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CONFERENCE REPORT ON H.R. 2488, FINANCIAL FREEDOM ACT OF 1999
(House of Representatives - August 04, 1999)

Text of this article available as: TXT PDF [Pages H7027-H7192] CONFERENCE REPORT ON H.R. 2488, FINANCIAL FREEDOM ACT OF 1999 Mr. ARCHER (during the Special Order of Mr. Etheridge) submitted the following conference report and statement on the bill (H.R. 2488) to provide for reconciliation pursuant to sections 105 and 211 of the concurrent resolution on the budget for fiscal year 2000: Conference Report (H. Rept. 106-289) The committee of conference on the disagreeing votes of the two Houses on the amendment of the Senate to the bill (H.R. 2488), to provide for reconciliation pursuant to sections 105 and 211 of the concurrent resolution on the budget for fiscal year 2000, having met, after full and free conference, have agreed to recommend and do recommend to their respective Houses as follows: That the House recede from its disagreement to the amendment of the Senate and agree to the same with an amendment as follows: In lieu of the matter proposed to be inserted by the Senate amendment, insert the following: SECTION 1. SHORT TITLE; ETC. (a) Short Title.--This Act may be cited as the ``Taxpayer Refund and Relief Act of 1999''. (b) Amendment of 1986 Code.--Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986. (c) Section 15 Not To Apply.--No amendment made by this Act shall be treated as a change in a rate of tax for purposes of section 15 of the Internal Revenue Code of 1986. (d) Table of Contents.--The table of contents for this Act is as follows: Sec. 1. Short title; etc. TITLE I--BROAD-BASED AND FAMILY TAX RELIEF Subtitle A--Reduction in Individual Income Taxes Sec. 101. Reduction in individual income taxes. Subtitle B--Family Tax Relief Sec. 111. Elimination of marriage penalty in standard deduction. Sec. 112. Exclusion for foster care payments to apply to payments by qualified placement agencies. Sec. 113. Expansion of adoption credit. Sec. 114. Modification of dependent care credit. Sec. 115. Marriage penalty relief for earned income credit. Subtitle C--Repeal of Alternative Minimum Tax on Individuals Sec. 121. Repeal of alternative minimum tax on individuals. TITLE II--RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS Subtitle A--Capital Gains Tax Relief Sec. 201. Reduction in individual capital gain tax rates. Sec. 202. Indexing of certain assets acquired after December 31, 1999, for purposes of determining gain. Sec. 203. Capital gains tax rates applied to capital gains of designated settlement funds. Sec. 204. Special rule for members of uniformed services and Foreign Service, and other employees, in determining exclusion of gain from sale of principal residence. Sec. 205. Tax treatment of income and loss on derivatives. Sec. 206. Worthless securities of financial institutions. Subtitle B--Individual Retirement Arrangements Sec. 211. Modification of deduction limits for IRA contributions. Sec. 212. Modification of income limits on contributions and rollovers to Roth IRAs. Sec. 213. Deemed IRAs under employer plans. Sec. 214. Catchup contributions to IRAs by individuals age 50 or over. TITLE III--ALTERNATIVE MINIMUM TAX REFORM Sec. 301. Modification of alternative minimum tax on corporations. Sec. 302. Repeal of 90 percent limitation on foreign tax credit. TITLE IV--EDUCATION SAVINGS INCENTIVES Sec. 401. Modifications to education individual retirement accounts. Sec. 402. Modifications to qualified tuition programs. Sec. 403. Exclusion of certain amounts received under the National Health Service Corps Scholarship Program, the F. Edward Hebert Armed Forces Health Professions Scholarship and Financial Assistance Program, and certain other programs. Sec. 404. Extension of exclusion for employer-provided educational assistance. Sec. 405. Additional increase in arbitrage rebate exception for governmental bonds used to finance educational facilities. Sec. 406. Modification of arbitrage rebate rules applicable to public school construction bonds. Sec. 407. Elimination of 60-month limit and increase in income limitation on student loan interest deduction. Sec. 408. 2-percent floor on miscellaneous itemized deductions not to apply to qualified professional development expenses of elementary and secondary school teachers. TITLE V--HEALTH CARE PROVISIONS Sec. 501. Deduction for health and long-term care insurance costs of individuals not participating in employer-subsidized health plans. Sec. 502. Long-term care insurance permitted to be offered under cafeteria plans and flexible spending arrangements. Sec. 503. Additional personal exemption for taxpayer caring for elderly family member in taxpayer's home. Sec. 504. Expanded human clinical trials qualifying for orphan drug credit. Sec. 505. Inclusion of certain vaccines against streptococcus pneumoniae to list of taxable vaccines; reduction in per dose tax rate. Sec. 506. Drug benefits for medicare beneficiaries. TITLE VI--ESTATE TAX RELIEF Subtitle A--Repeal of Estate, Gift, and Generation-Skipping Taxes; Repeal of Step Up in Basis At Death Sec. 601. Repeal of estate, gift, and generation-skipping taxes. Sec. 602. Termination of step up in basis at death. Sec. 603. Carryover basis at death. Subtitle B--Reductions of Estate and Gift Tax Rates Prior to Repeal Sec. 611. Additional reductions of estate and gift tax rates. Subtitle C--Unified Credit Replaced With Unified Exemption Amount Sec. 621. Unified credit against estate and gift taxes replaced with unified exemption amount. Subtitle D--Modifications of Generation-Skipping Transfer Tax Sec. 631. Deemed allocation of gst exemption to lifetime transfers to trusts; retroactive allocations. Sec. 632. Severing of trusts. Sec. 633. Modification of certain valuation rules. Sec. 634. Relief provisions. Subtitle E--Conservation Easements Sec. 641. Expansion of estate tax rule for conservation easements. TITLE VII--TAX RELIEF FOR DISTRESSED COMMUNITIES AND INDUSTRIES Subtitle A--American Community Renewal Act of 1999 Sec. 701. Short title. Sec. 702. Designation of and tax incentives for renewal communities. Sec. 703. Extension of expensing of environmental remediation costs to renewal communities. Sec. 704. Extension of work opportunity tax credit for renewal communities. Sec. 705. Conforming and clerical amendments. Subtitle B--Farming Incentive Sec. 711. Production flexibility contract payments. Subtitle C--Oil and Gas Incentives Sec. 721. 5-year net operating loss carryback for losses attributable to operating mineral interests of independent oil and gas producers. Sec. 722. Deduction for delay rental payments. Sec. 723. Election to expense geological and geophysical expenditures. Sec. 724. Temporary suspension of limitation based on 65 percent of taxable income. Sec. 725. Determination of small refiner exception to oil depletion deduction. Subtitle D--Timber Incentives Sec. 731. Temporary suspension of maximum amount of amortizable reforestation expenditures. Sec. 732. Capital gain treatment under section 631(b) to apply to outright sales by land owner. [[Page H7028]] TITLE VIII--RELIEF FOR SMALL BUSINESSES Sec. 801. Deduction for 100 percent of health insurance costs of self- employed individuals. Sec. 802. Increase in expense treatment for small businesses. Sec. 803. Repeal of Federal unemployment surtax. Sec. 804. Increased deduction for meal expenses; increased deductibility of business meal expenses for individuals subject to Federal limitations on hours of service. Sec. 805. Income averaging for farmers and fishermen not to increase alternative minimum tax liability. Sec. 806. Farm, fishing, and ranch risk management accounts. Sec. 807. Exclusion of investment securities income from passive income test for bank S corporations. Sec. 808. Treatment of qualifying director shares. TITLE IX--INTERNATIONAL TAX RELIEF Sec. 901. Interest allocation rules. Sec. 902. Look-thru rules to apply to dividends from noncontrolled section 902 corporations. Sec. 903. Clarification of treatment of pipeline transportation income. Sec. 904. Subpart F treatment of income from transmission of high voltage electricity. Sec. 905. Recharacterization of overall domestic loss. Sec. 906. Treatment of military property of foreign sales corporations. Sec. 907. Treatment of certain dividends of regulated investment companies. Sec. 908. Repeal of special rules for applying foreign tax credit in case of foreign oil and gas income. Sec. 909. Advance pricing agreements treated as confidential taxpayer information. Sec. 910. Increase in dollar limitation on section 911 exclusion. Sec. 911. Airline mileage awards to certain foreign persons. TITLE X--PROVISIONS RELATING TO TAX-EXEMPT ORGANIZATIONS Sec. 1001. Exemption from income tax for State-created organizations providing property and casualty insurance for property for which such coverage is otherwise unavailable. Sec. 1002. Modification of special arbitrage rule for certain funds. Sec. 1003. Exemption procedure from taxes on self-dealing. Sec. 1004. Expansion of declaratory judgment remedy to tax-exempt organizations. Sec. 1005. Modifications to section 512(b)(13). Sec. 1006. Mileage reimbursements to charitable volunteers excluded from gross income. Sec. 1007. Charitable contribution deduction for certain expenses incurred in support of Native Alaskan subsistence whaling. Sec. 1008. Simplification of lobbying expenditure limitation. Sec. 1009. Tax-free distributions from individual retirement accounts for charitable purposes. TITLE XI--REAL ESTATE PROVISIONS Subtitle A--Improvements in Low-Income Housing Credit Sec. 1101. Modification of State ceiling on low-income housing credit. Sec. 1102. Modification of criteria for allocating housing credits among projects. Sec. 1103. Additional responsibilities of housing credit agencies. Sec. 1104. Modifications to rules relating to basis of building which is eligible for credit. Sec. 1105. Other modifications. Sec. 1106. Carryforward rules. Sec. 1107. Effective date. Subtitle B--Provisions Relating to Real Estate Investment Trusts Part I--Treatment of Income and Services Provided by Taxable REIT Subsidiaries Sec. 1111. Modifications to asset diversification test. Sec. 1112. Treatment of income and services provided by taxable REIT subsidiaries. Sec. 1113. Taxable REIT subsidiary. Sec. 1114. Limitation on earnings stripping. Sec. 1115. 100 percent tax on improperly allocated amounts. Sec. 1116. Effective date. Part II--Health Care REITs Sec. 1121. Health care REITs. Part III--Conformity With Regulated Investment Company Rules Sec. 1131. Conformity with regulated investment company rules. Part IV--Clarification of Exception From Impermissible Tenant Service Income Sec. 1141. Clarification of exception for independent operators. Part V--Modification of Earnings and Profits Rules Sec. 1151. Modification of earnings and profits rules. Subtitle C--Modification of At-Risk Rules for Publicly Traded Nonrecourse Debt Sec. 1161. Treatment under at-risk rules of publicly traded nonrecourse debt. Subtitle D--Treatment of Certain Contributions to Capital of Retailers Sec. 1171. Exclusion from gross income for certain contributions to the capital of certain retailers. Subtitle E--Private Activity Bond Volume Cap Sec. 1181. Acceleration of phase-in of increase in volume cap on private activity bonds. Subtitle F--Deduction for Renovating Historic Homes Sec. 1191. Deduction for renovating historic homes. TITLE XII--PROVISIONS RELATING TO PENSIONS Subtitle A--Expanding Coverage Sec. 1201. Increase in benefit and contribution limits. Sec. 1202. Plan loans for subchapter S owners, partners, and sole proprietors. Sec. 1203. Modification of top-heavy rules. Sec. 1204. Elective deferrals not taken into account for purposes of deduction limits. Sec. 1205. Repeal of coordination requirements for deferred compensation plans of State and local governments and tax-exempt organizations. Sec. 1206. Elimination of user fee for requests to IRS regarding pension plans. Sec. 1207. Deduction limits. Sec. 1208. Option to treat elective deferrals as after-tax contributions. Sec. 1209. Reduced PBGC premium for new plans of small employers. Sec. 1210. Reduction of additional PBGC premium for new and small plans. Subtitle B--Enhancing Fairness for Women Sec. 1221. Catchup contributions for individuals age 50 or over. Sec. 1222. Equitable treatment for contributions of employees to defined contribution plans. Sec. 1223. Faster vesting of certain employer matching contributions. Sec. 1224. Simplify and update the minimum distribution rules. Sec. 1225. Clarification of tax treatment of division of section 457 plan benefits upon divorce. Sec. 1226. Modification of safe harbor relief for hardship withdrawals from cash or deferred arrangements. Subtitle C--Increasing Portability for Participants Sec. 1231. Rollovers allowed among various types of plans. Sec. 1232. Rollovers of IRAs into workplace retirement plans. Sec. 1233. Rollovers of after-tax contributions. Sec. 1234. Hardship exception to 60-day rule. Sec. 1235. Treatment of forms of distribution. Sec. 1236. Rationalization of restrictions on distributions. Sec. 1237. Purchase of service credit in governmental defined benefit plans. Sec. 1238. Employers may disregard rollovers for purposes of cash-out amounts. Sec. 1239. Minimum distribution and inclusion requirements for section 457 plans. Subtitle D--Strengthening Pension Security and Enforcement Sec. 1241. Repeal of 150 percent of current liability funding limit. Sec. 1242. Maximum contribution deduction rules modified and applied to all defined benefit plans. Sec. 1243. Missing participants. Sec. 1244. Excise tax relief for sound pension funding. Sec. 1245. Excise tax on failure to provide notice by defined benefit plans significantly reducing future benefit accruals. Sec. 1246. Protection of investment of employee contributions to 401(k) plans. Sec. 1247. Treatment of multiemployer plans under section 415. Subtitle E--Reducing Regulatory Burdens Sec. 1251. Modification of timing of plan valuations. Sec. 1252. ESOP dividends may be reinvested without loss of dividend deduction. Sec. 1253. Repeal of transition rule relating to certain highly compensated employees. Sec. 1254. Employees of tax-exempt entities. Sec. 1255. Clarification of treatment of employer-provided retirement advice. Sec. 1256. Reporting simplification. Sec. 1257. Improvement of employee plans compliance resolution system. Sec. 1258. Substantial owner benefits in terminated plans. Sec. 1259. Modification of exclusion for employer provided transit passes. Sec. 1260. Repeal of the multiple use test. Sec. 1261. Flexibility in nondiscrimination, coverage, and line of business rules. Sec. 1262. Extension to international organizations of moratorium on application of certain nondiscrimination rules applicable to State and local plans. [[Page H7029]] Subtitle F--Plan Amendments Sec. 1271. Provisions relating to plan amendments. TITLE XIII--MISCELLANEOUS PROVISIONS Subtitle A--Provisions Primarily Affecting Individuals Sec. 1301. Consistent treatment of survivor benefits for public safety officers killed in the line of duty. Sec. 1302. Expansion of dc homebuyer tax credit. Sec. 1303. No Federal income tax on amounts and lands received by Holocaust victims or their heirs. Subtitle B--Provisions Primarily Affecting Businesses Sec. 1311. Distributions from publicly traded partnerships treated as qualifying income of regulated investment companies. Sec. 1312. Special passive activity rule for publicly traded partnerships to apply to regulated investment companies. Sec. 1313. Large electric trucks, vans, and buses eligible for deduction for clean-fuel vehicles in lieu of credit. Sec. 1314. Modifications to special rules for nuclear decommissioning costs. Sec. 1315. Consolidation of life insurance companies with other corporations. Sec. 1316. Modification of active business definition under section 355. Sec. 1317. Expansion of exemption from personal holding company tax for lending or finance companies. Sec. 1318. Extension of expensing of environmental remediation costs. Subtitle C--Provisions Relating to Excise Taxes Sec. 1321. Consolidation of Hazardous Substance Superfund and Leaking Underground Storage Tank Trust Fund. Sec. 1322. Repeal of certain motor fuel excise taxes on fuel used by railroads and on inland waterway transportation. Sec. 1323. Repeal of excise tax on fishing tackle boxes. Sec. 1324. Clarification of excise tax imposed on arrow components. Sec. 1325. Exemption from ticket taxes for certain transportation provided by small seaplanes. Sec. 1326. Modification of rural airport definition. Subtitle D--Other Provisions Sec. 1331. Tax-exempt financing of qualified highway infrastructure construction. Sec. 1332. Tax treatment of Alaska Native Settlement Trusts. Sec. 1333. Increase in threshold for Joint Committee reports on refunds and credits. Sec. 1334. Credit for clinical testing research expenses attributable to certain qualified academic institutions including teaching hospitals. Sec. 1335. Payment of dividends on stock of cooperatives without reducing patronage dividends. Subtitle E--Tax Court Provisions Sec. 1341. Tax court filing fee in all cases commenced by filing petition. Sec. 1342. Expanded use of Tax Court practice fee. Sec. 1343. Confirmation of authority of Tax Court to apply doctrine of equitable recoupment. TITLE XIV--EXTENSIONS OF EXPIRING PROVISIONS Sec. 1401. Research credit. Sec. 1402. Subpart F exemption for active financing income. Sec. 1403. Taxable income limit on percentage depletion for marginal production. Sec. 1404. Work opportunity credit and welfare-to-work credit. Sec. 1405. Extension and modification of credit for producing electricity from certain renewable resources. TITLE XV--REVENUE OFFSETS Sec. 1501. Returns relating to cancellations of indebtedness by organizations lending money. Sec. 1502. Extension of Internal Revenue Service user fees. Sec. 1503. Limitations on welfare benefit funds of 10 or more employer plans. Sec. 1504. Increase in elective withholding rate for nonperiodic distributions from deferred compensation plans. Sec. 1505. Controlled entities ineligible for REIT status. Sec. 1506. Treatment of gain from constructive ownership transactions. Sec. 1507. Transfer of excess defined benefit plan assets for retiree health benefits. Sec. 1508. Modification of installment method and repeal of installment method for accrual method taxpayers. Sec. 1509. Limitation on use of nonaccrual experience method of accounting. Sec. 1510. Charitable split-dollar life insurance, annuity, and endowment contracts. Sec. 1511. Restriction on use of real estate investment trusts to avoid estimated tax payment requirements. Sec. 1512. Modification of anti-abuse rules related to assumption of liability. Sec. 1513. Allocation of basis on transfers of intangibles in certain nonrecognition transactions. Sec. 1514. Distributions to a corporate partner of stock in another corporation. Sec. 1515. Prohibited allocations of S corporation stock held by an ESOP. TITLE XVI--COMPLIANCE WITH BUDGET ACT Sec. 1601. Compliance with Budget Act. TITLE I--BROAD-BASED AND FAMILY TAX RELIEF Subtitle A--Reduction in Individual Income Taxes SEC. 101. REDUCTION IN INDIVIDUAL INCOME TAXES. (a) Regular Income Tax Rates.-- (1) In general.--Subsection (f) of section 1 is amended by adding at the end the following new paragraph: ``(8) Rate reductions.--The following adjustments shall apply in prescribing the tables under paragraph (1): ``(A) Reduction in lowest rate.--With respect to taxable years beginning after December 31, 2000, the rate applicable to the lowest income bracket shall be-- ``(i) 14.5 percent in the case of taxable years beginning during 2001 or 2002, and ``(ii) 14.0 percent in the case of taxable years beginning after 2002. ``(B) Reduction in other rates.--With respect to taxable years beginning after December 31, 2004, each rate (other than the rate referred to in subparagraph (A)) shall be reduced by 1 percentage point. ``(C) Phaseout of marriage penalty in lowest bracket.-- ``(i) In general.--With respect to taxable years beginning after December 31, 2004-- ``(I) the maximum taxable income in the lowest rate bracket in the table contained in subsection (a) (and the minimum taxable income in the next higher taxable income bracket in such table) shall be the applicable percentage of the maximum taxable income in the lowest rate bracket in the table contained in subsection (c) (after any other adjustment under this subsection), and ``(II) the comparable taxable income amounts in the table contained in subsection (d) shall be \1/2\ of the amounts determined under subclause (I). ``(ii) Applicable percentage.--For purposes of clause (i), the applicable percentage shall be determined in accordance with the following table: ``For taxable years beginning The applicable in calendar year-- percentage is-- 2005.......................................................173.7 2006.......................................................176.1 2007.......................................................188.1 2008 and thereafter.......................................200.0. ``(D) Increase in maximum taxable income in lowest bracket for other individuals.-- ``(i) In general.--With respect to taxable years beginning after December 31, 2005, the maximum taxable income in the lowest rate bracket in the tables contained in subsections (b) and (c), after any other adjustment under this subsection (and the minimum taxable income in the next higher taxable income bracket in such tables, as so adjusted) shall be increased by $3,000. ``(ii) Cost-of-living adjustment.--In the case of any taxable year beginning in any calendar year after 2006, the $3,000 amount in clause (i) shall be increased by an amount equal to-- ``(I) such dollar amount, multiplied by ``(II) the cost-of living adjustment determined under paragraph (3) for the calendar year in which the taxable year begins, determined by substituting `calendar year 2005' for `calendar year 1992' in subparagraph (B) thereof.''. ``(iii) Any increase under clause (ii) shall be added to the amount it is increasing before such amount is rounded under paragraph (6). ``(9) Post-2001 rate reductions contingent on no increase in interest on total united states debt.-- ``(A) In general.--If the calendar year preceding any adjustment year is not a debt reduction calendar year, then-- ``(i) such adjustment shall not take effect until the calendar year following the adjustment year, and ``(ii) this subparagraph shall apply to such following calendar year as if it were an adjustment year. For purposes of this subparagraph, the term `adjustment year' means, with respect to any adjustment under subparagraph (A), (B), or (D) of paragraph (8), the first calendar year for which such adjustment takes effect without regard to this paragraph. ``(B) Debt reduction calendar year.--For purposes of this paragraph, the term `debt reduction calendar year' means any calendar year after 2000 if the Secretary of the Treasury (after consultation with the chairman of the Federal Reserve Board) determines by August 31 of such calendar year that the United States interest expense for the 12-month period ending on July 31 of such calendar year is not more than $1,000,000,000 greater than the United States interest expense for the 12-month period ending on July 31 of the preceding calendar year. [[Page H7030]] ``(C) United states interest expense.--For purposes of this paragraph, the term `United States interest expense' means interest on obligations which are subject to the public debt limit in section 3101 of title 31, United States Code.''. (2) Technical amendments.-- (A) Subparagraph (B) of section 1(f)(2) is amended by inserting ``except as provided in paragraph (8),'' before ``by not changing''. (B) Subparagraph (C) of section 1(f)(2) is amended by inserting ``and the reductions under paragraph (8) in the rates of tax'' before the period. (C) The heading for subsection (f) of section 1 is amended by inserting ``Rate Reductions;'' before ``Adjustments''. (D) Section 1(g)(7)(B)(ii)(II) is amended by striking ``15 percent'' and inserting ``the percentage applicable to the lowest income bracket in subsection (c)''. (E) Subparagraphs (A)(ii)(I) and (B)(i) of section 1(h)(1) are each amended by striking ``28 percent'' and inserting ``27 percent''. (F) Section 531 is amended by striking ``39.6 percent of the accumulated taxable income'' and inserting ``the product of the accumulated taxable income and the percentage applicable to the highest income bracket in section 1(c)''. (G) Section 541 is amended by striking ``39.6 percent of the undistributed personal holding company income'' and inserting ``the product of the undistributed personal holding company income and the percentage applicable to the highest income bracket in section 1(c)''. (H) Section 3402(p)(1)(B) is amended by striking ``specified is 7, 15, 28, or 31 percent'' and all that follows and inserting ``specified is-- ``(i) 7 percent, ``(ii) a percentage applicable to 1 of the 3 lowest income brackets in section 1(c), or ``(iii) such other percentage as is permitted under regulations prescribed by the Secretary.''. (I) Section 3402(p)(2) is amended by striking ``15 percent of such payment'' and inserting ``the product of such payment and the percentage applicable to the lowest income bracket in section 1(c)''. (J) Section 3402(q)(1) is amended by striking ``28 percent of such payment'' and inserting ``the product of such payment and the percentage applicable to the next to the lowest income bracket in section 1(c)''. (K) Section 3402(r)(3) is amended by striking ``31 percent'' and inserting ``the rate applicable to the third income bracket in such section''. (L) Section 3406(a)(1) is amended by striking ``31 percent of such payment'' and inserting ``the product of such payment and the percentage applicable to the third income bracket in section 1(c)''. (b) Minimum Tax Rates.--Subparagraph (A) of section 55(b)(1) is amended by adding at the end the following new clause: ``(iv) Rate reduction.--In the case of taxable years beginning after December 31, 2004, each rate in clause (i) shall be reduced by 1 percentage point.'' (c) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2000. Subtitle B--Family Tax Relief SEC. 111. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUCTION. (a) In General.--Paragraph (2) of section 63(c) (relating to standard deduction) is amended-- (1) by striking ``$5,000'' in subparagraph (A) and inserting ``200 percent of the dollar amount in effect under subparagraph (C) for the taxable year'', (2) by adding ``or'' at the end of subparagraph (B), (3) by striking ``in the case of'' and all that follows in subparagraph (C) and inserting ``in any other case.'', and (4) by striking subparagraph (D). (b) Phase-in.--Subsection (c) of section 63 is amended by adding at the end the following new paragraph: ``(7) Phase-in of increase in basic standard deduction.--In the case of taxable years beginning before January 1, 2005-- ``(A) paragraph (2)(A) shall be applied by substituting for `200 percent'-- ``(i) `172.8 percent' in the case of taxable years beginning during 2001, ``(ii) `180.1 percent' in the case of taxable years beginning during 2002, ``(iii) `187.0 percent' in the case of taxable years beginning during 2003, and ``(iv) `193.5 percent' in the case of taxable years beginning during 2004, and ``(B) the basic standard deduction for a married individual filing a separate return shall be one-half of the amount applicable under paragraph (2)(A). If any amount determined under subparagraph (A) is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.''. (c) Technical Amendments.-- (1) Subparagraph (B) of section 1(f)(6) is amended by striking ``(other than with'' and all that follows through ``shall be applied'' and inserting ``(other than with respect to sections 63(c)(4) and 151(d)(4)(A)) shall be applied''. (2) Paragraph (4) of section 63(c) is amended by adding at the end the following flush sentence: ``The preceding sentence shall not apply to the amount referred to in paragraph (2)(A).''. (d) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2000. SEC. 112. EXCLUSION FOR FOSTER CARE PAYMENTS TO APPLY TO PAYMENTS BY QUALIFIED PLACEMENT AGENCIES. (a) In General.--The matter preceding subparagraph (B) of section 131(b)(1) (defining qualified foster care payment) is amended to read as follows: ``(1) In general.--The term `qualified foster care payment' means any payment made pursuant to a foster care program of a State or political subdivision thereof-- ``(A) which is paid by-- ``(i) the State or political subdivision thereof, or ``(ii) a qualified foster care placement agency, and''. (b) Qualified Foster Individuals To Include Individuals Placed by Qualified Placement Agencies.--Subparagraph (B) of section 131(b)(2) (defining qualified foster individual) is amended to read as follows: ``(B) a qualified foster care placement agency.''. (c) Qualified Foster Care Placement Agency Defined.-- Subsection (b) of section 131 is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph: ``(3) Qualified foster care placement agency.--The term `qualified foster care placement agency' means any placement agency which is licensed or certified by-- ``(A) a State or political subdivision thereof, or ``(B) an entity designated by a State or political subdivision thereof, for the foster care program of such State or political subdivision to make foster care payments to providers of foster care.''. (d) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 1999. SEC. 113. EXPANSION OF ADOPTION CREDIT. (a) In General.--Section 23(a)(1) (relating to allowance of credit) is amended to read as follows: ``(1) In general.--In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter-- ``(A) in the case of an adoption of a child other than a child with special needs, the amount of the qualified adoption expenses paid or incurred by the taxpayer, and ``(B) in the case of an adoption of a child with special needs, $10,000.''. (b) Dollar Limitation.--Section 23(b)(1) is amended-- (1) by striking ``($6,000, in the case of a child with special needs)'', and (2) by striking ``subsection (a)'' and inserting ``subsection (a)(1)''. (c) Year Credit Allowed.--Section 23(a)(2) is amended by adding at the end the following new flush sentence: ``In the case of the adoption of a child with special needs, the credit allowed under paragraph (1) shall be allowed for the taxable year in which the adoption becomes final.''. (d) Definition of Eligible Child.-- (1) In general.--Section 23(d)(2) is amended to read as follows: ``(2) Eligible child.--The term `eligible child' means any individual who-- ``(A) has not attained age 18, or ``(B) is physically or mentally incapable of caring for himself.''. (2) Clarification of termination.--Section 23 is amended by adding at the end the following new subsection: ``(i) Termination for Children Without Special Needs.-- Except in the case of a child with special needs, this section shall not apply to expenses paid or incurred after December 31, 2001.'' (e) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2000. SEC. 114. MODIFICATION OF DEPENDENT CARE CREDIT. (a) Increase in Percentage of Employment-Related Expenses Taken Into Account.--Subsection (a)(2) of section 21 (relating to expenses for household and dependent care services necessary for gainful employment) is amended-- (1) by striking ``30 percent'' and inserting ``35 percent (40 percent in the case of taxable years beginning after December 31, 2005)'', (2) by striking ``$2,000'' and inserting ``$1,000'', and (3) by striking ``$10,000'' and inserting ``$30,000''. (b) Indexing of Limit on Employment-Related Expenses.-- Section 21(c) (relating to dollar limit on amount creditable) is amended to read as follows: ``(c) Dollar Limit on Amount Creditable.-- ``(1) In general.--The amount of the employment-related expenses incurred during any taxable year which may be taken into account under subsection (a) shall not exceed-- ``(A) an amount equal to 50 percent of the amount determined under subparagraph (B) if there is 1 qualifying individual with respect to the taxpayer for such taxable year, or ``(B) $4,800 if there are 2 or more qualifying individuals with respect to the taxpayer for such taxable year. The amount determined under subparagraph (A) or (B) (whichever is applicable) shall be reduced by the aggregate amount excludable from gross income under section 129 for the taxable year. ``(2) Cost-of-living adjustment.-- ``(A) In general.--In the case of a taxable year beginning after 2001, the $4,800 amount under paragraph (1)(B) shall be increased by an amount equal to-- ``(i) such dollar amount, multiplied by ``(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar [[Page H7031]] year in which the taxable year begins, determined by substituting `calendar year 2000' for `calendar year 1992' in subparagraph (B) thereof. ``(B) Rounding rules.--If any amount after adjustment under subparagraph (A) is not a multiple of $50, such amount shall be rounded to the next lower multiple of $50.''. (c) Minimum Dependent Care Credit Allowed for Stay-at-Home Parents.--Section 21(e) (relating to special rules) is amended by adding at the end the following: ``(11) Minimum credit allowed for stay-at-home parents.-- ``(A) In general.--Notwithstanding subsection (d), in the case of any taxpayer with 1 or more qualifying individuals described in subsection (b)(1)(A) under the age of 1, such taxpayer shall be deemed to have employment-related expenses for the taxable year with respect to each such qualifying individual in an amount equal to the sum of-- ``(i) $200 for each month in such taxable year during which such qualifying individual is under the age of 1, and ``(ii) the amount of employment-related expenses otherwise incurred for such qualifying individual for the taxable year (determined under this section without regard to this paragraph). ``(B) Election to not apply this paragraph.--This paragraph shall not apply with respect to any qualifying individual for any taxable year if the taxpayer elects to not have this paragraph apply to such qualifying individual for such taxable year.''. (d) Effective Date.-- (1) In general.--The amendments made by this section shall apply to taxable years beginning after December 31, 2001. (2) Subsection (c).--The amendment made by subsection (c) shall apply to taxable years beginning after December 31, 2005. SEC. 115. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT. (a) In General.--Paragraph (2) of section 32(b) (relating to percentages and amounts) is amended-- (1) by striking ``Amounts.--The earned'' and inserting ``Amounts.-- ``(A) In general.--Subject to subparagraph (B), the earned'', and (2) by adding at the end the following new subparagraph: ``(B) Joint returns.--In the case of a joint return, the phaseout amount determined under subparagraph (A) shall be increased by $2,000.''. (b) Inflation adjustment.--Paragraph (1)(B) of section 32(j) (relating to inflation adjustments) is amended to read as follows: ``(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined-- ``(i) in the case of amounts in subsections (b)(1)(A) and (i)(1), by substituting `calendar year 1995' for `calendar year 1992' in subparagraph (B) thereof, and ``(ii) in the case of the $2,000 amount in subsection (b)(1)(B), by substituting `calendar year 2005' for `calendar year 1992' in subparagraph (B) of such section 1.''. (c) Rounding.--Section 32(j)(2)(A) (relating to rounding) is amended by striking ``subsection (b)(2)'' and inserting ``subsection (b)(2)(A) (after being increased under subparagraph (B) thereof)''. (d) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2005. Subtitle C--Repeal of Alternative Minimum Tax on Individuals SEC. 121. REPEAL OF ALTERNATIVE MINIMUM TAX ON INDIVIDUALS. (a) In General.--Subsection (a) of section 55 is amended by adding at the end the following new flush sentence: ``For purposes of this title, the tentative minimum tax on any taxpayer other than a corporation for any taxable year beginning after December 31, 2007, shall be zero.''. (b) Reduction of Tax on Individuals Prior to Repeal.-- Section 55 is amended by adding at the end the following new subsection: ``(f) Phaseout of Tax on Individuals.-- ``(1) In general.--The tax imposed by this section on a taxpayer other than a corporation for any taxable year beginning after December 31, 2004, and before January 1, 2008, shall be the applicable percentage of the tax which would be imposed but for this subsection. ``(2) Applicable percentage.--For purposes of paragraph (1), the applicable percentage shall be determined in accordance with the following table: ``For taxable years beginning The applicable in calendar year-- percentage is-- 2005..........................................................80 2006..........................................................70 2007.......................................................60.''. (c) Nonrefundable Personal Credits Fully Allowed Against Regular Tax Liability.-- (1) In general.--Subsection (a) of section 26 (relating to limitation based on amount of tax) is amended to read as follows: ``(a) Limitation Based on Amount of Tax.--The aggregate amount of credits allowed by this subpart for the taxable year shall not exceed the taxpayer's regular tax liability for the taxable year.''. (2) Child credit.--Subsection (d) of section 24 is amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2). (d) Limitation on Use of Credit for Prior Year Minimum Tax Liability.--Subsection (c) of section 53 is amended to read as follows: ``(c) Limitation.-- ``(1) In general.--Except as otherwise provided in this subsection, the credit allowable under subsection (a) for any taxable year shall not exceed the excess (if any) of-- ``(A) the regular tax liability of the taxpayer for such taxable year reduced by the sum of the credits allowable under subparts A, B, D, E, and F of this part, over ``(B) the tentative minimum tax for the taxable year. ``(2) Taxable years beginning after 2007.--In the case of any taxable year beginning after 2007, the credit allowable under subsection (a) to a taxpayer other than a corporation for any taxable year shall not exceed 90 percent of the excess (if any) of-- ``(A) regular tax liability of the taxpayer for such taxable year, over ``(B) the sum of the credits allowable under subparts A, B, D, E, and F of this part.''. (e) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 1998. TITLE II--RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS Subtitle A--Capital Gains Tax Relief SEC. 201. REDUCTION IN INDIVIDUAL CAPITAL GAIN TAX RATES. (a) In General.-- (1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each amended by striking ``10 percent'' and inserting ``8 percent''. (2) The following sections are each amended by striking ``20 percent'' and inserting ``18 percent'': (A) Section 1(h)(1)(C). (B) Section 55(b)(3)(C). (C) Section 1445(e)(1). (D) The second sentence of section 7518(g)(6)(A). (E) The second sentence of section 607(h)(6)(A) of the Merchant Marine Act, 1936. (3) Sections 1(h)(1)(D) and 55(b)(3)(D) are each amended by striking ``25 percent'' and inserting ``23 percent''. (b) Conforming Amendments.-- (1) Section 311 of the Taxpayer Relief Act of 1997 is amended by striking subsection (e). (2) Section 1(h) is amended-- (A) by striking paragraphs (2), (9), and (13), (B) by redesignating paragraphs (3) through (8) as paragraphs (2) through (7), respectively, and (C) by redesignating paragraphs (10), (11), and (12) as paragraphs (8), (9), and (10), respectively. (3) Paragraph (3) of section 55(b) is amended by striking ``In the case of taxable years beginning after December 31, 2000, rules similar to the rules of section 1(h)(2) shall apply for purposes of subparagraphs (B) and (C).''. (4) Paragraph (7) of section 57(a) is amended-- (A) by striking ``42 percent'' and inserting ``28 percent'', and (B) by striking the last sentence. (c) Effective Dates.-- (1) In general.--Except as otherwise provided by this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 1998. (2) Withholding.--The amendment made by subsection (a)(2)(C) shall apply to amounts paid after the date of the enactment of this Act. SEC. 202. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31, 1999, FOR PURPOSES OF DETERMINING GAIN. (a) In General.--Part II of subchapter O of chapter 1 (relating to basis rules of general application) is amended by inserting after section 1021 the following new section: ``SEC. 1022. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31, 1999, FOR PURPOSES OF DETERMINING GAIN. ``(a) General Rule.-- ``(1) Indexed basis substituted for adjusted basis.--Solely for purposes of determining gain on the sale or other disposition by a taxpayer (other than a corporation) of an indexed asset which has been held for more than 1 year, the indexed basis of the asset shall be substituted for its adjusted basis. ``(2) Exception for depreciation, etc.--The deductions for depreciation, depletion, and amortization shall be determined without regard to the application of paragraph (1) to the taxpayer or any other person. ``(3) Exception for principal residences.--Paragraph (1) shall not apply to any disposition of the principal residence (within the meaning of section 121) of the taxpayer . ``(b) Indexed Asset.-- ``(1) In general.--For purposes of this section, the term `indexed asset' means-- ``(A) common stock in a C corporation (other than a foreign corporation), and ``(B) tangible property, which is a capital asset or property used in the trade or business (as defined in section 1231(b)). ``(2) Stock in certain foreign corporations included.--For purposes of this section-- ``(A) In general.--The term `indexed asset' includes common stock in a foreign corporation which is regularly traded on an established securities market. ``(B) Exception.--Subparagraph (A) shall not apply to-- ``(i) stock of a foreign investment company (within the meaning of section 1246(b)), ``(ii) stock in a passive foreign investment company (as defined in section 1296), ``(iii) stock in a foreign corporation held by a United States person who meets the requirements of section 1248(a)(2), and [[Page H7032]] ``(iv) stock in a foreign personal holding company (as defined in section 552). ``(C) Treatment of american depository receipts.--An American depository receipt for common stock in a foreign corporation shall be treated as common stock in such corporation. ``(c) Indexed Basis.--For purposes of this section-- ``(1) General rule.--The indexed basis for any asset is-- ``(A) the adjusted basis of the asset, increased by ``(B) the applicable inflation adjustment. ``(2) Applicable inflation adjustment.--The applicable inflation adjustment for any asset is an amount equal to-- ``(A) the adjusted basis of the asset, multiplied by ``(B) the percentage (if any) by which-- ``(i) the chain-type price index for GDP for the last calendar quarter ending before the asset is disposed of, exceeds ``(ii) the chain-type price index for GDP for the last calendar quarter ending before the asset was acquired by the taxpayer. The percentage under subparagraph (B) shall be rounded to the nearest \1/10\ of 1 percentage point. ``(3) Chain-type price index for GDP.--The chain-type price index for GDP for any calendar quarter is such index for such quarter (as shown in the last revision thereof released by the Secretary of Commerce before the close of the following calendar quarter). ``(d) Suspension of Holding Period Where Diminished Risk of Loss; Treatment of Short Sales.-- ``(1) In general.--If the taxpayer (or a related person) enters into any transaction which substantially reduces the risk of loss from holding any asset, such asset shall not be treated as an indexed asset for the period of such reduced risk. ``(2) Short sales.-- ``(A) In general.--In the case of a short sale of an indexed asset with a short sale period in excess of 1 year, for purposes of this title, the amount realized shall be an amount equal to the amount realized (determined without regard to this paragraph) increased by the applicable inflation adjustment. In applying subsection (c)(2) for purposes of the preceding sentence, the date on which the property is sold short shall be treated as the date of acquisition and the closing date for the sale shall be treated as the date of disposition. ``(B) Short sale period.--For purposes of subparagraph (A), the short sale period begins on the day that the property is sold and ends on the closing date for the sale. ``(e) Treatment of Regulated Investment Companies and Real Estate Investment Trusts.-- ``(1) Adjustments at entity level.-- ``(A) In general.--Except as otherwise provided in this paragraph, the adjustment under subsection (a) shall be allowed to any qualified investment entity (including for purposes of determining the earnings and profits of such entity). ``(B) Exception for corporate shareholders.--Under regulations-- ``(i) in the case of a distribution by a qualified investment entity (directly or indirectly) to a corporation-- ``(I) the determination of whether such distribution is a dividend shall be made without regard to this section, and ``(II) the amount treated as gain by reason of the receipt of any capital gain dividend shall be increased by the percentage by which the entity's net capital gain for the taxable year (determined without regard to this section) exceeds the entity's net capital gain for such year determined with regard to this section, and ``(ii) there shall be other appropriate adjustments (including deemed distributions) so as to ensure that the benefits of this section are not allowed (directly or indirectly) to corporate shareholders of qualified investment entities. For purposes of the preceding sentence, any amount includible in gross income under section 852(b)(3)(D) shall be treated as a capital gain dividend and an S corporation shall not be treated as a corporation. ``(C) Exception for qualification purposes.--This section shall not apply for purposes of sections 851(b) and 856(c). ``(D) Exception for certain taxes imposed at entity level.-- ``(i) Tax on failure to distribute entire gain.--If any amount is subject to tax under section 852(b)(3)(A) for any taxable year, the amount on which tax is imposed under such section shall be increased by the percentage determined under subparagraph (B)(i)(II). A similar rule shall apply in the case of any amount subject to tax under paragraph (2) or (3) of section 857(b) to the extent attributable to the excess of the net capital gain over the deduction for dividends paid determined with reference to capital gain dividends only. The first sentence of this clause shall not apply to so much of the amount subject to tax under section 852(b)(3)(A) as is designated by the company under section 852(b)(3)(D). ``(ii) Other taxes.--This section shall not apply for purposes of determining the amount of any tax imposed by paragraph (4), (5), or (6) of section 857(b). ``(2) Adjustments to interests held in entity.-- ``(A) Regulated investment companies.--Stock in a regulated investment company (within the meaning of section 851) shall be an indexed asset for any calendar quarter in the same ratio as-- ``(i) the average of the fair market values of the indexed assets held by such company at the close of each month during such quarter, bears to ``(ii) the average of the fair market values of all assets held by such company at the close of each such month. ``(B) Real estate investment trusts.--Stock in a real estate investment trust (within the meaning of section 856) shall be an indexed asset for any calendar quarter in the same ratio as-- ``(i) the fair market value of the indexed assets held by such trust at the close of such quarter, bears to ``(ii) the fair market value of all assets held by such trust at the close of such quarter. ``(C) Ratio of 80 percent or more.--If the ratio for any calendar quarter determined under subparagraph (A) or (B) would (but for this subparagraph) be 80 percent or more, such ratio for such quarter shall be 100 percent. ``(D) Ratio of 20 percent or less.--If the ratio for any calendar quarter determined under subparagraph (A) or (B) would (but for this subparagraph) be 20 percent or less, such ratio for such quarter shall be zero. ``(E) Look-thru of partnerships.--For purposes of this paragraph, a qualified investment entity which holds a partnership interest shall be treated (in lieu of holding a partnership interest) as holding its proportionate share of the assets held by the partnership. ``(3) Treatment of return of capital distributions.--Except as otherwise provided by the Secretary, a distribution with respect to stock in a qualified investment entity which is not a dividend and which results in a reduction in the adjusted basis of such stock shall be treated as allocable to stock acquired by the taxpayer in the order in which such stock was acquired. ``(4) Qualified investment entity.--For purposes of this subsection, the term `qualified investment entity' means-- ``(A) a regulated investment company (within the meaning of section 851), and ``(B) a real estate investment trust (within the meaning of section 856). ``(f) Other Pass-Thru Entities.-- ``(1) Partnerships.-- ``(A) In general.--In the case of a partnership, the adjustment made under subsection (a) at the partnership level shall be passed through to the partners. ``(B) Special rule in the case of section 754 elections.-- In the case of a transfer of an interest in a partnership with respect to which the election provided in section 754 is in effect-- ``(i) the adjustment under section 743(b)(1) shall, with respect to the transferor partner, be treated as a sale of the partnership assets for purposes of applying this section, and ``(ii) with respect to the transferee partner, the partnership's holding period for purposes of this section in such assets shall be treated as beginning on the date of such adjustment. ``(2) S corporations.--In the case of an S corporation, the adjustment made under subsection (a) at the corporate level shall be passed through to the shareholders. This section shall not apply for purposes of determining the amount of any tax imposed by section 1374 or 1375. ``(3) Common trust funds.--In the case of a common trust fund, the adjustment made under subsection (a) at the trust level shall be passed through to the participants. ``(4) Indexing adjustment disregarded in determining loss on sale of interest in entity.--Notwithstanding the preceding provisions of this subsection, for purposes of determining the amount of any loss on a sale or exchange of an interest in a partnership, S corporation, or common trust fund, the adjustment made under subsection (a) shall not be taken into account in determining the adjusted basis of such interest. ``(g) Dispositions Between Related Persons.-- ``(1) In general.--This section shall not apply to any sale or other disposition of property between related persons except to the extent that the basis of such property in the hands of the transferee is a substituted basis. ``(2) Related persons defined.--For purposes of this section, the term `related persons' means-- ``(A) persons bearing a relationship set forth in section 267(b), and ``(B) persons treated as single employer under subsection (b) or (c) of section 414. ``(h) Transfers To Increase Indexing Adjustment.--If any person transfers cash, debt, or any other property to another person and the principal purpose of such transfer is to secure or increase an adjustment under subsection (a), the Secretary may disallow part or all of such adjustment or increase. ``(i) Special Rules.--For purposes of this section-- ``(1) Treatment of improvements, etc.--If there is an addition to the adjusted basis of any tangible property or of any stock in a corporation during the taxable year by reason of an improvement to such property or a contribution to capital of such corporation-- ``(A) such addition shall never be taken into account under subsection (c)(1)(A) if the aggregate amount thereof during the taxable year with respect to such property or stock is less than $1,000, and ``(B) such addition shall be treated as a separate asset acquired at the close of such taxable year if the aggregate amount thereof [[Page H7033]] during the taxable year with respect to such property or stock is $1,000 or more. A rule similar to the rule of the preceding sentence shall apply to any other portion of an asset to the extent that separate treatment of such portion is appropriate to carry out the purposes of this section. ``(2) Assets which are not indexed assets throughout holding period.--The applicable inflation adjustment shall be appropriately reduced for periods during which the asset was not an indexed asset. ``(3) Treatment of certain distributions.--A distribution with respect to stock in a corporation which is not a dividend shall be treated as a disposition. ``(4) Acquisition date where there has been prior application of subsection (a)(1) with respect to the taxpayer.--If there has been a prior application of subsection (a)(1) to an asset while such asset was held by the taxpayer, the date of acquisition of such asset by the taxpayer shall be treated as not earlier than the date of the most recent such prior application. ``(5) Collapsible corporations.--The application of section 341(a) (relating to collapsible corporations) shall be determined without regard to this section. ``(j) Regulations.--The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.''. (b) Clerical Amendment.--The table of sections for part II of subchapter O of chapter 1 is amended by inserting after the item relating to section 1021 the following new item: ``Sec. 1022. Indexing of certain assets acquired after December 31, 1999, for purposes of determining gain.''. (c) Effective Dates.-- (1) In general.--The amendments made by this section shall apply to the disposition of any property the holding period of which begins after December 31, 1999. (2) Certain transactions between related persons.--The amendments made by this section shall not apply to the disposition of any property acquired after December 31, 1999, from a related person (as defined in section 1022(g)(2) of the Internal Revenue Code of 1986, as added by this section) if-- (A) such property was so acquired for a price less than the property's fair market value, and (B) the amendments made by this section did not apply to such property in the hands of such related person. (d) Election To Recognize Gain on Assets Held on January 1, 2000.--For purposes of the Internal Revenue Code of 1986-- (1) In general.--A taxpayer other than a corporation may elect to

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CONFERENCE REPORT ON H.R. 2488, FINANCIAL FREEDOM ACT OF 1999
(House of Representatives - August 04, 1999)

Text of this article available as: TXT PDF [Pages H7027-H7192] CONFERENCE REPORT ON H.R. 2488, FINANCIAL FREEDOM ACT OF 1999 Mr. ARCHER (during the Special Order of Mr. Etheridge) submitted the following conference report and statement on the bill (H.R. 2488) to provide for reconciliation pursuant to sections 105 and 211 of the concurrent resolution on the budget for fiscal year 2000: Conference Report (H. Rept. 106-289) The committee of conference on the disagreeing votes of the two Houses on the amendment of the Senate to the bill (H.R. 2488), to provide for reconciliation pursuant to sections 105 and 211 of the concurrent resolution on the budget for fiscal year 2000, having met, after full and free conference, have agreed to recommend and do recommend to their respective Houses as follows: That the House recede from its disagreement to the amendment of the Senate and agree to the same with an amendment as follows: In lieu of the matter proposed to be inserted by the Senate amendment, insert the following: SECTION 1. SHORT TITLE; ETC. (a) Short Title.--This Act may be cited as the ``Taxpayer Refund and Relief Act of 1999''. (b) Amendment of 1986 Code.--Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986. (c) Section 15 Not To Apply.--No amendment made by this Act shall be treated as a change in a rate of tax for purposes of section 15 of the Internal Revenue Code of 1986. (d) Table of Contents.--The table of contents for this Act is as follows: Sec. 1. Short title; etc. TITLE I--BROAD-BASED AND FAMILY TAX RELIEF Subtitle A--Reduction in Individual Income Taxes Sec. 101. Reduction in individual income taxes. Subtitle B--Family Tax Relief Sec. 111. Elimination of marriage penalty in standard deduction. Sec. 112. Exclusion for foster care payments to apply to payments by qualified placement agencies. Sec. 113. Expansion of adoption credit. Sec. 114. Modification of dependent care credit. Sec. 115. Marriage penalty relief for earned income credit. Subtitle C--Repeal of Alternative Minimum Tax on Individuals Sec. 121. Repeal of alternative minimum tax on individuals. TITLE II--RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS Subtitle A--Capital Gains Tax Relief Sec. 201. Reduction in individual capital gain tax rates. Sec. 202. Indexing of certain assets acquired after December 31, 1999, for purposes of determining gain. Sec. 203. Capital gains tax rates applied to capital gains of designated settlement funds. Sec. 204. Special rule for members of uniformed services and Foreign Service, and other employees, in determining exclusion of gain from sale of principal residence. Sec. 205. Tax treatment of income and loss on derivatives. Sec. 206. Worthless securities of financial institutions. Subtitle B--Individual Retirement Arrangements Sec. 211. Modification of deduction limits for IRA contributions. Sec. 212. Modification of income limits on contributions and rollovers to Roth IRAs. Sec. 213. Deemed IRAs under employer plans. Sec. 214. Catchup contributions to IRAs by individuals age 50 or over. TITLE III--ALTERNATIVE MINIMUM TAX REFORM Sec. 301. Modification of alternative minimum tax on corporations. Sec. 302. Repeal of 90 percent limitation on foreign tax credit. TITLE IV--EDUCATION SAVINGS INCENTIVES Sec. 401. Modifications to education individual retirement accounts. Sec. 402. Modifications to qualified tuition programs. Sec. 403. Exclusion of certain amounts received under the National Health Service Corps Scholarship Program, the F. Edward Hebert Armed Forces Health Professions Scholarship and Financial Assistance Program, and certain other programs. Sec. 404. Extension of exclusion for employer-provided educational assistance. Sec. 405. Additional increase in arbitrage rebate exception for governmental bonds used to finance educational facilities. Sec. 406. Modification of arbitrage rebate rules applicable to public school construction bonds. Sec. 407. Elimination of 60-month limit and increase in income limitation on student loan interest deduction. Sec. 408. 2-percent floor on miscellaneous itemized deductions not to apply to qualified professional development expenses of elementary and secondary school teachers. TITLE V--HEALTH CARE PROVISIONS Sec. 501. Deduction for health and long-term care insurance costs of individuals not participating in employer-subsidized health plans. Sec. 502. Long-term care insurance permitted to be offered under cafeteria plans and flexible spending arrangements. Sec. 503. Additional personal exemption for taxpayer caring for elderly family member in taxpayer's home. Sec. 504. Expanded human clinical trials qualifying for orphan drug credit. Sec. 505. Inclusion of certain vaccines against streptococcus pneumoniae to list of taxable vaccines; reduction in per dose tax rate. Sec. 506. Drug benefits for medicare beneficiaries. TITLE VI--ESTATE TAX RELIEF Subtitle A--Repeal of Estate, Gift, and Generation-Skipping Taxes; Repeal of Step Up in Basis At Death Sec. 601. Repeal of estate, gift, and generation-skipping taxes. Sec. 602. Termination of step up in basis at death. Sec. 603. Carryover basis at death. Subtitle B--Reductions of Estate and Gift Tax Rates Prior to Repeal Sec. 611. Additional reductions of estate and gift tax rates. Subtitle C--Unified Credit Replaced With Unified Exemption Amount Sec. 621. Unified credit against estate and gift taxes replaced with unified exemption amount. Subtitle D--Modifications of Generation-Skipping Transfer Tax Sec. 631. Deemed allocation of gst exemption to lifetime transfers to trusts; retroactive allocations. Sec. 632. Severing of trusts. Sec. 633. Modification of certain valuation rules. Sec. 634. Relief provisions. Subtitle E--Conservation Easements Sec. 641. Expansion of estate tax rule for conservation easements. TITLE VII--TAX RELIEF FOR DISTRESSED COMMUNITIES AND INDUSTRIES Subtitle A--American Community Renewal Act of 1999 Sec. 701. Short title. Sec. 702. Designation of and tax incentives for renewal communities. Sec. 703. Extension of expensing of environmental remediation costs to renewal communities. Sec. 704. Extension of work opportunity tax credit for renewal communities. Sec. 705. Conforming and clerical amendments. Subtitle B--Farming Incentive Sec. 711. Production flexibility contract payments. Subtitle C--Oil and Gas Incentives Sec. 721. 5-year net operating loss carryback for losses attributable to operating mineral interests of independent oil and gas producers. Sec. 722. Deduction for delay rental payments. Sec. 723. Election to expense geological and geophysical expenditures. Sec. 724. Temporary suspension of limitation based on 65 percent of taxable income. Sec. 725. Determination of small refiner exception to oil depletion deduction. Subtitle D--Timber Incentives Sec. 731. Temporary suspension of maximum amount of amortizable reforestation expenditures. Sec. 732. Capital gain treatment under section 631(b) to apply to outright sales by land owner. [[Page H7028]] TITLE VIII--RELIEF FOR SMALL BUSINESSES Sec. 801. Deduction for 100 percent of health insurance costs of self- employed individuals. Sec. 802. Increase in expense treatment for small businesses. Sec. 803. Repeal of Federal unemployment surtax. Sec. 804. Increased deduction for meal expenses; increased deductibility of business meal expenses for individuals subject to Federal limitations on hours of service. Sec. 805. Income averaging for farmers and fishermen not to increase alternative minimum tax liability. Sec. 806. Farm, fishing, and ranch risk management accounts. Sec. 807. Exclusion of investment securities income from passive income test for bank S corporations. Sec. 808. Treatment of qualifying director shares. TITLE IX--INTERNATIONAL TAX RELIEF Sec. 901. Interest allocation rules. Sec. 902. Look-thru rules to apply to dividends from noncontrolled section 902 corporations. Sec. 903. Clarification of treatment of pipeline transportation income. Sec. 904. Subpart F treatment of income from transmission of high voltage electricity. Sec. 905. Recharacterization of overall domestic loss. Sec. 906. Treatment of military property of foreign sales corporations. Sec. 907. Treatment of certain dividends of regulated investment companies. Sec. 908. Repeal of special rules for applying foreign tax credit in case of foreign oil and gas income. Sec. 909. Advance pricing agreements treated as confidential taxpayer information. Sec. 910. Increase in dollar limitation on section 911 exclusion. Sec. 911. Airline mileage awards to certain foreign persons. TITLE X--PROVISIONS RELATING TO TAX-EXEMPT ORGANIZATIONS Sec. 1001. Exemption from income tax for State-created organizations providing property and casualty insurance for property for which such coverage is otherwise unavailable. Sec. 1002. Modification of special arbitrage rule for certain funds. Sec. 1003. Exemption procedure from taxes on self-dealing. Sec. 1004. Expansion of declaratory judgment remedy to tax-exempt organizations. Sec. 1005. Modifications to section 512(b)(13). Sec. 1006. Mileage reimbursements to charitable volunteers excluded from gross income. Sec. 1007. Charitable contribution deduction for certain expenses incurred in support of Native Alaskan subsistence whaling. Sec. 1008. Simplification of lobbying expenditure limitation. Sec. 1009. Tax-free distributions from individual retirement accounts for charitable purposes. TITLE XI--REAL ESTATE PROVISIONS Subtitle A--Improvements in Low-Income Housing Credit Sec. 1101. Modification of State ceiling on low-income housing credit. Sec. 1102. Modification of criteria for allocating housing credits among projects. Sec. 1103. Additional responsibilities of housing credit agencies. Sec. 1104. Modifications to rules relating to basis of building which is eligible for credit. Sec. 1105. Other modifications. Sec. 1106. Carryforward rules. Sec. 1107. Effective date. Subtitle B--Provisions Relating to Real Estate Investment Trusts Part I--Treatment of Income and Services Provided by Taxable REIT Subsidiaries Sec. 1111. Modifications to asset diversification test. Sec. 1112. Treatment of income and services provided by taxable REIT subsidiaries. Sec. 1113. Taxable REIT subsidiary. Sec. 1114. Limitation on earnings stripping. Sec. 1115. 100 percent tax on improperly allocated amounts. Sec. 1116. Effective date. Part II--Health Care REITs Sec. 1121. Health care REITs. Part III--Conformity With Regulated Investment Company Rules Sec. 1131. Conformity with regulated investment company rules. Part IV--Clarification of Exception From Impermissible Tenant Service Income Sec. 1141. Clarification of exception for independent operators. Part V--Modification of Earnings and Profits Rules Sec. 1151. Modification of earnings and profits rules. Subtitle C--Modification of At-Risk Rules for Publicly Traded Nonrecourse Debt Sec. 1161. Treatment under at-risk rules of publicly traded nonrecourse debt. Subtitle D--Treatment of Certain Contributions to Capital of Retailers Sec. 1171. Exclusion from gross income for certain contributions to the capital of certain retailers. Subtitle E--Private Activity Bond Volume Cap Sec. 1181. Acceleration of phase-in of increase in volume cap on private activity bonds. Subtitle F--Deduction for Renovating Historic Homes Sec. 1191. Deduction for renovating historic homes. TITLE XII--PROVISIONS RELATING TO PENSIONS Subtitle A--Expanding Coverage Sec. 1201. Increase in benefit and contribution limits. Sec. 1202. Plan loans for subchapter S owners, partners, and sole proprietors. Sec. 1203. Modification of top-heavy rules. Sec. 1204. Elective deferrals not taken into account for purposes of deduction limits. Sec. 1205. Repeal of coordination requirements for deferred compensation plans of State and local governments and tax-exempt organizations. Sec. 1206. Elimination of user fee for requests to IRS regarding pension plans. Sec. 1207. Deduction limits. Sec. 1208. Option to treat elective deferrals as after-tax contributions. Sec. 1209. Reduced PBGC premium for new plans of small employers. Sec. 1210. Reduction of additional PBGC premium for new and small plans. Subtitle B--Enhancing Fairness for Women Sec. 1221. Catchup contributions for individuals age 50 or over. Sec. 1222. Equitable treatment for contributions of employees to defined contribution plans. Sec. 1223. Faster vesting of certain employer matching contributions. Sec. 1224. Simplify and update the minimum distribution rules. Sec. 1225. Clarification of tax treatment of division of section 457 plan benefits upon divorce. Sec. 1226. Modification of safe harbor relief for hardship withdrawals from cash or deferred arrangements. Subtitle C--Increasing Portability for Participants Sec. 1231. Rollovers allowed among various types of plans. Sec. 1232. Rollovers of IRAs into workplace retirement plans. Sec. 1233. Rollovers of after-tax contributions. Sec. 1234. Hardship exception to 60-day rule. Sec. 1235. Treatment of forms of distribution. Sec. 1236. Rationalization of restrictions on distributions. Sec. 1237. Purchase of service credit in governmental defined benefit plans. Sec. 1238. Employers may disregard rollovers for purposes of cash-out amounts. Sec. 1239. Minimum distribution and inclusion requirements for section 457 plans. Subtitle D--Strengthening Pension Security and Enforcement Sec. 1241. Repeal of 150 percent of current liability funding limit. Sec. 1242. Maximum contribution deduction rules modified and applied to all defined benefit plans. Sec. 1243. Missing participants. Sec. 1244. Excise tax relief for sound pension funding. Sec. 1245. Excise tax on failure to provide notice by defined benefit plans significantly reducing future benefit accruals. Sec. 1246. Protection of investment of employee contributions to 401(k) plans. Sec. 1247. Treatment of multiemployer plans under section 415. Subtitle E--Reducing Regulatory Burdens Sec. 1251. Modification of timing of plan valuations. Sec. 1252. ESOP dividends may be reinvested without loss of dividend deduction. Sec. 1253. Repeal of transition rule relating to certain highly compensated employees. Sec. 1254. Employees of tax-exempt entities. Sec. 1255. Clarification of treatment of employer-provided retirement advice. Sec. 1256. Reporting simplification. Sec. 1257. Improvement of employee plans compliance resolution system. Sec. 1258. Substantial owner benefits in terminated plans. Sec. 1259. Modification of exclusion for employer provided transit passes. Sec. 1260. Repeal of the multiple use test. Sec. 1261. Flexibility in nondiscrimination, coverage, and line of business rules. Sec. 1262. Extension to international organizations of moratorium on application of certain nondiscrimination rules applicable to State and local plans. [[Page H7029]] Subtitle F--Plan Amendments Sec. 1271. Provisions relating to plan amendments. TITLE XIII--MISCELLANEOUS PROVISIONS Subtitle A--Provisions Primarily Affecting Individuals Sec. 1301. Consistent treatment of survivor benefits for public safety officers killed in the line of duty. Sec. 1302. Expansion of dc homebuyer tax credit. Sec. 1303. No Federal income tax on amounts and lands received by Holocaust victims or their heirs. Subtitle B--Provisions Primarily Affecting Businesses Sec. 1311. Distributions from publicly traded partnerships treated as qualifying income of regulated investment companies. Sec. 1312. Special passive activity rule for publicly traded partnerships to apply to regulated investment companies. Sec. 1313. Large electric trucks, vans, and buses eligible for deduction for clean-fuel vehicles in lieu of credit. Sec. 1314. Modifications to special rules for nuclear decommissioning costs. Sec. 1315. Consolidation of life insurance companies with other corporations. Sec. 1316. Modification of active business definition under section 355. Sec. 1317. Expansion of exemption from personal holding company tax for lending or finance companies. Sec. 1318. Extension of expensing of environmental remediation costs. Subtitle C--Provisions Relating to Excise Taxes Sec. 1321. Consolidation of Hazardous Substance Superfund and Leaking Underground Storage Tank Trust Fund. Sec. 1322. Repeal of certain motor fuel excise taxes on fuel used by railroads and on inland waterway transportation. Sec. 1323. Repeal of excise tax on fishing tackle boxes. Sec. 1324. Clarification of excise tax imposed on arrow components. Sec. 1325. Exemption from ticket taxes for certain transportation provided by small seaplanes. Sec. 1326. Modification of rural airport definition. Subtitle D--Other Provisions Sec. 1331. Tax-exempt financing of qualified highway infrastructure construction. Sec. 1332. Tax treatment of Alaska Native Settlement Trusts. Sec. 1333. Increase in threshold for Joint Committee reports on refunds and credits. Sec. 1334. Credit for clinical testing research expenses attributable to certain qualified academic institutions including teaching hospitals. Sec. 1335. Payment of dividends on stock of cooperatives without reducing patronage dividends. Subtitle E--Tax Court Provisions Sec. 1341. Tax court filing fee in all cases commenced by filing petition. Sec. 1342. Expanded use of Tax Court practice fee. Sec. 1343. Confirmation of authority of Tax Court to apply doctrine of equitable recoupment. TITLE XIV--EXTENSIONS OF EXPIRING PROVISIONS Sec. 1401. Research credit. Sec. 1402. Subpart F exemption for active financing income. Sec. 1403. Taxable income limit on percentage depletion for marginal production. Sec. 1404. Work opportunity credit and welfare-to-work credit. Sec. 1405. Extension and modification of credit for producing electricity from certain renewable resources. TITLE XV--REVENUE OFFSETS Sec. 1501. Returns relating to cancellations of indebtedness by organizations lending money. Sec. 1502. Extension of Internal Revenue Service user fees. Sec. 1503. Limitations on welfare benefit funds of 10 or more employer plans. Sec. 1504. Increase in elective withholding rate for nonperiodic distributions from deferred compensation plans. Sec. 1505. Controlled entities ineligible for REIT status. Sec. 1506. Treatment of gain from constructive ownership transactions. Sec. 1507. Transfer of excess defined benefit plan assets for retiree health benefits. Sec. 1508. Modification of installment method and repeal of installment method for accrual method taxpayers. Sec. 1509. Limitation on use of nonaccrual experience method of accounting. Sec. 1510. Charitable split-dollar life insurance, annuity, and endowment contracts. Sec. 1511. Restriction on use of real estate investment trusts to avoid estimated tax payment requirements. Sec. 1512. Modification of anti-abuse rules related to assumption of liability. Sec. 1513. Allocation of basis on transfers of intangibles in certain nonrecognition transactions. Sec. 1514. Distributions to a corporate partner of stock in another corporation. Sec. 1515. Prohibited allocations of S corporation stock held by an ESOP. TITLE XVI--COMPLIANCE WITH BUDGET ACT Sec. 1601. Compliance with Budget Act. TITLE I--BROAD-BASED AND FAMILY TAX RELIEF Subtitle A--Reduction in Individual Income Taxes SEC. 101. REDUCTION IN INDIVIDUAL INCOME TAXES. (a) Regular Income Tax Rates.-- (1) In general.--Subsection (f) of section 1 is amended by adding at the end the following new paragraph: ``(8) Rate reductions.--The following adjustments shall apply in prescribing the tables under paragraph (1): ``(A) Reduction in lowest rate.--With respect to taxable years beginning after December 31, 2000, the rate applicable to the lowest income bracket shall be-- ``(i) 14.5 percent in the case of taxable years beginning during 2001 or 2002, and ``(ii) 14.0 percent in the case of taxable years beginning after 2002. ``(B) Reduction in other rates.--With respect to taxable years beginning after December 31, 2004, each rate (other than the rate referred to in subparagraph (A)) shall be reduced by 1 percentage point. ``(C) Phaseout of marriage penalty in lowest bracket.-- ``(i) In general.--With respect to taxable years beginning after December 31, 2004-- ``(I) the maximum taxable income in the lowest rate bracket in the table contained in subsection (a) (and the minimum taxable income in the next higher taxable income bracket in such table) shall be the applicable percentage of the maximum taxable income in the lowest rate bracket in the table contained in subsection (c) (after any other adjustment under this subsection), and ``(II) the comparable taxable income amounts in the table contained in subsection (d) shall be \1/2\ of the amounts determined under subclause (I). ``(ii) Applicable percentage.--For purposes of clause (i), the applicable percentage shall be determined in accordance with the following table: ``For taxable years beginning The applicable in calendar year-- percentage is-- 2005.......................................................173.7 2006.......................................................176.1 2007.......................................................188.1 2008 and thereafter.......................................200.0. ``(D) Increase in maximum taxable income in lowest bracket for other individuals.-- ``(i) In general.--With respect to taxable years beginning after December 31, 2005, the maximum taxable income in the lowest rate bracket in the tables contained in subsections (b) and (c), after any other adjustment under this subsection (and the minimum taxable income in the next higher taxable income bracket in such tables, as so adjusted) shall be increased by $3,000. ``(ii) Cost-of-living adjustment.--In the case of any taxable year beginning in any calendar year after 2006, the $3,000 amount in clause (i) shall be increased by an amount equal to-- ``(I) such dollar amount, multiplied by ``(II) the cost-of living adjustment determined under paragraph (3) for the calendar year in which the taxable year begins, determined by substituting `calendar year 2005' for `calendar year 1992' in subparagraph (B) thereof.''. ``(iii) Any increase under clause (ii) shall be added to the amount it is increasing before such amount is rounded under paragraph (6). ``(9) Post-2001 rate reductions contingent on no increase in interest on total united states debt.-- ``(A) In general.--If the calendar year preceding any adjustment year is not a debt reduction calendar year, then-- ``(i) such adjustment shall not take effect until the calendar year following the adjustment year, and ``(ii) this subparagraph shall apply to such following calendar year as if it were an adjustment year. For purposes of this subparagraph, the term `adjustment year' means, with respect to any adjustment under subparagraph (A), (B), or (D) of paragraph (8), the first calendar year for which such adjustment takes effect without regard to this paragraph. ``(B) Debt reduction calendar year.--For purposes of this paragraph, the term `debt reduction calendar year' means any calendar year after 2000 if the Secretary of the Treasury (after consultation with the chairman of the Federal Reserve Board) determines by August 31 of such calendar year that the United States interest expense for the 12-month period ending on July 31 of such calendar year is not more than $1,000,000,000 greater than the United States interest expense for the 12-month period ending on July 31 of the preceding calendar year. [[Page H7030]] ``(C) United states interest expense.--For purposes of this paragraph, the term `United States interest expense' means interest on obligations which are subject to the public debt limit in section 3101 of title 31, United States Code.''. (2) Technical amendments.-- (A) Subparagraph (B) of section 1(f)(2) is amended by inserting ``except as provided in paragraph (8),'' before ``by not changing''. (B) Subparagraph (C) of section 1(f)(2) is amended by inserting ``and the reductions under paragraph (8) in the rates of tax'' before the period. (C) The heading for subsection (f) of section 1 is amended by inserting ``Rate Reductions;'' before ``Adjustments''. (D) Section 1(g)(7)(B)(ii)(II) is amended by striking ``15 percent'' and inserting ``the percentage applicable to the lowest income bracket in subsection (c)''. (E) Subparagraphs (A)(ii)(I) and (B)(i) of section 1(h)(1) are each amended by striking ``28 percent'' and inserting ``27 percent''. (F) Section 531 is amended by striking ``39.6 percent of the accumulated taxable income'' and inserting ``the product of the accumulated taxable income and the percentage applicable to the highest income bracket in section 1(c)''. (G) Section 541 is amended by striking ``39.6 percent of the undistributed personal holding company income'' and inserting ``the product of the undistributed personal holding company income and the percentage applicable to the highest income bracket in section 1(c)''. (H) Section 3402(p)(1)(B) is amended by striking ``specified is 7, 15, 28, or 31 percent'' and all that follows and inserting ``specified is-- ``(i) 7 percent, ``(ii) a percentage applicable to 1 of the 3 lowest income brackets in section 1(c), or ``(iii) such other percentage as is permitted under regulations prescribed by the Secretary.''. (I) Section 3402(p)(2) is amended by striking ``15 percent of such payment'' and inserting ``the product of such payment and the percentage applicable to the lowest income bracket in section 1(c)''. (J) Section 3402(q)(1) is amended by striking ``28 percent of such payment'' and inserting ``the product of such payment and the percentage applicable to the next to the lowest income bracket in section 1(c)''. (K) Section 3402(r)(3) is amended by striking ``31 percent'' and inserting ``the rate applicable to the third income bracket in such section''. (L) Section 3406(a)(1) is amended by striking ``31 percent of such payment'' and inserting ``the product of such payment and the percentage applicable to the third income bracket in section 1(c)''. (b) Minimum Tax Rates.--Subparagraph (A) of section 55(b)(1) is amended by adding at the end the following new clause: ``(iv) Rate reduction.--In the case of taxable years beginning after December 31, 2004, each rate in clause (i) shall be reduced by 1 percentage point.'' (c) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2000. Subtitle B--Family Tax Relief SEC. 111. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUCTION. (a) In General.--Paragraph (2) of section 63(c) (relating to standard deduction) is amended-- (1) by striking ``$5,000'' in subparagraph (A) and inserting ``200 percent of the dollar amount in effect under subparagraph (C) for the taxable year'', (2) by adding ``or'' at the end of subparagraph (B), (3) by striking ``in the case of'' and all that follows in subparagraph (C) and inserting ``in any other case.'', and (4) by striking subparagraph (D). (b) Phase-in.--Subsection (c) of section 63 is amended by adding at the end the following new paragraph: ``(7) Phase-in of increase in basic standard deduction.--In the case of taxable years beginning before January 1, 2005-- ``(A) paragraph (2)(A) shall be applied by substituting for `200 percent'-- ``(i) `172.8 percent' in the case of taxable years beginning during 2001, ``(ii) `180.1 percent' in the case of taxable years beginning during 2002, ``(iii) `187.0 percent' in the case of taxable years beginning during 2003, and ``(iv) `193.5 percent' in the case of taxable years beginning during 2004, and ``(B) the basic standard deduction for a married individual filing a separate return shall be one-half of the amount applicable under paragraph (2)(A). If any amount determined under subparagraph (A) is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.''. (c) Technical Amendments.-- (1) Subparagraph (B) of section 1(f)(6) is amended by striking ``(other than with'' and all that follows through ``shall be applied'' and inserting ``(other than with respect to sections 63(c)(4) and 151(d)(4)(A)) shall be applied''. (2) Paragraph (4) of section 63(c) is amended by adding at the end the following flush sentence: ``The preceding sentence shall not apply to the amount referred to in paragraph (2)(A).''. (d) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2000. SEC. 112. EXCLUSION FOR FOSTER CARE PAYMENTS TO APPLY TO PAYMENTS BY QUALIFIED PLACEMENT AGENCIES. (a) In General.--The matter preceding subparagraph (B) of section 131(b)(1) (defining qualified foster care payment) is amended to read as follows: ``(1) In general.--The term `qualified foster care payment' means any payment made pursuant to a foster care program of a State or political subdivision thereof-- ``(A) which is paid by-- ``(i) the State or political subdivision thereof, or ``(ii) a qualified foster care placement agency, and''. (b) Qualified Foster Individuals To Include Individuals Placed by Qualified Placement Agencies.--Subparagraph (B) of section 131(b)(2) (defining qualified foster individual) is amended to read as follows: ``(B) a qualified foster care placement agency.''. (c) Qualified Foster Care Placement Agency Defined.-- Subsection (b) of section 131 is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph: ``(3) Qualified foster care placement agency.--The term `qualified foster care placement agency' means any placement agency which is licensed or certified by-- ``(A) a State or political subdivision thereof, or ``(B) an entity designated by a State or political subdivision thereof, for the foster care program of such State or political subdivision to make foster care payments to providers of foster care.''. (d) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 1999. SEC. 113. EXPANSION OF ADOPTION CREDIT. (a) In General.--Section 23(a)(1) (relating to allowance of credit) is amended to read as follows: ``(1) In general.--In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter-- ``(A) in the case of an adoption of a child other than a child with special needs, the amount of the qualified adoption expenses paid or incurred by the taxpayer, and ``(B) in the case of an adoption of a child with special needs, $10,000.''. (b) Dollar Limitation.--Section 23(b)(1) is amended-- (1) by striking ``($6,000, in the case of a child with special needs)'', and (2) by striking ``subsection (a)'' and inserting ``subsection (a)(1)''. (c) Year Credit Allowed.--Section 23(a)(2) is amended by adding at the end the following new flush sentence: ``In the case of the adoption of a child with special needs, the credit allowed under paragraph (1) shall be allowed for the taxable year in which the adoption becomes final.''. (d) Definition of Eligible Child.-- (1) In general.--Section 23(d)(2) is amended to read as follows: ``(2) Eligible child.--The term `eligible child' means any individual who-- ``(A) has not attained age 18, or ``(B) is physically or mentally incapable of caring for himself.''. (2) Clarification of termination.--Section 23 is amended by adding at the end the following new subsection: ``(i) Termination for Children Without Special Needs.-- Except in the case of a child with special needs, this section shall not apply to expenses paid or incurred after December 31, 2001.'' (e) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2000. SEC. 114. MODIFICATION OF DEPENDENT CARE CREDIT. (a) Increase in Percentage of Employment-Related Expenses Taken Into Account.--Subsection (a)(2) of section 21 (relating to expenses for household and dependent care services necessary for gainful employment) is amended-- (1) by striking ``30 percent'' and inserting ``35 percent (40 percent in the case of taxable years beginning after December 31, 2005)'', (2) by striking ``$2,000'' and inserting ``$1,000'', and (3) by striking ``$10,000'' and inserting ``$30,000''. (b) Indexing of Limit on Employment-Related Expenses.-- Section 21(c) (relating to dollar limit on amount creditable) is amended to read as follows: ``(c) Dollar Limit on Amount Creditable.-- ``(1) In general.--The amount of the employment-related expenses incurred during any taxable year which may be taken into account under subsection (a) shall not exceed-- ``(A) an amount equal to 50 percent of the amount determined under subparagraph (B) if there is 1 qualifying individual with respect to the taxpayer for such taxable year, or ``(B) $4,800 if there are 2 or more qualifying individuals with respect to the taxpayer for such taxable year. The amount determined under subparagraph (A) or (B) (whichever is applicable) shall be reduced by the aggregate amount excludable from gross income under section 129 for the taxable year. ``(2) Cost-of-living adjustment.-- ``(A) In general.--In the case of a taxable year beginning after 2001, the $4,800 amount under paragraph (1)(B) shall be increased by an amount equal to-- ``(i) such dollar amount, multiplied by ``(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar [[Page H7031]] year in which the taxable year begins, determined by substituting `calendar year 2000' for `calendar year 1992' in subparagraph (B) thereof. ``(B) Rounding rules.--If any amount after adjustment under subparagraph (A) is not a multiple of $50, such amount shall be rounded to the next lower multiple of $50.''. (c) Minimum Dependent Care Credit Allowed for Stay-at-Home Parents.--Section 21(e) (relating to special rules) is amended by adding at the end the following: ``(11) Minimum credit allowed for stay-at-home parents.-- ``(A) In general.--Notwithstanding subsection (d), in the case of any taxpayer with 1 or more qualifying individuals described in subsection (b)(1)(A) under the age of 1, such taxpayer shall be deemed to have employment-related expenses for the taxable year with respect to each such qualifying individual in an amount equal to the sum of-- ``(i) $200 for each month in such taxable year during which such qualifying individual is under the age of 1, and ``(ii) the amount of employment-related expenses otherwise incurred for such qualifying individual for the taxable year (determined under this section without regard to this paragraph). ``(B) Election to not apply this paragraph.--This paragraph shall not apply with respect to any qualifying individual for any taxable year if the taxpayer elects to not have this paragraph apply to such qualifying individual for such taxable year.''. (d) Effective Date.-- (1) In general.--The amendments made by this section shall apply to taxable years beginning after December 31, 2001. (2) Subsection (c).--The amendment made by subsection (c) shall apply to taxable years beginning after December 31, 2005. SEC. 115. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT. (a) In General.--Paragraph (2) of section 32(b) (relating to percentages and amounts) is amended-- (1) by striking ``Amounts.--The earned'' and inserting ``Amounts.-- ``(A) In general.--Subject to subparagraph (B), the earned'', and (2) by adding at the end the following new subparagraph: ``(B) Joint returns.--In the case of a joint return, the phaseout amount determined under subparagraph (A) shall be increased by $2,000.''. (b) Inflation adjustment.--Paragraph (1)(B) of section 32(j) (relating to inflation adjustments) is amended to read as follows: ``(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined-- ``(i) in the case of amounts in subsections (b)(1)(A) and (i)(1), by substituting `calendar year 1995' for `calendar year 1992' in subparagraph (B) thereof, and ``(ii) in the case of the $2,000 amount in subsection (b)(1)(B), by substituting `calendar year 2005' for `calendar year 1992' in subparagraph (B) of such section 1.''. (c) Rounding.--Section 32(j)(2)(A) (relating to rounding) is amended by striking ``subsection (b)(2)'' and inserting ``subsection (b)(2)(A) (after being increased under subparagraph (B) thereof)''. (d) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2005. Subtitle C--Repeal of Alternative Minimum Tax on Individuals SEC. 121. REPEAL OF ALTERNATIVE MINIMUM TAX ON INDIVIDUALS. (a) In General.--Subsection (a) of section 55 is amended by adding at the end the following new flush sentence: ``For purposes of this title, the tentative minimum tax on any taxpayer other than a corporation for any taxable year beginning after December 31, 2007, shall be zero.''. (b) Reduction of Tax on Individuals Prior to Repeal.-- Section 55 is amended by adding at the end the following new subsection: ``(f) Phaseout of Tax on Individuals.-- ``(1) In general.--The tax imposed by this section on a taxpayer other than a corporation for any taxable year beginning after December 31, 2004, and before January 1, 2008, shall be the applicable percentage of the tax which would be imposed but for this subsection. ``(2) Applicable percentage.--For purposes of paragraph (1), the applicable percentage shall be determined in accordance with the following table: ``For taxable years beginning The applicable in calendar year-- percentage is-- 2005..........................................................80 2006..........................................................70 2007.......................................................60.''. (c) Nonrefundable Personal Credits Fully Allowed Against Regular Tax Liability.-- (1) In general.--Subsection (a) of section 26 (relating to limitation based on amount of tax) is amended to read as follows: ``(a) Limitation Based on Amount of Tax.--The aggregate amount of credits allowed by this subpart for the taxable year shall not exceed the taxpayer's regular tax liability for the taxable year.''. (2) Child credit.--Subsection (d) of section 24 is amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2). (d) Limitation on Use of Credit for Prior Year Minimum Tax Liability.--Subsection (c) of section 53 is amended to read as follows: ``(c) Limitation.-- ``(1) In general.--Except as otherwise provided in this subsection, the credit allowable under subsection (a) for any taxable year shall not exceed the excess (if any) of-- ``(A) the regular tax liability of the taxpayer for such taxable year reduced by the sum of the credits allowable under subparts A, B, D, E, and F of this part, over ``(B) the tentative minimum tax for the taxable year. ``(2) Taxable years beginning after 2007.--In the case of any taxable year beginning after 2007, the credit allowable under subsection (a) to a taxpayer other than a corporation for any taxable year shall not exceed 90 percent of the excess (if any) of-- ``(A) regular tax liability of the taxpayer for such taxable year, over ``(B) the sum of the credits allowable under subparts A, B, D, E, and F of this part.''. (e) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 1998. TITLE II--RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS Subtitle A--Capital Gains Tax Relief SEC. 201. REDUCTION IN INDIVIDUAL CAPITAL GAIN TAX RATES. (a) In General.-- (1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each amended by striking ``10 percent'' and inserting ``8 percent''. (2) The following sections are each amended by striking ``20 percent'' and inserting ``18 percent'': (A) Section 1(h)(1)(C). (B) Section 55(b)(3)(C). (C) Section 1445(e)(1). (D) The second sentence of section 7518(g)(6)(A). (E) The second sentence of section 607(h)(6)(A) of the Merchant Marine Act, 1936. (3) Sections 1(h)(1)(D) and 55(b)(3)(D) are each amended by striking ``25 percent'' and inserting ``23 percent''. (b) Conforming Amendments.-- (1) Section 311 of the Taxpayer Relief Act of 1997 is amended by striking subsection (e). (2) Section 1(h) is amended-- (A) by striking paragraphs (2), (9), and (13), (B) by redesignating paragraphs (3) through (8) as paragraphs (2) through (7), respectively, and (C) by redesignating paragraphs (10), (11), and (12) as paragraphs (8), (9), and (10), respectively. (3) Paragraph (3) of section 55(b) is amended by striking ``In the case of taxable years beginning after December 31, 2000, rules similar to the rules of section 1(h)(2) shall apply for purposes of subparagraphs (B) and (C).''. (4) Paragraph (7) of section 57(a) is amended-- (A) by striking ``42 percent'' and inserting ``28 percent'', and (B) by striking the last sentence. (c) Effective Dates.-- (1) In general.--Except as otherwise provided by this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 1998. (2) Withholding.--The amendment made by subsection (a)(2)(C) shall apply to amounts paid after the date of the enactment of this Act. SEC. 202. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31, 1999, FOR PURPOSES OF DETERMINING GAIN. (a) In General.--Part II of subchapter O of chapter 1 (relating to basis rules of general application) is amended by inserting after section 1021 the following new section: ``SEC. 1022. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31, 1999, FOR PURPOSES OF DETERMINING GAIN. ``(a) General Rule.-- ``(1) Indexed basis substituted for adjusted basis.--Solely for purposes of determining gain on the sale or other disposition by a taxpayer (other than a corporation) of an indexed asset which has been held for more than 1 year, the indexed basis of the asset shall be substituted for its adjusted basis. ``(2) Exception for depreciation, etc.--The deductions for depreciation, depletion, and amortization shall be determined without regard to the application of paragraph (1) to the taxpayer or any other person. ``(3) Exception for principal residences.--Paragraph (1) shall not apply to any disposition of the principal residence (within the meaning of section 121) of the taxpayer . ``(b) Indexed Asset.-- ``(1) In general.--For purposes of this section, the term `indexed asset' means-- ``(A) common stock in a C corporation (other than a foreign corporation), and ``(B) tangible property, which is a capital asset or property used in the trade or business (as defined in section 1231(b)). ``(2) Stock in certain foreign corporations included.--For purposes of this section-- ``(A) In general.--The term `indexed asset' includes common stock in a foreign corporation which is regularly traded on an established securities market. ``(B) Exception.--Subparagraph (A) shall not apply to-- ``(i) stock of a foreign investment company (within the meaning of section 1246(b)), ``(ii) stock in a passive foreign investment company (as defined in section 1296), ``(iii) stock in a foreign corporation held by a United States person who meets the requirements of section 1248(a)(2), and [[Page H7032]] ``(iv) stock in a foreign personal holding company (as defined in section 552). ``(C) Treatment of american depository receipts.--An American depository receipt for common stock in a foreign corporation shall be treated as common stock in such corporation. ``(c) Indexed Basis.--For purposes of this section-- ``(1) General rule.--The indexed basis for any asset is-- ``(A) the adjusted basis of the asset, increased by ``(B) the applicable inflation adjustment. ``(2) Applicable inflation adjustment.--The applicable inflation adjustment for any asset is an amount equal to-- ``(A) the adjusted basis of the asset, multiplied by ``(B) the percentage (if any) by which-- ``(i) the chain-type price index for GDP for the last calendar quarter ending before the asset is disposed of, exceeds ``(ii) the chain-type price index for GDP for the last calendar quarter ending before the asset was acquired by the taxpayer. The percentage under subparagraph (B) shall be rounded to the nearest \1/10\ of 1 percentage point. ``(3) Chain-type price index for GDP.--The chain-type price index for GDP for any calendar quarter is such index for such quarter (as shown in the last revision thereof released by the Secretary of Commerce before the close of the following calendar quarter). ``(d) Suspension of Holding Period Where Diminished Risk of Loss; Treatment of Short Sales.-- ``(1) In general.--If the taxpayer (or a related person) enters into any transaction which substantially reduces the risk of loss from holding any asset, such asset shall not be treated as an indexed asset for the period of such reduced risk. ``(2) Short sales.-- ``(A) In general.--In the case of a short sale of an indexed asset with a short sale period in excess of 1 year, for purposes of this title, the amount realized shall be an amount equal to the amount realized (determined without regard to this paragraph) increased by the applicable inflation adjustment. In applying subsection (c)(2) for purposes of the preceding sentence, the date on which the property is sold short shall be treated as the date of acquisition and the closing date for the sale shall be treated as the date of disposition. ``(B) Short sale period.--For purposes of subparagraph (A), the short sale period begins on the day that the property is sold and ends on the closing date for the sale. ``(e) Treatment of Regulated Investment Companies and Real Estate Investment Trusts.-- ``(1) Adjustments at entity level.-- ``(A) In general.--Except as otherwise provided in this paragraph, the adjustment under subsection (a) shall be allowed to any qualified investment entity (including for purposes of determining the earnings and profits of such entity). ``(B) Exception for corporate shareholders.--Under regulations-- ``(i) in the case of a distribution by a qualified investment entity (directly or indirectly) to a corporation-- ``(I) the determination of whether such distribution is a dividend shall be made without regard to this section, and ``(II) the amount treated as gain by reason of the receipt of any capital gain dividend shall be increased by the percentage by which the entity's net capital gain for the taxable year (determined without regard to this section) exceeds the entity's net capital gain for such year determined with regard to this section, and ``(ii) there shall be other appropriate adjustments (including deemed distributions) so as to ensure that the benefits of this section are not allowed (directly or indirectly) to corporate shareholders of qualified investment entities. For purposes of the preceding sentence, any amount includible in gross income under section 852(b)(3)(D) shall be treated as a capital gain dividend and an S corporation shall not be treated as a corporation. ``(C) Exception for qualification purposes.--This section shall not apply for purposes of sections 851(b) and 856(c). ``(D) Exception for certain taxes imposed at entity level.-- ``(i) Tax on failure to distribute entire gain.--If any amount is subject to tax under section 852(b)(3)(A) for any taxable year, the amount on which tax is imposed under such section shall be increased by the percentage determined under subparagraph (B)(i)(II). A similar rule shall apply in the case of any amount subject to tax under paragraph (2) or (3) of section 857(b) to the extent attributable to the excess of the net capital gain over the deduction for dividends paid determined with reference to capital gain dividends only. The first sentence of this clause shall not apply to so much of the amount subject to tax under section 852(b)(3)(A) as is designated by the company under section 852(b)(3)(D). ``(ii) Other taxes.--This section shall not apply for purposes of determining the amount of any tax imposed by paragraph (4), (5), or (6) of section 857(b). ``(2) Adjustments to interests held in entity.-- ``(A) Regulated investment companies.--Stock in a regulated investment company (within the meaning of section 851) shall be an indexed asset for any calendar quarter in the same ratio as-- ``(i) the average of the fair market values of the indexed assets held by such company at the close of each month during such quarter, bears to ``(ii) the average of the fair market values of all assets held by such company at the close of each such month. ``(B) Real estate investment trusts.--Stock in a real estate investment trust (within the meaning of section 856) shall be an indexed asset for any calendar quarter in the same ratio as-- ``(i) the fair market value of the indexed assets held by such trust at the close of such quarter, bears to ``(ii) the fair market value of all assets held by such trust at the close of such quarter. ``(C) Ratio of 80 percent or more.--If the ratio for any calendar quarter determined under subparagraph (A) or (B) would (but for this subparagraph) be 80 percent or more, such ratio for such quarter shall be 100 percent. ``(D) Ratio of 20 percent or less.--If the ratio for any calendar quarter determined under subparagraph (A) or (B) would (but for this subparagraph) be 20 percent or less, such ratio for such quarter shall be zero. ``(E) Look-thru of partnerships.--For purposes of this paragraph, a qualified investment entity which holds a partnership interest shall be treated (in lieu of holding a partnership interest) as holding its proportionate share of the assets held by the partnership. ``(3) Treatment of return of capital distributions.--Except as otherwise provided by the Secretary, a distribution with respect to stock in a qualified investment entity which is not a dividend and which results in a reduction in the adjusted basis of such stock shall be treated as allocable to stock acquired by the taxpayer in the order in which such stock was acquired. ``(4) Qualified investment entity.--For purposes of this subsection, the term `qualified investment entity' means-- ``(A) a regulated investment company (within the meaning of section 851), and ``(B) a real estate investment trust (within the meaning of section 856). ``(f) Other Pass-Thru Entities.-- ``(1) Partnerships.-- ``(A) In general.--In the case of a partnership, the adjustment made under subsection (a) at the partnership level shall be passed through to the partners. ``(B) Special rule in the case of section 754 elections.-- In the case of a transfer of an interest in a partnership with respect to which the election provided in section 754 is in effect-- ``(i) the adjustment under section 743(b)(1) shall, with respect to the transferor partner, be treated as a sale of the partnership assets for purposes of applying this section, and ``(ii) with respect to the transferee partner, the partnership's holding period for purposes of this section in such assets shall be treated as beginning on the date of such adjustment. ``(2) S corporations.--In the case of an S corporation, the adjustment made under subsection (a) at the corporate level shall be passed through to the shareholders. This section shall not apply for purposes of determining the amount of any tax imposed by section 1374 or 1375. ``(3) Common trust funds.--In the case of a common trust fund, the adjustment made under subsection (a) at the trust level shall be passed through to the participants. ``(4) Indexing adjustment disregarded in determining loss on sale of interest in entity.--Notwithstanding the preceding provisions of this subsection, for purposes of determining the amount of any loss on a sale or exchange of an interest in a partnership, S corporation, or common trust fund, the adjustment made under subsection (a) shall not be taken into account in determining the adjusted basis of such interest. ``(g) Dispositions Between Related Persons.-- ``(1) In general.--This section shall not apply to any sale or other disposition of property between related persons except to the extent that the basis of such property in the hands of the transferee is a substituted basis. ``(2) Related persons defined.--For purposes of this section, the term `related persons' means-- ``(A) persons bearing a relationship set forth in section 267(b), and ``(B) persons treated as single employer under subsection (b) or (c) of section 414. ``(h) Transfers To Increase Indexing Adjustment.--If any person transfers cash, debt, or any other property to another person and the principal purpose of such transfer is to secure or increase an adjustment under subsection (a), the Secretary may disallow part or all of such adjustment or increase. ``(i) Special Rules.--For purposes of this section-- ``(1) Treatment of improvements, etc.--If there is an addition to the adjusted basis of any tangible property or of any stock in a corporation during the taxable year by reason of an improvement to such property or a contribution to capital of such corporation-- ``(A) such addition shall never be taken into account under subsection (c)(1)(A) if the aggregate amount thereof during the taxable year with respect to such property or stock is less than $1,000, and ``(B) such addition shall be treated as a separate asset acquired at the close of such taxable year if the aggregate amount thereof [[Page H7033]] during the taxable year with respect to such property or stock is $1,000 or more. A rule similar to the rule of the preceding sentence shall apply to any other portion of an asset to the extent that separate treatment of such portion is appropriate to carry out the purposes of this section. ``(2) Assets which are not indexed assets throughout holding period.--The applicable inflation adjustment shall be appropriately reduced for periods during which the asset was not an indexed asset. ``(3) Treatment of certain distributions.--A distribution with respect to stock in a corporation which is not a dividend shall be treated as a disposition. ``(4) Acquisition date where there has been prior application of subsection (a)(1) with respect to the taxpayer.--If there has been a prior application of subsection (a)(1) to an asset while such asset was held by the taxpayer, the date of acquisition of such asset by the taxpayer shall be treated as not earlier than the date of the most recent such prior application. ``(5) Collapsible corporations.--The application of section 341(a) (relating to collapsible corporations) shall be determined without regard to this section. ``(j) Regulations.--The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.''. (b) Clerical Amendment.--The table of sections for part II of subchapter O of chapter 1 is amended by inserting after the item relating to section 1021 the following new item: ``Sec. 1022. Indexing of certain assets acquired after December 31, 1999, for purposes of determining gain.''. (c) Effective Dates.-- (1) In general.--The amendments made by this section shall apply to the disposition of any property the holding period of which begins after December 31, 1999. (2) Certain transactions between related persons.--The amendments made by this section shall not apply to the disposition of any property acquired after December 31, 1999, from a related person (as defined in section 1022(g)(2) of the Internal Revenue Code of 1986, as added by this section) if-- (A) such property was so acquired for a price less than the property's fair market value, and (B) the amendments made by this section did not apply to such property in the hands of such related person. (d) Election To Recognize Gain on Assets Held on January 1, 2000.--For purposes of the Internal Revenue Code of 1986-- (1) In general.--A taxpayer other than a corporation may

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CONFERENCE REPORT ON H.R. 2488, FINANCIAL FREEDOM ACT OF 1999
(House of Representatives - August 04, 1999)

Text of this article available as: TXT PDF [Pages H7027-H7192] CONFERENCE REPORT ON H.R. 2488, FINANCIAL FREEDOM ACT OF 1999 Mr. ARCHER (during the Special Order of Mr. Etheridge) submitted the following conference report and statement on the bill (H.R. 2488) to provide for reconciliation pursuant to sections 105 and 211 of the concurrent resolution on the budget for fiscal year 2000: Conference Report (H. Rept. 106-289) The committee of conference on the disagreeing votes of the two Houses on the amendment of the Senate to the bill (H.R. 2488), to provide for reconciliation pursuant to sections 105 and 211 of the concurrent resolution on the budget for fiscal year 2000, having met, after full and free conference, have agreed to recommend and do recommend to their respective Houses as follows: That the House recede from its disagreement to the amendment of the Senate and agree to the same with an amendment as follows: In lieu of the matter proposed to be inserted by the Senate amendment, insert the following: SECTION 1. SHORT TITLE; ETC. (a) Short Title.--This Act may be cited as the ``Taxpayer Refund and Relief Act of 1999''. (b) Amendment of 1986 Code.--Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986. (c) Section 15 Not To Apply.--No amendment made by this Act shall be treated as a change in a rate of tax for purposes of section 15 of the Internal Revenue Code of 1986. (d) Table of Contents.--The table of contents for this Act is as follows: Sec. 1. Short title; etc. TITLE I--BROAD-BASED AND FAMILY TAX RELIEF Subtitle A--Reduction in Individual Income Taxes Sec. 101. Reduction in individual income taxes. Subtitle B--Family Tax Relief Sec. 111. Elimination of marriage penalty in standard deduction. Sec. 112. Exclusion for foster care payments to apply to payments by qualified placement agencies. Sec. 113. Expansion of adoption credit. Sec. 114. Modification of dependent care credit. Sec. 115. Marriage penalty relief for earned income credit. Subtitle C--Repeal of Alternative Minimum Tax on Individuals Sec. 121. Repeal of alternative minimum tax on individuals. TITLE II--RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS Subtitle A--Capital Gains Tax Relief Sec. 201. Reduction in individual capital gain tax rates. Sec. 202. Indexing of certain assets acquired after December 31, 1999, for purposes of determining gain. Sec. 203. Capital gains tax rates applied to capital gains of designated settlement funds. Sec. 204. Special rule for members of uniformed services and Foreign Service, and other employees, in determining exclusion of gain from sale of principal residence. Sec. 205. Tax treatment of income and loss on derivatives. Sec. 206. Worthless securities of financial institutions. Subtitle B--Individual Retirement Arrangements Sec. 211. Modification of deduction limits for IRA contributions. Sec. 212. Modification of income limits on contributions and rollovers to Roth IRAs. Sec. 213. Deemed IRAs under employer plans. Sec. 214. Catchup contributions to IRAs by individuals age 50 or over. TITLE III--ALTERNATIVE MINIMUM TAX REFORM Sec. 301. Modification of alternative minimum tax on corporations. Sec. 302. Repeal of 90 percent limitation on foreign tax credit. TITLE IV--EDUCATION SAVINGS INCENTIVES Sec. 401. Modifications to education individual retirement accounts. Sec. 402. Modifications to qualified tuition programs. Sec. 403. Exclusion of certain amounts received under the National Health Service Corps Scholarship Program, the F. Edward Hebert Armed Forces Health Professions Scholarship and Financial Assistance Program, and certain other programs. Sec. 404. Extension of exclusion for employer-provided educational assistance. Sec. 405. Additional increase in arbitrage rebate exception for governmental bonds used to finance educational facilities. Sec. 406. Modification of arbitrage rebate rules applicable to public school construction bonds. Sec. 407. Elimination of 60-month limit and increase in income limitation on student loan interest deduction. Sec. 408. 2-percent floor on miscellaneous itemized deductions not to apply to qualified professional development expenses of elementary and secondary school teachers. TITLE V--HEALTH CARE PROVISIONS Sec. 501. Deduction for health and long-term care insurance costs of individuals not participating in employer-subsidized health plans. Sec. 502. Long-term care insurance permitted to be offered under cafeteria plans and flexible spending arrangements. Sec. 503. Additional personal exemption for taxpayer caring for elderly family member in taxpayer's home. Sec. 504. Expanded human clinical trials qualifying for orphan drug credit. Sec. 505. Inclusion of certain vaccines against streptococcus pneumoniae to list of taxable vaccines; reduction in per dose tax rate. Sec. 506. Drug benefits for medicare beneficiaries. TITLE VI--ESTATE TAX RELIEF Subtitle A--Repeal of Estate, Gift, and Generation-Skipping Taxes; Repeal of Step Up in Basis At Death Sec. 601. Repeal of estate, gift, and generation-skipping taxes. Sec. 602. Termination of step up in basis at death. Sec. 603. Carryover basis at death. Subtitle B--Reductions of Estate and Gift Tax Rates Prior to Repeal Sec. 611. Additional reductions of estate and gift tax rates. Subtitle C--Unified Credit Replaced With Unified Exemption Amount Sec. 621. Unified credit against estate and gift taxes replaced with unified exemption amount. Subtitle D--Modifications of Generation-Skipping Transfer Tax Sec. 631. Deemed allocation of gst exemption to lifetime transfers to trusts; retroactive allocations. Sec. 632. Severing of trusts. Sec. 633. Modification of certain valuation rules. Sec. 634. Relief provisions. Subtitle E--Conservation Easements Sec. 641. Expansion of estate tax rule for conservation easements. TITLE VII--TAX RELIEF FOR DISTRESSED COMMUNITIES AND INDUSTRIES Subtitle A--American Community Renewal Act of 1999 Sec. 701. Short title. Sec. 702. Designation of and tax incentives for renewal communities. Sec. 703. Extension of expensing of environmental remediation costs to renewal communities. Sec. 704. Extension of work opportunity tax credit for renewal communities. Sec. 705. Conforming and clerical amendments. Subtitle B--Farming Incentive Sec. 711. Production flexibility contract payments. Subtitle C--Oil and Gas Incentives Sec. 721. 5-year net operating loss carryback for losses attributable to operating mineral interests of independent oil and gas producers. Sec. 722. Deduction for delay rental payments. Sec. 723. Election to expense geological and geophysical expenditures. Sec. 724. Temporary suspension of limitation based on 65 percent of taxable income. Sec. 725. Determination of small refiner exception to oil depletion deduction. Subtitle D--Timber Incentives Sec. 731. Temporary suspension of maximum amount of amortizable reforestation expenditures. Sec. 732. Capital gain treatment under section 631(b) to apply to outright sales by land owner. [[Page H7028]] TITLE VIII--RELIEF FOR SMALL BUSINESSES Sec. 801. Deduction for 100 percent of health insurance costs of self- employed individuals. Sec. 802. Increase in expense treatment for small businesses. Sec. 803. Repeal of Federal unemployment surtax. Sec. 804. Increased deduction for meal expenses; increased deductibility of business meal expenses for individuals subject to Federal limitations on hours of service. Sec. 805. Income averaging for farmers and fishermen not to increase alternative minimum tax liability. Sec. 806. Farm, fishing, and ranch risk management accounts. Sec. 807. Exclusion of investment securities income from passive income test for bank S corporations. Sec. 808. Treatment of qualifying director shares. TITLE IX--INTERNATIONAL TAX RELIEF Sec. 901. Interest allocation rules. Sec. 902. Look-thru rules to apply to dividends from noncontrolled section 902 corporations. Sec. 903. Clarification of treatment of pipeline transportation income. Sec. 904. Subpart F treatment of income from transmission of high voltage electricity. Sec. 905. Recharacterization of overall domestic loss. Sec. 906. Treatment of military property of foreign sales corporations. Sec. 907. Treatment of certain dividends of regulated investment companies. Sec. 908. Repeal of special rules for applying foreign tax credit in case of foreign oil and gas income. Sec. 909. Advance pricing agreements treated as confidential taxpayer information. Sec. 910. Increase in dollar limitation on section 911 exclusion. Sec. 911. Airline mileage awards to certain foreign persons. TITLE X--PROVISIONS RELATING TO TAX-EXEMPT ORGANIZATIONS Sec. 1001. Exemption from income tax for State-created organizations providing property and casualty insurance for property for which such coverage is otherwise unavailable. Sec. 1002. Modification of special arbitrage rule for certain funds. Sec. 1003. Exemption procedure from taxes on self-dealing. Sec. 1004. Expansion of declaratory judgment remedy to tax-exempt organizations. Sec. 1005. Modifications to section 512(b)(13). Sec. 1006. Mileage reimbursements to charitable volunteers excluded from gross income. Sec. 1007. Charitable contribution deduction for certain expenses incurred in support of Native Alaskan subsistence whaling. Sec. 1008. Simplification of lobbying expenditure limitation. Sec. 1009. Tax-free distributions from individual retirement accounts for charitable purposes. TITLE XI--REAL ESTATE PROVISIONS Subtitle A--Improvements in Low-Income Housing Credit Sec. 1101. Modification of State ceiling on low-income housing credit. Sec. 1102. Modification of criteria for allocating housing credits among projects. Sec. 1103. Additional responsibilities of housing credit agencies. Sec. 1104. Modifications to rules relating to basis of building which is eligible for credit. Sec. 1105. Other modifications. Sec. 1106. Carryforward rules. Sec. 1107. Effective date. Subtitle B--Provisions Relating to Real Estate Investment Trusts Part I--Treatment of Income and Services Provided by Taxable REIT Subsidiaries Sec. 1111. Modifications to asset diversification test. Sec. 1112. Treatment of income and services provided by taxable REIT subsidiaries. Sec. 1113. Taxable REIT subsidiary. Sec. 1114. Limitation on earnings stripping. Sec. 1115. 100 percent tax on improperly allocated amounts. Sec. 1116. Effective date. Part II--Health Care REITs Sec. 1121. Health care REITs. Part III--Conformity With Regulated Investment Company Rules Sec. 1131. Conformity with regulated investment company rules. Part IV--Clarification of Exception From Impermissible Tenant Service Income Sec. 1141. Clarification of exception for independent operators. Part V--Modification of Earnings and Profits Rules Sec. 1151. Modification of earnings and profits rules. Subtitle C--Modification of At-Risk Rules for Publicly Traded Nonrecourse Debt Sec. 1161. Treatment under at-risk rules of publicly traded nonrecourse debt. Subtitle D--Treatment of Certain Contributions to Capital of Retailers Sec. 1171. Exclusion from gross income for certain contributions to the capital of certain retailers. Subtitle E--Private Activity Bond Volume Cap Sec. 1181. Acceleration of phase-in of increase in volume cap on private activity bonds. Subtitle F--Deduction for Renovating Historic Homes Sec. 1191. Deduction for renovating historic homes. TITLE XII--PROVISIONS RELATING TO PENSIONS Subtitle A--Expanding Coverage Sec. 1201. Increase in benefit and contribution limits. Sec. 1202. Plan loans for subchapter S owners, partners, and sole proprietors. Sec. 1203. Modification of top-heavy rules. Sec. 1204. Elective deferrals not taken into account for purposes of deduction limits. Sec. 1205. Repeal of coordination requirements for deferred compensation plans of State and local governments and tax-exempt organizations. Sec. 1206. Elimination of user fee for requests to IRS regarding pension plans. Sec. 1207. Deduction limits. Sec. 1208. Option to treat elective deferrals as after-tax contributions. Sec. 1209. Reduced PBGC premium for new plans of small employers. Sec. 1210. Reduction of additional PBGC premium for new and small plans. Subtitle B--Enhancing Fairness for Women Sec. 1221. Catchup contributions for individuals age 50 or over. Sec. 1222. Equitable treatment for contributions of employees to defined contribution plans. Sec. 1223. Faster vesting of certain employer matching contributions. Sec. 1224. Simplify and update the minimum distribution rules. Sec. 1225. Clarification of tax treatment of division of section 457 plan benefits upon divorce. Sec. 1226. Modification of safe harbor relief for hardship withdrawals from cash or deferred arrangements. Subtitle C--Increasing Portability for Participants Sec. 1231. Rollovers allowed among various types of plans. Sec. 1232. Rollovers of IRAs into workplace retirement plans. Sec. 1233. Rollovers of after-tax contributions. Sec. 1234. Hardship exception to 60-day rule. Sec. 1235. Treatment of forms of distribution. Sec. 1236. Rationalization of restrictions on distributions. Sec. 1237. Purchase of service credit in governmental defined benefit plans. Sec. 1238. Employers may disregard rollovers for purposes of cash-out amounts. Sec. 1239. Minimum distribution and inclusion requirements for section 457 plans. Subtitle D--Strengthening Pension Security and Enforcement Sec. 1241. Repeal of 150 percent of current liability funding limit. Sec. 1242. Maximum contribution deduction rules modified and applied to all defined benefit plans. Sec. 1243. Missing participants. Sec. 1244. Excise tax relief for sound pension funding. Sec. 1245. Excise tax on failure to provide notice by defined benefit plans significantly reducing future benefit accruals. Sec. 1246. Protection of investment of employee contributions to 401(k) plans. Sec. 1247. Treatment of multiemployer plans under section 415. Subtitle E--Reducing Regulatory Burdens Sec. 1251. Modification of timing of plan valuations. Sec. 1252. ESOP dividends may be reinvested without loss of dividend deduction. Sec. 1253. Repeal of transition rule relating to certain highly compensated employees. Sec. 1254. Employees of tax-exempt entities. Sec. 1255. Clarification of treatment of employer-provided retirement advice. Sec. 1256. Reporting simplification. Sec. 1257. Improvement of employee plans compliance resolution system. Sec. 1258. Substantial owner benefits in terminated plans. Sec. 1259. Modification of exclusion for employer provided transit passes. Sec. 1260. Repeal of the multiple use test. Sec. 1261. Flexibility in nondiscrimination, coverage, and line of business rules. Sec. 1262. Extension to international organizations of moratorium on application of certain nondiscrimination rules applicable to State and local plans. [[Page H7029]] Subtitle F--Plan Amendments Sec. 1271. Provisions relating to plan amendments. TITLE XIII--MISCELLANEOUS PROVISIONS Subtitle A--Provisions Primarily Affecting Individuals Sec. 1301. Consistent treatment of survivor benefits for public safety officers killed in the line of duty. Sec. 1302. Expansion of dc homebuyer tax credit. Sec. 1303. No Federal income tax on amounts and lands received by Holocaust victims or their heirs. Subtitle B--Provisions Primarily Affecting Businesses Sec. 1311. Distributions from publicly traded partnerships treated as qualifying income of regulated investment companies. Sec. 1312. Special passive activity rule for publicly traded partnerships to apply to regulated investment companies. Sec. 1313. Large electric trucks, vans, and buses eligible for deduction for clean-fuel vehicles in lieu of credit. Sec. 1314. Modifications to special rules for nuclear decommissioning costs. Sec. 1315. Consolidation of life insurance companies with other corporations. Sec. 1316. Modification of active business definition under section 355. Sec. 1317. Expansion of exemption from personal holding company tax for lending or finance companies. Sec. 1318. Extension of expensing of environmental remediation costs. Subtitle C--Provisions Relating to Excise Taxes Sec. 1321. Consolidation of Hazardous Substance Superfund and Leaking Underground Storage Tank Trust Fund. Sec. 1322. Repeal of certain motor fuel excise taxes on fuel used by railroads and on inland waterway transportation. Sec. 1323. Repeal of excise tax on fishing tackle boxes. Sec. 1324. Clarification of excise tax imposed on arrow components. Sec. 1325. Exemption from ticket taxes for certain transportation provided by small seaplanes. Sec. 1326. Modification of rural airport definition. Subtitle D--Other Provisions Sec. 1331. Tax-exempt financing of qualified highway infrastructure construction. Sec. 1332. Tax treatment of Alaska Native Settlement Trusts. Sec. 1333. Increase in threshold for Joint Committee reports on refunds and credits. Sec. 1334. Credit for clinical testing research expenses attributable to certain qualified academic institutions including teaching hospitals. Sec. 1335. Payment of dividends on stock of cooperatives without reducing patronage dividends. Subtitle E--Tax Court Provisions Sec. 1341. Tax court filing fee in all cases commenced by filing petition. Sec. 1342. Expanded use of Tax Court practice fee. Sec. 1343. Confirmation of authority of Tax Court to apply doctrine of equitable recoupment. TITLE XIV--EXTENSIONS OF EXPIRING PROVISIONS Sec. 1401. Research credit. Sec. 1402. Subpart F exemption for active financing income. Sec. 1403. Taxable income limit on percentage depletion for marginal production. Sec. 1404. Work opportunity credit and welfare-to-work credit. Sec. 1405. Extension and modification of credit for producing electricity from certain renewable resources. TITLE XV--REVENUE OFFSETS Sec. 1501. Returns relating to cancellations of indebtedness by organizations lending money. Sec. 1502. Extension of Internal Revenue Service user fees. Sec. 1503. Limitations on welfare benefit funds of 10 or more employer plans. Sec. 1504. Increase in elective withholding rate for nonperiodic distributions from deferred compensation plans. Sec. 1505. Controlled entities ineligible for REIT status. Sec. 1506. Treatment of gain from constructive ownership transactions. Sec. 1507. Transfer of excess defined benefit plan assets for retiree health benefits. Sec. 1508. Modification of installment method and repeal of installment method for accrual method taxpayers. Sec. 1509. Limitation on use of nonaccrual experience method of accounting. Sec. 1510. Charitable split-dollar life insurance, annuity, and endowment contracts. Sec. 1511. Restriction on use of real estate investment trusts to avoid estimated tax payment requirements. Sec. 1512. Modification of anti-abuse rules related to assumption of liability. Sec. 1513. Allocation of basis on transfers of intangibles in certain nonrecognition transactions. Sec. 1514. Distributions to a corporate partner of stock in another corporation. Sec. 1515. Prohibited allocations of S corporation stock held by an ESOP. TITLE XVI--COMPLIANCE WITH BUDGET ACT Sec. 1601. Compliance with Budget Act. TITLE I--BROAD-BASED AND FAMILY TAX RELIEF Subtitle A--Reduction in Individual Income Taxes SEC. 101. REDUCTION IN INDIVIDUAL INCOME TAXES. (a) Regular Income Tax Rates.-- (1) In general.--Subsection (f) of section 1 is amended by adding at the end the following new paragraph: ``(8) Rate reductions.--The following adjustments shall apply in prescribing the tables under paragraph (1): ``(A) Reduction in lowest rate.--With respect to taxable years beginning after December 31, 2000, the rate applicable to the lowest income bracket shall be-- ``(i) 14.5 percent in the case of taxable years beginning during 2001 or 2002, and ``(ii) 14.0 percent in the case of taxable years beginning after 2002. ``(B) Reduction in other rates.--With respect to taxable years beginning after December 31, 2004, each rate (other than the rate referred to in subparagraph (A)) shall be reduced by 1 percentage point. ``(C) Phaseout of marriage penalty in lowest bracket.-- ``(i) In general.--With respect to taxable years beginning after December 31, 2004-- ``(I) the maximum taxable income in the lowest rate bracket in the table contained in subsection (a) (and the minimum taxable income in the next higher taxable income bracket in such table) shall be the applicable percentage of the maximum taxable income in the lowest rate bracket in the table contained in subsection (c) (after any other adjustment under this subsection), and ``(II) the comparable taxable income amounts in the table contained in subsection (d) shall be \1/2\ of the amounts determined under subclause (I). ``(ii) Applicable percentage.--For purposes of clause (i), the applicable percentage shall be determined in accordance with the following table: ``For taxable years beginning The applicable in calendar year-- percentage is-- 2005.......................................................173.7 2006.......................................................176.1 2007.......................................................188.1 2008 and thereafter.......................................200.0. ``(D) Increase in maximum taxable income in lowest bracket for other individuals.-- ``(i) In general.--With respect to taxable years beginning after December 31, 2005, the maximum taxable income in the lowest rate bracket in the tables contained in subsections (b) and (c), after any other adjustment under this subsection (and the minimum taxable income in the next higher taxable income bracket in such tables, as so adjusted) shall be increased by $3,000. ``(ii) Cost-of-living adjustment.--In the case of any taxable year beginning in any calendar year after 2006, the $3,000 amount in clause (i) shall be increased by an amount equal to-- ``(I) such dollar amount, multiplied by ``(II) the cost-of living adjustment determined under paragraph (3) for the calendar year in which the taxable year begins, determined by substituting `calendar year 2005' for `calendar year 1992' in subparagraph (B) thereof.''. ``(iii) Any increase under clause (ii) shall be added to the amount it is increasing before such amount is rounded under paragraph (6). ``(9) Post-2001 rate reductions contingent on no increase in interest on total united states debt.-- ``(A) In general.--If the calendar year preceding any adjustment year is not a debt reduction calendar year, then-- ``(i) such adjustment shall not take effect until the calendar year following the adjustment year, and ``(ii) this subparagraph shall apply to such following calendar year as if it were an adjustment year. For purposes of this subparagraph, the term `adjustment year' means, with respect to any adjustment under subparagraph (A), (B), or (D) of paragraph (8), the first calendar year for which such adjustment takes effect without regard to this paragraph. ``(B) Debt reduction calendar year.--For purposes of this paragraph, the term `debt reduction calendar year' means any calendar year after 2000 if the Secretary of the Treasury (after consultation with the chairman of the Federal Reserve Board) determines by August 31 of such calendar year that the United States interest expense for the 12-month period ending on July 31 of such calendar year is not more than $1,000,000,000 greater than the United States interest expense for the 12-month period ending on July 31 of the preceding calendar year. [[Page H7030]] ``(C) United states interest expense.--For purposes of this paragraph, the term `United States interest expense' means interest on obligations which are subject to the public debt limit in section 3101 of title 31, United States Code.''. (2) Technical amendments.-- (A) Subparagraph (B) of section 1(f)(2) is amended by inserting ``except as provided in paragraph (8),'' before ``by not changing''. (B) Subparagraph (C) of section 1(f)(2) is amended by inserting ``and the reductions under paragraph (8) in the rates of tax'' before the period. (C) The heading for subsection (f) of section 1 is amended by inserting ``Rate Reductions;'' before ``Adjustments''. (D) Section 1(g)(7)(B)(ii)(II) is amended by striking ``15 percent'' and inserting ``the percentage applicable to the lowest income bracket in subsection (c)''. (E) Subparagraphs (A)(ii)(I) and (B)(i) of section 1(h)(1) are each amended by striking ``28 percent'' and inserting ``27 percent''. (F) Section 531 is amended by striking ``39.6 percent of the accumulated taxable income'' and inserting ``the product of the accumulated taxable income and the percentage applicable to the highest income bracket in section 1(c)''. (G) Section 541 is amended by striking ``39.6 percent of the undistributed personal holding company income'' and inserting ``the product of the undistributed personal holding company income and the percentage applicable to the highest income bracket in section 1(c)''. (H) Section 3402(p)(1)(B) is amended by striking ``specified is 7, 15, 28, or 31 percent'' and all that follows and inserting ``specified is-- ``(i) 7 percent, ``(ii) a percentage applicable to 1 of the 3 lowest income brackets in section 1(c), or ``(iii) such other percentage as is permitted under regulations prescribed by the Secretary.''. (I) Section 3402(p)(2) is amended by striking ``15 percent of such payment'' and inserting ``the product of such payment and the percentage applicable to the lowest income bracket in section 1(c)''. (J) Section 3402(q)(1) is amended by striking ``28 percent of such payment'' and inserting ``the product of such payment and the percentage applicable to the next to the lowest income bracket in section 1(c)''. (K) Section 3402(r)(3) is amended by striking ``31 percent'' and inserting ``the rate applicable to the third income bracket in such section''. (L) Section 3406(a)(1) is amended by striking ``31 percent of such payment'' and inserting ``the product of such payment and the percentage applicable to the third income bracket in section 1(c)''. (b) Minimum Tax Rates.--Subparagraph (A) of section 55(b)(1) is amended by adding at the end the following new clause: ``(iv) Rate reduction.--In the case of taxable years beginning after December 31, 2004, each rate in clause (i) shall be reduced by 1 percentage point.'' (c) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2000. Subtitle B--Family Tax Relief SEC. 111. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUCTION. (a) In General.--Paragraph (2) of section 63(c) (relating to standard deduction) is amended-- (1) by striking ``$5,000'' in subparagraph (A) and inserting ``200 percent of the dollar amount in effect under subparagraph (C) for the taxable year'', (2) by adding ``or'' at the end of subparagraph (B), (3) by striking ``in the case of'' and all that follows in subparagraph (C) and inserting ``in any other case.'', and (4) by striking subparagraph (D). (b) Phase-in.--Subsection (c) of section 63 is amended by adding at the end the following new paragraph: ``(7) Phase-in of increase in basic standard deduction.--In the case of taxable years beginning before January 1, 2005-- ``(A) paragraph (2)(A) shall be applied by substituting for `200 percent'-- ``(i) `172.8 percent' in the case of taxable years beginning during 2001, ``(ii) `180.1 percent' in the case of taxable years beginning during 2002, ``(iii) `187.0 percent' in the case of taxable years beginning during 2003, and ``(iv) `193.5 percent' in the case of taxable years beginning during 2004, and ``(B) the basic standard deduction for a married individual filing a separate return shall be one-half of the amount applicable under paragraph (2)(A). If any amount determined under subparagraph (A) is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.''. (c) Technical Amendments.-- (1) Subparagraph (B) of section 1(f)(6) is amended by striking ``(other than with'' and all that follows through ``shall be applied'' and inserting ``(other than with respect to sections 63(c)(4) and 151(d)(4)(A)) shall be applied''. (2) Paragraph (4) of section 63(c) is amended by adding at the end the following flush sentence: ``The preceding sentence shall not apply to the amount referred to in paragraph (2)(A).''. (d) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2000. SEC. 112. EXCLUSION FOR FOSTER CARE PAYMENTS TO APPLY TO PAYMENTS BY QUALIFIED PLACEMENT AGENCIES. (a) In General.--The matter preceding subparagraph (B) of section 131(b)(1) (defining qualified foster care payment) is amended to read as follows: ``(1) In general.--The term `qualified foster care payment' means any payment made pursuant to a foster care program of a State or political subdivision thereof-- ``(A) which is paid by-- ``(i) the State or political subdivision thereof, or ``(ii) a qualified foster care placement agency, and''. (b) Qualified Foster Individuals To Include Individuals Placed by Qualified Placement Agencies.--Subparagraph (B) of section 131(b)(2) (defining qualified foster individual) is amended to read as follows: ``(B) a qualified foster care placement agency.''. (c) Qualified Foster Care Placement Agency Defined.-- Subsection (b) of section 131 is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph: ``(3) Qualified foster care placement agency.--The term `qualified foster care placement agency' means any placement agency which is licensed or certified by-- ``(A) a State or political subdivision thereof, or ``(B) an entity designated by a State or political subdivision thereof, for the foster care program of such State or political subdivision to make foster care payments to providers of foster care.''. (d) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 1999. SEC. 113. EXPANSION OF ADOPTION CREDIT. (a) In General.--Section 23(a)(1) (relating to allowance of credit) is amended to read as follows: ``(1) In general.--In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter-- ``(A) in the case of an adoption of a child other than a child with special needs, the amount of the qualified adoption expenses paid or incurred by the taxpayer, and ``(B) in the case of an adoption of a child with special needs, $10,000.''. (b) Dollar Limitation.--Section 23(b)(1) is amended-- (1) by striking ``($6,000, in the case of a child with special needs)'', and (2) by striking ``subsection (a)'' and inserting ``subsection (a)(1)''. (c) Year Credit Allowed.--Section 23(a)(2) is amended by adding at the end the following new flush sentence: ``In the case of the adoption of a child with special needs, the credit allowed under paragraph (1) shall be allowed for the taxable year in which the adoption becomes final.''. (d) Definition of Eligible Child.-- (1) In general.--Section 23(d)(2) is amended to read as follows: ``(2) Eligible child.--The term `eligible child' means any individual who-- ``(A) has not attained age 18, or ``(B) is physically or mentally incapable of caring for himself.''. (2) Clarification of termination.--Section 23 is amended by adding at the end the following new subsection: ``(i) Termination for Children Without Special Needs.-- Except in the case of a child with special needs, this section shall not apply to expenses paid or incurred after December 31, 2001.'' (e) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2000. SEC. 114. MODIFICATION OF DEPENDENT CARE CREDIT. (a) Increase in Percentage of Employment-Related Expenses Taken Into Account.--Subsection (a)(2) of section 21 (relating to expenses for household and dependent care services necessary for gainful employment) is amended-- (1) by striking ``30 percent'' and inserting ``35 percent (40 percent in the case of taxable years beginning after December 31, 2005)'', (2) by striking ``$2,000'' and inserting ``$1,000'', and (3) by striking ``$10,000'' and inserting ``$30,000''. (b) Indexing of Limit on Employment-Related Expenses.-- Section 21(c) (relating to dollar limit on amount creditable) is amended to read as follows: ``(c) Dollar Limit on Amount Creditable.-- ``(1) In general.--The amount of the employment-related expenses incurred during any taxable year which may be taken into account under subsection (a) shall not exceed-- ``(A) an amount equal to 50 percent of the amount determined under subparagraph (B) if there is 1 qualifying individual with respect to the taxpayer for such taxable year, or ``(B) $4,800 if there are 2 or more qualifying individuals with respect to the taxpayer for such taxable year. The amount determined under subparagraph (A) or (B) (whichever is applicable) shall be reduced by the aggregate amount excludable from gross income under section 129 for the taxable year. ``(2) Cost-of-living adjustment.-- ``(A) In general.--In the case of a taxable year beginning after 2001, the $4,800 amount under paragraph (1)(B) shall be increased by an amount equal to-- ``(i) such dollar amount, multiplied by ``(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar [[Page H7031]] year in which the taxable year begins, determined by substituting `calendar year 2000' for `calendar year 1992' in subparagraph (B) thereof. ``(B) Rounding rules.--If any amount after adjustment under subparagraph (A) is not a multiple of $50, such amount shall be rounded to the next lower multiple of $50.''. (c) Minimum Dependent Care Credit Allowed for Stay-at-Home Parents.--Section 21(e) (relating to special rules) is amended by adding at the end the following: ``(11) Minimum credit allowed for stay-at-home parents.-- ``(A) In general.--Notwithstanding subsection (d), in the case of any taxpayer with 1 or more qualifying individuals described in subsection (b)(1)(A) under the age of 1, such taxpayer shall be deemed to have employment-related expenses for the taxable year with respect to each such qualifying individual in an amount equal to the sum of-- ``(i) $200 for each month in such taxable year during which such qualifying individual is under the age of 1, and ``(ii) the amount of employment-related expenses otherwise incurred for such qualifying individual for the taxable year (determined under this section without regard to this paragraph). ``(B) Election to not apply this paragraph.--This paragraph shall not apply with respect to any qualifying individual for any taxable year if the taxpayer elects to not have this paragraph apply to such qualifying individual for such taxable year.''. (d) Effective Date.-- (1) In general.--The amendments made by this section shall apply to taxable years beginning after December 31, 2001. (2) Subsection (c).--The amendment made by subsection (c) shall apply to taxable years beginning after December 31, 2005. SEC. 115. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT. (a) In General.--Paragraph (2) of section 32(b) (relating to percentages and amounts) is amended-- (1) by striking ``Amounts.--The earned'' and inserting ``Amounts.-- ``(A) In general.--Subject to subparagraph (B), the earned'', and (2) by adding at the end the following new subparagraph: ``(B) Joint returns.--In the case of a joint return, the phaseout amount determined under subparagraph (A) shall be increased by $2,000.''. (b) Inflation adjustment.--Paragraph (1)(B) of section 32(j) (relating to inflation adjustments) is amended to read as follows: ``(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined-- ``(i) in the case of amounts in subsections (b)(1)(A) and (i)(1), by substituting `calendar year 1995' for `calendar year 1992' in subparagraph (B) thereof, and ``(ii) in the case of the $2,000 amount in subsection (b)(1)(B), by substituting `calendar year 2005' for `calendar year 1992' in subparagraph (B) of such section 1.''. (c) Rounding.--Section 32(j)(2)(A) (relating to rounding) is amended by striking ``subsection (b)(2)'' and inserting ``subsection (b)(2)(A) (after being increased under subparagraph (B) thereof)''. (d) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2005. Subtitle C--Repeal of Alternative Minimum Tax on Individuals SEC. 121. REPEAL OF ALTERNATIVE MINIMUM TAX ON INDIVIDUALS. (a) In General.--Subsection (a) of section 55 is amended by adding at the end the following new flush sentence: ``For purposes of this title, the tentative minimum tax on any taxpayer other than a corporation for any taxable year beginning after December 31, 2007, shall be zero.''. (b) Reduction of Tax on Individuals Prior to Repeal.-- Section 55 is amended by adding at the end the following new subsection: ``(f) Phaseout of Tax on Individuals.-- ``(1) In general.--The tax imposed by this section on a taxpayer other than a corporation for any taxable year beginning after December 31, 2004, and before January 1, 2008, shall be the applicable percentage of the tax which would be imposed but for this subsection. ``(2) Applicable percentage.--For purposes of paragraph (1), the applicable percentage shall be determined in accordance with the following table: ``For taxable years beginning The applicable in calendar year-- percentage is-- 2005..........................................................80 2006..........................................................70 2007.......................................................60.''. (c) Nonrefundable Personal Credits Fully Allowed Against Regular Tax Liability.-- (1) In general.--Subsection (a) of section 26 (relating to limitation based on amount of tax) is amended to read as follows: ``(a) Limitation Based on Amount of Tax.--The aggregate amount of credits allowed by this subpart for the taxable year shall not exceed the taxpayer's regular tax liability for the taxable year.''. (2) Child credit.--Subsection (d) of section 24 is amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2). (d) Limitation on Use of Credit for Prior Year Minimum Tax Liability.--Subsection (c) of section 53 is amended to read as follows: ``(c) Limitation.-- ``(1) In general.--Except as otherwise provided in this subsection, the credit allowable under subsection (a) for any taxable year shall not exceed the excess (if any) of-- ``(A) the regular tax liability of the taxpayer for such taxable year reduced by the sum of the credits allowable under subparts A, B, D, E, and F of this part, over ``(B) the tentative minimum tax for the taxable year. ``(2) Taxable years beginning after 2007.--In the case of any taxable year beginning after 2007, the credit allowable under subsection (a) to a taxpayer other than a corporation for any taxable year shall not exceed 90 percent of the excess (if any) of-- ``(A) regular tax liability of the taxpayer for such taxable year, over ``(B) the sum of the credits allowable under subparts A, B, D, E, and F of this part.''. (e) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 1998. TITLE II--RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS Subtitle A--Capital Gains Tax Relief SEC. 201. REDUCTION IN INDIVIDUAL CAPITAL GAIN TAX RATES. (a) In General.-- (1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each amended by striking ``10 percent'' and inserting ``8 percent''. (2) The following sections are each amended by striking ``20 percent'' and inserting ``18 percent'': (A) Section 1(h)(1)(C). (B) Section 55(b)(3)(C). (C) Section 1445(e)(1). (D) The second sentence of section 7518(g)(6)(A). (E) The second sentence of section 607(h)(6)(A) of the Merchant Marine Act, 1936. (3) Sections 1(h)(1)(D) and 55(b)(3)(D) are each amended by striking ``25 percent'' and inserting ``23 percent''. (b) Conforming Amendments.-- (1) Section 311 of the Taxpayer Relief Act of 1997 is amended by striking subsection (e). (2) Section 1(h) is amended-- (A) by striking paragraphs (2), (9), and (13), (B) by redesignating paragraphs (3) through (8) as paragraphs (2) through (7), respectively, and (C) by redesignating paragraphs (10), (11), and (12) as paragraphs (8), (9), and (10), respectively. (3) Paragraph (3) of section 55(b) is amended by striking ``In the case of taxable years beginning after December 31, 2000, rules similar to the rules of section 1(h)(2) shall apply for purposes of subparagraphs (B) and (C).''. (4) Paragraph (7) of section 57(a) is amended-- (A) by striking ``42 percent'' and inserting ``28 percent'', and (B) by striking the last sentence. (c) Effective Dates.-- (1) In general.--Except as otherwise provided by this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 1998. (2) Withholding.--The amendment made by subsection (a)(2)(C) shall apply to amounts paid after the date of the enactment of this Act. SEC. 202. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31, 1999, FOR PURPOSES OF DETERMINING GAIN. (a) In General.--Part II of subchapter O of chapter 1 (relating to basis rules of general application) is amended by inserting after section 1021 the following new section: ``SEC. 1022. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31, 1999, FOR PURPOSES OF DETERMINING GAIN. ``(a) General Rule.-- ``(1) Indexed basis substituted for adjusted basis.--Solely for purposes of determining gain on the sale or other disposition by a taxpayer (other than a corporation) of an indexed asset which has been held for more than 1 year, the indexed basis of the asset shall be substituted for its adjusted basis. ``(2) Exception for depreciation, etc.--The deductions for depreciation, depletion, and amortization shall be determined without regard to the application of paragraph (1) to the taxpayer or any other person. ``(3) Exception for principal residences.--Paragraph (1) shall not apply to any disposition of the principal residence (within the meaning of section 121) of the taxpayer . ``(b) Indexed Asset.-- ``(1) In general.--For purposes of this section, the term `indexed asset' means-- ``(A) common stock in a C corporation (other than a foreign corporation), and ``(B) tangible property, which is a capital asset or property used in the trade or business (as defined in section 1231(b)). ``(2) Stock in certain foreign corporations included.--For purposes of this section-- ``(A) In general.--The term `indexed asset' includes common stock in a foreign corporation which is regularly traded on an established securities market. ``(B) Exception.--Subparagraph (A) shall not apply to-- ``(i) stock of a foreign investment company (within the meaning of section 1246(b)), ``(ii) stock in a passive foreign investment company (as defined in section 1296), ``(iii) stock in a foreign corporation held by a United States person who meets the requirements of section 1248(a)(2), and [[Page H7032]] ``(iv) stock in a foreign personal holding company (as defined in section 552). ``(C) Treatment of american depository receipts.--An American depository receipt for common stock in a foreign corporation shall be treated as common stock in such corporation. ``(c) Indexed Basis.--For purposes of this section-- ``(1) General rule.--The indexed basis for any asset is-- ``(A) the adjusted basis of the asset, increased by ``(B) the applicable inflation adjustment. ``(2) Applicable inflation adjustment.--The applicable inflation adjustment for any asset is an amount equal to-- ``(A) the adjusted basis of the asset, multiplied by ``(B) the percentage (if any) by which-- ``(i) the chain-type price index for GDP for the last calendar quarter ending before the asset is disposed of, exceeds ``(ii) the chain-type price index for GDP for the last calendar quarter ending before the asset was acquired by the taxpayer. The percentage under subparagraph (B) shall be rounded to the nearest \1/10\ of 1 percentage point. ``(3) Chain-type price index for GDP.--The chain-type price index for GDP for any calendar quarter is such index for such quarter (as shown in the last revision thereof released by the Secretary of Commerce before the close of the following calendar quarter). ``(d) Suspension of Holding Period Where Diminished Risk of Loss; Treatment of Short Sales.-- ``(1) In general.--If the taxpayer (or a related person) enters into any transaction which substantially reduces the risk of loss from holding any asset, such asset shall not be treated as an indexed asset for the period of such reduced risk. ``(2) Short sales.-- ``(A) In general.--In the case of a short sale of an indexed asset with a short sale period in excess of 1 year, for purposes of this title, the amount realized shall be an amount equal to the amount realized (determined without regard to this paragraph) increased by the applicable inflation adjustment. In applying subsection (c)(2) for purposes of the preceding sentence, the date on which the property is sold short shall be treated as the date of acquisition and the closing date for the sale shall be treated as the date of disposition. ``(B) Short sale period.--For purposes of subparagraph (A), the short sale period begins on the day that the property is sold and ends on the closing date for the sale. ``(e) Treatment of Regulated Investment Companies and Real Estate Investment Trusts.-- ``(1) Adjustments at entity level.-- ``(A) In general.--Except as otherwise provided in this paragraph, the adjustment under subsection (a) shall be allowed to any qualified investment entity (including for purposes of determining the earnings and profits of such entity). ``(B) Exception for corporate shareholders.--Under regulations-- ``(i) in the case of a distribution by a qualified investment entity (directly or indirectly) to a corporation-- ``(I) the determination of whether such distribution is a dividend shall be made without regard to this section, and ``(II) the amount treated as gain by reason of the receipt of any capital gain dividend shall be increased by the percentage by which the entity's net capital gain for the taxable year (determined without regard to this section) exceeds the entity's net capital gain for such year determined with regard to this section, and ``(ii) there shall be other appropriate adjustments (including deemed distributions) so as to ensure that the benefits of this section are not allowed (directly or indirectly) to corporate shareholders of qualified investment entities. For purposes of the preceding sentence, any amount includible in gross income under section 852(b)(3)(D) shall be treated as a capital gain dividend and an S corporation shall not be treated as a corporation. ``(C) Exception for qualification purposes.--This section shall not apply for purposes of sections 851(b) and 856(c). ``(D) Exception for certain taxes imposed at entity level.-- ``(i) Tax on failure to distribute entire gain.--If any amount is subject to tax under section 852(b)(3)(A) for any taxable year, the amount on which tax is imposed under such section shall be increased by the percentage determined under subparagraph (B)(i)(II). A similar rule shall apply in the case of any amount subject to tax under paragraph (2) or (3) of section 857(b) to the extent attributable to the excess of the net capital gain over the deduction for dividends paid determined with reference to capital gain dividends only. The first sentence of this clause shall not apply to so much of the amount subject to tax under section 852(b)(3)(A) as is designated by the company under section 852(b)(3)(D). ``(ii) Other taxes.--This section shall not apply for purposes of determining the amount of any tax imposed by paragraph (4), (5), or (6) of section 857(b). ``(2) Adjustments to interests held in entity.-- ``(A) Regulated investment companies.--Stock in a regulated investment company (within the meaning of section 851) shall be an indexed asset for any calendar quarter in the same ratio as-- ``(i) the average of the fair market values of the indexed assets held by such company at the close of each month during such quarter, bears to ``(ii) the average of the fair market values of all assets held by such company at the close of each such month. ``(B) Real estate investment trusts.--Stock in a real estate investment trust (within the meaning of section 856) shall be an indexed asset for any calendar quarter in the same ratio as-- ``(i) the fair market value of the indexed assets held by such trust at the close of such quarter, bears to ``(ii) the fair market value of all assets held by such trust at the close of such quarter. ``(C) Ratio of 80 percent or more.--If the ratio for any calendar quarter determined under subparagraph (A) or (B) would (but for this subparagraph) be 80 percent or more, such ratio for such quarter shall be 100 percent. ``(D) Ratio of 20 percent or less.--If the ratio for any calendar quarter determined under subparagraph (A) or (B) would (but for this subparagraph) be 20 percent or less, such ratio for such quarter shall be zero. ``(E) Look-thru of partnerships.--For purposes of this paragraph, a qualified investment entity which holds a partnership interest shall be treated (in lieu of holding a partnership interest) as holding its proportionate share of the assets held by the partnership. ``(3) Treatment of return of capital distributions.--Except as otherwise provided by the Secretary, a distribution with respect to stock in a qualified investment entity which is not a dividend and which results in a reduction in the adjusted basis of such stock shall be treated as allocable to stock acquired by the taxpayer in the order in which such stock was acquired. ``(4) Qualified investment entity.--For purposes of this subsection, the term `qualified investment entity' means-- ``(A) a regulated investment company (within the meaning of section 851), and ``(B) a real estate investment trust (within the meaning of section 856). ``(f) Other Pass-Thru Entities.-- ``(1) Partnerships.-- ``(A) In general.--In the case of a partnership, the adjustment made under subsection (a) at the partnership level shall be passed through to the partners. ``(B) Special rule in the case of section 754 elections.-- In the case of a transfer of an interest in a partnership with respect to which the election provided in section 754 is in effect-- ``(i) the adjustment under section 743(b)(1) shall, with respect to the transferor partner, be treated as a sale of the partnership assets for purposes of applying this section, and ``(ii) with respect to the transferee partner, the partnership's holding period for purposes of this section in such assets shall be treated as beginning on the date of such adjustment. ``(2) S corporations.--In the case of an S corporation, the adjustment made under subsection (a) at the corporate level shall be passed through to the shareholders. This section shall not apply for purposes of determining the amount of any tax imposed by section 1374 or 1375. ``(3) Common trust funds.--In the case of a common trust fund, the adjustment made under subsection (a) at the trust level shall be passed through to the participants. ``(4) Indexing adjustment disregarded in determining loss on sale of interest in entity.--Notwithstanding the preceding provisions of this subsection, for purposes of determining the amount of any loss on a sale or exchange of an interest in a partnership, S corporation, or common trust fund, the adjustment made under subsection (a) shall not be taken into account in determining the adjusted basis of such interest. ``(g) Dispositions Between Related Persons.-- ``(1) In general.--This section shall not apply to any sale or other disposition of property between related persons except to the extent that the basis of such property in the hands of the transferee is a substituted basis. ``(2) Related persons defined.--For purposes of this section, the term `related persons' means-- ``(A) persons bearing a relationship set forth in section 267(b), and ``(B) persons treated as single employer under subsection (b) or (c) of section 414. ``(h) Transfers To Increase Indexing Adjustment.--If any person transfers cash, debt, or any other property to another person and the principal purpose of such transfer is to secure or increase an adjustment under subsection (a), the Secretary may disallow part or all of such adjustment or increase. ``(i) Special Rules.--For purposes of this section-- ``(1) Treatment of improvements, etc.--If there is an addition to the adjusted basis of any tangible property or of any stock in a corporation during the taxable year by reason of an improvement to such property or a contribution to capital of such corporation-- ``(A) such addition shall never be taken into account under subsection (c)(1)(A) if the aggregate amount thereof during the taxable year with respect to such property or stock is less than $1,000, and ``(B) such addition shall be treated as a separate asset acquired at the close of such taxable year if the aggregate amount thereof [[Page H7033]] during the taxable year with respect to such property or stock is $1,000 or more. A rule similar to the rule of the preceding sentence shall apply to any other portion of an asset to the extent that separate treatment of such portion is appropriate to carry out the purposes of this section. ``(2) Assets which are not indexed assets throughout holding period.--The applicable inflation adjustment shall be appropriately reduced for periods during which the asset was not an indexed asset. ``(3) Treatment of certain distributions.--A distribution with respect to stock in a corporation which is not a dividend shall be treated as a disposition. ``(4) Acquisition date where there has been prior application of subsection (a)(1) with respect to the taxpayer.--If there has been a prior application of subsection (a)(1) to an asset while such asset was held by the taxpayer, the date of acquisition of such asset by the taxpayer shall be treated as not earlier than the date of the most recent such prior application. ``(5) Collapsible corporations.--The application of section 341(a) (relating to collapsible corporations) shall be determined without regard to this section. ``(j) Regulations.--The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.''. (b) Clerical Amendment.--The table of sections for part II of subchapter O of chapter 1 is amended by inserting after the item relating to section 1021 the following new item: ``Sec. 1022. Indexing of certain assets acquired after December 31, 1999, for purposes of determining gain.''. (c) Effective Dates.-- (1) In general.--The amendments made by this section shall apply to the disposition of any property the holding period of which begins after December 31, 1999. (2) Certain transactions between related persons.--The amendments made by this section shall not apply to the disposition of any property acquired after December 31, 1999, from a related person (as defined in section 1022(g)(2) of the Internal Revenue Code of 1986, as added by this section) if-- (A) such property was so acquired for a price less than the property's fair market value, and (B) the amendments made by this section did not apply to such property in the hands of such related person. (d) Election To Recognize Gain on Assets Held on January 1, 2000.--For purposes of the Internal Revenue Code of 1986-- (1) In general.--A taxpayer other than a corporation may elect to

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CONFERENCE REPORT ON H.R. 2488, FINANCIAL FREEDOM ACT OF 1999
(House of Representatives - August 04, 1999)

Text of this article available as: TXT PDF [Pages H7027-H7192] CONFERENCE REPORT ON H.R. 2488, FINANCIAL FREEDOM ACT OF 1999 Mr. ARCHER (during the Special Order of Mr. Etheridge) submitted the following conference report and statement on the bill (H.R. 2488) to provide for reconciliation pursuant to sections 105 and 211 of the concurrent resolution on the budget for fiscal year 2000: Conference Report (H. Rept. 106-289) The committee of conference on the disagreeing votes of the two Houses on the amendment of the Senate to the bill (H.R. 2488), to provide for reconciliation pursuant to sections 105 and 211 of the concurrent resolution on the budget for fiscal year 2000, having met, after full and free conference, have agreed to recommend and do recommend to their respective Houses as follows: That the House recede from its disagreement to the amendment of the Senate and agree to the same with an amendment as follows: In lieu of the matter proposed to be inserted by the Senate amendment, insert the following: SECTION 1. SHORT TITLE; ETC. (a) Short Title.--This Act may be cited as the ``Taxpayer Refund and Relief Act of 1999''. (b) Amendment of 1986 Code.--Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provision, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986. (c) Section 15 Not To Apply.--No amendment made by this Act shall be treated as a change in a rate of tax for purposes of section 15 of the Internal Revenue Code of 1986. (d) Table of Contents.--The table of contents for this Act is as follows: Sec. 1. Short title; etc. TITLE I--BROAD-BASED AND FAMILY TAX RELIEF Subtitle A--Reduction in Individual Income Taxes Sec. 101. Reduction in individual income taxes. Subtitle B--Family Tax Relief Sec. 111. Elimination of marriage penalty in standard deduction. Sec. 112. Exclusion for foster care payments to apply to payments by qualified placement agencies. Sec. 113. Expansion of adoption credit. Sec. 114. Modification of dependent care credit. Sec. 115. Marriage penalty relief for earned income credit. Subtitle C--Repeal of Alternative Minimum Tax on Individuals Sec. 121. Repeal of alternative minimum tax on individuals. TITLE II--RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS Subtitle A--Capital Gains Tax Relief Sec. 201. Reduction in individual capital gain tax rates. Sec. 202. Indexing of certain assets acquired after December 31, 1999, for purposes of determining gain. Sec. 203. Capital gains tax rates applied to capital gains of designated settlement funds. Sec. 204. Special rule for members of uniformed services and Foreign Service, and other employees, in determining exclusion of gain from sale of principal residence. Sec. 205. Tax treatment of income and loss on derivatives. Sec. 206. Worthless securities of financial institutions. Subtitle B--Individual Retirement Arrangements Sec. 211. Modification of deduction limits for IRA contributions. Sec. 212. Modification of income limits on contributions and rollovers to Roth IRAs. Sec. 213. Deemed IRAs under employer plans. Sec. 214. Catchup contributions to IRAs by individuals age 50 or over. TITLE III--ALTERNATIVE MINIMUM TAX REFORM Sec. 301. Modification of alternative minimum tax on corporations. Sec. 302. Repeal of 90 percent limitation on foreign tax credit. TITLE IV--EDUCATION SAVINGS INCENTIVES Sec. 401. Modifications to education individual retirement accounts. Sec. 402. Modifications to qualified tuition programs. Sec. 403. Exclusion of certain amounts received under the National Health Service Corps Scholarship Program, the F. Edward Hebert Armed Forces Health Professions Scholarship and Financial Assistance Program, and certain other programs. Sec. 404. Extension of exclusion for employer-provided educational assistance. Sec. 405. Additional increase in arbitrage rebate exception for governmental bonds used to finance educational facilities. Sec. 406. Modification of arbitrage rebate rules applicable to public school construction bonds. Sec. 407. Elimination of 60-month limit and increase in income limitation on student loan interest deduction. Sec. 408. 2-percent floor on miscellaneous itemized deductions not to apply to qualified professional development expenses of elementary and secondary school teachers. TITLE V--HEALTH CARE PROVISIONS Sec. 501. Deduction for health and long-term care insurance costs of individuals not participating in employer-subsidized health plans. Sec. 502. Long-term care insurance permitted to be offered under cafeteria plans and flexible spending arrangements. Sec. 503. Additional personal exemption for taxpayer caring for elderly family member in taxpayer's home. Sec. 504. Expanded human clinical trials qualifying for orphan drug credit. Sec. 505. Inclusion of certain vaccines against streptococcus pneumoniae to list of taxable vaccines; reduction in per dose tax rate. Sec. 506. Drug benefits for medicare beneficiaries. TITLE VI--ESTATE TAX RELIEF Subtitle A--Repeal of Estate, Gift, and Generation-Skipping Taxes; Repeal of Step Up in Basis At Death Sec. 601. Repeal of estate, gift, and generation-skipping taxes. Sec. 602. Termination of step up in basis at death. Sec. 603. Carryover basis at death. Subtitle B--Reductions of Estate and Gift Tax Rates Prior to Repeal Sec. 611. Additional reductions of estate and gift tax rates. Subtitle C--Unified Credit Replaced With Unified Exemption Amount Sec. 621. Unified credit against estate and gift taxes replaced with unified exemption amount. Subtitle D--Modifications of Generation-Skipping Transfer Tax Sec. 631. Deemed allocation of gst exemption to lifetime transfers to trusts; retroactive allocations. Sec. 632. Severing of trusts. Sec. 633. Modification of certain valuation rules. Sec. 634. Relief provisions. Subtitle E--Conservation Easements Sec. 641. Expansion of estate tax rule for conservation easements. TITLE VII--TAX RELIEF FOR DISTRESSED COMMUNITIES AND INDUSTRIES Subtitle A--American Community Renewal Act of 1999 Sec. 701. Short title. Sec. 702. Designation of and tax incentives for renewal communities. Sec. 703. Extension of expensing of environmental remediation costs to renewal communities. Sec. 704. Extension of work opportunity tax credit for renewal communities. Sec. 705. Conforming and clerical amendments. Subtitle B--Farming Incentive Sec. 711. Production flexibility contract payments. Subtitle C--Oil and Gas Incentives Sec. 721. 5-year net operating loss carryback for losses attributable to operating mineral interests of independent oil and gas producers. Sec. 722. Deduction for delay rental payments. Sec. 723. Election to expense geological and geophysical expenditures. Sec. 724. Temporary suspension of limitation based on 65 percent of taxable income. Sec. 725. Determination of small refiner exception to oil depletion deduction. Subtitle D--Timber Incentives Sec. 731. Temporary suspension of maximum amount of amortizable reforestation expenditures. Sec. 732. Capital gain treatment under section 631(b) to apply to outright sales by land owner. [[Page H7028]] TITLE VIII--RELIEF FOR SMALL BUSINESSES Sec. 801. Deduction for 100 percent of health insurance costs of self- employed individuals. Sec. 802. Increase in expense treatment for small businesses. Sec. 803. Repeal of Federal unemployment surtax. Sec. 804. Increased deduction for meal expenses; increased deductibility of business meal expenses for individuals subject to Federal limitations on hours of service. Sec. 805. Income averaging for farmers and fishermen not to increase alternative minimum tax liability. Sec. 806. Farm, fishing, and ranch risk management accounts. Sec. 807. Exclusion of investment securities income from passive income test for bank S corporations. Sec. 808. Treatment of qualifying director shares. TITLE IX--INTERNATIONAL TAX RELIEF Sec. 901. Interest allocation rules. Sec. 902. Look-thru rules to apply to dividends from noncontrolled section 902 corporations. Sec. 903. Clarification of treatment of pipeline transportation income. Sec. 904. Subpart F treatment of income from transmission of high voltage electricity. Sec. 905. Recharacterization of overall domestic loss. Sec. 906. Treatment of military property of foreign sales corporations. Sec. 907. Treatment of certain dividends of regulated investment companies. Sec. 908. Repeal of special rules for applying foreign tax credit in case of foreign oil and gas income. Sec. 909. Advance pricing agreements treated as confidential taxpayer information. Sec. 910. Increase in dollar limitation on section 911 exclusion. Sec. 911. Airline mileage awards to certain foreign persons. TITLE X--PROVISIONS RELATING TO TAX-EXEMPT ORGANIZATIONS Sec. 1001. Exemption from income tax for State-created organizations providing property and casualty insurance for property for which such coverage is otherwise unavailable. Sec. 1002. Modification of special arbitrage rule for certain funds. Sec. 1003. Exemption procedure from taxes on self-dealing. Sec. 1004. Expansion of declaratory judgment remedy to tax-exempt organizations. Sec. 1005. Modifications to section 512(b)(13). Sec. 1006. Mileage reimbursements to charitable volunteers excluded from gross income. Sec. 1007. Charitable contribution deduction for certain expenses incurred in support of Native Alaskan subsistence whaling. Sec. 1008. Simplification of lobbying expenditure limitation. Sec. 1009. Tax-free distributions from individual retirement accounts for charitable purposes. TITLE XI--REAL ESTATE PROVISIONS Subtitle A--Improvements in Low-Income Housing Credit Sec. 1101. Modification of State ceiling on low-income housing credit. Sec. 1102. Modification of criteria for allocating housing credits among projects. Sec. 1103. Additional responsibilities of housing credit agencies. Sec. 1104. Modifications to rules relating to basis of building which is eligible for credit. Sec. 1105. Other modifications. Sec. 1106. Carryforward rules. Sec. 1107. Effective date. Subtitle B--Provisions Relating to Real Estate Investment Trusts Part I--Treatment of Income and Services Provided by Taxable REIT Subsidiaries Sec. 1111. Modifications to asset diversification test. Sec. 1112. Treatment of income and services provided by taxable REIT subsidiaries. Sec. 1113. Taxable REIT subsidiary. Sec. 1114. Limitation on earnings stripping. Sec. 1115. 100 percent tax on improperly allocated amounts. Sec. 1116. Effective date. Part II--Health Care REITs Sec. 1121. Health care REITs. Part III--Conformity With Regulated Investment Company Rules Sec. 1131. Conformity with regulated investment company rules. Part IV--Clarification of Exception From Impermissible Tenant Service Income Sec. 1141. Clarification of exception for independent operators. Part V--Modification of Earnings and Profits Rules Sec. 1151. Modification of earnings and profits rules. Subtitle C--Modification of At-Risk Rules for Publicly Traded Nonrecourse Debt Sec. 1161. Treatment under at-risk rules of publicly traded nonrecourse debt. Subtitle D--Treatment of Certain Contributions to Capital of Retailers Sec. 1171. Exclusion from gross income for certain contributions to the capital of certain retailers. Subtitle E--Private Activity Bond Volume Cap Sec. 1181. Acceleration of phase-in of increase in volume cap on private activity bonds. Subtitle F--Deduction for Renovating Historic Homes Sec. 1191. Deduction for renovating historic homes. TITLE XII--PROVISIONS RELATING TO PENSIONS Subtitle A--Expanding Coverage Sec. 1201. Increase in benefit and contribution limits. Sec. 1202. Plan loans for subchapter S owners, partners, and sole proprietors. Sec. 1203. Modification of top-heavy rules. Sec. 1204. Elective deferrals not taken into account for purposes of deduction limits. Sec. 1205. Repeal of coordination requirements for deferred compensation plans of State and local governments and tax-exempt organizations. Sec. 1206. Elimination of user fee for requests to IRS regarding pension plans. Sec. 1207. Deduction limits. Sec. 1208. Option to treat elective deferrals as after-tax contributions. Sec. 1209. Reduced PBGC premium for new plans of small employers. Sec. 1210. Reduction of additional PBGC premium for new and small plans. Subtitle B--Enhancing Fairness for Women Sec. 1221. Catchup contributions for individuals age 50 or over. Sec. 1222. Equitable treatment for contributions of employees to defined contribution plans. Sec. 1223. Faster vesting of certain employer matching contributions. Sec. 1224. Simplify and update the minimum distribution rules. Sec. 1225. Clarification of tax treatment of division of section 457 plan benefits upon divorce. Sec. 1226. Modification of safe harbor relief for hardship withdrawals from cash or deferred arrangements. Subtitle C--Increasing Portability for Participants Sec. 1231. Rollovers allowed among various types of plans. Sec. 1232. Rollovers of IRAs into workplace retirement plans. Sec. 1233. Rollovers of after-tax contributions. Sec. 1234. Hardship exception to 60-day rule. Sec. 1235. Treatment of forms of distribution. Sec. 1236. Rationalization of restrictions on distributions. Sec. 1237. Purchase of service credit in governmental defined benefit plans. Sec. 1238. Employers may disregard rollovers for purposes of cash-out amounts. Sec. 1239. Minimum distribution and inclusion requirements for section 457 plans. Subtitle D--Strengthening Pension Security and Enforcement Sec. 1241. Repeal of 150 percent of current liability funding limit. Sec. 1242. Maximum contribution deduction rules modified and applied to all defined benefit plans. Sec. 1243. Missing participants. Sec. 1244. Excise tax relief for sound pension funding. Sec. 1245. Excise tax on failure to provide notice by defined benefit plans significantly reducing future benefit accruals. Sec. 1246. Protection of investment of employee contributions to 401(k) plans. Sec. 1247. Treatment of multiemployer plans under section 415. Subtitle E--Reducing Regulatory Burdens Sec. 1251. Modification of timing of plan valuations. Sec. 1252. ESOP dividends may be reinvested without loss of dividend deduction. Sec. 1253. Repeal of transition rule relating to certain highly compensated employees. Sec. 1254. Employees of tax-exempt entities. Sec. 1255. Clarification of treatment of employer-provided retirement advice. Sec. 1256. Reporting simplification. Sec. 1257. Improvement of employee plans compliance resolution system. Sec. 1258. Substantial owner benefits in terminated plans. Sec. 1259. Modification of exclusion for employer provided transit passes. Sec. 1260. Repeal of the multiple use test. Sec. 1261. Flexibility in nondiscrimination, coverage, and line of business rules. Sec. 1262. Extension to international organizations of moratorium on application of certain nondiscrimination rules applicable to State and local plans. [[Page H7029]] Subtitle F--Plan Amendments Sec. 1271. Provisions relating to plan amendments. TITLE XIII--MISCELLANEOUS PROVISIONS Subtitle A--Provisions Primarily Affecting Individuals Sec. 1301. Consistent treatment of survivor benefits for public safety officers killed in the line of duty. Sec. 1302. Expansion of dc homebuyer tax credit. Sec. 1303. No Federal income tax on amounts and lands received by Holocaust victims or their heirs. Subtitle B--Provisions Primarily Affecting Businesses Sec. 1311. Distributions from publicly traded partnerships treated as qualifying income of regulated investment companies. Sec. 1312. Special passive activity rule for publicly traded partnerships to apply to regulated investment companies. Sec. 1313. Large electric trucks, vans, and buses eligible for deduction for clean-fuel vehicles in lieu of credit. Sec. 1314. Modifications to special rules for nuclear decommissioning costs. Sec. 1315. Consolidation of life insurance companies with other corporations. Sec. 1316. Modification of active business definition under section 355. Sec. 1317. Expansion of exemption from personal holding company tax for lending or finance companies. Sec. 1318. Extension of expensing of environmental remediation costs. Subtitle C--Provisions Relating to Excise Taxes Sec. 1321. Consolidation of Hazardous Substance Superfund and Leaking Underground Storage Tank Trust Fund. Sec. 1322. Repeal of certain motor fuel excise taxes on fuel used by railroads and on inland waterway transportation. Sec. 1323. Repeal of excise tax on fishing tackle boxes. Sec. 1324. Clarification of excise tax imposed on arrow components. Sec. 1325. Exemption from ticket taxes for certain transportation provided by small seaplanes. Sec. 1326. Modification of rural airport definition. Subtitle D--Other Provisions Sec. 1331. Tax-exempt financing of qualified highway infrastructure construction. Sec. 1332. Tax treatment of Alaska Native Settlement Trusts. Sec. 1333. Increase in threshold for Joint Committee reports on refunds and credits. Sec. 1334. Credit for clinical testing research expenses attributable to certain qualified academic institutions including teaching hospitals. Sec. 1335. Payment of dividends on stock of cooperatives without reducing patronage dividends. Subtitle E--Tax Court Provisions Sec. 1341. Tax court filing fee in all cases commenced by filing petition. Sec. 1342. Expanded use of Tax Court practice fee. Sec. 1343. Confirmation of authority of Tax Court to apply doctrine of equitable recoupment. TITLE XIV--EXTENSIONS OF EXPIRING PROVISIONS Sec. 1401. Research credit. Sec. 1402. Subpart F exemption for active financing income. Sec. 1403. Taxable income limit on percentage depletion for marginal production. Sec. 1404. Work opportunity credit and welfare-to-work credit. Sec. 1405. Extension and modification of credit for producing electricity from certain renewable resources. TITLE XV--REVENUE OFFSETS Sec. 1501. Returns relating to cancellations of indebtedness by organizations lending money. Sec. 1502. Extension of Internal Revenue Service user fees. Sec. 1503. Limitations on welfare benefit funds of 10 or more employer plans. Sec. 1504. Increase in elective withholding rate for nonperiodic distributions from deferred compensation plans. Sec. 1505. Controlled entities ineligible for REIT status. Sec. 1506. Treatment of gain from constructive ownership transactions. Sec. 1507. Transfer of excess defined benefit plan assets for retiree health benefits. Sec. 1508. Modification of installment method and repeal of installment method for accrual method taxpayers. Sec. 1509. Limitation on use of nonaccrual experience method of accounting. Sec. 1510. Charitable split-dollar life insurance, annuity, and endowment contracts. Sec. 1511. Restriction on use of real estate investment trusts to avoid estimated tax payment requirements. Sec. 1512. Modification of anti-abuse rules related to assumption of liability. Sec. 1513. Allocation of basis on transfers of intangibles in certain nonrecognition transactions. Sec. 1514. Distributions to a corporate partner of stock in another corporation. Sec. 1515. Prohibited allocations of S corporation stock held by an ESOP. TITLE XVI--COMPLIANCE WITH BUDGET ACT Sec. 1601. Compliance with Budget Act. TITLE I--BROAD-BASED AND FAMILY TAX RELIEF Subtitle A--Reduction in Individual Income Taxes SEC. 101. REDUCTION IN INDIVIDUAL INCOME TAXES. (a) Regular Income Tax Rates.-- (1) In general.--Subsection (f) of section 1 is amended by adding at the end the following new paragraph: ``(8) Rate reductions.--The following adjustments shall apply in prescribing the tables under paragraph (1): ``(A) Reduction in lowest rate.--With respect to taxable years beginning after December 31, 2000, the rate applicable to the lowest income bracket shall be-- ``(i) 14.5 percent in the case of taxable years beginning during 2001 or 2002, and ``(ii) 14.0 percent in the case of taxable years beginning after 2002. ``(B) Reduction in other rates.--With respect to taxable years beginning after December 31, 2004, each rate (other than the rate referred to in subparagraph (A)) shall be reduced by 1 percentage point. ``(C) Phaseout of marriage penalty in lowest bracket.-- ``(i) In general.--With respect to taxable years beginning after December 31, 2004-- ``(I) the maximum taxable income in the lowest rate bracket in the table contained in subsection (a) (and the minimum taxable income in the next higher taxable income bracket in such table) shall be the applicable percentage of the maximum taxable income in the lowest rate bracket in the table contained in subsection (c) (after any other adjustment under this subsection), and ``(II) the comparable taxable income amounts in the table contained in subsection (d) shall be \1/2\ of the amounts determined under subclause (I). ``(ii) Applicable percentage.--For purposes of clause (i), the applicable percentage shall be determined in accordance with the following table: ``For taxable years beginning The applicable in calendar year-- percentage is-- 2005.......................................................173.7 2006.......................................................176.1 2007.......................................................188.1 2008 and thereafter.......................................200.0. ``(D) Increase in maximum taxable income in lowest bracket for other individuals.-- ``(i) In general.--With respect to taxable years beginning after December 31, 2005, the maximum taxable income in the lowest rate bracket in the tables contained in subsections (b) and (c), after any other adjustment under this subsection (and the minimum taxable income in the next higher taxable income bracket in such tables, as so adjusted) shall be increased by $3,000. ``(ii) Cost-of-living adjustment.--In the case of any taxable year beginning in any calendar year after 2006, the $3,000 amount in clause (i) shall be increased by an amount equal to-- ``(I) such dollar amount, multiplied by ``(II) the cost-of living adjustment determined under paragraph (3) for the calendar year in which the taxable year begins, determined by substituting `calendar year 2005' for `calendar year 1992' in subparagraph (B) thereof.''. ``(iii) Any increase under clause (ii) shall be added to the amount it is increasing before such amount is rounded under paragraph (6). ``(9) Post-2001 rate reductions contingent on no increase in interest on total united states debt.-- ``(A) In general.--If the calendar year preceding any adjustment year is not a debt reduction calendar year, then-- ``(i) such adjustment shall not take effect until the calendar year following the adjustment year, and ``(ii) this subparagraph shall apply to such following calendar year as if it were an adjustment year. For purposes of this subparagraph, the term `adjustment year' means, with respect to any adjustment under subparagraph (A), (B), or (D) of paragraph (8), the first calendar year for which such adjustment takes effect without regard to this paragraph. ``(B) Debt reduction calendar year.--For purposes of this paragraph, the term `debt reduction calendar year' means any calendar year after 2000 if the Secretary of the Treasury (after consultation with the chairman of the Federal Reserve Board) determines by August 31 of such calendar year that the United States interest expense for the 12-month period ending on July 31 of such calendar year is not more than $1,000,000,000 greater than the United States interest expense for the 12-month period ending on July 31 of the preceding calendar year. [[Page H7030]] ``(C) United states interest expense.--For purposes of this paragraph, the term `United States interest expense' means interest on obligations which are subject to the public debt limit in section 3101 of title 31, United States Code.''. (2) Technical amendments.-- (A) Subparagraph (B) of section 1(f)(2) is amended by inserting ``except as provided in paragraph (8),'' before ``by not changing''. (B) Subparagraph (C) of section 1(f)(2) is amended by inserting ``and the reductions under paragraph (8) in the rates of tax'' before the period. (C) The heading for subsection (f) of section 1 is amended by inserting ``Rate Reductions;'' before ``Adjustments''. (D) Section 1(g)(7)(B)(ii)(II) is amended by striking ``15 percent'' and inserting ``the percentage applicable to the lowest income bracket in subsection (c)''. (E) Subparagraphs (A)(ii)(I) and (B)(i) of section 1(h)(1) are each amended by striking ``28 percent'' and inserting ``27 percent''. (F) Section 531 is amended by striking ``39.6 percent of the accumulated taxable income'' and inserting ``the product of the accumulated taxable income and the percentage applicable to the highest income bracket in section 1(c)''. (G) Section 541 is amended by striking ``39.6 percent of the undistributed personal holding company income'' and inserting ``the product of the undistributed personal holding company income and the percentage applicable to the highest income bracket in section 1(c)''. (H) Section 3402(p)(1)(B) is amended by striking ``specified is 7, 15, 28, or 31 percent'' and all that follows and inserting ``specified is-- ``(i) 7 percent, ``(ii) a percentage applicable to 1 of the 3 lowest income brackets in section 1(c), or ``(iii) such other percentage as is permitted under regulations prescribed by the Secretary.''. (I) Section 3402(p)(2) is amended by striking ``15 percent of such payment'' and inserting ``the product of such payment and the percentage applicable to the lowest income bracket in section 1(c)''. (J) Section 3402(q)(1) is amended by striking ``28 percent of such payment'' and inserting ``the product of such payment and the percentage applicable to the next to the lowest income bracket in section 1(c)''. (K) Section 3402(r)(3) is amended by striking ``31 percent'' and inserting ``the rate applicable to the third income bracket in such section''. (L) Section 3406(a)(1) is amended by striking ``31 percent of such payment'' and inserting ``the product of such payment and the percentage applicable to the third income bracket in section 1(c)''. (b) Minimum Tax Rates.--Subparagraph (A) of section 55(b)(1) is amended by adding at the end the following new clause: ``(iv) Rate reduction.--In the case of taxable years beginning after December 31, 2004, each rate in clause (i) shall be reduced by 1 percentage point.'' (c) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2000. Subtitle B--Family Tax Relief SEC. 111. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUCTION. (a) In General.--Paragraph (2) of section 63(c) (relating to standard deduction) is amended-- (1) by striking ``$5,000'' in subparagraph (A) and inserting ``200 percent of the dollar amount in effect under subparagraph (C) for the taxable year'', (2) by adding ``or'' at the end of subparagraph (B), (3) by striking ``in the case of'' and all that follows in subparagraph (C) and inserting ``in any other case.'', and (4) by striking subparagraph (D). (b) Phase-in.--Subsection (c) of section 63 is amended by adding at the end the following new paragraph: ``(7) Phase-in of increase in basic standard deduction.--In the case of taxable years beginning before January 1, 2005-- ``(A) paragraph (2)(A) shall be applied by substituting for `200 percent'-- ``(i) `172.8 percent' in the case of taxable years beginning during 2001, ``(ii) `180.1 percent' in the case of taxable years beginning during 2002, ``(iii) `187.0 percent' in the case of taxable years beginning during 2003, and ``(iv) `193.5 percent' in the case of taxable years beginning during 2004, and ``(B) the basic standard deduction for a married individual filing a separate return shall be one-half of the amount applicable under paragraph (2)(A). If any amount determined under subparagraph (A) is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.''. (c) Technical Amendments.-- (1) Subparagraph (B) of section 1(f)(6) is amended by striking ``(other than with'' and all that follows through ``shall be applied'' and inserting ``(other than with respect to sections 63(c)(4) and 151(d)(4)(A)) shall be applied''. (2) Paragraph (4) of section 63(c) is amended by adding at the end the following flush sentence: ``The preceding sentence shall not apply to the amount referred to in paragraph (2)(A).''. (d) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2000. SEC. 112. EXCLUSION FOR FOSTER CARE PAYMENTS TO APPLY TO PAYMENTS BY QUALIFIED PLACEMENT AGENCIES. (a) In General.--The matter preceding subparagraph (B) of section 131(b)(1) (defining qualified foster care payment) is amended to read as follows: ``(1) In general.--The term `qualified foster care payment' means any payment made pursuant to a foster care program of a State or political subdivision thereof-- ``(A) which is paid by-- ``(i) the State or political subdivision thereof, or ``(ii) a qualified foster care placement agency, and''. (b) Qualified Foster Individuals To Include Individuals Placed by Qualified Placement Agencies.--Subparagraph (B) of section 131(b)(2) (defining qualified foster individual) is amended to read as follows: ``(B) a qualified foster care placement agency.''. (c) Qualified Foster Care Placement Agency Defined.-- Subsection (b) of section 131 is amended by redesignating paragraph (3) as paragraph (4) and by inserting after paragraph (2) the following new paragraph: ``(3) Qualified foster care placement agency.--The term `qualified foster care placement agency' means any placement agency which is licensed or certified by-- ``(A) a State or political subdivision thereof, or ``(B) an entity designated by a State or political subdivision thereof, for the foster care program of such State or political subdivision to make foster care payments to providers of foster care.''. (d) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 1999. SEC. 113. EXPANSION OF ADOPTION CREDIT. (a) In General.--Section 23(a)(1) (relating to allowance of credit) is amended to read as follows: ``(1) In general.--In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter-- ``(A) in the case of an adoption of a child other than a child with special needs, the amount of the qualified adoption expenses paid or incurred by the taxpayer, and ``(B) in the case of an adoption of a child with special needs, $10,000.''. (b) Dollar Limitation.--Section 23(b)(1) is amended-- (1) by striking ``($6,000, in the case of a child with special needs)'', and (2) by striking ``subsection (a)'' and inserting ``subsection (a)(1)''. (c) Year Credit Allowed.--Section 23(a)(2) is amended by adding at the end the following new flush sentence: ``In the case of the adoption of a child with special needs, the credit allowed under paragraph (1) shall be allowed for the taxable year in which the adoption becomes final.''. (d) Definition of Eligible Child.-- (1) In general.--Section 23(d)(2) is amended to read as follows: ``(2) Eligible child.--The term `eligible child' means any individual who-- ``(A) has not attained age 18, or ``(B) is physically or mentally incapable of caring for himself.''. (2) Clarification of termination.--Section 23 is amended by adding at the end the following new subsection: ``(i) Termination for Children Without Special Needs.-- Except in the case of a child with special needs, this section shall not apply to expenses paid or incurred after December 31, 2001.'' (e) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2000. SEC. 114. MODIFICATION OF DEPENDENT CARE CREDIT. (a) Increase in Percentage of Employment-Related Expenses Taken Into Account.--Subsection (a)(2) of section 21 (relating to expenses for household and dependent care services necessary for gainful employment) is amended-- (1) by striking ``30 percent'' and inserting ``35 percent (40 percent in the case of taxable years beginning after December 31, 2005)'', (2) by striking ``$2,000'' and inserting ``$1,000'', and (3) by striking ``$10,000'' and inserting ``$30,000''. (b) Indexing of Limit on Employment-Related Expenses.-- Section 21(c) (relating to dollar limit on amount creditable) is amended to read as follows: ``(c) Dollar Limit on Amount Creditable.-- ``(1) In general.--The amount of the employment-related expenses incurred during any taxable year which may be taken into account under subsection (a) shall not exceed-- ``(A) an amount equal to 50 percent of the amount determined under subparagraph (B) if there is 1 qualifying individual with respect to the taxpayer for such taxable year, or ``(B) $4,800 if there are 2 or more qualifying individuals with respect to the taxpayer for such taxable year. The amount determined under subparagraph (A) or (B) (whichever is applicable) shall be reduced by the aggregate amount excludable from gross income under section 129 for the taxable year. ``(2) Cost-of-living adjustment.-- ``(A) In general.--In the case of a taxable year beginning after 2001, the $4,800 amount under paragraph (1)(B) shall be increased by an amount equal to-- ``(i) such dollar amount, multiplied by ``(ii) the cost-of-living adjustment determined under section 1(f)(3) for the calendar [[Page H7031]] year in which the taxable year begins, determined by substituting `calendar year 2000' for `calendar year 1992' in subparagraph (B) thereof. ``(B) Rounding rules.--If any amount after adjustment under subparagraph (A) is not a multiple of $50, such amount shall be rounded to the next lower multiple of $50.''. (c) Minimum Dependent Care Credit Allowed for Stay-at-Home Parents.--Section 21(e) (relating to special rules) is amended by adding at the end the following: ``(11) Minimum credit allowed for stay-at-home parents.-- ``(A) In general.--Notwithstanding subsection (d), in the case of any taxpayer with 1 or more qualifying individuals described in subsection (b)(1)(A) under the age of 1, such taxpayer shall be deemed to have employment-related expenses for the taxable year with respect to each such qualifying individual in an amount equal to the sum of-- ``(i) $200 for each month in such taxable year during which such qualifying individual is under the age of 1, and ``(ii) the amount of employment-related expenses otherwise incurred for such qualifying individual for the taxable year (determined under this section without regard to this paragraph). ``(B) Election to not apply this paragraph.--This paragraph shall not apply with respect to any qualifying individual for any taxable year if the taxpayer elects to not have this paragraph apply to such qualifying individual for such taxable year.''. (d) Effective Date.-- (1) In general.--The amendments made by this section shall apply to taxable years beginning after December 31, 2001. (2) Subsection (c).--The amendment made by subsection (c) shall apply to taxable years beginning after December 31, 2005. SEC. 115. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT. (a) In General.--Paragraph (2) of section 32(b) (relating to percentages and amounts) is amended-- (1) by striking ``Amounts.--The earned'' and inserting ``Amounts.-- ``(A) In general.--Subject to subparagraph (B), the earned'', and (2) by adding at the end the following new subparagraph: ``(B) Joint returns.--In the case of a joint return, the phaseout amount determined under subparagraph (A) shall be increased by $2,000.''. (b) Inflation adjustment.--Paragraph (1)(B) of section 32(j) (relating to inflation adjustments) is amended to read as follows: ``(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined-- ``(i) in the case of amounts in subsections (b)(1)(A) and (i)(1), by substituting `calendar year 1995' for `calendar year 1992' in subparagraph (B) thereof, and ``(ii) in the case of the $2,000 amount in subsection (b)(1)(B), by substituting `calendar year 2005' for `calendar year 1992' in subparagraph (B) of such section 1.''. (c) Rounding.--Section 32(j)(2)(A) (relating to rounding) is amended by striking ``subsection (b)(2)'' and inserting ``subsection (b)(2)(A) (after being increased under subparagraph (B) thereof)''. (d) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 2005. Subtitle C--Repeal of Alternative Minimum Tax on Individuals SEC. 121. REPEAL OF ALTERNATIVE MINIMUM TAX ON INDIVIDUALS. (a) In General.--Subsection (a) of section 55 is amended by adding at the end the following new flush sentence: ``For purposes of this title, the tentative minimum tax on any taxpayer other than a corporation for any taxable year beginning after December 31, 2007, shall be zero.''. (b) Reduction of Tax on Individuals Prior to Repeal.-- Section 55 is amended by adding at the end the following new subsection: ``(f) Phaseout of Tax on Individuals.-- ``(1) In general.--The tax imposed by this section on a taxpayer other than a corporation for any taxable year beginning after December 31, 2004, and before January 1, 2008, shall be the applicable percentage of the tax which would be imposed but for this subsection. ``(2) Applicable percentage.--For purposes of paragraph (1), the applicable percentage shall be determined in accordance with the following table: ``For taxable years beginning The applicable in calendar year-- percentage is-- 2005..........................................................80 2006..........................................................70 2007.......................................................60.''. (c) Nonrefundable Personal Credits Fully Allowed Against Regular Tax Liability.-- (1) In general.--Subsection (a) of section 26 (relating to limitation based on amount of tax) is amended to read as follows: ``(a) Limitation Based on Amount of Tax.--The aggregate amount of credits allowed by this subpart for the taxable year shall not exceed the taxpayer's regular tax liability for the taxable year.''. (2) Child credit.--Subsection (d) of section 24 is amended by striking paragraph (2) and by redesignating paragraph (3) as paragraph (2). (d) Limitation on Use of Credit for Prior Year Minimum Tax Liability.--Subsection (c) of section 53 is amended to read as follows: ``(c) Limitation.-- ``(1) In general.--Except as otherwise provided in this subsection, the credit allowable under subsection (a) for any taxable year shall not exceed the excess (if any) of-- ``(A) the regular tax liability of the taxpayer for such taxable year reduced by the sum of the credits allowable under subparts A, B, D, E, and F of this part, over ``(B) the tentative minimum tax for the taxable year. ``(2) Taxable years beginning after 2007.--In the case of any taxable year beginning after 2007, the credit allowable under subsection (a) to a taxpayer other than a corporation for any taxable year shall not exceed 90 percent of the excess (if any) of-- ``(A) regular tax liability of the taxpayer for such taxable year, over ``(B) the sum of the credits allowable under subparts A, B, D, E, and F of this part.''. (e) Effective Date.--The amendments made by this section shall apply to taxable years beginning after December 31, 1998. TITLE II--RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS Subtitle A--Capital Gains Tax Relief SEC. 201. REDUCTION IN INDIVIDUAL CAPITAL GAIN TAX RATES. (a) In General.-- (1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each amended by striking ``10 percent'' and inserting ``8 percent''. (2) The following sections are each amended by striking ``20 percent'' and inserting ``18 percent'': (A) Section 1(h)(1)(C). (B) Section 55(b)(3)(C). (C) Section 1445(e)(1). (D) The second sentence of section 7518(g)(6)(A). (E) The second sentence of section 607(h)(6)(A) of the Merchant Marine Act, 1936. (3) Sections 1(h)(1)(D) and 55(b)(3)(D) are each amended by striking ``25 percent'' and inserting ``23 percent''. (b) Conforming Amendments.-- (1) Section 311 of the Taxpayer Relief Act of 1997 is amended by striking subsection (e). (2) Section 1(h) is amended-- (A) by striking paragraphs (2), (9), and (13), (B) by redesignating paragraphs (3) through (8) as paragraphs (2) through (7), respectively, and (C) by redesignating paragraphs (10), (11), and (12) as paragraphs (8), (9), and (10), respectively. (3) Paragraph (3) of section 55(b) is amended by striking ``In the case of taxable years beginning after December 31, 2000, rules similar to the rules of section 1(h)(2) shall apply for purposes of subparagraphs (B) and (C).''. (4) Paragraph (7) of section 57(a) is amended-- (A) by striking ``42 percent'' and inserting ``28 percent'', and (B) by striking the last sentence. (c) Effective Dates.-- (1) In general.--Except as otherwise provided by this subsection, the amendments made by this section shall apply to taxable years beginning after December 31, 1998. (2) Withholding.--The amendment made by subsection (a)(2)(C) shall apply to amounts paid after the date of the enactment of this Act. SEC. 202. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31, 1999, FOR PURPOSES OF DETERMINING GAIN. (a) In General.--Part II of subchapter O of chapter 1 (relating to basis rules of general application) is amended by inserting after section 1021 the following new section: ``SEC. 1022. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 31, 1999, FOR PURPOSES OF DETERMINING GAIN. ``(a) General Rule.-- ``(1) Indexed basis substituted for adjusted basis.--Solely for purposes of determining gain on the sale or other disposition by a taxpayer (other than a corporation) of an indexed asset which has been held for more than 1 year, the indexed basis of the asset shall be substituted for its adjusted basis. ``(2) Exception for depreciation, etc.--The deductions for depreciation, depletion, and amortization shall be determined without regard to the application of paragraph (1) to the taxpayer or any other person. ``(3) Exception for principal residences.--Paragraph (1) shall not apply to any disposition of the principal residence (within the meaning of section 121) of the taxpayer . ``(b) Indexed Asset.-- ``(1) In general.--For purposes of this section, the term `indexed asset' means-- ``(A) common stock in a C corporation (other than a foreign corporation), and ``(B) tangible property, which is a capital asset or property used in the trade or business (as defined in section 1231(b)). ``(2) Stock in certain foreign corporations included.--For purposes of this section-- ``(A) In general.--The term `indexed asset' includes common stock in a foreign corporation which is regularly traded on an established securities market. ``(B) Exception.--Subparagraph (A) shall not apply to-- ``(i) stock of a foreign investment company (within the meaning of section 1246(b)), ``(ii) stock in a passive foreign investment company (as defined in section 1296), ``(iii) stock in a foreign corporation held by a United States person who meets the requirements of section 1248(a)(2), and [[Page H7032]] ``(iv) stock in a foreign personal holding company (as defined in section 552). ``(C) Treatment of american depository receipts.--An American depository receipt for common stock in a foreign corporation shall be treated as common stock in such corporation. ``(c) Indexed Basis.--For purposes of this section-- ``(1) General rule.--The indexed basis for any asset is-- ``(A) the adjusted basis of the asset, increased by ``(B) the applicable inflation adjustment. ``(2) Applicable inflation adjustment.--The applicable inflation adjustment for any asset is an amount equal to-- ``(A) the adjusted basis of the asset, multiplied by ``(B) the percentage (if any) by which-- ``(i) the chain-type price index for GDP for the last calendar quarter ending before the asset is disposed of, exceeds ``(ii) the chain-type price index for GDP for the last calendar quarter ending before the asset was acquired by the taxpayer. The percentage under subparagraph (B) shall be rounded to the nearest \1/10\ of 1 percentage point. ``(3) Chain-type price index for GDP.--The chain-type price index for GDP for any calendar quarter is such index for such quarter (as shown in the last revision thereof released by the Secretary of Commerce before the close of the following calendar quarter). ``(d) Suspension of Holding Period Where Diminished Risk of Loss; Treatment of Short Sales.-- ``(1) In general.--If the taxpayer (or a related person) enters into any transaction which substantially reduces the risk of loss from holding any asset, such asset shall not be treated as an indexed asset for the period of such reduced risk. ``(2) Short sales.-- ``(A) In general.--In the case of a short sale of an indexed asset with a short sale period in excess of 1 year, for purposes of this title, the amount realized shall be an amount equal to the amount realized (determined without regard to this paragraph) increased by the applicable inflation adjustment. In applying subsection (c)(2) for purposes of the preceding sentence, the date on which the property is sold short shall be treated as the date of acquisition and the closing date for the sale shall be treated as the date of disposition. ``(B) Short sale period.--For purposes of subparagraph (A), the short sale period begins on the day that the property is sold and ends on the closing date for the sale. ``(e) Treatment of Regulated Investment Companies and Real Estate Investment Trusts.-- ``(1) Adjustments at entity level.-- ``(A) In general.--Except as otherwise provided in this paragraph, the adjustment under subsection (a) shall be allowed to any qualified investment entity (including for purposes of determining the earnings and profits of such entity). ``(B) Exception for corporate shareholders.--Under regulations-- ``(i) in the case of a distribution by a qualified investment entity (directly or indirectly) to a corporation-- ``(I) the determination of whether such distribution is a dividend shall be made without regard to this section, and ``(II) the amount treated as gain by reason of the receipt of any capital gain dividend shall be increased by the percentage by which the entity's net capital gain for the taxable year (determined without regard to this section) exceeds the entity's net capital gain for such year determined with regard to this section, and ``(ii) there shall be other appropriate adjustments (including deemed distributions) so as to ensure that the benefits of this section are not allowed (directly or indirectly) to corporate shareholders of qualified investment entities. For purposes of the preceding sentence, any amount includible in gross income under section 852(b)(3)(D) shall be treated as a capital gain dividend and an S corporation shall not be treated as a corporation. ``(C) Exception for qualification purposes.--This section shall not apply for purposes of sections 851(b) and 856(c). ``(D) Exception for certain taxes imposed at entity level.-- ``(i) Tax on failure to distribute entire gain.--If any amount is subject to tax under section 852(b)(3)(A) for any taxable year, the amount on which tax is imposed under such section shall be increased by the percentage determined under subparagraph (B)(i)(II). A similar rule shall apply in the case of any amount subject to tax under paragraph (2) or (3) of section 857(b) to the extent attributable to the excess of the net capital gain over the deduction for dividends paid determined with reference to capital gain dividends only. The first sentence of this clause shall not apply to so much of the amount subject to tax under section 852(b)(3)(A) as is designated by the company under section 852(b)(3)(D). ``(ii) Other taxes.--This section shall not apply for purposes of determining the amount of any tax imposed by paragraph (4), (5), or (6) of section 857(b). ``(2) Adjustments to interests held in entity.-- ``(A) Regulated investment companies.--Stock in a regulated investment company (within the meaning of section 851) shall be an indexed asset for any calendar quarter in the same ratio as-- ``(i) the average of the fair market values of the indexed assets held by such company at the close of each month during such quarter, bears to ``(ii) the average of the fair market values of all assets held by such company at the close of each such month. ``(B) Real estate investment trusts.--Stock in a real estate investment trust (within the meaning of section 856) shall be an indexed asset for any calendar quarter in the same ratio as-- ``(i) the fair market value of the indexed assets held by such trust at the close of such quarter, bears to ``(ii) the fair market value of all assets held by such trust at the close of such quarter. ``(C) Ratio of 80 percent or more.--If the ratio for any calendar quarter determined under subparagraph (A) or (B) would (but for this subparagraph) be 80 percent or more, such ratio for such quarter shall be 100 percent. ``(D) Ratio of 20 percent or less.--If the ratio for any calendar quarter determined under subparagraph (A) or (B) would (but for this subparagraph) be 20 percent or less, such ratio for such quarter shall be zero. ``(E) Look-thru of partnerships.--For purposes of this paragraph, a qualified investment entity which holds a partnership interest shall be treated (in lieu of holding a partnership interest) as holding its proportionate share of the assets held by the partnership. ``(3) Treatment of return of capital distributions.--Except as otherwise provided by the Secretary, a distribution with respect to stock in a qualified investment entity which is not a dividend and which results in a reduction in the adjusted basis of such stock shall be treated as allocable to stock acquired by the taxpayer in the order in which such stock was acquired. ``(4) Qualified investment entity.--For purposes of this subsection, the term `qualified investment entity' means-- ``(A) a regulated investment company (within the meaning of section 851), and ``(B) a real estate investment trust (within the meaning of section 856). ``(f) Other Pass-Thru Entities.-- ``(1) Partnerships.-- ``(A) In general.--In the case of a partnership, the adjustment made under subsection (a) at the partnership level shall be passed through to the partners. ``(B) Special rule in the case of section 754 elections.-- In the case of a transfer of an interest in a partnership with respect to which the election provided in section 754 is in effect-- ``(i) the adjustment under section 743(b)(1) shall, with respect to the transferor partner, be treated as a sale of the partnership assets for purposes of applying this section, and ``(ii) with respect to the transferee partner, the partnership's holding period for purposes of this section in such assets shall be treated as beginning on the date of such adjustment. ``(2) S corporations.--In the case of an S corporation, the adjustment made under subsection (a) at the corporate level shall be passed through to the shareholders. This section shall not apply for purposes of determining the amount of any tax imposed by section 1374 or 1375. ``(3) Common trust funds.--In the case of a common trust fund, the adjustment made under subsection (a) at the trust level shall be passed through to the participants. ``(4) Indexing adjustment disregarded in determining loss on sale of interest in entity.--Notwithstanding the preceding provisions of this subsection, for purposes of determining the amount of any loss on a sale or exchange of an interest in a partnership, S corporation, or common trust fund, the adjustment made under subsection (a) shall not be taken into account in determining the adjusted basis of such interest. ``(g) Dispositions Between Related Persons.-- ``(1) In general.--This section shall not apply to any sale or other disposition of property between related persons except to the extent that the basis of such property in the hands of the transferee is a substituted basis. ``(2) Related persons defined.--For purposes of this section, the term `related persons' means-- ``(A) persons bearing a relationship set forth in section 267(b), and ``(B) persons treated as single employer under subsection (b) or (c) of section 414. ``(h) Transfers To Increase Indexing Adjustment.--If any person transfers cash, debt, or any other property to another person and the principal purpose of such transfer is to secure or increase an adjustment under subsection (a), the Secretary may disallow part or all of such adjustment or increase. ``(i) Special Rules.--For purposes of this section-- ``(1) Treatment of improvements, etc.--If there is an addition to the adjusted basis of any tangible property or of any stock in a corporation during the taxable year by reason of an improvement to such property or a contribution to capital of such corporation-- ``(A) such addition shall never be taken into account under subsection (c)(1)(A) if the aggregate amount thereof during the taxable year with respect to such property or stock is less than $1,000, and ``(B) such addition shall be treated as a separate asset acquired at the close of such taxable year if the aggregate amount thereof [[Page H7033]] during the taxable year with respect to such property or stock is $1,000 or more. A rule similar to the rule of the preceding sentence shall apply to any other portion of an asset to the extent that separate treatment of such portion is appropriate to carry out the purposes of this section. ``(2) Assets which are not indexed assets throughout holding period.--The applicable inflation adjustment shall be appropriately reduced for periods during which the asset was not an indexed asset. ``(3) Treatment of certain distributions.--A distribution with respect to stock in a corporation which is not a dividend shall be treated as a disposition. ``(4) Acquisition date where there has been prior application of subsection (a)(1) with respect to the taxpayer.--If there has been a prior application of subsection (a)(1) to an asset while such asset was held by the taxpayer, the date of acquisition of such asset by the taxpayer shall be treated as not earlier than the date of the most recent such prior application. ``(5) Collapsible corporations.--The application of section 341(a) (relating to collapsible corporations) shall be determined without regard to this section. ``(j) Regulations.--The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.''. (b) Clerical Amendment.--The table of sections for part II of subchapter O of chapter 1 is amended by inserting after the item relating to section 1021 the following new item: ``Sec. 1022. Indexing of certain assets acquired after December 31, 1999, for purposes of determining gain.''. (c) Effective Dates.-- (1) In general.--The amendments made by this section shall apply to the disposition of any property the holding period of which begins after December 31, 1999. (2) Certain transactions between related persons.--The amendments made by this section shall not apply to the disposition of any property acquired after December 31, 1999, from a related person (as defined in section 1022(g)(2) of the Internal Revenue Code of 1986, as added by this section) if-- (A) such property was so acquired for a price less than the property's fair market value, and (B) the amendments made by this section did not apply to such property in the hands of such related person. (d) Election To Recognize Gain on Assets Held on January 1, 2000.--For purposes of the Internal Revenue Code of 1986-- (1) In general.--A taxpayer other than a corporation may