purchases of fish.''.
(3) Effective date.--The amendments made by this subsection
shall apply to payments made after December 31, 1997.

3b9b6100adb2ccb2269127a7e8373ab826d08b187b83824a23db21844bb9bf00

FARMERS.
(a) Acquisition From Related Person Allowed.--Section 147(c)(2)
(relating to exception for first-time farmers) is amended by adding at
the end the following new subparagraph:
``(G) Acquisition from related person.--For purposes of
this paragraph and section 144(a), the acquisition by a first-
time farmer of land or personal property from a related person
(within the meaning of section 144(a)(3)) shall not be treated
as an acquisition from a related person, if--
``(i) the acquisition price is for the fair market
value of such land or property, and
``(ii) subsequent to such acquisition, the related
person does not have a financial interest in the farming
operation with respect to which the bond proceeds are to be
used.''.
(b) Substantial Farmland Amount Doubled.--Clause (i) of section
147(c)(2)(E) (defining substantial farmland) is amended by striking
``15 percent'' and inserting ``30 percent''.
(c) Effective Date.--The amendments made by this section shall
apply to bonds issued after the date of the enactment of this Act.

20cc9c98797724f33c1d674e1fe6b908d2c6b7b452a465447ecea5f862554cfb

(a) In General.--Section 3508(b)(2)(A) is amended by striking
``or'' at the end of clause (i), by inserting ``or'' at the end of
clause (ii), and by inserting after clause (ii) the following new
clause:
``(iii) is engaged in the trade or business of the
delivering or distribution of newspapers or shopping news
(including any services directly related to such trade or
business),''.
(b) Effective Date.--The amendments made by this section shall
apply to services performed after December 31, 1995.

32fdaa62f196bb651bdcd3eeb32bc3aeb03cd4cf5f95b02812dd35d1c2a41d81

PRESIDENTIALLY DECLARED DISASTERS.
(a) In General.--Section 1033(h) is amended by redesignating
paragraphs (2) and (3) as paragraphs (3) and (4), respectively, and by
inserting after paragraph (1) the following new paragraph:
``(2) Trade or business and investment property.--If a
taxpayer's property held for productive use in a trade or business
or for investment is compulsorily or involuntarily converted as a
result of a Presidentially declared disaster, tangible property of
a type held for productive use in a trade or business shall be
treated for purposes of subsection (a) as property similar or
related in service or use to the property so converted.''.
(b) Conforming Amendments.--Section 1033(h) is amended--
(1) by striking ``residence'' in paragraph (3) (as redesignated
by subsection (a)) and inserting ``property'',
(2) by striking ``Principal Residences'' in the heading and
inserting ``Property'', and
(3) by striking ``(1) In general.--'' and inserting ``(1)
Principal residences.--''.
(c) Expansion of Oklahoma City Enterprise Community.--
Notwithstanding sections 1391 and 1392(a)(3)(D) of the Internal Revenue
Code of 1986, the boundaries of the enterprise community for Oklahoma
City, Oklahoma, designated by the Secretary of Housing and Urban
Development on December 21, 1994, may be extended with respect to
census tracts located in the area damaged due to the bombing of the
Alfred P. Murrah Federal Building in Oklahoma City on April 19, 1995,
primarily in the area bounded on the south by Robert S. Kerr Avenue, on
the north by North 13th Street, on the east by Oklahoma Avenue, and on
the west by Shartel Avenue.
(d) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to disasters declared after December 31, 1994, in taxable
years ending after such date.
(2) Subsection (c).--Subsection (c) shall take effect on the
date of the enactment of this Act.

af90ad1d3db4b8cb8c005875dd3904f66bd9f8da8a3cda88f9f675c8e2f8e535

STRUCTURES.
(a) In General.--Section 168(e)(3)(E) (classifying certain property
as 15-year property) is amended by striking ``and'' at the end of
clause (i), by striking the period at the end of clause (ii) and
inserting ``, and'', and by adding at the end the following new clause:
``(iii) any section 1250 property which is a retail
motor fuels outlet (whether or not food or other
convenience items are sold at the outlet).''.
(b) Conforming Amendment.--Subparagraph (B) of section 168(g)(3) is
amended by inserting after the item relating to subparagraph (E)(ii) in
the table contained therein the following new item:
``(E)(iii)................. 20''.
(c) Effective Date.--The amendments made by this section shall
apply to property which is placed in service on or after the date of
the enactment of this Act and to which section 168 of the Internal
Revenue Code of 1986 applies after the amendment made by section 201 of
the Tax Reform Act of 1986. A taxpayer may elect (in such form and
manner as the Secretary of the Treasury may prescribe) to have such
amendments apply with respect to any property placed in service before
such date and to which such section so applies.

3cbc9336538fc6ad91bc3a87f820c7513a3f6745c9b8706036961bcef0045dbc

TERMINATION OF LEASE.
(a) In General.--Paragraph (8) of section 168(i) is amended to read
as follows:
``(8) Treatment of leasehold improvements.--
``(A) In general.--In the case of any building erected (or
improvements made) on leased property, if such building or
improvement is property to which this section applies, the
depreciation deduction shall be determined under the provisions
of this section.
``(B) Treatment of lessor improvements which are abandoned
at termination of lease.--An improvement--
``(i) which is made by the lessor of leased property
for the lessee of such property, and
``(ii) which is irrevocably disposed of or abandoned by
the lessor at the termination of the lease by such lessee,
shall be treated for purposes of determining gain or loss under
this title as disposed of by the lessor when so disposed of or
abandoned.''.
(b) Effective Date.--Subparagraph (B) of section 168(i)(8) of the
Internal Revenue Code of 1986, as added by the amendment made by
subsection (a), shall apply to improvements disposed of or abandoned
after June 12, 1996.

62db0bfae5709b0d321dd6d28a605d66df0116237629796dda24f9cc4db9764e

ARE EMPLOYEES FOR PURPOSES OF EMPLOYMENT TAXES.
(a) In General.--Section 530 of the Revenue Act of 1978 is amended
by adding at the end the following new subsection:
``(e) Special Rules for Application of Section.--
``(1) Notice of availability of section.--An officer or
employee of the Internal Revenue Service shall, before or at the
commencement of any audit inquiry relating to the employment status
of one or more individuals who perform services for the taxpayer,
provide the taxpayer with a written notice of the provisions of
this section.
``(2) Rules relating to statutory standards.--For purposes of
subsection (a)(2)--
``(A) a taxpayer may not rely on an audit commenced after
December 31, 1996, for purposes of subparagraph (B) thereof
unless such audit included an examination for employment tax
purposes of whether the individual involved (or any individual
holding a position substantially similar to the position held
by the individual involved) should be treated as an employee of
the taxpayer,
``(B) in no event shall the significant segment requirement
of subparagraph (C) thereof be construed to require a
reasonable showing of the practice of more than 25 percent of
the industry (determined by not taking into account the
taxpayer), and
``(C) in applying the long-standing recognized practice
requirement of subparagraph (C) thereof--
``(i) such requirement shall not be construed as
requiring the practice to have continued for more than 10
years, and
``(ii) a practice shall not fail to be treated as long-
standing merely because such practice began after 1978.
``(3) Availability of safe harbors.--Nothing in this section
shall be construed to provide that subsection (a) only applies
where the individual involved is otherwise an employee of the
taxpayer.
``(4) Burden of proof.--
``(A) In general.--If--
``(i) a taxpayer establishes a prima facie case that it
was reasonable not to treat an individual as an employee
for purposes of this section, and
``(ii) the taxpayer has fully cooperated with
reasonable requests from the Secretary of the Treasury or
his delegate,
then the burden of proof with respect to such treatment shall
be on the Secretary.
``(B) Exception for other reasonable basis.--In the case of
any issue involving whether the taxpayer had a reasonable basis
not to treat an individual as an employee for purposes of this
section, subparagraph (A) shall only apply for purposes of
determining whether the taxpayer meets the requirements of
subparagraph (A), (B), or (C) of subsection (a)(2).
``(5) Preservation of prior period safe harbor.--If--
``(A) an individual would (but for the treatment referred
to in subparagraph (B)) be deemed not to be an employee of the
taxpayer under subsection (a) for any prior period, and
``(B) such individual is treated by the taxpayer as an
employee for employment tax purposes for any subsequent period,
then, for purposes of applying such taxes for such prior period
with respect to the taxpayer, the individual shall be deemed not to
be an employee.
``(6) Substantially similar position.--For purposes of this
section, the determination as to whether an individual holds a
position substantially similar to a position held by another
individual shall include consideration of the relationship between
the taxpayer and such individuals.''.
(b) Effective Dates.--
(1) In general.--The amendment made by this section shall apply
to periods after December 31, 1996.
(2) Notice by internal revenue service.--Section 530(e)(1) of
the Revenue Act of 1978 (as added by subsection (a)) shall apply to
audits which commence after December 31, 1996.
(3) Burden of proof.--
(A) In general.--Section 530(e)(4) of the Revenue Act of
1978 (as added by subsection (a)) shall apply to disputes
involving periods after December 31, 1996.
(B) No inference.--Nothing in the amendments made by this
section shall be construed to infer the proper treatment of the
burden of proof with respect to disputes involving periods
before January 1, 1997.

c3cae325b2ffde10a0512964465cee6aecdccb3508e226b10757a3c117495db3

HEALTH CENTERS.
(a) In General.--Paragraph (4) of section 119(d) (relating to
lodging furnished by certain educational institutions to employees) is
amended to read as follows:
``(4) Educational institution, etc.--For purposes of this
subsection--
``(A) In general.--The term `educational institution'
means--
``(i) an institution described in section
170(b)(1)(A)(ii) (or an entity organized under State law
and composed of public institutions so described), or
``(ii) an academic health center.
``(B) Academic health center.--For purposes of subparagraph
(A), the term `academic health center' means an entity--
``(i) which is described in section 170(b)(1)(A)(iii),
``(ii) which receives (during the calendar year in
which the taxable year of the taxpayer begins) payments
under subsection (d)(5)(B) or (h) of section 1886 of the
Social Security Act (relating to graduate medical
education), and
``(iii) which has as one of its principal purposes or
functions the providing and teaching of basic and clinical
medical science and research with the entity's own
faculty.''.
(b) Effective Date.--The amendment made by this section shall apply
to taxable years beginning after December 31, 1995.
Subtitle B--Extension of Certain Expiring Provisions

71a692585f07360e74bcf0b1d8585ef2c8f0d305c3a13e96d500000fc61c7402

(a) Amount of Credit.--Subsection (a) of section 51 (relating to
amount of credit) is amended by striking ``40 percent'' and inserting
``35 percent''.
(b) Members of Targeted Groups.--Subsection (d) of section 51 is
amended to read as follows:
``(d) Members of Targeted Groups.--For purposes of this subpart--
``(1) In general.--An individual is a member of a targeted
group if such individual is--
``(A) a qualified IV-A recipient,
``(B) a qualified veteran,
``(C) a qualified ex-felon,
``(D) a high-risk youth,
``(E) a vocational rehabilitation referral,
``(F) a qualified summer youth employee, or
``(G) a qualified food stamp recipient.
``(2) Qualified iv-a recipient.--
``(A) In general.--The term `qualified IV-A recipient'
means any individual who is certified by the designated local
agency as being a member of a family receiving assistance under
a IV-A program for at least a 9-month period ending during the
9-month period ending on the hiring date.
``(B) IV-A program.--For purposes of this paragraph, the
term `IV-A program' means any program providing assistance
under a State plan approved under part A of title IV of the
Social Security Act (relating to assistance for needy families
with minor children) and any successor of such program.
``(3) Qualified veteran.--
``(A) In general.--The term `qualified veteran' means any
veteran who is certified by the designated local agency as
being--
``(i) a member of a family receiving assistance under a
IV-A program (as defined in paragraph (2)(B)) for at least
a 9-month period ending during the 12-month period ending
on the hiring date, or
``(ii) a member of a family receiving assistance under
a food stamp program under the Food Stamp Act of 1977 for
at least a 3-month period ending during the 12-month period
ending on the hiring date.
``(B) Veteran.--For purposes of subparagraph (A), the term
`veteran' means any individual who is certified by the
designated local agency as--
``(i)(I) having served on active duty (other than
active duty for training) in the Armed Forces of the United
States for a period of more than 180 days, or
``(II) having been discharged or released from active
duty in the Armed Forces of the United States for a
service-connected disability, and
``(ii) not having any day during the 60-day period
ending on the hiring date which was a day of extended
active duty in the Armed Forces of the United States.
For purposes of clause (ii), the term `extended active duty'
means a period of more than 90 days during which the individual
was on active duty (other than active duty for training).
``(4) Qualified ex-felon.--The term `qualified ex-felon' means
any individual who is certified by the designated local agency--
``(A) as having been convicted of a felony under any
statute of the United States or any State,
``(B) as having a hiring date which is not more than 1 year
after the last date on which such individual was so convicted
or was released from prison, and
``(C) as being a member of a family which had an income
during the 6 months immediately preceding the earlier of the
month in which such income determination occurs or the month in
which the hiring date occurs, which, on an annual basis, would
be 70 percent or less of the Bureau of Labor Statistics lower
living standard.
Any determination under subparagraph (C) shall be valid for the 45-
day period beginning on the date such determination is made.
``(5) High-risk youth.--
``(A) In general.--The term `high-risk youth' means any
individual who is certified by the designated local agency--
``(i) as having attained age 18 but not age 25 on the
hiring date, and
``(ii) as having his principal place of abode within an
empowerment zone or enterprise community.
``(B) Youth must continue to reside in zone.--In the case
of a high-risk youth, the term `qualified wages' shall not
include wages paid or incurred for services performed while
such youth's principal place of abode is outside an empowerment
zone or enterprise community.
``(6) Vocational rehabilitation referral.--The term `vocational
rehabilitation referral' means any individual who is certified by
the designated local agency as--
``(A) having a physical or mental disability which, for
such individual, constitutes or results in a substantial
handicap to employment, and
``(B) having been referred to the employer upon completion
of (or while receiving) rehabilitative services pursuant to--
``(i) an individualized written rehabilitation plan
under a State plan for vocational rehabilitation services
approved under the Rehabilitation Act of 1973, or
``(ii) a program of vocational rehabilitation carried
out under chapter 31 of title 38, United States Code.
``(7) Qualified summer youth employee.--
``(A) In general.--The term `qualified summer youth
employee' means any individual--
``(i) who performs services for the employer between
May 1 and September 15,
``(ii) who is certified by the designated local agency
as having attained age 16 but not 18 on the hiring date (or
if later, on May 1 of the calendar year involved),
``(iii) who has not been an employee of the employer
during any period prior to the 90-day period described in
subparagraph (B)(i), and
``(iv) who is certified by the designated local agency
as having his principal place of abode within an
empowerment zone or enterprise community.
``(B) Special rules for determining amount of credit.--For
purposes of applying this subpart to wages paid or incurred to
any qualified summer youth employee--
``(i) subsection (b)(2) shall be applied by
substituting `any 90-day period between May 1 and September
15' for `the 1-year period beginning with the day the
individual begins work for the employer', and
``(ii) subsection (b)(3) shall be applied by
substituting `$3,000' for `$6,000'.
The preceding sentence shall not apply to an individual who,
with respect to the same employer, is certified as a member of
another targeted group after such individual has been a
qualified summer youth employee.
``(C) Youth must continue to reside in zone.--Paragraph
(5)(B) shall apply for purposes of subparagraph (A)(iv).
``(8) Qualified food stamp recipient.--
``(A) In general.--The term `qualified food stamp
recipient' means any individual who is certified by the
designated local agency--
``(i) as having attained age 18 but not age 25 on the
hiring date, and
``(ii) as being a member of a family--
``(I) receiving assistance under a food stamp
program under the Food Stamp Act of 1977 for the 6-
month period ending on the hiring date, or
``(II) receiving such assistance for at least 3
months of the 5-month period ending on the hiring date,
in the case of a member of a family who ceases to be
eligible for such assistance under section 6(o) of the
Food Stamp Act of 1977.
``(B) Participation information.--Notwithstanding any other
provision of law, the Secretary of the Treasury and the
Secretary of Agriculture shall enter into an agreement to
provide information to designated local agencies with respect
to participation in the food stamp program.
``(9) Hiring date.--The term `hiring date' means the day the
individual is hired by the employer.
``(10) Designated local agency.--The term `designated local
agency' means a State employment security agency established in
accordance with the Act of June 6, 1933, as amended (29 U.S.C. 49-
49n).
``(11) Special rules for certifications.--
``(A) In general.--An individual shall not be treated as a
member of a targeted group unless--
``(i) on or before the day on which such individual
begins work for the employer, the employer has received a
certification from a designated local agency that such
individual is a member of a targeted group, or
``(ii)(I) on or before the day the individual is
offered employment with the employer, a pre-screening
notice is completed by the employer with respect to such
individual, and
``(II) not later than the 21st day after the individual
begins work for the employer, the employer submits such
notice, signed by the employer and the individual under
penalties of perjury, to the designated local agency as
part of a written request for such a certification from
such agency.
For purposes of this paragraph, the term `pre-screening notice'
means a document (in such form as the Secretary shall
prescribe) which contains information provided by the
individual on the basis of which the employer believes that the
individual is a member of a targeted group.
``(B) Incorrect certifications.--If--
``(i) an individual has been certified by a designated
local agency as a member of a targeted group, and
``(ii) such certification is incorrect because it was
based on false information provided by such individual,
the certification shall be revoked and wages paid by the
employer after the date on which notice of revocation is
received by the employer shall not be treated as qualified
wages.
``(C) Explanation of denial of request.--If a designated
local agency denies a request for certification of membership
in a targeted group, such agency shall provide to the person
making such request a written explanation of the reasons for
such denial.''.
(c) Minimum Employment Period.--Paragraph (3) of section 51(i)
(relating to certain individuals ineligible) is amended to read as
follows:
``(3) Individuals not meeting minimum employment period.--No
wages shall be taken into account under subsection (a) with respect
to any individual unless such individual either--
``(A) is employed by the employer at least 180 days (20
days in the case of a qualified summer youth employee), or
``(B) has completed at least 400 hours (120 hours in the
case of a qualified summer youth employee) of services
performed for the employer.''.
(d) Termination.--Paragraph (4) of section 51(c) (relating to wages
defined) is amended to read as follows:
``(4) Termination.--The term `wages' shall not include any
amount paid or incurred to an individual who begins work for the
employer--
``(A) after December 31, 1994, and before October 1, 1996,
or
``(B) after September 30, 1997.''.
(e) Redesignation of Credit.--
(1) Sections 38(b)(2), 41(b)(2)(D)(iii), 45A(b)(1)(B), 51 (a)
and (g), and 196(c) are each amended in the text by striking
``targeted jobs credit'' each place it appears and inserting ``work
opportunity credit''.
(2) The subpart heading for subpart F of part IV of subchapter
A of chapter 1 is amended by striking ``Targeted Jobs Credit'' and
inserting ``Work Opportunity Credit''.
(3) The table of subparts for such part IV is amended by
striking ``targeted jobs credit'' and inserting ``work opportunity
credit''.
(4) The headings for sections 41(b)(2)(D)(iii) and 1396(c)(3)
are each amended by striking ``targeted jobs credit'' and inserting
``work opportunity credit''.
(5) The heading for subsection (j) of section 51 is amended by
striking ``Targeted Jobs Credit'' and inserting ``Work Opportunity
Credit''.
(f) Technical Amendment.--Paragraph (1) of section 51(c) is amended
by striking ``, subsection (d)(8)(D),''.
(g) Effective Date.--The amendments made by this section shall
apply to individuals who begin work for the employer after September
30, 1996.

9759dea985d20763f95fb5f57d09bcfd78c6a7aee2ee3086069425002249a10e

(a) Extension.--Subsection (d) of section 127 (relating to
educational assistance programs) is amended by striking ``December 31,
1994.'' and inserting ``May 31, 1997. In the case of any taxable year
beginning in 1997, only expenses paid with respect to courses beginning
before July 1, 1997, shall be taken into account in determining the
amount excluded under this section.''.
(b) Limitation to Education Below Graduate Level.--The last
sentence of section 127(c)(1) is amended by inserting before the period
the following: ``, 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) Effective Dates.--
(1) Extension.--The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 1994.
(2) Graduate education.--The amendment made by subsection (b)
shall apply with respect to expenses relating to courses beginning
after June 30, 1996.
(3) Expedited procedures.--The Secretary of the Treasury shall
establish expedited procedures for the refund of any overpayment of
taxes imposed by the Internal Revenue Code of 1986 which is
attributable to amounts excluded from gross income during 1995 or
1996 under section 127 of such Code, including procedures waiving
the requirementthat an employer obtain an employee's signature
where the employer demonstrates to the satisfaction of the Secretary
that any refund collected by the employer on behalf of the employee
will be paid to the employee.

df780a0f2f9933473a0b5c6d769db103411071c767c65434892d5435cfda02f4

(a) In General.--Subparagraph (B) of section 3306(c)(1) (defining
employment) is amended by striking ``before January 1, 1995,''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply to services performed after December 31, 1994.

b808a3229fcf005302ab30b45df64508dd47d4c47ec32cc4c50b470cdf37e6df

(a) In General.--Subsection (h) of section 41 (relating to credit
for research activities) is amended to read as follows:
``(h) Termination.--
``(1) In general.--This section shall not apply to any amount
paid or incurred--
``(A) after June 30, 1995, and before July 1, 1996, or
``(B) after May 31, 1997.
Notwithstanding the preceding sentence, in the case of a taxpayer
making an election under subsection (c)(4) for its first taxable
year beginning after June 30, 1996, and before July 1, 1997, this
section shall apply to amounts paid or incurred during the first 11
months of such taxable year.
``(2) Computation of base amount.--In the case of any taxable
year with respect to which this section applies to a number of days
which is less than the total number of days in such taxable year,
the base amount with respect to such taxable year shall be the
amount which bears the same ratio to the base amount for such year
(determined without regard to this paragraph) as the number of days
in such taxable year to which this section applies bears to the
total number of days in such taxable year.''.
(b) Base Amount for Start-Up Companies.--Clause (i) of section
41(c)(3)(B) (relating to start-up companies) is amended to read as
follows:
``(i)  Taxpayers to which subparagraph applies.--The
fixed-base percentage shall be determined under this
subparagraph if--
``(I) the first taxable year in which a taxpayer
had both gross receipts and qualified research expenses
begins after December 31, 1983, or
``(II) there are fewer than 3 taxable years
beginning after December 31, 1983, and before January
1, 1989, in which the taxpayer had both gross receipts
and qualified research expenses.''.
(c) Election of Alternative Incremental Credit.--Subsection (c) of
section 41 is amended by redesignating paragraphs (4) and (5) as
paragraphs (5) and (6), respectively, and by inserting after paragraph
(3) the following new paragraph:
``(4) Election of alternative incremental credit.--
``(A) In general.--At the election of the taxpayer, the
credit determined under subsection (a)(1) shall be equal to the
sum of--
``(i) 1.65 percent of so much of the qualified research
expenses for the taxable year as exceeds 1 percent of the
average described in subsection (c)(1)(B) but does not
exceed 1.5 percent of such average,
``(ii) 2.2 percent of so much of such expenses as
exceeds 1.5 percent of such average but does not exceed 2
percent of such average, and
``(iii) 2.75 percent of so much of such expenses as
exceeds 2 percent of such average.
``(B) Election.--An election under this paragraph may be
made only for the first taxable year of the taxpayer beginning
after June 30, 1996. Such an election shall apply to the
taxable year for which made and all succeeding taxable years
unless revoked with the consent of the Secretary.''.
(d) Increased Credit for Contract Research Expenses With Respect to
Certain Research Consortia.--Paragraph (3) of section 41(b) is amended
by adding at the end the following new subparagraph:
``(C) Amounts paid to certain research consortia.--
``(i) In general.--Subparagraph (A) shall be applied by
substituting `75 percent' for `65 percent' with respect to
amounts paid or incurred by the taxpayer to a qualified
research consortium for qualified research on behalf of the
taxpayer and 1 or more unrelated taxpayers. For purposes of
the preceding sentence, all persons treated as a single
employer under subsection (a) or (b) of section 52 shall be
treated as related taxpayers.
``(ii) Qualified research consortium.--The term
`qualified research consortium' means any organization
which--
``(I) is described in section 501(c)(3) or
501(c)(6) and is exempt from tax under section 501(a),
``(II) is organized and operated primarily to
conduct scientific research, and
``(III) is not a private foundation.''.
(e)  Conforming Amendment.--Subparagraph (D) of section 28(b)(1) is
amended by inserting ``, and before July 1, 1996, and periods after May
31, 1997'' after ``June 30, 1995''.
(f) Effective Dates.--
(1) In general.--Except as provided in paragraph (2), the
amendments made by this section shall apply to taxable years ending
after June 30, 1996.
(2) Subsections (c) and (d).--The amendments made by
subsections (c) and (d) shall apply to taxable years beginning
after June 30, 1996.
(3) Estimated tax.--The amendments made by this section shall
not be taken into account under section 6654 or 6655 of the
Internal Revenue Code of 1986 (relating to failure to pay estimated
tax) in determining the amount of any installment required to be
paid for a taxable year beginning in 1997.

603c26fb9597ecb910275ad2e41c6186233dfc3a00c21c9a49a3eb9d79faa024

(a) Recategorized as a Business Credit.--
(1) In general.--Section 28 (relating to clinical testing
expenses for certain drugs for rare diseases or conditions) is
transferred to subpart D of part IV of subchapter A of chapter 1,
inserted after section 45B, and redesignated as section 45C.
(2) Conforming amendment.--Subsection (b) of section 38
(relating to general business credit) is amended by striking
``plus'' at the end of paragraph (10), by striking the period at
the end of paragraph (11) and inserting ``, plus'', and by adding
at the end the following new paragraph:
``(12) the orphan drug credit determined under section
45C(a).''.
(3) Clerical amendments.--
(A) The table of sections for subpart B of such part IV is
amended by striking the item relating to section 28.
(B) The table of sections for subpart D of such part IV is
amended by adding at the end the following new item:
``Sec. 45C. Clinical testing expenses for certain drugs for rare
diseases or conditions.''.
(b) Credit Termination.--Subsection (e) of section 45C, as
redesignated by subsection (a)(1), is amended to read as follows:
``(e) Termination.--This section shall not apply to any amount paid
or incurred--
``(1) after December 31, 1994, and before July 1, 1996, or
``(2) after May 31, 1997.''.
(c) No Pre-July 1, 1996 Carrybacks.--Subsection (d) of section 39
(relating to carryback and carryforward of unused credits) is amended
by adding at the end the following new paragraph:
``(7) No carryback of section 45c credit before july 1, 1996.--
No portion of the unused business credit for any taxable year which
is attributable to the orphan drug credit determined under section
45C may be carried back to a taxable year ending before July 1,
1996.''.
(d) Additional Conforming Amendments.--
(1) Section 45C(a), as redesignated by subsection (a)(1), is
amended by striking ``There shall be allowed as a credit against
the tax imposed by this chapter for the taxable year'' and
inserting ``For purposes of section 38, the credit determined under
this section for the taxable year is''.
(2) Section 45C(d), as so redesignated, is amended by striking
paragraph (2) and by redesignating paragraphs (3), (4), and (5) as
paragraphs (2), (3), and (4).
(3) Section 29(b)(6)(A) is amended by striking ``sections 27
and 28'' and inserting ``section 27''.
(4) Section 30(b)(3)(A) is amended by striking ``sections 27,
28, and 29'' and inserting ``sections 27 and 29''.
(5) Section 53(d)(1)(B) is amended--
(A) by striking ``or not allowed under section 28 solely by
reason of the application of section 28(d)(2)(B),'' in clause
(iii), and
(B) by striking ``or not allowed under section 28 solely by
reason of the application of section 28(d)(2)(B)'' in clause
(iv)(II).
(6) Section 55(c)(2) is amended by striking ``28(d)(2),''.
(7) Section 280C(b) is amended--
(A) by striking ``section 28(b)'' in paragraph (1) and
inserting ``section 45C(b)'',
(B) by striking ``section 28'' in paragraphs (1) and (2)(A)
and inserting ``section 45C'', and
(C) by striking ``subsection (d)(2) thereof'' in paragraphs
(1) and (2)(A) and inserting ``section 38(c)''.
(e) Effective Date.--The amendments made by this section shall
apply to amounts paid or incurred in taxable years ending after June
30, 1996.

bcced728cc0eadb19b8c161dbf9a0f4fdff664a4b82869b848ebfd264f557e4e

(a) In General.--Subparagraph (D) of section 170(e)(5) (relating to
special rule for contributions of stock for which market quotations are
readily available) is amended to read as follows:
``(D) Termination.--This paragraph shall not apply to
contributions made--
``(i) after December 31, 1994, and before July 1, 1996,
or
``(ii) after May 31, 1997.''.
(b) Effective Date.--The amendment made by this section shall apply
to contributions made after June 30, 1996.

d98abe4ee459177c09c9d08692320b185a7df77e53a2ae44188de06c4ce66b40

FACILITIES.
(a) In General.--Subparagraph (A) of section 29(g)(1) (relating to
extension of certain facilities) is amended by striking ``January 1,
1997'' and inserting ``July 1, 1998'' and by striking ``January 1,
1996'' and inserting ``January 1, 1997''.
(b) Effective Date.--The amendment made by this section shall take
effect on the date of the enactment of this Act.

ddee927a450bb58a2cb119e6b535d831828ffb1866506913b93cf43cd4f17cd6

USED IN DIESEL-POWERED MOTORBOATS.
Subparagraph (D) of section 4041(a)(1) (relating to the imposition
of tax on diesel fuel and special motor fuels) is amended by
redesignating clauses (i) and (ii) as clauses (ii) and (iii),
respectively, and by inserting before clause (ii) (as redesignated) the
following new clause:
``(i) no tax shall be imposed by subsection (a) or
(d)(1) during the period beginning on the date which is 7
days after the date of the enactment of the Small Business
Job Protection Act of 1996 and ending on December 31,
1997,''.
Subtitle C--Provisions Relating to S Corporations

61ecc52b7d27da5f62de5e06984931f7747fe221e05cfade225e370fd2c3f4a1

Subparagraph (A) of section 1361(b)(1) (defining small business
corporation) is amended by striking ``35 shareholders'' and inserting
``75 shareholders''.

ebb0f3755c57ae794bf999e905a9e40da5bd08a7eceb3c0aa11d5733c92b97cc

(a) General Rule.--Subparagraph (A) of section 1361(c)(2) (relating
to certain trusts permitted as shareholders) is amended by inserting
after clause (iv) the following new clause:
``(v) An electing small business trust.''.
(b) Current Beneficiaries Treated as Shareholders.--Subparagraph
(B) of section 1361(c)(2) is amended by adding at the end the following
new clause:
``(v) In the case of a trust described in clause (v) of
subparagraph (A), each potential current beneficiary of
such trust shall be treated as a shareholder; except that,
if for any period there is no potential current beneficiary
of such trust, such trust shall be treated as the
shareholder during such period.''.
(c) Electing Small Business Trust Defined.--Section 1361 (defining
S corporation) is amended by adding at the end the following new
subsection:
``(e) Electing Small Business Trust Defined.--
``(1) Electing small business trust.--For purposes of this
section--
``(A) In general.--Except as provided in subparagraph (B),
the term `electing small business trust' means any trust if--
``(i) such trust does not have as a beneficiary any
person other than (I) an individual, (II) an estate, or
(III) an organization described in paragraph (2), (3), (4),
or (5) of section 170(c) which holds a contingent interest
and is not a potential current beneficiary,
``(ii) no interest in such trust was acquired by
purchase, and
``(iii) an election under this subsection applies to
such trust.
``(B) Certain trusts not eligible.--The term `electing
small business trust' shall not include--
``(i) any qualified subchapter S trust (as defined in
subsection (d)(3)) if an election under subsection (d)(2)
applies to any corporation the stock of which is held by
such trust, and
``(ii) any trust exempt from tax under this subtitle.
``(C) Purchase.--For purposes of subparagraph (A), the term
`purchase' means any acquisition if the basis of the property
acquired is determined under section 1012.
``(2) Potential current beneficiary.--For purposes of this
section, the term `potential current beneficiary' means, with
respect to any period, any person who at any time during such
period is entitled to, or at the discretion of any person may
receive, a distribution from the principal or income of the trust.
If a trust disposes of all of the stock which it holds in an S
corporation, then, with respect to such corporation, the term
`potential current beneficiary' does not include any person who
first met the requirements of the preceding sentence during the 60-
day period ending on the date of such disposition.
``(3) Election.--An election under this subsection shall be
made by the trustee. Any such election shall apply to the taxable
year of the trust for which made and all subsequent taxable years
of such trust unless revoked with the consent of the Secretary.
``(4) Cross reference.--
``For special treatment of electing small business trusts, see
section 641(d).''.
(d) Taxation of Electing Small Business Trusts.--Section 641
(relating to imposition of tax on trusts) is amended by adding at the
end the following new subsection:
``(d) Special Rules for Taxation of Electing Small Business
Trusts.--
``(1) In general.--For purposes of this chapter--
``(A) the portion of any electing small business trust
which consists of stock in 1 or more S corporations shall be
treated as a separate trust, and
``(B) the amount of the tax imposed by this chapter on such
separate trust shall be determined with the modifications of
paragraph (2).
``(2) Modifications.--For purposes of paragraph (1), the
modifications of this paragraph are the following:
``(A) Except as provided in section 1(h), the amount of the
tax imposed by section 1(e) shall be determined by using the
highest rate of tax set forth in section 1(e).
``(B) The exemption amount under section 55(d) shall be
zero.
``(C) The only items of income, loss, deduction, or credit
to be taken into account are the following:
``(i) The items required to be taken into account under
section 1366.
``(ii) Any gain or loss from the disposition of stock
in an S corporation.
``(iii) To the extent provided in regulations, State or
local income taxes or administrative expenses to the extent
allocable to items described in clauses (i) and (ii).
No deduction or credit shall be allowed for any amount not
described in this paragraph, and no item described in this
paragraph shall be apportioned to any beneficiary.
``(D) No amount shall be allowed under paragraph (1) or (2)
of section 1211(b).
``(3) Treatment of remainder of trust and distributions.--For
purposes of determining--
``(A) the amount of the tax imposed by this chapter on the
portion of any electing small business trust not treated as a
separate trust under paragraph (1), and
``(B) the distributable net income of the entire trust,
the items referred to in paragraph (2)(C) shall be excluded. Except
as provided in the preceding sentence, this subsection shall not
affect the taxation of any distribution from the trust.
``(4) Treatment of unused deductions where termination of
separate trust.--If a portion of an electing small business trust
ceases to be treated as a separate trust under paragraph (1), any
carryover or excess deduction of the separate trust which is
referred to in section 642(h) shall be taken into account by the
entire trust.
``(5) Electing small business trust.--For purposes of this
subsection, the term `electing small business trust' has the
meaning given such term by section 1361(e)(1).''.
(e) Technical Amendment.--Paragraph (1) of section 1366(a) is
amended by inserting ``, or of a trust or estate which terminates,''
after ``who dies''.

a7a336399db15b1e3c32b01498c46a2608967eb772d1d7a9157f11887e3a6eb6

Subparagraph (A) of section 1361(c)(2) (relating to certain trusts
permitted as shareholders) is amended--
(1) by striking ``60-day period'' each place it appears in
clauses (ii) and (iii) and inserting ``2-year period'', and
(2) by striking the last sentence in clause (ii).

ac8daaecee4648119613adc50b5e19d6f57d4821861e00df242bbe80742d7d21

Clause (iii) of section 1361(c)(5)(B) (defining straight debt) is
amended by striking ``or a trust described in paragraph (2)'' and
inserting ``a trust described in paragraph (2), or a person which is
actively and regularly engaged in the business of lending money''.

f6771810c6abdf7c06e92c4f8c59c5b79ca6962be4b4c94d2fb618abe50a30ce

ELECTIONS.
(a) General Rule.--Subsection (f) of section 1362 (relating to
inadvertent terminations) is amended to read as follows:
``(f) Inadvertent Invalid Elections or Terminations.--If--
``(1) an election under subsection (a) by any corporation--
``(A) was not effective for the taxable year for which made
(determined without regard to subsection (b)(2)) by reason of a
failure to meet the requirements of section 1361(b) or to
obtain shareholder consents, or
``(B) was terminated under paragraph (2) or (3) of
subsection (d),
``(2) the Secretary determines that the circumstances resulting
in such ineffectiveness or termination were inadvertent,
``(3) no later than a reasonable period of time after discovery
of the circumstances resulting in such ineffectiveness or
termination, steps were taken--
``(A) so that the corporation is a small business
corporation, or
``(B) to acquire the required shareholder consents, and
``(4) the corporation, and each person who was a shareholder in
the corporation at any time during the period specified pursuant to
this subsection, agrees to make such adjustments (consistent with
the treatment of the corporation as an S corporation) as may be
required by the Secretary with respect to such period,
then, notwithstanding the circumstances resulting in such
ineffectiveness or termination, such corporation shall be treated as an
S corporation during the period specified by the Secretary.''.
(b) Late Elections, Etc.--Subsection (b) of section 1362 is amended
by adding at the end the following new paragraph:
``(5) Authority to treat late elections, etc., as timely.--If--
``(A) an election under subsection (a) is made for any
taxable year (determined without regard to paragraph (3)) after
the date prescribed by this subsection for making such election
for such taxable year or no such election is made for any
taxable year, and
``(B) the Secretary determines that there was reasonable
cause for the failure to timely make such election,
the Secretary may treat such an election as timely made for such
taxable year (and paragraph (3) shall not apply).''.
(c) Effective Date.--The amendments made by subsections (a) and (b)
shall apply with respect to elections for taxable years beginning after
December 31, 1982.

69b4c03d0bfaf8c7b2f00700e0f908e415bdcb5330aaa48f2522eca49acbc24a

Paragraph (2) of section 1377(a) (relating to pro rata share) is
amended to read as follows:
``(2) Election to terminate year.--
``(A) In general.--Under regulations prescribed by the
Secretary, if any shareholder terminates the shareholder's
interest in the corporation during the taxable year and all
affected shareholders and the corporation agree to the
application of this paragraph, paragraph (1) shall be applied
to the affected shareholders as if the taxable year consisted
of 2 taxable years the first of which ends on the date of the
termination.
``(B) Affected shareholders.--For purposes of subparagraph
(A), the term `affected shareholders' means the shareholder
whose interest is terminated and all shareholders to whom such
shareholder has transferred shares during the taxable year. If
such shareholder has transferred shares to the corporation, the
term `affected shareholders' shall include all persons who are
shareholders during the taxable year.''.

8145d002e9b5d937697d99e8a90c267e87137c86b21ed8ae937d0782f58f2caf

(a) In General.--Paragraph (1) of section 1377(b) (relating to
post-termination transition period) is amended by striking ``and'' at
the end of subparagraph (A), by redesignating subparagraph (B) as
subparagraph (C), and by inserting after subparagraph (A) the following
new subparagraph:
``(B) the 120-day period beginning on the date of any
determination pursuant to an audit of the taxpayer which
follows the termination of the corporation's election and which
adjusts a subchapter S item of income, loss, or deduction of
the corporation arising during the S period (as defined in
section 1368(e)(2)), and''.
(b) Determination Defined.--Paragraph (2) of section 1377(b) is
amended by striking subparagraphs (A) and (B), by redesignating
subparagraph (C) as subparagraph (B), and by inserting before
subparagraph (B) (as so redesignated) the following new subparagraph:
``(A) a determination as defined in section 1313(a), or''.
(c) Repeal of Special Audit Provisions for Sub- chapter S Items.--
(1) General rule.--Subchapter D of chapter 63 (relating to tax
treatment of subchapter S items) is hereby repealed.
(2) Consistent treatment required.--Section 6037 (relating to
return of S corporation) is amended by adding at the end the
following new subsection:
``(c) Shareholder's Return Must Be Consistent With Corporate Return
or Secretary Notified of Inconsistency.--
``(1) In general.--A shareholder of an S corporation shall, on
such shareholder's return, treat a subchapter S item in a manner
which is consistent with the treatment of such item on the
corporate return.
``(2) Notification of inconsistent treatment.--
``(A) In general.--In the case of any subchapter S item,
if--
``(i)(I) the corporation has filed a return but the
shareholder's treatment on his return is (or may be)
inconsistent with the treatment of the item on the
corporate return, or
``(II) the corporation has not filed a return, and
``(ii) the shareholder files with the Secretary a
statement identifying the inconsistency,
paragraph (1) shall not apply to such item.
``(B) Shareholder receiving incorrect information.--A
shareholder shall be treated as having complied with clause
(ii) of subparagraph (A) with respect to a subchapter S item if
the shareholder--
``(i) demonstrates to the satisfaction of the Secretary
that the treatment of the subchapter S item on the
shareholder's return is consistent with the treatment of
the item on the schedule furnished to the shareholder by
the corporation, and
``(ii) elects to have this paragraph apply with respect
to that item.
``(3) Effect of failure to notify.--In any case--
``(A) described in subparagraph (A)(i)(I) of paragraph (2),
and
``(B) in which the shareholder does not comply with
subparagraph (A)(ii) of paragraph (2),
any adjustment required to make the treatment of the items by such
shareholder consistent with the treatment of the items on the
corporate return shall be treated as arising out of mathematical or
clerical errors and assessed according to section 6213(b)(1).
Paragraph (2) of section 6213(b) shall not apply to any assessment
referred to in the preceding sentence.
``(4) Subchapter s item.--For purposes of this subsection, the
term `subchapter S item' means any item of an S corporation to the
extent that regulations prescribed by the Secretary provide that,
for purposes of this subtitle, such item is more appropriately
determined at the corporation level than at the shareholder level.
``(5) Addition to tax for failure to comply with section.--
``For addition to tax in the case of a shareholder's
negligence in connection with, or disregard of, the requirements
of this section, see part II of subchapter A of chapter 68.''.
(3) Conforming amendments.--
(A) Section 1366 is amended by striking sub- section (g).
(B) Subsection (b) of section 6233 is amended to read as
follows:
``(b) Similar Rules in Certain Cases.--If a partnership return is
filed for any taxable year but it is determined that there is no entity
for such taxable year, to the extent provided in regulations, rules
similar to the rules of subsection (a) shall apply.''.
(C) The table of subchapters for chapter 63 is amended by
striking the item relating to subchapter D.

de2f23c17e639923f700509bffca3aead877c8b579be3696ad0defcc34bdc03e

(a) In General.--Paragraph (2) of section 1361(b) (defining
ineligible corporation) is amended by striking subparagraph (A) and by
redesignating subparagraphs (B), (C), (D), and (E) as subparagraphs
(A), (B), (C), and (D), respectively.
(b) Treatment of Certain Wholly Owned S Corporation Subsidiaries.--
Section 1361(b) (defining small business corporation) is amended by
adding at the end the following new paragraph:
``(3) Treatment of certain wholly owned subsidiaries.--
``(A) In general.--For purposes of this title--
``(i) a corporation which is a qualified subchapter S
subsidiary shall not be treated as a separate corporation,
and
``(ii) all assets, liabilities, and items of income,
deduction, and credit of a qualified subchapter S
subsidiary shall be treated as assets, liabilities, and
such items (as the case may be) of the S corporation.
``(B) Qualified subchapter s subsidiary.--For purposes of
this paragraph, the term `qualified subchapter S subsidiary'
means any domestic corporation which is not an ineligible
corporation (as defined in paragraph (2)), if--
``(i) 100 percent of the stock of such corporation is
held by the S corporation, and
``(ii) the S corporation elects to treat such
corporation as a qualified subchapter S subsidiary.
``(C) Treatment of terminations of qualified subchapter s
subsidiary status.--For purposes of this title, if any
corporation which was a qualified subchapter S subsidiary
ceases to meet the requirements of subparagraph (B), such
corporation shall be treated as a new corporation acquiring all
of its assets (and assuming all of its liabilities) immediately
before such cessation from the S corporation in exchange for
its stock.
``(D) Election after termination.--If a corporation's
status as a qualified subchapter S subsidiary terminates, such
corporation (and any successor corporation) shall not be
eligible to make--
``(i) an election under subparagraph (B)(ii) to be
treated as a qualified subchapter S subsidiary, or
``(ii) an election under section 1362(a) to be treated
as an S corporation,
before its 5th taxable year which begins after the 1st taxable
year for which such termination was effective, unless the
Secretary consents to such election.''.
(c) Certain Dividends Not Treated as Passive Investment Income.--
Paragraph (3) of section 1362(d) is amended by adding at the end the
following new subparagraph:
``(F) Treatment of certain dividends.--If an S corporation
holds stock in a C corporation meeting the requirements of
section 1504(a)(2), the term `passive investment income' shall
not include dividends from such C corporation to the extent
such dividends are attributable to the earnings and profits of
such C corporation derived from the active conduct of a trade
or business.''.
(d) Conforming Amendments.--
(1) Subsection (c) of section 1361 is amended by striking
paragraph (6).
(2) Subsection (b) of section 1504 (defining includible
corporation) is amended by adding at the end the following new
paragraph:
``(8) An S corporation.''.

94368acde076c35f8f1d4bdec4243f01f7fe90496bc4f258ee6fc77fe3ba0c6c

(a) Adjustments for Distributions Taken Into Account Before
Losses.--
(1) Subparagraph (A) of section 1366(d)(1) (relating to losses
and deductions cannot exceed shareholder's basis in stock and debt)
is amended by striking ``paragraph (1)'' and inserting ``paragraphs
(1) and (2)(A)''.
(2) Subsection (d) of section 1368 (relating to certain
adjustments taken into account) is amended by adding at the end the
following new flush sentence:
``In the case of any distribution made during any taxable year, the
adjusted basis of the stock shall be determined with regard to the
adjustments provided in paragraph (1) of section 1367(a) for the
taxable year.''.
(b) Accumulated Adjustments Account.--Paragraph (1) of section
1368(e) (relating to accumulated adjustments account) is amended by
adding at the end the following new subparagraph:
``(C) Net loss for year disregarded.--
``(i) In general.--In applying this section to
distributions made during any taxable year, the amount in the
accumulated adjustments account as of the close of such taxable
year shall be determined without regard to any net negative
adjustment for such taxable year.
``(ii) Net negative adjustment.--For purposes of clause
(i), the term `net negative adjustment' means, with respect to
any taxable year, the excess (if any) of--
``(I) the reductions in the account for the taxable
year (other than for distributions), over
``(II) the increases in such account for such taxable
year.''.
(c) Conforming Amendments.--Subparagraph (A) of section 1368(e)(1)
is amended--
(1) by striking ``as provided in subparagraph (B)'' and
inserting ``as otherwise provided in this paragraph'', and
(2) by striking ``section 1367(b)(2)(A)'' and inserting
``section 1367(a)(2)''.

6305043b1d4bb985d9e61286f66964fc193baeacf9cbc74a8c1e619ffb0aaf52

Subsection (a) of section 1371 (relating to application of
subchapter C rules) is amended to read as follows:
``(a) Application of Subchapter C Rules.--Except as otherwise
provided in this title, and except to the extent inconsistent with this
subchapter, subchapter C shall apply to an S corporation and its
shareholders.''.

253c56dcd50e8f1a9c0456bf02cbf5ee452e2a6ac8f297e946c60345fed4c359

(a) In General.--If--
(1) a corporation was an electing small business corporation
under subchapter S of chapter 1 of the Internal Revenue Code of
1986 for any taxable year beginning before January 1, 1983, and
(2) such corporation is an S corporation under subchapter S of
chapter 1 of such Code for its first taxable year beginning after
December 31, 1996,
the amount of such corporation's accumulated earnings and profits (as
of the beginning of such first taxable year) shall be reduced by an
amount equal to the portion (if any) of such accumulated earnings and
profits which were accumulated in any taxable year beginning before
January 1, 1983, for which such corporation was an electing small
business corporation under such subchapter S.
(b) Conforming Amendments.--
(1) Paragraph (3) of section 1362(d), as amended by section
1308, is amended--
(A) by striking ``subchapter c'' in the paragraph heading
and inserting ``accumulated'',
(B) by striking ``subchapter C'' in subparagraph (A)(i)(I)
and inserting ``accumulated'', and
(C) by striking subparagraph (B) and redesignating the
following subparagraphs accordingly.
(2)(A) Subsection (a) of section 1375 is amended by striking
``subchapter C'' in paragraph (1) and inserting ``accumulated''.
(B) Paragraph (3) of section 1375(b) is amended to read as
follows:
``(3) Passive investment income, etc.--The terms `passive
investment income' and `gross receipts' have the same respective
meanings as when used in paragraph (3) of section 1362(d).''.
(C) The section heading for section 1375 is amended by striking
``subchapter C'' and inserting ``accumulated''.
(D) The table of sections for part III of subchapter S of
chapter 1 is amended by striking ``subchapter C'' in the item
relating to section 1375 and inserting ``accumulated''.
(3) Clause (i) of section 1042(c)(4)(A) is amended by striking
``section 1362(d)(3)(D)'' and inserting ``section 1362(d)(3)(C)''.

4163381b610cdf131a8fa4301b4caf246e34849f070728b192be9b0e9c886e13

RULES ALLOWED.
Paragraph (3) of section 1366(d) (relating to carryover of
disallowed losses and deductions to post-termination transition period)
is amended by adding at the end the following new subparagraph:
``(D) At-risk limitations.--To the extent that any increase
in adjusted basis described in subparagraph (B) would have
increased the shareholder's amount at risk under section 465 if
such increase had occurred on the day preceding the
commencement of the post-termination transition period, rules
similar to the rules described in subparagraphs (A) through (C)
shall apply to any losses disallowed by reason of section
465(a).''.

3027140fca49fe5bb72904133e2cf79ebf464143ef371f35e2854d752f7210ad

ITEMS OF INCOME.
(a) In General.--Subsection (b) of section 1367 (relating to
adjustments to basis of stock of shareholders, etc.) is amended by
adding at the end the following new paragraph:
``(4) Adjustments in case of inherited stock.--
``(A) In general.--If any person acquires stock in an S
corporation by reason of the death of a decedent or by bequest,
devise, or inheritance, section 691 shall be applied with
respect to any item of income of the S corporation in the same
manner as if the decedent had held directly his pro rata share
of such item.
``(B) Adjustments to basis.--The basis determined under
section 1014 of any stock in an S corporation shall be reduced
by the portion of the value of the stock which is attributable
to items constituting income in respect of the decedent.''.
(b) Effective Date.--The amendment made by subsection (a) shall
apply in the case of decedents dying after the date of the enactment of
this Act.

f1256b8e09893b29c9bfff751c9310b988238ffe016173bea2ab59e1133f1e57

PROPERTY SUBDIVIDED FOR SALE BY NONCORPORATE TAXPAYERS.
(a) In General.--Subsection (a) of section 1237 (relating to real
property subdivided for sale) is amended by striking ``other than a
corporation'' in the material preceding paragraph (1) and inserting
``other than a C corporation''.
(b) Conforming Amendment.--Subparagraph (A) of section 1237(a)(2)
is amended by inserting ``an S corporation which included the taxpayer
as a shareholder,'' after ``controlled by the taxpayer,''.

fed7a45de069972bb0c3c9778f7a608ed4b87d3d49e1516fd038e76477798413

Subparagraph (A) of section 1361(b)(2) (defining ineligible
corporation), as redesignated by section 1308(a), is amended to read as
follows:
``(A) a financial institution which uses the reserve method
of accounting for bad debts described in section 585,''.

5364aa371bb7c1e90ed2f8a90be9d23c9d0eb6765535d0faac1a41145a16adca

(a) Eligibility To Be Shareholders.--
(1) In general.--Subparagraph (B) of section 1361(b)(1)
(defining small business corporation) is amended to read as
follows:
``(B) have as a shareholder a person (other than an estate,
a trust described in subsection (c)(2), or an organization
described in subsection (c)(7)) who is not an individual,''.
(2) Eligible exempt organizations.--Section 1361(c) (relating
to special rules for applying subsection (b)) is amended by adding
at the end the following new paragraph:
``(7) Certain exempt organizations permitted as shareholders.--
For purposes of subsection (b)(1)(B), an organization which is--
``(A) described in section 401(a) or 501(c)(3), and
``(B) exempt from taxation under section 501(a),
may be a shareholder in an S corporation.''.
(b) Contributions of S Corporation Stock.--Section 170(e)(1)
(relating to certain contributions of ordinary income and capital gain
property) is amended by adding at the end the following new sentence:
``For purposes of applying this paragraph in the case of a charitable
contribution of stock in an S corporation, rules similar to the rules
of section 751 shall apply in determining whether gain on such stock
would have been long-term capital gain if such stock were sold by the
taxpayer.''.
(c) Treatment of Income.--Section 512 (relating to unrelated
business taxable income), as amended by section 1113, is amended by
adding at the end the following new subsection:
``(e) Special Rules Applicable to S Corporations.--
``(1) In general.--If an organization described in section
1361(c)(7) holds stock in an S corporation--
``(A) such interest shall be treated as an interest in an
unrelated trade or business, and
``(B) notwithstanding any other provision of this part--
``(i) all items of income, loss, or deduction taken
into account under section 1366(a), and
``(ii) any gain or loss on the disposition of the stock
in the S corporation,
shall be taken into account in computing the unrelated business
taxable income of such organization.
``(2) Basis reduction.--Except as provided in regulations, for
purposes of paragraph (1), the basis of any stock acquired by
purchase (within the meaning of section 1012) shall be reduced by
the amount of any dividends received by the organization with
respect to the stock.''.
(d) Certain Benefits not Applicable to S Corporations.--
(1) Contribution to esops.--Paragraph (9) of section 404(a)
(relating to certain contributions to employee ownership plans) is
amended by inserting at the end the following new subparagraph:
``(C) S corporations.--This paragraph shall not apply to an
S corporation.''.
(2) Dividends on employer securities.--Paragraph (1) of section
404(k) (relating to deduction for dividends on certain employer
securities) is amended by striking ``a corporation'' and inserting
``a C corporation''.
(3) Exchange treatment.--Subparagraph (A) of section 1042(c)(1)
(defining qualified securities) is amended by striking ``domestic
corporation'' and inserting ``domestic C corporation''.
(e) Conforming Amendment.--Clause (i) of section 1361(e)(1)(A), as
added by section 1302, is amended by striking ``which holds a
contingent interest and is not a potential current beneficiary''.
(f) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 1997.

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Small Business Job Protection Act of 1996

Other Sections

TITLE I

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