HOUSE OF REPRESENTATIVES " ! 107TH CONGRESS 1st Session REPORT 107–84 ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001 CONFERENCE REPORT TO ACCOMPANY H.R. 1836 MAY 26 (legislative day, May 25), 2001.—Ordered to be printed VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00001 Fmt 6012 Sfmt 6012 E:\PICKUP\HR084.107 txed01 PsN: txed01 ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001 VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00002 Fmt 6019 Sfmt 6019 E:\PICKUP\HR084.107 txed01 PsN: txed01 U.S. GOVERNMENT PRINTING OFFICE WASHINGTON : 1 72–575 HOUSE OF REPRESENTATIVES " ! 107TH CONGRESS 1st Session REPORT 2001 107–84 ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001 CONFERENCE REPORT TO ACCOMPANY H.R. 1836 MAY 26 (legislative day, May 25), 2001.—Ordered to be printed VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00003 Fmt 5012 Sfmt 5012 E:\PICKUP\HR084.107 txed01 PsN: txed01 VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00004 Fmt 5012 Sfmt 5012 E:\PICKUP\HR084.107 txed01 PsN: txed01 72–575 107TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 1st Session 107–84 ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001 MAY 26 (legislative day, May 25), 2001.—Ordered to be printed Mr. THOMAS, from the committee of conference, submitted the following CONFERENCE REPORT [To accompany H.R. 1836] The committee of conference on the disagreeing votes of he two Houses on the amendment of the Senate to the bill (H.R. 1836), to provide for reconciliation pursuant to section 104 of the concurrent resolution on the budget for fiscal year 2002, 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 amend- ment of the Senate and agree to the same with an amendment as follows: In lieu of the matter proposed to be inserted by the State amendment, insert the following: SECTION 1. SHORT TITLE; REFERENCES; TABLE OF CONTENTS. (a) SHORT TITLE.—This Act may be cited as the ‘‘Economic Growth and Tax Relief Reconciliation Act of 2001’’. (b) AMENDMENT OF 1986 CODE.—Except as otherwise expressly provided, whenever in this Act an amendment or repeal is expressed in terms of an amendment to, or repeal of, a section or other provi- sion, the reference shall be considered to be made to a section or other provision of the Internal Revenue Code of 1986. (c) TABLE OF CONTENTS.—The table of contents of this Act is as follows: Sec. 1. Short title; references; table of contents. TITLE I—INDIVIDUAL INCOME TAX RATE REDUCTIONS Sec. 101. Reduction in income tax rates for individuals. Sec. 102. Repeal of phaseout of personal exemptions. Sec. 103. Phaseout of overall limitation on itemized deductions. TITLE II—TAX BENEFITS RELATING TO CHILDREN Sec. 201. Modifications to child tax credit. Sec. 202. Expansion of adoption credit and adoption assistance programs. VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00005 Fmt 6659 Sfmt 6613 E:\PICKUP\HR084.107 txed01 PsN: txed01 2 Sec. 203. Refunds disregarded in the administration of Federal programs and feder- ally assisted programs. Sec. 204. Dependent care credit. Sec. 205. Allowance of credit for employer expenses for child care assistance. TITLE III—MARRIAGE PENALTY RELIEF Sec. 301. Elimination of marriage penalty in standard deduction. Sec. 302. Phaseout of marriage penalty in 15-percent bracket. Sec. 303. Marriage penalty relief for earned income credit; earned income to include only amounts includible in gross income; simplification of earned in- come credit. TITLE IV—AFFORDABLE EDUCATION PROVISIONS Subtitle A—Education Savings Incentives Sec. 401. Modifications to education individual retirement accounts. Sec. 402. Modifications to qualified tuition programs. Subtitle B—Educational Assistance Sec. 411. Extension of exclusion for employer-provided educational assistance. Sec. 412. Elimination of 60-month limit and increase in income limitation on stu- dent loan interest deduction. Sec. 413. Exclusion of certain amounts received under the National Health Service Corps Scholarship Program and the F. Edward Hebert Armed Forces Health Professions Scholarship and Financial Assistance Program. Subtitle C—Liberalization of Tax-Exempt Financing Rules for Public School Construction Sec. 421. Additional increase in arbitrage rebate exception for governmental bonds used to finance educational facilities. Sec. 422. Treatment of qualified public educational facility bonds as exempt facility bonds. Subtitle D—Other Provisions Sec. 431. Deduction for higher education expenses. TITLE V—ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAX PROVISIONS Subtitle A—Repeal of Estate and Generation-Skipping Transfer Taxes Sec. 501. Repeal of estate and generation-skipping transfer taxes. Subtitle B—Reductions of Estate and Gift Tax Rates Sec. 511. Additional reductions of estate and gift tax rates. Subtitle C—Increase in Exemption Amounts Sec. 521. Increase in exemption equivalent of unified credit, lifetime gifts exemption, and GST exemption amounts. Subtitle D—Credit for State Death Taxes Sec. 531. Reduction of credit for State death taxes. Sec. 532. Credit for State death taxes replaced with deduction for such taxes. Subtitle E—Carryover Basis at Death; Other Changes Taking Effect With Repeal Sec. 541. Termination of step-up in basis at death. Sec. 542. Treatment of property acquired from a decedent dying after December 31, 2009. Subtitle F—Conservation Easements Sec. 551. Expansion of estate tax rule for conservation easements. Subtitle G—Modifications of Generation-Skipping Transfer Tax Sec. 561. Deemed allocation of GST exemption to lifetime transfers to trusts; retro- active allocations. Sec. 562. Severing of trusts. Sec. 563. Modification of certain valuation rules. Sec. 564. Relief provisions. VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00006 Fmt 6659 Sfmt 6613 E:\PICKUP\HR084.107 txed01 PsN: txed01 3 Subtitle H—Extension of Time for Payment of Estate Tax Sec. 571. Increase in number of allowable partners and shareholders in closely held businesses. Sec. 572. Expansion of availability of installment payment for estates with interests qualifying lending and finance businesses. Sec. 572. Clarification of availability of installment payment. Subtitle I—Other Provisions Sec. 581. Waiver of statute of limitation for taxes on certain farm valuations. TITLE VI—PENSION AND INDIVIDUAL RETIREMENT ARRANGEMENT PROVISIONS Subtitle A—Individual Retirement Accounts Sec. 601. Modification of IRA contribution limits. Sec. 602. Deemed IRAs under employer plans. Subtitle B—Expanding Coverage Sec. 611. Increase in benefit and contribution limits. Sec. 612. Plan loans for subchapter S owners, partners, and sole proprietors. Sec. 613. Modification of top-heavy rules. Sec. 614. Elective deferrals not taken into account for purposes of deduction limits. Sec. 615. Repeal of coordination requirements for deferred compensation plans of State and local governments and tax-exempt organizations. Sec. 616. Deduction limits. Sec. 617. Option to treat elective deferrals as after-tax Roth contributions. Sec. 618. Nonrefundable credit to certain individuals for elective deferrals and IRA contributions. Sec. 619. Credit for pension plan startup costs of small employers. Sec. 620. Elimination of user fee for requests to IRS regarding pension plans. Sec. 621. Treatment of nonresident aliens engaged in international transportation services. Subtitle C—Enhancing Fairness for Women Sec. 631. Catch-up contributions for individuals age 50 or over. Sec. 632. Equitable treatment for contributions of employees to defined contribution plans. Sec. 633. Faster vesting of certain employer matching contributions. Sec. 634. Modification to minimum distribution rules. Sec. 635. Clarification of tax treatment of division of section 457 plan benefits upon divorce. Sec. 636. Provisions relating to hardship distributions. Sec. 637. Waiver of tax on nondeductible contributions for domestic or similar work- ers. Subtitle D—Increasing Portability for Participants Sec. 641. Rollovers allowed among various types of plans. Sec. 642. Rollovers of IRAs into workplace retirement plans. Sec. 643. Rollovers of after-tax contributions. Sec. 644. Hardship exception to 60-day rule. Sec. 645. Treatment of forms of distribution. Sec. 646. Rationalization of restrictions on distributions. Sec. 647. Purchase of service credit in governmental defined benefit plans. Sec. 648. Employers may disregard rollovers for purposes of cash-out amounts. Sec. 649. Minimum distribution and inclusion requirements for section 457 plans. Subtitle E—Strengthening Pension Security and Enforcement PART I—GENERAL PROVISIONS Sec. 651. Repeal of 160 percent of current liability funding limit. Sec. 652. Maximum contribution deduction rules modified and applied to all de- fined benefit plans. Sec. 653. Excise tax relief for sound pension funding. Sec. 654. Treatment of multiemployer plans under section 415. Sec. 655. Protection of investment of employee contributions to 401(k) plans. Sec. 656. Prohibited allocations of stock in S corporation ESOP. Sec. 657. Automatic rollovers of certain mandatory distributions. Sec. 658. Clarification of treatment of contributions to multiemployer plan. VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00007 Fmt 6659 Sfmt 6613 E:\PICKUP\HR084.107 txed01 PsN: txed01 4 PART II—TREATMENT OF PLAN AMENDMENTS REDUCING FUTURE BENEFIT ACCRUALS Sec. 659. Excise tax on failure to provide notice by defined benefit plans signifi- cantly reducing future benefit accruals. Subtitle F—Reducing Regulatory Burdens Sec. 661. Modification of timing of plan valuations. Sec. 662. ESOP dividends may be reinvested without loss of dividend deduction. Sec. 663. Repeal of transition rule relating to certain highly compensated employees. Sec. 664. Employees of tax-exempt entities. Sec. 665. Clarification of treatment of employer-provided retirement advice. Sec. 666. Repeal of the multiple use test. Subtitle G—Miscellaneous Provisions Sec. 671. Tax treatment and information requirements of Alaska Native Settlement Trusts. TITLE VII—ALTERNATIVE MINIMUM TAX Sec. 701. Increase in alternative minimum tax exemption. TITLE VIII—OTHER PROVISIONS Sec. 801. Time for payment of corporate estimated taxes. Sec. 802. Expansion of authority to postpone certain tax-related deadlines by reason of Presidentially declared disaster. Sec. 803. No Federal income tax on restitution received by victims of the Nazi re- gime or their heirs or estates. TITLE IX—COMPLIANCE WITH CONGRESSIONAL BUDGET ACT Sec. 901. Sunset of provisions of Act. TITLE I—INDIVIDUAL INCOME TAX RATE REDUCTIONS SEC. 101. REDUCTION IN INCOME TAX RATES FOR INDIVIDUALS. (a) IN GENERAL.—Section 1 (relating to tax imposed) is amend- ed by adding at the end the following new subsection: ‘‘(i) RATE REDUCTIONS AFTER 2000.— ‘‘(1) 10-PERCENT RATE BRACKET.— ‘‘(A) IN GENERAL.—In the case of taxable years begin- ning after December 31, 2000— ‘‘(i) the rate of tax under subsections (a), (b), (c), and (d) on taxable income not over the initial bracket amount shall be 10 percent, and ‘‘(ii) the 15 percent rate of tax shall apply only to taxable income over the initial bracket amount but not over the maximum dollar amount for the 15-percent rate bracket. ‘‘(B) INITIAL BRACKET AMOUNT.—For purposes of this paragraph, the initial bracket amount is— ‘‘(i) $14,000 ($12,000 in the case of taxable years beginning before January 1, 2008) in the case of sub- section (a), ‘‘(ii) $10,000 in the case of subsection (b), and ‘‘(iii) 1⁄2 the amount applicable under clause (i) (after adjustment, if any, under subparagraph (C)) in the case of subsections (c) and (d). ‘‘(C) INFLATION ADJUSTMENT.—In prescribing the tables under subsection (f) which apply with respect to taxable years beginning in calendar years after 2000— ‘‘(i) the Secretary shall make no adjustment to the initial bracket amount for any taxable year beginning before January 1, 2009, VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00008 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 5 ‘‘(ii) the cost-of-living adjustment used in making adjustments to the initial bracket amount for any tax- able year beginning after December 31, 2008, shall be determined under subsection (f)(3) by substituting ‘2007’ for ‘1992’ in subparagraph (B) thereof, and ‘‘(iii) such adjustment shall not apply to the amount referred to in subparagraph (B)(iii). If any amount after adjustment under the preceding sen- tence is not a multiple of $50, such amount shall be round- ed to the next lowest multiple of $50. ‘‘(D) COORDINATION WITH ACCELERATION OF 10 PERCENT RATE BRACKET BENEFIT FOR 2001.—This paragraph shall not apply to any taxable year to which section 6428 applies. ‘‘(2) REDUCTIONS IN RATES AFTER JUNE 30, 2001.—In the case of taxable years beginning in a calendar year after 2000, the corresponding percentage specified for such calendar year in the following table shall be substituted for the otherwise appli- cable tax rate in the tables under subsections (a), (b), (c), (d), and (e). ‘‘In the case of taxable years beginning during calendar year: The corresponding percentages shall be substituted for the fol- lowing percentages: 28% 31% 36% 39.6% 2001 .......................................................................................... 27.5% 30.5% 35.5% 39.1% 2002 and 2003 ......................................................................... 27.0% 30.0% 35.0% 38.6% 2004 and 2005 ......................................................................... 26.0% 29.0% 34.0% 37.6% 2006 and thereafter ................................................................. 25.0% 28.0% 33.0% 35.0% ‘‘(3) ADJUSTMENT OF TABLES.—The Secretary shall adjust the tables prescribed under subsection (f) to carry out this sub- section.’’. (b) ACCELERATION OF 10 PERCENT RATE BRACKET BENEFIT FOR 2001.— (1) IN GENERAL.—Subchapter B of chapter 65 (relating to abatements, credits, and refunds) is amended by adding at the end the following new section: ‘‘SEC. 6428. ACCELERATION OF 10 PERCENT INCOME TAX RATE BRACK- ET BENEFIT FOR 2001. ‘‘(a) IN GENERAL.—In the case of an eligible individual, there shall be allowed as a credit against the tax imposed by chapter 1 for the taxpayer’s first taxable year beginning in 2001 an amount equal to 5 percent of so much of the taxpayer’s taxable income as does not exceed the initial bracket amount (as defined in section 1(i)(1)(B)). ‘‘(b) LIMITATION BASED ON AMOUNT OF TAX.—The credit al- lowed by subsection (a) shall not exceed the excess (if any) of— ‘‘(1) the sum of the regular tax liability (as defined in sec- tion 26(b)) plus the tax imposed by section 55, over ‘‘(2) the sum of the credits allowable under part IV of sub- chapter A of chapter 1 (other than the credits allowable under subpart C thereof, relating to refundable credits). ‘‘(c) ELIGIBLE INDIVIDUAL.—For purposes of this section, the term ‘eligible individual’ means any individual other than— ‘‘(1) any estate or trust, ‘‘(2) any nonresident alien individual, and VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00009 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 6 ‘‘(3) any individual with respect to whom a deduction under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins. ‘‘(d) SPECIAL RULES.— ‘‘(1) COORDINATION WITH ADVANCE REFUNDS OF CREDIT.— ‘‘(A) IN GENERAL.—The amount of credit which would (but for this paragraph) be allowable under this section shall be reduced (but not below zero) by the aggregate re- funds and credits made or allowed to the taxpayer under subsection (e). Any failure to so reduce the credit shall be treated as arising out of a mathematical or clerical error and assessed according to section 6213(b)(1). ‘‘(B) JOINT RETURNS.—In the case of a refund or credit made or allowed under subsection (e) with respect to a joint return, half of such refund or credit shall be treated as hav- ing been made or allowed to each individual filing such re- turn. ‘‘(2) COORDINATION WITH ESTIMATED TAX.—The credit under this section shall be treated for purposes of section 6654(f) in the same manner as a credit under subpart A of part IV of subchapter A of chapter 1. ‘‘(e) ADVANCE REFUNDS OF CREDIT BASED ON PRIOR YEAR DATA.— ‘‘(1) IN GENERAL.—Each individual who was an eligible in- dividual for such individual’s first taxable year beginning in 2000 shall be treated as having made a payment against the tax imposed by chapter 1 for such first taxable year in an amount equal to the advance refund amount for such taxable year. ‘‘(2) ADVANCE REFUND AMOUNT.—For purposes of para- graph (1), the advance refund amount is the amount that would have been allowed as a credit under this section for such first taxable year if this section (other than subsection (d) and this subsection) had applied to such taxable year. ‘‘(3) TIMING OF PAYMENTS.—In the case of any overpayment attributable to this subsection, the Secretary shall, subject to the provisions of this title, refund or credit such overpayment as rapidly as possible and, to the extent practicable, before October 1, 2001. No refund or credit shall be made or allowed under this subsection after December 31, 2001. ‘‘(4) NO INTEREST.—No interest shall be allowed on any overpayment attributable to this subsection.’’. (2) CLERICAL AMENDMENT.—The table of sections for sub- chapter B of chapter 65 is amended by adding at the end the following new item: ‘‘Sec. 6428. Acceleration of 10 percent income tax rate bracket benefit for 2001.’’. (c) CONFORMING AMENDMENTS.— (1) Subparagraph (B) of section 1(g)(7) is amended by strik- ing ‘‘15 percent’’ in clause (ii)(II) and inserting ‘‘10 percent.’’. (2) Section 1(h) is amended— (A) by striking ‘‘28 percent’’ both places it appears in paragraphs (1)(A)(ii)(I) and (1)(B)(i) and inserting ‘‘25 per- cent’’, and VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00010 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 7 (B) by striking paragraph (13). (3) Section 15 is amended by adding at the end the fol- lowing new subsection: ‘‘(f) RATE REDUCTIONS ENACTED BY ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001.—This section shall not apply to any change in rates under subsection (i) of section 1 (relat- ing to rate reductions after 2000).’’. (4) Section 531 is amended by striking ‘‘equal to’’ and all that follows and inserting ‘‘equal to the product of the highest rate of tax under section 1(c) and the accumulated taxable in- come.’’. (5) Section 541 is amended by striking ‘‘equal to’’ and all that follows and inserting ‘‘equal to the product of the highest rate of tax under section 1(c) and the undistributed personal holding company income.’’. (6) Section 3402(p)(1)(B) is amended by striking ‘‘7, 15, 28, or 31 percent’’ and inserting ‘‘7 percent, any percentage applica- ble to any of the 3 lowest income brackets in the table under section 1(c),’’. (7) Section 3402(p)(2) is amended by striking ‘‘15 percent’’ and inserting ‘‘10 percent’’. (8) Section 3402(q)(1) is amended by striking ‘‘equal to 28 percent of such payment’’ and inserting ‘‘equal to the product of the third lowest rate of tax applicable under section 1(c) and such payment’’. (9) Section 3402(r)(3) is amended by striking ‘‘31 percent’’ and inserting ‘‘the fourth lowest rate of tax applicable under section 1(c)’’. (10) Section 3406(a)(1) is amended by striking ‘‘equal to 31 percent of such payment’’ and inserting ‘‘equal to the product of the fourth lowest rate of tax applicable under section 1(c) and such payment’’. (11) Section 13273 of the Revenue Reconciliation Act of 1993 is amended by striking ‘‘28 percent’’ and inserting ‘‘the third lowest rate of tax applicable under section 1(c) of the In- ternal Revenue Code of 1986’’. (d) EFFECTIVE DATES.— (1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2000. (2) AMENDMENTS TO WITHHOLDING PROVISIONS.—The amendments made by paragraphs (6), (7), (8), (9), (10), and (11) of subsection (c) shall apply to amounts paid after the 60th day after the date of the enactment of this Act. References to income brackets and rates of tax in such paragraphs shall be applied without regard to section 1(i)(1)(D) of the Internal Revenue Code of 1986. SEC. 102. REPEAL OF PHASEOUT OF PERSONAL EXEMPTIONS. (a) IN GENERAL.—Paragraph (3) of section 151(d) (relating to exemption amount) is amended by adding at the end the following new subparagraphs: ‘‘(E) REDUCTION OF PHASEOUT.— ‘‘(i) IN GENERAL.—In the case of taxable years be- ginning after December 31, 2005, and before January 1, 2010, the reduction under subparagraph (A) shall be VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00011 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 8 equal to the applicable fraction of the amount which would (but for this subparagraph) be the amount of such reduction. ‘‘(ii) APPLICABLE FRACTION.—For purposes of clause (i), the applicable fraction shall be determined in accordance with the following table: ‘‘For taxable years beginning The applicable in calendar year— fraction is— 2006 and 2007 ............................................................................ 2⁄3 2008 and 2009 ............................................................................ 1⁄3. ‘‘(F) TERMINATION.—This paragraph shall not apply to any taxable year beginning after December 31, 2009.’’. (b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable years beginning after December 31, 2005. SEC. 103. PHASEOUT OF OVERALL LIMITATION ON ITEMIZED DEDUC- TIONS. (a) IN GENERAL.—Section 68 is amended by adding at the end the following new subsections: ‘‘(f) PHASEOUT OF LIMITATION.— ‘‘(1) IN GENERAL.—In the case of taxable years beginning after December 31, 2005, and before January 1, 2010, the re- duction under subsection (a) shall be equal to the applicable fraction of the amount which would (but for this subsection) be the amount of such reduction. ‘‘(2) APPLICABLE FRACTION.—For purposes of paragraph (1), the applicable fraction shall be determined in accordance with the following table: ‘‘For taxable years beginning The applicable in calendar year— fraction is— 2006 and 2007 ............................................................................ 2⁄3 2008 and 2009 ............................................................................ 1⁄3. ‘‘(g) TERMINATION.—This section shall not apply to any taxable year beginning after December 31, 2009.’’. (b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable years beginning after December 31, 2005. TITLE II—TAX BENEFITS RELATING TO CHILDREN SEC. 201. MODIFICATIONS TO CHILD TAX CREDIT. (a) INCREASE IN PER CHILD AMOUNT.—Subsection (a) of section 24 (relating to child tax credit) is amended to read as follows: ‘‘(a) ALLOWANCE OF CREDIT.— ‘‘(1) IN GENERAL.—There shall be allowed as a credit against the tax imposed by this chapter for the taxable year with respect to each qualifying child of the taxpayer an amount equal to the per child amount. ‘‘(2) PER CHILD AMOUNT.—For purposes of paragraph (1), the per child amount shall be determined as follows: ‘‘In the case of any taxable year beginning in— The per child amount is— 2001, 2002, 2003, or 2004 ................................................................. $ 600 2005, 2006, 2007, or 2008 ................................................................. 700 2009 .................................................................................................... 800 2010 or thereafter .............................................................................. 1,000.’’. (b) CREDIT ALLOWED AGAINST ALTERNATIVE MINIMUM TAX.— VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00012 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 9 (1) IN GENERAL.—Subsection (b) of section 24 (relating to child tax credit) is amended by adding at the end the following new paragraph: ‘‘(3) LIMITATION BASED ON AMOUNT OF TAX.—The credit al- lowed under subsection (a) for any taxable year shall not exceed the excess of— ‘‘(A) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over ‘‘(B) the sum of the credits allowable under this sub- part (other than this section) and section 27 for the taxable year.’’. (2) CONFORMING AMENDMENTS.— (A) The heading for section 24(b) is amended to read as follows: ‘‘LIMITATIONS.—’’. (B) The heading for section 24(b)(1) is amended to read as follows: ‘‘LIMITATION BASED ON ADJUSTED GROSS IN- COME.—’’. (C) Section 24(d), as amended by subsection (c), is amended— (i) by striking ‘‘section 26(a)’’ each place it appears and inserting ‘‘subsection (b)(3)’’, and (ii) in paragraph (1)(B) by striking ‘‘aggregate amount of credits allowed by this subpart’’ and insert- ing ‘‘amount of credit allowed by this section’’. (D) Paragraph (1) of section 26(a) is amended by in- serting ‘‘(other than section 24)’’ after ‘‘this subpart’’. (E) Subsection (c) of section 23 is amended by striking ‘‘and section 1400C’’ and inserting ‘‘and sections 24 and 1400C’’. (F) Subparagraph (C) of section 25(e)(1) is amended by inserting ‘‘, 24,’’ after ‘‘sections 23’’. (G) Section 904(h) is amended by inserting ‘‘(other than section 24)’’ after ‘‘chapter’’. (H) Subsection (d) of section 1400C is amended by in- serting ‘‘and section 24’’ after ‘‘this section’’. (c) REFUNDABLE CHILD CREDIT.— (1) IN GENERAL.—So much of section 24(d) (relating to ad- ditional credit for families with 3 or more children) as precedes paragraph (2) is amended to read as follows: ‘‘(d) PORTION OF CREDIT REFUNDABLE.— ‘‘(1) IN GENERAL.—The aggregate credits allowed to a tax- payer under subpart C shall be increased by the lesser of— ‘‘(A) the credit which would be allowed under this sec- tion without regard to this subsection and the limitation under section 26(a), or ‘‘(B) the amount by which the amount of credit allowed by this section (determined without regard to this sub- section) would increase if the limitation imposed by section 26(a) were increased by the greater of— ‘‘(i) 15 percent (10 percent in the case of taxable years beginning before January 1, 2005) of so much of the taxpayer’s earned income (within the meaning of section 32) which is taken into account in computing taxable income for the taxable year as exceeds $10,000, or VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00013 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 10 ‘‘(ii) in the case of a taxpayer with 3 or more quali- fying children, the excess (if any) of— ‘‘(I) the taxpayer’s social security taxes for the taxable year, over ‘‘(II) the credit allowed under section 32 for the taxable year. The amount of the credit allowed under this subsection shall not be treated as a credit allowed under this subpart and shall reduce the amount of credit otherwise allowable under sub- section (a) without regard to section 26(a).’’. (2) INFLATION ADJUSTMENT.—Subsection (d) of section 24 is amended by adding at the end the following new paragraph: ‘‘(4) INFLATION ADJUSTMENT.—In the case of any taxable year beginning in a calendar year after 2001, the $10,000 amount contained in paragraph (1)(B) shall be increased by an amount equal to— ‘‘(A) such dollar amount, multiplied by ‘‘(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘calendar year 2000’ for ‘calendar year 1992’ in subparagraph (B) thereof. Any increase determined under the preceding sentence shall be rounded to the nearest multiple of $50.’’ (3) CONFORMING AMENDMENT.—Section 32 is amended by striking subsection (n). (d) ELIMINATION OF REDUCTION OF CREDIT TO TAXPAYER SUB- JECT TO ALTERNATIVE MINIMUM TAX PROVISION.—Section 24(d) is amended— (1) by striking paragraph (2), and (2) by redesignating paragraphs (3) and (4) as paragraphs (2) and (3), respectively. (e) EFFECTIVE DATES.— (1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2000. (2) SUBSECTION (b).—The amendments made by subsection (b) shall apply to taxable years beginning after December 31, 2001. SEC. 202. EXPANSION OF ADOPTION CREDIT AND ADOPTION ASSIST- ANCE PROGRAMS. (a) IN GENERAL.— (1) ADOPTION CREDIT.—Section 23(a)(1) (relating to allow- ance 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 adop- tion expenses paid or incurred by the taxpayer, and ‘‘(B) in the case of an adoption of a child with special needs, $10,000.’’. (2) ADOPTION ASSISTANCE PROGRAMS.—Section 137(a) (re- lating to adoption assistance programs) is amended to read as follows: VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00014 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 11 ‘‘(a) IN GENERAL.—Gross income of an employee does not in- clude amounts paid or expenses incurred by the employer for adop- tion expenses in connection with the adoption of a child by an em- ployee if such amounts are furnished pursuant to an adoption as- sistance program. The amount of the exclusion shall be— ‘‘(1) in the case of an adoption of a child other than a child with special needs, the amount of the qualified adoption ex- penses paid or incurred by the taxpayer, and ‘‘(2) in the case of an adoption of a child with special needs, $10,000.’’. (b) DOLLAR LIMITATIONS.— (1) DOLLAR AMOUNT OF ALLOWED EXPENSES.— (A) ADOPTION EXPENSES.—Section 23(b)(1) (relating to allowance of credit) is amended— (i) by striking ‘‘$5,000’’ and inserting ‘‘$10,000’’, (ii) by striking ‘‘($6,000, in the case of a child with special needs)’’, and (iii) by striking ‘‘subsection (a)’’ and inserting ‘‘sub- section (a)(1)(A)’’. (B) ADOPTION ASSISTANCE PROGRAMS.—Section 137(b)(1) (relating to dollar limitations for adoption assist- ance programs) is amended— (i) by striking ‘‘$5,000’’ and inserting ‘‘$10,000’’, and (ii) by striking ‘‘($6,000, in the case of a child with special needs)’’, and (iii) by striking ‘‘subsection (a)’’ and inserting ‘‘sub- section (a)(1)’’. (2) PHASE-OUT LIMITATION.— (A) ADOPTION EXPENSES.—Clause (i) of section 23(b)(2)(A) (relating to income limitation) is amended by striking ‘‘$75,000’’ and inserting ‘‘$150,000’’. (B) ADOPTION ASSISTANCE PROGRAMS.—Section 137(b)(2)(A) (relating to income limitation) is amended by striking ‘‘$75,000’’ and inserting ‘‘$150,000’’. (c) YEAR CREDIT ALLOWED.—Section 23(a)(2) (relating to year credit allowed) is amended by adding at the end the following new flush sentence: ‘‘In the case of the adoption of a child with special needs, the credit allowed under paragraph (1) shall be allowed for the tax- able year in which the adoption becomes final.’’. (d) REPEAL OF TERMINATIONS.— (1) CHILDREN WITHOUT SPECIAL NEEDS.—Paragraph (2) of section 23(d) (relating to definition of eligible child) is amended to read as follows: ‘‘(2) ELIGIBLE CHILD.—The term ‘eligible child’ means any individual who— ‘‘(A) has not attained age 18, or ‘‘(B) is physically or mentally incapable of caring for himself.’’. (2) ADOPTION ASSISTANCE PROGRAMS.—Section 137 (relat- ing to adoption assistance programs) is amended by striking subsection (f). (e) ADJUSTMENT OF DOLLAR AND INCOME LIMITATIONS FOR IN- FLATION.— VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00015 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 12 (1) ADOPTION CREDIT.—Section 23 (relating to adoption ex- penses) is amended by redesignating subsection (h) as sub- section (i) and by inserting after subsection (g) the following new subsection: ‘‘(h) ADJUSTMENTS FOR INFLATION.—In the case of a taxable year beginning after December 31, 2002, each of the dollar amounts in subsection (a)(1)(B) and paragraphs (1) and (2)(A)(i) of sub- section (b) shall be increased by an amount equal to— ‘‘(1) such dollar amount, multiplied by ‘‘(2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘calendar year 2001’ for ‘calendar year 1992’ in subparagraph (B) thereof.’’. (2) ADOPTION ASSISTANCE PROGRAMS.—Section 137 (relat- ing to adoption assistance programs), as amended by subsection (d), is amended by adding at the end the following new sub- section: ‘‘(f) ADJUSTMENTS FOR INFLATION.—In the case of a taxable year beginning after December 31, 2002, each of the dollar amounts in subsection (a)(2) and paragraphs (1) and (2)(A) of subsection (b) shall be increased by an amount equal to— ‘‘(1) such dollar amount, multiplied by ‘‘(2) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting ‘calendar year 2001’ for ‘calendar year 1992’ in subparagraph (B) thereof.’’. (f) CREDIT ALLOWED AGAINST ALTERNATIVE MINIMUM TAX.— (1) IN GENERAL.—Subsection (b) of section 23 is amended by adding at the end the following new paragraph: ‘‘(4) LIMITATION BASED ON AMOUNT OF TAX.—The credit al- lowed under subsection (a) for any taxable year shall not exceed the excess of— ‘‘(A) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over ‘‘(B) the sum of the credits allowable under this sub- part (other than this section) and section 27 for the taxable year.’’ (2) CONFORMING AMENDMENTS.— (A) Section 23(c), as amended by section 201(b), is amended— (i) by striking ‘‘section 26(a)’’ and inserting ‘‘sub- section (b)(4)’’, and (ii) by striking ‘‘reduced by the sum of the credits allowable under this subpart (other than this section and sections 24 and 1400C)’’. (B) Section 24(b)(3)(B), as added by section 201(b), is amended by striking ‘‘this section’’ and inserting ‘‘this sec- tion and section 23’’. (C) Sections 26(a)(1), 904(h), and 1400C(d), as amend- ed by section 201(b), are each amended by striking ‘‘section 24’’ and inserting ‘‘sections 23 and 24’’. (g) EFFECTIVE DATE.— (1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2001. VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00016 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 13 (2) SUBSECTION (a).—The amendments made by subsection (a) shall apply to taxable years beginning after December 31, 2002. SEC. 203. REFUNDS DISREGARDED IN THE ADMINISTRATION OF FED- ERAL PROGRAMS AND FEDERALLY ASSISTED PROGRAMS. Any payment considered to have been made to any individual by reason of section 24 of the Internal Revenue Code of 1986, as amended by section 201, shall not be taken into account as income and shall not be taken into account as resources for the month of receipt and the following month, for purposes of determining the eli- gibility of such individual or any other individual for benefits or as- sistance, or the amount or extent of benefits or assistance, under any Federal program or under any State or local program financed in whole or in part with Federal funds. SEC. 204. DEPENDENT CARE CREDIT. (a) INCREASE IN DOLLAR LIMIT.—Subsection (c) of section 21 (relating to expenses for household and dependent care services nec- essary for gainful employment) is amended— (1) by striking ‘‘$2,400’’ in paragraph (1) and inserting ‘‘$3,000’’, and (2) by striking ‘‘$4,800’’ in paragraph (2) and inserting ‘‘$6,000’’. (b) INCREASE IN APPLICABLE PERCENTAGE.—Section 21(a)(2) (defining applicable percentage) is amended— (1) by striking ‘‘30 percent’’ and inserting ‘‘35 percent’’, and (2) by striking ‘‘$10,000’’ and inserting ‘‘$15,000’’. (c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2002. SEC. 205. ALLOWANCE OF CREDIT FOR EMPLOYER EXPENSES FOR CHILD CARE ASSISTANCE. (a) IN GENERAL.—Subpart D of part IV of subchapter A of chapter 1 (relating to business related credits), as amended by sec- tion 619, is further amended by adding at the end the following: ‘‘SEC. 45F. EMPLOYER-PROVIDED CHILD CARE CREDIT. ‘‘(a) IN GENERAL.—For purposes of section 38, the employer-pro- vided child care credit determined under this section for the taxable year is an amount equal to the sum of— ‘‘(1) 25 percent of the qualified child care expenditures, and ‘‘(2) 10 percent of the qualified child care resource and re- ferral expenditures, of the taxpayer for such taxable year. ‘‘(b) DOLLAR LIMITATION.—The credit allowable under sub- section (a) for any taxable year shall not exceed $150,000. ‘‘(c) DEFINITIONS.—For purposes of this section— ‘‘(1) QUALIFIED CHILD CARE EXPENDITURE.— ‘‘(A) IN GENERAL.—The term ‘qualified child care ex- penditure’ means any amount paid or incurred— ‘‘(i) to acquire, construct, rehabilitate, or expand property— ‘‘(I) which is to be used as part of a qualified child care facility of the taxpayer, ‘‘(II) with respect to which a deduction for de- preciation (or amortization in lieu of depreciation) is allowable, and VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00017 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 14 ‘‘(III) which does not constitute part of the principal residence (within the meaning of section 121) of the taxpayer or any employee of the tax- payer, ‘‘(ii) for the operating costs of a qualified child care facility of the taxpayer, including costs related to the training of employees, to scholarship programs, and to the providing of increased compensation to employees with higher levels of child care training, or ‘‘(iii) under a contract with a qualified child care facility to provide child care services to employees of the taxpayer. ‘‘(B) FAIR MARKET VALUE.—The term ‘qualified child care expenditures’ shall not include expenses in excess of the fair market value of such care. ‘‘(2) QUALIFIED CHILD CARE FACILITY.— ‘‘(A) IN GENERAL.—The term ‘qualified child care facil- ity’ means a facility— ‘‘(i) the principal use of which is to provide child care assistance, and ‘‘(ii) which meets the requirements of all applicable laws and regulations of the State or local government in which it is located, including the licensing of the fa- cility as a child care facility. Clause (i) shall not apply to a facility which is the prin- cipal residence (within the meaning of section 121) of the operator of the facility. ‘‘(B) SPECIAL RULES WITH RESPECT TO A TAXPAYER.—A facility shall not be treated as a qualified child care facility with respect to a taxpayer unless— ‘‘(i) enrollment in the facility is open to employees of the taxpayer during the taxable year, ‘‘(ii) if the facility is the principal trade or business of the taxpayer, at least 30 percent of the enrollees of such facility are dependents of employees of the tax- payer, and ‘‘(iii) the use of such facility (or the eligibility to use such facility) does not discriminate in favor of em- ployees of the taxpayer who are highly compensated employees (within the meaning of section 414(q)). ‘‘(3) QUALIFIED CHILD CARE RESOURCE AND REFERRAL EX- PENDITURE.— ‘‘(A) IN GENERAL.—The term ‘qualified child care re- source and referral expenditure’ means any amount paid or incurred under a contract to provide child care resource and referral services to an employee of the taxpayer. ‘‘(B) NONDISCRIMINATION.—The services shall not be treated as qualified unless the provision of such services (or the eligibility to use such services) does not discriminate in favor of employees of the taxpayer who are highly com- pensated employees (within the meaning of section 414(q)). ‘‘(d) RECAPTURE OF ACQUISITION AND CONSTRUCTION CREDIT.— ‘‘(1) IN GENERAL.—If, as of the close of any taxable year, there is a recapture event with respect to any qualified child care facility of the taxpayer, then the tax of the taxpayer under VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00018 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 15 this chapter for such taxable year shall be increased by an amount equal to the product of— ‘‘(A) the applicable recapture percentage, and ‘‘(B) the aggregate decrease in the credits allowed under section 38 for all prior taxable years which would have resulted if the qualified child care expenditures of the taxpayer described in subsection (c)(1)(A) with respect to such facility had been zero. ‘‘(2) APPLICABLE RECAPTURE PERCENTAGE.— ‘‘(A) IN GENERAL.—For purposes of this subsection, the applicable recapture percentage shall be determined from the following table: ‘‘If the recapture event The applicable recapture occurs in: percentage is: Years 1–3 ............................................................................................ 100 Year 4 ................................................................................................. 85 Year 5 ................................................................................................. 70 Year 6 ................................................................................................. 55 Year 7 ................................................................................................. 40 Year 8 ................................................................................................. 25 Years 9 and 10 ................................................................................... 10 Years 11 and thereafter ..................................................................... 0. ‘‘(B) YEARS.—For purposes of subparagraph (A), year 1 shall begin on the first day of the taxable year in which the qualified child care facility is placed in service by the tax- payer. ‘‘(3) RECAPTURE EVENT DEFINED.—For purposes of this sub- section, the term ‘recapture event’ means— ‘‘(A) CESSATION OF OPERATION.—The cessation of the operation of the facility as a qualified child care facility. ‘‘(B) CHANGE IN OWNERSHIP.— ‘‘(i) IN GENERAL.—Except as provided in clause (ii), the disposition of a taxpayer’s interest in a qualified child care facility with respect to which the credit de- scribed in subsection (a) was allowable. ‘‘(ii) AGREEMENT TO ASSUME RECAPTURE LIABIL- ITY.—Clause (i) shall not apply if the person acquiring such interest in the facility agrees in writing to assume the recapture liability of the person disposing of such interest in effect immediately before such disposition. In the event of such an assumption, the person acquir- ing the interest in the facility shall be treated as the taxpayer for purposes of assessing any recapture liabil- ity (computed as if there had been no change in owner- ship). ‘‘(4) SPECIAL RULES.— ‘‘(A) TAX BENEFIT RULE.—The tax for the taxable year shall be increased under paragraph (1) only with respect to credits allowed by reason of this section which were used to reduce tax liability. In the case of credits not so used to reduce tax liability, the carryforwards and carrybacks under section 39 shall be appropriately adjusted. ‘‘(B) NO CREDITS AGAINST TAX.—Any increase in tax under this subsection shall not be treated as a tax imposed by this chapter for purposes of determining the amount of any credit under subpart A, B, or D of this part. VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00019 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 16 ‘‘(C) NO RECAPTURE BY REASON OF CASUALTY LOSS.— The increase in tax under this subsection shall not apply to a cessation of operation of the facility as a qualified child care facility by reason of a casualty loss to the extent such loss is restored by reconstruction or replacement with- in a reasonable period established by the Secretary. ‘‘(e) SPECIAL RULES.—For purposes of this section— ‘‘(1) AGGREGATION RULES.—All persons which are treated as a single employer under subsections (a) and (b) of section 52 shall be treated as a single taxpayer. ‘‘(2) PASS-THRU IN THE CASE OF ESTATES AND TRUSTS.— Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply. ‘‘(3) ALLOCATION IN THE CASE OF PARTNERSHIPS.—In the case of partnerships, the credit shall be allocated among part- ners under regulations prescribed by the Secretary. ‘‘(f) NO DOUBLE BENEFIT.— ‘‘(1) REDUCTION IN BASIS.—For purposes of this subtitle— ‘‘(A) IN GENERAL.—If a credit is determined under this section with respect to any property by reason of expendi- tures described in subsection (c)(1)(A), the basis of such property shall be reduced by the amount of the credit so de- termined. ‘‘(B) CERTAIN DISPOSITIONS.—If, during any taxable year, there is a recapture amount determined with respect to any property the basis of which was reduced under sub- paragraph (A), the basis of such property (immediately be- fore the event resulting in such recapture) shall be in- creased by an amount equal to such recapture amount. For purposes of the preceding sentence, the term ‘recapture amount’ means any increase in tax (or adjustment in carrybacks or carryovers) determined under subsection (d). ‘‘(2) OTHER DEDUCTIONS AND CREDITS.—No deduction or credit shall be allowed under any other provision of this chap- ter with respect to the amount of the credit determined under this section.’’. (b) CONFORMING AMENDMENTS.— (1) Section 38(b), as amended by section 619, is amended by striking ‘‘plus’’ at the end of paragraph (13), by striking the period at the end of paragraph (14) and inserting ‘‘, plus’’, and by adding at the end the following: ‘‘(15) the employer-provided child care credit determined under section 45F.’’. (2) The table of sections for subpart D of part IV of sub- chapter A of chapter 1 is amended by adding at the end the fol- lowing: ‘‘Sec. 45F. Employer-provided child care credit.’’ (3) Section 1016(a) is amended by striking ‘‘and’’ at the end of paragraph (26), by striking the period at the end of para- graph (27) and inserting ‘‘, and’’, and by adding at the end the following: ‘‘(28) in the case of a facility with respect to which a credit was allowed under section 45F, to the extent provided in section 45F(f)(1).’’. VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00020 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 17 (c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2001. TITLE III—MARRIAGE PENALTY RELIEF SEC. 301. ELIMINATION OF MARRIAGE PENALTY IN STANDARD DEDUC- TION. (a) IN GENERAL.—Paragraph (2) of section 63(c) (relating to standard deduction) is amended— (1) by striking ‘‘$5,000’’ in subparagraph (A) and inserting ‘‘the applicable percentage of the dollar amount in effect under subparagraph (C) for the taxable year’’; (2) by adding ‘‘or’’ at the end of subparagraph (B); (3) by striking ‘‘in the case of’’ and all that follows in sub- paragraph (C) and inserting ‘‘in any other case.’’; and (4) by striking subparagraph (D). (b) APPLICABLE PERCENTAGE.—Section 63(c) (relating to stand- ard deduction) is amended by adding at the end the following new paragraph: ‘‘(7) APPLICABLE PERCENTAGE.—For purposes of paragraph (2), the applicable percentage shall be determined in accordance with the following table: ‘‘For taxable years beginning The applicable in calendar year— percentage is— 2005 ............................................................................................. 174 2006 ............................................................................................. 184 2007 ............................................................................................. 187 2008 ............................................................................................. 190 2009 and thereafter .................................................................... 200.’’. (c) TECHNICAL AMENDMENTS.— (1) Subparagraph (B) of section 1(f)(6) is amended by strik- ing ‘‘(other than with’’ and all that follows through ‘‘shall be applied’’ and inserting ‘‘(other than with respect to sections 63(c)(4) and 151(d)(4)(A)) shall be applied’’. (2) Paragraph (4) of section 63(c) is amended by adding at the end the following flush sentence: ‘‘The preceding sentence shall not apply to the amount referred to in paragraph (2)(A).’’. (d) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2004. SEC. 302. PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT BRACKET. (a) IN GENERAL.—Section 1(f) (relating to adjustments in tax tables so that inflation will not result in tax increases) is amended by adding at the end the following new paragraph: ‘‘(8) PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT BRACKET.— ‘‘(A) IN GENERAL.—With respect to taxable years begin- ning after December 31, 2004, in prescribing the tables under paragraph (1)— ‘‘(i) the maximum taxable income in the 15-percent rate bracket in the table contained in subsection (a) (and the minimum taxable income in the next higher taxable income bracket in such table) shall be the ap- plicable percentage of the maximum taxable income in the 15-percent rate bracket in the table contained in VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00021 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 18 subsection (c) (after any other adjustment under this subsection), and ‘‘(ii) the comparable taxable income amounts in the table contained in subsection (d) shall be 1⁄2 of the amounts determined under clause (i). ‘‘(B) APPLICABLE PERCENTAGE.—For purposes of sub- paragraph (A), the applicable percentage shall be deter- mined in accordance with the following table: ‘‘For taxable years beginning The applicable in calendar year— percentage is— 2005 ............................................................................................. 180 2006 ............................................................................................. 187 2007 ............................................................................................. 193 2008 and thereafter .................................................................... 200. ‘‘(C) ROUNDING.—If any amount determined under sub- paragraph (A)(i) is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.’’. (b) TECHNICAL AMENDMENTS.— (1) Subparagraph (A) of section 1(f)(2) is amended by in- serting ‘‘except as provided in paragraph (8),’’ before ‘‘by in- creasing’’. (2) The heading for subsection (f) of section 1 is amended by inserting ‘‘PHASEOUT OF MARRIAGE PENALTY IN 15-PERCENT BRACKET;’’ before ‘‘ADJUSTMENTS’’. (c) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2004. SEC. 303. MARRIAGE PENALTY RELIEF FOR EARNED INCOME CREDIT; EARNED INCOME TO INCLUDE ONLY AMOUNTS INCLUD- IBLE IN GROSS INCOME; SIMPLIFICATION OF EARNED IN- COME CREDIT. (a) INCREASED PHASEOUT AMOUNT.— (1) IN GENERAL.—Section 32(b)(2) (relating to amounts) is amended— (A) by striking ‘‘AMOUNTS.—The earned’’ and inserting ‘‘AMOUNTS.— ‘‘(A) IN GENERAL.—Subject to subparagraph (B), the earned’’, and (B) by adding at the end the following new subpara- graph: ‘‘(B) JOINT RETURNS.—In the case of a joint return filed by an eligible individual and such individual’s spouse, the phaseout amount determined under subparagraph (A) shall be increased by— ‘‘(i) $1,000 in the case of taxable years beginning in 2002, 2003, and 2004, ‘‘(ii) $2,000 in the case of taxable years beginning in 2005, 2006, and 2007, and ‘‘(iii) $3,000 in the case of taxable years beginning after 2007.’’. (2) INFLATION ADJUSTMENT.—Paragraph (1)(B) of section 32(j) (relating to inflation adjustments) is amended to read as follows: ‘‘(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined— VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00022 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 19 ‘‘(i) in the case of amounts in subsections (b)(2)(A) and (i)(1), by substituting ‘calendar year 1995’ for ‘cal- endar year 1992’ in subparagraph (B) thereof, and ‘‘(ii) in the case of the $3,000 amount in subsection (b)(2)(B)(iii), by substituting ‘calendar year 2007’ for ‘calendar year 1992’ in subparagraph (B) of such sec- tion 1.’’. (3) ROUNDING.—Section 32(j)(2)(A) (relating to rounding) is amended by striking ‘‘subsection (b)(2)’’ and inserting ‘‘sub- section (b)(2)(A) (after being increased under subparagraph (B) thereof)’’. (b) EARNED INCOME TO INCLUDE ONLY AMOUNTS INCLUDIBLE IN GROSS INCOME.—Clause (i) of section 32(c)(2)(A) (defining earned income) is amended by inserting ‘‘, but only if such amounts are in- cludible in gross income for the taxable year’’ after ‘‘other employee compensation’’. (c) REPEAL OF REDUCTION OF CREDIT TO TAXPAYERS SUBJECT TO ALTERNATIVE MINIMUM TAX.—Section 32(h) is repealed. (d) REPLACEMENT OF MODIFIED ADJUSTED GROSS INCOME WITH ADJUSTED GROSS INCOME.— (1) IN GENERAL.—Section 32(a)(2)(B) is amended by strik- ing ‘‘modified’’. (2) CONFORMING AMENDMENTS.— (A) Section 32(c) is amended by striking paragraph (5). (B) Section 32(f)(2)(B) is amended by striking ‘‘modi- fied’’ each place it appears. (e) RELATIONSHIP TEST.— (1) IN GENERAL.—Clause (i) of section 32(c)(3)(B) (relating to relationship test) is amended to read as follows: ‘‘(i) IN GENERAL.—An individual bears a relation- ship to the taxpayer described in this subparagraph if such individual is— ‘‘(I) a son, daughter, stepson, or stepdaughter, or a descendant of any such individual, ‘‘(II) a brother, sister, stepbrother, or stepsister, or a descendant of any such individual, who the taxpayer cares for as the taxpayer’s own child, or ‘‘(III) an eligible foster child of the taxpayer.’’. (2) ELIGIBLE FOSTER CHILD.— (A) IN GENERAL.—Clause (iii) of section 32(c)(3)(B) is amended to read as follows: ‘‘(iii) ELIGIBLE FOSTER CHILD.—For purposes of clause (i), the term ‘eligible foster child’ means an indi- vidual not described in subclause (I) or (II) of clause (i) who— ‘‘(I) is placed with the taxpayer by an author- ized placement agency, and ‘‘(II) the taxpayer cares for as the taxpayer’s own child.’’. (B) CONFORMING AMENDMENT.—Section 32(c)(3)(A)(ii) is amended by striking ‘‘except as provided in subpara- graph (B)(iii),’’. (f) 2 OR MORE CLAIMING QUALIFYING CHILD.—Section 32(c)(1)(C) is amended to read as follows: ‘‘(C) 2 OR MORE CLAIMING QUALIFYING CHILD.— VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00023 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 20 ‘‘(i) IN GENERAL.—Except as provided in clause (ii), if (but for this paragraph) an individual may be claimed, and is claimed, as a qualifying child by 2 or more taxpayers for a taxable year beginning in the same calendar year, such individual shall be treated as the qualifying child of the taxpayer who is— ‘‘(I) a parent of the individual, or ‘‘(II) if subclause (I) does not apply, the tax- payer with the highest adjusted gross income for such taxable year. ‘‘(ii) MORE THAN 1 CLAIMING CREDIT.—If the par- ents claiming the credit with respect to any qualifying child do not file a joint return together, such child shall be treated as the qualifying child of— ‘‘(I) the parent with whom the child resided for the longest period of time during the taxable year, or ‘‘(II) if the child resides with both parents for the same amount of time during such taxable year, the parent with the highest adjusted gross in- come.’’. (g) EXPANSION OF MATHEMATICAL ERROR AUTHORITY.—Para- graph (2) of section 6213(g) is amended by striking ‘‘and’’ at the end of subparagraph (K), by striking the period at the end of subpara- graph (L) and inserting ‘‘, and’’, and by inserting after subpara- graph (L) the following new subparagraph: ‘‘(M) the entry on the return claiming the credit under section 32 with respect to a child if, according to the Fed- eral Case Registry of Child Support Orders established under section 453(h) of the Social Security Act, the taxpayer is a noncustodial parent of such child.’’ (h) CLERICAL AMENDMENT.—Subparagraph (E) of section 32(c)(3) is amended by striking ‘‘subparagraphs (A)(ii) and (B)(iii)(II)’’ and inserting ‘‘subparagraph (A)(ii)’’. (i) EFFECTIVE DATES.— (1) IN GENERAL.—Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2001. (2) SUBSECTION (g).—The amendment made by subsection (g) shall take effect on January 1, 2004. TITLE IV—AFFORDABLE EDUCATION PROVISIONS Subtitle A—Education Savings Incentives SEC. 401. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS. (a) MAXIMUM ANNUAL CONTRIBUTIONS.— (1) IN GENERAL.—Section 530(b)(1)(A)(iii) (defining edu- cation individual retirement account) is amended by striking ‘‘$500’’ and inserting ‘‘$2,000’’. (2) CONFORMING AMENDMENT.—Section 4973(e)(1)(A) is amended by striking ‘‘$500’’ and inserting ‘‘$2,000’’. (b) MODIFICATION OF AGI LIMITS TO REMOVE MARRIAGE PEN- ALTY.—Section 530(c)(1) (relating to reduction in permitted con- tributions based on adjusted gross income) is amended— VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00024 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 21 (1) by striking ‘‘$150,000’’ in subparagraph (A)(ii) and in- serting ‘‘$190,000’’, and (2) by striking ‘‘$10,000’’ in subparagraph (B) and inserting ‘‘$30,000’’. (c) TAX-FREE EXPENDITURES FOR ELEMENTARY AND SECONDARY SCHOOL EXPENSES.— (1) IN GENERAL.—Section 530(b)(2) (defining qualified higher education expenses) is amended to read as follows: ‘‘(2) QUALIFIED EDUCATION EXPENSES.— ‘‘(A) IN GENERAL.—The term ‘qualified education ex- penses’ means— ‘‘(i) qualified higher education expenses (as defined in section 529(e)(3)), and ‘‘(ii) qualified elementary and secondary education expenses (as defined in paragraph (4)). ‘‘(B) QUALIFIED STATE TUITION PROGRAMS.—Such term shall include any contribution to a qualified State tuition program (as defined in section 529(b)) on behalf of the des- ignated beneficiary (as defined in section 529(e)(1)); but there shall be no increase in the investment in the contract for purposes of applying section 72 by reason of any portion of such contribution which is not includible in gross income by reason of subsection (d)(2).’’. (2) QUALIFIED ELEMENTARY AND SECONDARY EDUCATION EX- PENSES.—Section 530(b) (relating to definitions and special rules) is amended by adding at the end the following new para- graph: ‘‘(4) QUALIFIED ELEMENTARY AND SECONDARY EDUCATION EXPENSES.— ‘‘(A) IN GENERAL.—The term ‘qualified elementary and secondary education expenses’ means— ‘‘(i) expenses for tuition, fees, academic tutoring, special needs services in the case of a special needs beneficiary, books, supplies, and other equipment which are incurred in connection with the enrollment or attendance of the designated beneficiary of the trust as an elementary or secondary school student at a pub- lic, private, or religious school, ‘‘(ii) expenses for room and board, uniforms, trans- portation, and supplementary items and services (in- cluding extended day programs) which are required or provided by a public, private, or religious school in connection with such enrollment or attendance, and ‘‘(iii) expenses for the purchase of any computer technology or equipment (as defined in section 170(e)(6)(F)(i)) or Internet access and related services, if such technology, equipment, or services are to be used by the beneficiary and the beneficiary’s family during any of the years the beneficiary is in school. Clause (iii) shall not include expenses for computer soft- ware designed for sports, games, or hobbies unless the soft- ware is predominantly educational in nature. ‘‘(B) SCHOOL.—The term ‘school’ means any school which provides elementary education or secondary edu- VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00025 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 22 cation (kindergarten through grade 12), as determined under State law.’’. (3) CONFORMING AMENDMENTS.—Section 530 is amended— (A) by striking ‘‘higher’’ each place it appears in sub- sections (b)(1) and (d)(2), and (B) by striking ‘‘HIGHER’’ in the heading for subsection (d)(2). (d) WAIVER OF AGE LIMITATIONS FOR CHILDREN WITH SPECIAL NEEDS.—Section 530(b)(1) (defining education individual retirement account) is amended by adding at the end the following flush sen- tence: ‘‘The age limitations in subparagraphs (A)(ii) and (E), and paragraphs (5) and (6) of subsection (d), shall not apply to any designated beneficiary with special needs (as determined under regulations prescribed by the Secretary).’’. (e) ENTITIES PERMITTED TO CONTRIBUTE TO ACCOUNTS.—Sec- tion 530(c)(1) (relating to reduction in permitted contributions based on adjusted gross income) is amended by striking ‘‘The maximum amount which a contributor’’ and inserting ‘‘In the case of a contrib- utor who is an individual, the maximum amount the contributor’’. (f) TIME WHEN CONTRIBUTIONS DEEMED MADE.— (1) IN GENERAL.—Section 530(b) (relating to definitions and special rules), as amended by subsection (c)(2), is amended by adding at the end the following new paragraph: ‘‘(5) TIME WHEN CONTRIBUTIONS DEEMED MADE.—An indi- vidual shall be deemed to have made a contribution to an edu- cation individual retirement account on the last day of the pre- ceding taxable year if the contribution is made on account of such taxable year and is made not later than the time pre- scribed by law for filing the return for such taxable year (not including extensions thereof).’’. (2) EXTENSION OF TIME TO RETURN EXCESS CONTRIBU- TIONS.—Subparagraph (C) of section 530(d)(4) (relating to addi- tional tax for distributions not used for educational expenses) is amended— (A) by striking clause (i) and inserting the following new clause: ‘‘(i) such distribution is made before the first day of the sixth month of the taxable year following the tax- able year, and’’, and (B) by striking ‘‘DUE DATE OF RETURN’’ in the heading and inserting ‘‘CERTAIN DATE’’. (g) COORDINATION WITH HOPE AND LIFETIME LEARNING CRED- ITS AND QUALIFIED TUITION PROGRAMS.— (1) IN GENERAL.—Section 530(d)(2)(C) is amended to read as follows: ‘‘(C) COORDINATION WITH HOPE AND LIFETIME LEARN- ING CREDITS AND QUALIFIED TUITION PROGRAMS.—For pur- poses of subparagraph (A)— ‘‘(i) CREDIT COORDINATION.—The total amount of qualified higher education expenses with respect to an individual for the taxable year shall be reduced— ‘‘(I) as provided in section 25A(g)(2), and ‘‘(II) by the amount of such expenses which were taken into account in determining the credit VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00026 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 23 allowed to the taxpayer or any other person under section 25A. ‘‘(ii) COORDINATION WITH QUALIFIED TUITION PRO- GRAMS.—If, with respect to an individual for any tax- able year— ‘‘(I) the aggregate distributions during such year to which subparagraph (A) and section 529(c)(3)(B) apply, exceed ‘‘(II) the total amount of qualified education expenses (after the application of clause (i)) for such year, the taxpayer shall allocate such expenses among such distributions for purposes of determining the amount of the exclusion under subparagraph (A) and section 529(c)(3)(B).’’. (2) CONFORMING AMENDMENTS.— (A) Subsection (e) of section 25A is amended to read as follows: ‘‘(e) ELECTION NOT TO HAVE SECTION APPLY.—A taxpayer may elect not to have this section apply with respect to the qualified tui- tion and related expenses of an individual for any taxable year.’’. (B) Section 135(d)(2)(A) is amended by striking ‘‘allow- able’’ and inserting ‘‘allowed’’. (C) Section 530(d)(2)(D) is amended— (i) by striking ‘‘or credit’’ and inserting ‘‘, credit, or exclusion’’, and (ii) by striking ‘‘CREDIT OR DEDUCTION’’ in the heading and inserting ‘‘DEDUCTION, CREDIT, OR EXCLU- SION’’. (D) Section 4973(e)(1) is amended by adding ‘‘and’’ at the end of subparagraph (A), by striking subparagraph (B), and by redesignating subparagraph (C) as subparagraph (B). (h) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2001. SEC. 402. MODIFICATIONS TO QUALIFIED TUITION PROGRAMS. (a) ELIGIBLE EDUCATIONAL INSTITUTIONS PERMITTED TO MAIN- TAIN QUALIFIED TUITION PROGRAMS.— (1) IN GENERAL.—Section 529(b)(1) (defining qualified State tuition program) is amended— (A) by inserting ‘‘or by 1 or more eligible educational institutions’’ after ‘‘maintained by a State or agency or in- strumentality thereof ’’ in the matter preceding subpara- graph (A), and (B) by adding at the end the following new flush sen- tence: ‘‘Except to the extent provided in regulations, a program estab- lished and maintained by 1 or more eligible educational institu- tions shall not be treated as a qualified tuition program unless such program provides that amounts are held in a qualified trust and such program has received a ruling or determination that such program meets the applicable requirements for a qualified tuition program. For purposes of the preceding sen- tence, the term ‘qualified trust’ means a trust which is created VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00027 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 24 or organized in the United States for the exclusive benefit of designated beneficiaries and with respect to which the require- ments of paragraphs (2) and (5) of section 408(a) are met.’’. (2) PRIVATE QUALIFIED TUITION PROGRAMS LIMITED TO BEN- EFIT PLANS.—Clause (ii) of section 529(b)(1)(A) is amended by inserting ‘‘in the case of a program established and maintained by a State or agency or instrumentality thereof,’’ before ‘‘may make’’. (3) ADDITIONAL TAX ON NONQUALIFIED WITHDRAWALS.—Sec- tion 529 is amended— (A) by striking paragraph (3) of subsection (b) and by redesignating paragraphs (4), (5), (6), and (7) of such sub- section as paragraphs (3), (4), (5), and (6), respectively, and (B) by adding at the end of subsection (c) the following new paragraph: ‘‘(6) ADDITIONAL TAX.—The tax imposed by section 530(d)(4) shall apply to any payment or distribution from a qualified tui- tion program in the same manner as such tax applies to a pay- ment or distribution from an education individual retirement account. This paragraph shall not apply to any payment or dis- tribution in any taxable year beginning before January 1, 2004, which is includible in gross income but used for qualified high- er education expenses of the designated beneficiary.’’. (4) CONFORMING AMENDMENTS.— (A) Sections 72(e)(9), 135(c)(2)(C), 135(d)(1)(D), 529, 530(b)(2)(B), 4973(e), and 6693(a)(2)(C) are amended by striking ‘‘qualified State tuition’’ each place it appears and inserting ‘‘qualified tuition’’. (B) The headings for sections 72(e)(9) and 135(c)(2)(C) are amended by striking ‘‘QUALIFIED STATE TUITION’’ each place it appears and inserting ‘‘QUALIFIED TUITION’’. (C) The headings for sections 529(b) and 530(b)(2)(B) are amended by striking ‘‘QUALIFIED STATE TUITION’’ each place it appears and inserting ‘‘QUALIFIED TUITION’’. (D) The heading for section 529 is amended by striking ‘‘STATE’’. (E) The item relating to section 529 in the table of sec- tions for part VIII of subchapter F of chapter 1 is amended by striking ‘‘State’’. (b) EXCLUSION FROM GROSS INCOME OF EDUCATION DISTRIBU- TIONS FROM QUALIFIED TUITION PROGRAMS.— (1) IN GENERAL.—Section 529(c)(3)(B) (relating to distribu- tions) is amended to read as follows: ‘‘(B) DISTRIBUTIONS FOR QUALIFIED HIGHER EDUCATION EXPENSES.—For purposes of this paragraph— ‘‘(i) IN-KIND DISTRIBUTIONS.—No amount shall be includible in gross income under subparagraph (A) by reason of a distribution which consists of providing a benefit to the distributee which, if paid for by the dis- tributee, would constitute payment of a qualified high- er education expense. ‘‘(ii) CASH DISTRIBUTIONS.—In the case of distribu- tions not described in clause (i), if— ‘‘(I) such distributions do not exceed the quali- fied higher education expenses (reduced by ex- VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00028 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 25 penses described in clause (i)), no amount shall be includible in gross income, and ‘‘(II) in any other case, the amount otherwise includible in gross income shall be reduced by an amount which bears the same ratio to such amount as such expenses bear to such distribu- tions. ‘‘(iii) EXCEPTION FOR INSTITUTIONAL PROGRAMS.— In the case of any taxable year beginning before Janu- ary 1, 2004, clauses (i) and (ii) shall not apply with re- spect to any distribution during such taxable year under a qualified tuition program established and maintained by 1 or more eligible educational institu- tions. ‘‘(iv) TREATMENT AS DISTRIBUTIONS.—Any benefit furnished to a designated beneficiary under a qualified tuition program shall be treated as a distribution to the beneficiary for purposes of this paragraph. ‘‘(v) COORDINATION WITH HOPE AND LIFETIME LEARNING CREDITS.—The total amount of qualified higher education expenses with respect to an individual for the taxable year shall be reduced— ‘‘(I) as provided in section 25A(g)(2), and ‘‘(II) by the amount of such expenses which were taken into account in determining the credit allowed to the taxpayer or any other person under section 25A. ‘‘(vi) COORDINATION WITH EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS.—If, with respect to an indi- vidual for any taxable year— ‘‘(I) the aggregate distributions to which clauses (i) and (ii) and section 530(d)(2)(A) apply, exceed ‘‘(II) the total amount of qualified higher edu- cation expenses otherwise taken into account under clauses (i) and (ii) (after the application of clause (v)) for such year, the taxpayer shall allocate such expenses among such distributions for purposes of determining the amount of the exclusion under clauses (i) and (ii) and section 530(d)(2)(A).’’. (2) CONFORMING AMENDMENTS.— (A) Section 135(d)(2)(B) is amended by striking ‘‘the ex- clusion under section 530(d)(2)’’ and inserting ‘‘the exclu- sions under sections 529(c)(3)(B) and 530(d)(2)’’. (B) Section 221(e)(2)(A) is amended by inserting ‘‘529,’’ after ‘‘135,’’. (c) ROLLOVER TO DIFFERENT PROGRAM FOR BENEFIT OF SAME DESIGNATED BENEFICIARY.—Section 529(c)(3)(C) (relating to change in beneficiaries) is amended— (1) by striking ‘‘transferred to the credit’’ in clause (i) and inserting ‘‘transferred— ‘‘(I) to another qualified tuition program for the benefit of the designated beneficiary, or ‘‘(II) to the credit’’, VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00029 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 26 (2) by adding at the end the following new clause: ‘‘(iii) LIMITATION ON CERTAIN ROLLOVERS.—Clause (i)(I) shall not apply to any transfer if such transfer oc- curs within 12 months from the date of a previous transfer to any qualified tuition program for the benefit of the designated beneficiary.’’, and (3) by inserting ‘‘OR PROGRAMS’’ after ‘‘BENEFICIARIES’’ in the heading. (d) MEMBER OF FAMILY INCLUDES FIRST COUSIN.—Section 529(e)(2) (defining member of family) is amended by striking ‘‘and’’ at the end of subparagraph (B), by striking the period at the end of subparagraph (C) and by inserting ‘‘; and’’, and by adding at the end the following new subparagraph: ‘‘(D) any first cousin of such beneficiary.’’. (e) ADJUSTMENT OF LIMITATION ON ROOM AND BOARD DIS- TRIBUTIONS.—Section 529(e)(3)(B)(ii) is amended to read as follows: ‘‘(ii) LIMITATION.—The amount treated as qualified higher education expenses by reason of clause (i) shall not exceed— ‘‘(I) the allowance (applicable to the student) for room and board included in the cost of attend- ance (as defined in section 472 of the Higher Edu- cation Act of 1965 (20 U.S.C. 1087ll), as in effect on the date of the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001) as determined by the eligible educational institu- tion for such period, or ‘‘(II) if greater, the actual invoice amount the student residing in housing owned or operated by the eligible educational institution is charged by such institution for room and board costs for such period.’’. (f) SPECIAL NEEDS SERVICES.—Subparagraph (A) of section 529(e)(3) (defining qualified higher education expenses) is amended to read as follows: ‘‘(A) IN GENERAL.—The term ‘qualified higher edu- cation expenses’ means— ‘‘(i) tuition, fees, books, supplies, and equipment re- quired for the enrollment or attendance of a designated beneficiary at an eligible educational institution; and ‘‘(ii) expenses for special needs services in the case of a special needs beneficiary which are incurred in connection with such enrollment or attendance.’’. (g) TECHNICAL AMENDMENTS.—Section 529(c)(3)(D) is amended— (1) by inserting ‘‘except to the extent provided by the Sec- retary,’’ before ‘‘all distributions’’ in clause (ii), and (2) by inserting ‘‘except to the extent provided by the Sec- retary,’’ before ‘‘the value’’ in clause (iii). (h) EFFECTIVE DATE.—The amendments made by this section shall apply to taxable years beginning after December 31, 2001. VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00030 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 27 Subtitle B—Educational Assistance SEC. 411. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED EDU- CATIONAL ASSISTANCE. (a) IN GENERAL.—Section 127 (relating to exclusion for edu- cational assistance programs) is amended by striking subsection (d) and by redesignating subsection (e) as subsection (d). (b) REPEAL OF LIMITATION ON GRADUATE EDUCATION.—The last sentence of section 127(c)(1) is amended by striking ‘‘, and such term also does not include any payment for, or the provision of any bene- fits with respect to, any graduate level course of a kind normally taken by an individual pursuing a program leading to a law, busi- ness, medical, or other advanced academic or professional degree’’. (c) CONFORMING AMENDMENT.—Section 51A(b)(5)(B)(iii) is amended by striking ‘‘or would be so excludable but for section 127(d)’’. (d) EFFECTIVE DATE.—The amendments made by this section shall apply with respect to expenses relating to courses beginning after December 31, 2001. SEC. 412. ELIMINATION OF 60-MONTH LIMIT AND INCREASE IN INCOME LIMITATION ON STUDENT LOAN INTEREST DEDUCTION. (a) ELIMINATION OF 60-MONTH LIMIT.— (1) IN GENERAL.—Section 221 (relating to interest on edu- cation loans), as amended by section 402(b)(2)(B), is amended by striking subsection (d) and by redesignating subsections (e), (f), and (g) as subsections (d), (e), and (f), respectively. (2) CONFORMING AMENDMENT.—Section 6050S(e) is amend- ed by striking ‘‘section 221(e)(1)’’ and inserting ‘‘section 221(d)(1)’’. (3) EFFECTIVE DATE.—The amendments made by this sub- section shall apply with respect to any loan interest paid after December 31, 2001, in taxable years ending after such date. (b) INCREASE IN INCOME LIMITATION.— (1) IN GENERAL.—Section 221(b)(2)(B) (relating to amount of reduction) is amended by striking clauses (i) and (ii) and in- serting the following: ‘‘(i) the excess of— ‘‘(I) the taxpayer’s modified adjusted gross in- come for such taxable year, over ‘‘(II) $50,000 ($100,000 in the case of a joint return), bears to ‘‘(ii) $15,000 ($30,000 in the case of a joint re- turn).’’. (2) CONFORMING AMENDMENT.—Section 221(g)(1) is amend- ed by striking ‘‘$40,000 and $60,000 amounts’’ and inserting ‘‘$50,000 and $100,000 amounts’’. (3) EFFECTIVE DATE.—The amendments made by this sub- section shall apply to taxable years ending after December 31, 2001. VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00031 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 28 SEC. 413. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE NATIONAL HEALTH SERVICE CORPS SCHOLARSHIP PRO- GRAM AND THE F. EDWARD HEBERT ARMED FORCES HEALTH PROFESSIONS SCHOLARSHIP AND FINANCIAL AS- SISTANCE PROGRAM. (a) IN GENERAL.—Section 117(c) (relating to the exclusion from gross income amounts received as a qualified scholarship) is amended— (1) by striking ‘‘Subsections (a)’’ and inserting the fol- lowing: ‘‘(1) IN GENERAL.—Except as provided in paragraph (2), subsections (a)’’, and (2) by adding at the end the following new paragraph: ‘‘(2) EXCEPTIONS.—Paragraph (1) shall not apply to any amount received by an individual under— ‘‘(A) the National Health Service Corps Scholarship Program under section 338A(g)(1)(A) of the Public Health Service Act, or ‘‘(B) the Armed Forces Health Professions Scholarship and Financial Assistance program under subchapter I of chapter 105 of title 10, United States Code.’’. (b) EFFECTIVE DATE.—The amendments made by subsection (a) shall apply to amounts received in taxable years beginning after De- cember 31, 2001. Subtitle C—Liberalization of Tax-Exempt Financing Rules for Public School Construction SEC. 421. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION FOR GOVERNMENTAL BONDS USED TO FINANCE EDU- CATIONAL FACILITIES. (a) IN GENERAL.—Section 148(f)(4)(D)(vii) (relating to increase in exception for bonds financing public school capital expenditures) is amended by striking ‘‘$5,000,000’’ the second place it appears and inserting ‘‘$10,000,000’’. (b) EFFECTIVE DATE.—The amendment made by subsection (a) shall apply to obligations issued in calendar years beginning after December 31, 2001. SEC. 422. TREATMENT OF QUALIFIED PUBLIC EDUCATIONAL FACILITY BONDS AS EXEMPT FACILITY BONDS. (a) TREATMENT AS EXEMPT FACILITY BOND.—Subsection (a) of section 142 (relating to exempt facility bond) is amended by striking ‘‘or’’ at the end of paragraph (11), by striking the period at the end of paragraph (12) and inserting ‘‘, or’’, and by adding at the end the following new paragraph: ‘‘(13) qualified public educational facilities.’’. (b) QUALIFIED PUBLIC EDUCATIONAL FACILITIES.—Section 142 (relating to exempt facility bond) is amended by adding at the end the following new subsection: ‘‘(k) QUALIFIED PUBLIC EDUCATIONAL FACILITIES.— ‘‘(1) IN GENERAL.—For purposes of subsection (a)(13), the term ‘qualified public educational facility’ means any school fa- cility which is— ‘‘(A) part of a public elementary school or a public sec- ondary school, and VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00032 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 29 ‘‘(B) owned by a private, for-profit corporation pursu- ant to a public-private partnership agreement with a State or local educational agency described in paragraph (2). ‘‘(2) PUBLIC-PRIVATE PARTNERSHIP AGREEMENT DE- SCRIBED.—A public-private partnership agreement is described in this paragraph if it is an agreement— ‘‘(A) under which the corporation agrees— ‘‘(i) to do 1 or more of the following: construct, re- habilitate, refurbish, or equip a school facility, and ‘‘(ii) at the end of the term of the agreement, to transfer the school facility to such agency for no addi- tional consideration, and ‘‘(B) the term of which does not exceed the term of the issue to be used to provide the school facility. ‘‘(3) SCHOOL FACILITY.—For purposes of this subsection, the term ‘school facility’ means— ‘‘(A) any school building, ‘‘(B) any functionally related and subordinate facility and land with respect to such building, including any sta- dium or other facility primarily used for school events, and ‘‘(C) any property, to which section 168 applies (or would apply but for section 179), for use in a facility de- scribed in subparagraph (A) or (B). ‘‘(4) PUBLIC SCHOOLS.—For purposes of this subsection, the terms ‘elementary school’ and ‘secondary school’ have the mean- ings given such terms by section 14101 of the Elementary and Secondary Education Act of 1965 (20 U.S.C. 8801), as in effect on the date of the enactment of this subsection. ‘‘(5) ANNUAL AGGREGATE FACE AMOUNT OF TAX-EXEMPT FI- NANCING.— ‘‘(A) IN GENERAL.—An issue shall not be treated as an issue described in subsection (a)(13) if the aggregate face amount of bonds issued by the State pursuant thereto (when added to the aggregate face amount of bonds pre- viously so issued during the calendar year) exceeds an amount equal to the greater of— ‘‘(i) $10 multiplied by the State population, or ‘‘(ii) $5,000,000. ‘‘(B) ALLOCATION RULES.— ‘‘(i) IN GENERAL.—Except as otherwise provided in this subparagraph, the State may allocate the amount described in subparagraph (A) for any calendar year in such manner as the State determines appropriate. ‘‘(ii) RULES FOR CARRYFORWARD OF UNUSED LIMI- TATION.—A State may elect to carry forward an unused limitation for any calendar year for 3 calendar years following the calendar year in which the unused limi- tation arose under rules similar to the rules of section 146(f), except that the only purpose for which the carryforward may be elected is the issuance of exempt facility bonds described in subsection (a)(13).’’. (c) EXEMPTION FROM GENERAL STATE VOLUME CAPS.—Para- graph (3) of section 146(g) (relating to exception for certain bonds) is amended— (1) by striking ‘‘or (12)’’ and inserting ‘‘(12), or (13)’’, and VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00033 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 30 (2) by striking ‘‘and environmental enhancements of hydro- electric generating facilities’’ and inserting ‘‘environmental en- hancements of hydroelectric generating facilities, and qualified public educational facilities’’. (d) EXEMPTION FROM LIMITATION ON USE FOR LAND ACQUISI- TION.—Section 147(h) (relating to certain rules not to apply to mort- gage revenue bonds, qualified student loan bonds, and qualified 501(c)(3) bonds) is amended by adding at the end the following new paragraph: ‘‘(3) EXEMPT FACILITY BONDS FOR QUALIFIED PUBLIC-PRI- VATE SCHOOLS.—Subsection (c) shall not apply to any exempt facility bond issued as part of an issue described in section 142(a)(13) (relating to qualified public educational facilities).’’. (e) CONFORMING AMENDMENT.—The heading for section 147(h) is amended by striking ‘‘MORTGAGE REVENUE BONDS, QUALIFIED STUDENT LOAN BONDS, AND QUALIFIED 501(c)(3) BONDS’’ and in- serting ‘‘CERTAIN BONDS’’. (f) EFFECTIVE DATE.—The amendments made by this section shall apply to bonds issued after December 31, 2001. Subtitle D—Other Provisions SEC. 431. DEDUCTION FOR HIGHER EDUCATION EXPENSES. (a) DEDUCTION ALLOWED.—Part VII of subchapter B of chapter 1 (relating to additional itemized deductions for individuals) is amended by redesignating section 222 as section 223 and by insert- ing after section 221 the following: ‘‘SEC. 222. QUALIFIED TUITION AND RELATED EXPENSES. ‘‘(a) ALLOWANCE OF DEDUCTION.—In the case of an individual, there shall be allowed as a deduction an amount equal to the quali- fied tuition and related expenses paid by the taxpayer during the taxable year. ‘‘(b) DOLLAR LIMITATIONS.— ‘‘(1) IN GENERAL.—The amount allowed as a deduction under subsection (a) with respect to the taxpayer for any taxable year shall not exceed the applicable dollar limit. ‘‘(2) APPLICABLE DOLLAR LIMIT.— ‘‘(A) 2002 AND 2003.—In the case of a taxable year be- ginning in 2002 or 2003, the applicable dollar limit shall be equal to— ‘‘(i) in the case of a taxpayer whose adjusted gross income for the taxable year does not exceed $65,000 ($130,000 in the case of a joint return), $3,000, and— ‘‘(ii) in the case of any other taxpayer, zero. ‘‘(B) 2004 AND 2005.—In the case of a taxable year be- ginning in 2004 or 2005, the applicable dollar amount shall be equal to— ‘‘(i) in the case of a taxpayer whose adjusted gross income for the taxable year does not exceed $65,000 ($130,000 in the case of a joint return), $4,000, ‘‘(ii) in the case of a taxpayer not described in clause (i) whose adjusted gross income for the taxable year does not exceed $80,000 ($160,000 in the case of a joint return), $2,000, and ‘‘(iii) in the case of any other taxpayer, zero. VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00034 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 31 ‘‘(C) ADJUSTED GROSS INCOME.—For purposes of this paragraph, adjusted gross income shall be determined— ‘‘(i) without regard to this section and sections 911, 931, and 933, and ‘‘(ii) after application of sections 86, 135, 137, 219, 221, and 469. ‘‘(c) NO DOUBLE BENEFIT.— ‘‘(1) IN GENERAL.—No deduction shall be allowed under subsection (a) for any expense for which a deduction is allowed to the taxpayer under any other provision of this chapter. ‘‘(2) COORDINATION WITH OTHER EDUCATION INCENTIVES.— ‘‘(A) DENIAL OF DEDUCTION IF CREDIT ELECTED.—No deduction shall be allowed under subsection (a) for a tax- able year with respect to the qualified tuition and related expenses with respect to an individual if the taxpayer or any other person elects to have section 25A apply with re- spect to such individual for such year. ‘‘(B) COORDINATION WITH EXCLUSIONS.—The total amount of qualified tuition and related expenses shall be reduced by the amount of such expenses taken into account in determining any amount excluded under section 135, 529(c)(1), or 530(d)(2). For purposes of the preceding sen- tence, the amount taken into account in determining the amount excluded under section 529(c)(1) shall not include that portion of the distribution which represents a return of any contributions to the plan. ‘‘(3) DEPENDENTS.—No deduction shall be allowed under subsection (a) to any individual with respect to whom a deduc- tion under section 151 is allowable to another taxpayer for a taxable year beginning in the calendar year in which such indi- vidual’s taxable year begins. ‘‘(d) DEFINITIONS AND SPECIAL RULES.—For purposes of this section— ‘‘(1) QUALIFIED TUITION AND RELATED EXPENSES.—The term ‘qualified tuition and related expenses’ has the meaning given such term by section 25A(f). Such expenses shall be reduced in the same manner as under section 25A(g)(2). ‘‘(2) IDENTIFICATION REQUIREMENT.—No deduction shall be allowed under subsection (a) to a taxpayer with respect to the qualified tuition and related expenses of an individual unless the taxpayer includes the name and taxpayer identification number of the individual on the return of tax for the taxable year. ‘‘(3) LIMITATION ON TAXABLE YEAR OF DEDUCTION.— ‘‘(A) IN GENERAL.—A deduction shall be allowed under subsection (a) for qualified tuition and related expenses for any taxable year only to the extent such expenses are in connection with enrollment at an institution of higher edu- cation during the taxable year. ‘‘(B) CERTAIN PREPAYMENTS ALLOWED.—Subparagraph (A) shall not apply to qualified tuition and related expenses paid during a taxable year if such expenses are in connec- tion with an academic term beginning during such taxable year or during the first 3 months of the next taxable year. VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00035 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 32 ‘‘(4) NO DEDUCTION FOR MARRIED INDIVIDUALS FILING SEPA- RATE RETURNS.—If the taxpayer is a married individual (within the meaning of section 7703), this section shall apply only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year. ‘‘(5) NONRESIDENT ALIENS.—If the taxpayer is a nonresident alien individual for any portion of the taxable year, this section shall apply only if such individual is treated as a resident alien of the United States for purposes of this chapter by reason of an election under subsection (g) or (h) of section 6013. ‘‘(6) REGULATIONS.—The Secretary may prescribe such reg- ulations as may be necessary or appropriate to carry out this section, including regulations requiring recordkeeping and in- formation reporting. ‘‘(e) TERMINATION.—This section shall not apply to taxable years beginning after December 31, 2005.’’. (b) DEDUCTION ALLOWED IN COMPUTING ADJUSTED GROSS IN- COME.—Section 62(a) is amended by inserting after paragraph (17) the following: ‘‘(18) HIGHER EDUCATION EXPENSES.—The deduction al- lowed by section 222.’’. (c) CONFORMING AMENDMENTS.— (1) Sections 86(b)(2), 135(c)(4), 137(b)(3), and 219(g)(3) are each amended by inserting ‘‘222,’’ after ‘‘221,’’. (2) Section 221(b)(2)(C) is amended by inserting ‘‘222,’’ be- fore ‘‘911’’. (3) Section 469(i)(3)(F) is amended by striking ‘‘and 221’’ and inserting ‘‘, 221, and 222’’. (4) The table of sections for part VII of subchapter B of chapter 1 is amended by striking the item relating to section 222 and inserting the following: ‘‘Sec. 222. Qualified tuition and related expenses. ‘‘Sec. 223. Cross reference.’’. (d) EFFECTIVE DATE.—The amendments made by this section shall apply to payments made in taxable years beginning after De- cember 31, 2001. TITLE V—ESTATE, GIFT, AND GENERATION-SKIPPING TRANSFER TAX PROVISIONS Subtitle A—Repeal of Estate and Generation-Skipping Transfer Taxes SEC. 501. REPEAL OF ESTATE AND GENERATION-SKIPPING TRANSFER TAXES. (a) ESTATE TAX REPEAL.—Subchapter C of chapter 11 of sub- title B (relating to miscellaneous) is amended by adding at the end the following new section: ‘‘SEC. 2210. TERMINATION. ‘‘(a) IN GENERAL.—Except as provided in subsection (b), this chapter shall not apply to the estates of decedents dying after De- cember 31, 2009. ‘‘(b) CERTAIN DISTRIBUTIONS FROM QUALIFIED DOMESTIC TRUSTS.—In applying section 2056A with respect to the surviving spouse of a decedent dying before January 1, 2010— VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00036 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 33 ‘‘(1) section 2056A(b)(1)(A) shall not apply to distributions made after December 31, 2020, and ‘‘(2) section 2056A(b)(1)(B) shall not apply after December 31, 2009.’’. (b) GENERATION-SKIPPING TRANSFER TAX REPEAL.—Subchapter G of chapter 13 of subtitle B (relating to administration) is amend- ed by adding at the end the following new section: ‘‘SEC. 2664. TERMINATION. ‘‘This chapter shall not apply to generation-skipping transfers after December 31, 2009.’’. (c) CONFORMING AMENDMENTS.— (1) The table of sections for subchapter C of chapter 11 is amended by adding at the end the following new item: ‘‘Sec. 2210. Termination.’’. (2) The table of sections for subchapter G of chapter 13 is amended by adding at the end the following new item: ‘‘Sec. 2664. Termination.’’. (d) EFFECTIVE DATE.—The amendments made by this section shall apply to the estates of decedents dying, and generation-skip- ping transfers, after December 31, 2009. Subtitle B—Reductions of Estate and Gift Tax Rates SEC. 511. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT TAX RATES. (a) MAXIMUM RATE OF TAX REDUCED TO 50 PERCENT.—The table contained in section 2001(c)(1) is amended by striking the two highest brackets and inserting the following: ‘‘Over $2,500,000 ................................... $1,025,800, plus 50% of the excess over $2,500,000.’’. (b) REPEAL OF PHASEOUT OF GRADUATED RATES.—Subsection (c) of section 2001 is amended by striking paragraph (2). (c) ADDITIONAL REDUCTIONS OF MAXIMUM RATE OF TAX.—Sub- section (c) of section 2001, as amended by subsection (b), is amended by adding at the end the following new paragraph: ‘‘(2) PHASEDOWN OF MAXIMUM RATE OF TAX.— ‘‘(A) IN GENERAL.—In the case of estates of decedents dying, and gifts made, in calendar years after 2002 and be- fore 2010, the tentative tax under this subsection shall be determined by using a table prescribed by the Secretary (in lieu of using the table contained in paragraph (1)) which is the same as such table; except that— ‘‘(i) the maximum rate of tax for any calendar year shall be determined in the table under subparagraph (B), and ‘‘(ii) the brackets and the amounts setting forth the tax shall be adjusted to the extent necessary to reflect the adjustments under subparagraph (A). ‘‘(B) MAXIMUM RATE.— ‘‘In calendar year: The maximum rate is: 2003 .......................................................................................... 49 percent 2004 .......................................................................................... 48 percent 2005 .......................................................................................... 47 percent 2006 .......................................................................................... 46 percent 2007, 2008, and 2009 .............................................................. 45 percent.’’. VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00037 Fmt 6659 Sfmt 6613 E:\PICKUP\HR084.107 txed01 PsN: txed01 34 (d) MAXIMUM GIFT TAX RATE REDUCED TO MAXIMUM INDI- VIDUAL RATE AFTER 2009.—Subsection (a) of section 2502 (relating to rate of tax) is amended to read as follows: ‘‘(a) COMPUTATION OF TAX.— ‘‘(1) IN GENERAL.—The tax imposed by section 2501 for each calendar year shall be an amount equal to the excess of— ‘‘(A) a tentative tax, computed under paragraph (2), on the aggregate sum of the taxable gifts for such calendar year and for each of the preceding calendar periods, over ‘‘(B) a tentative tax, computed under paragraph (2), on the aggregate sum of the taxable gifts for each of the pre- ceding calendar periods. ‘‘(2) RATE SCHEDULE.— ‘‘If the amount with respect to which the tentative tax to be computed is: The tentative tax is: Not over $10,000 ................................... 18% of such amount. Over $10,000 but not over $20,000 ...... $1,800, plus 20% of the excess over $10,000. Over $20,000 but not over $40,000 ...... $3,800, plus 22% of the excess over $20,000. Over $40,000 but not over $60,000 ...... $8,200, plus 24% of the excess over $40,000. Over $60,000 but not over $80,000 ...... $13,000, plus 26% of the excess over $60,000. Over $80,000 but not over $100,000 .... $18,200, plus 28% of the excess over $80,000. Over $100,000 but not over $150,000 .. $23,800, plus 30% of the excess over $100,000. Over $150,000 but not over $250,000 .. $38,800, plus 32% of the excess over $150,000. Over $250,000 but not over $500,000 .. $70,800, plus 34% of the excess over $250,000. Over $500,000 ....................................... $155,800, plus 35% of the excess over $500,000.’’. (e) TREATMENT OF CERTAIN TRANSFERS IN TRUST.—Section 2511 (relating to transfers in general) is amended by adding at the end the following new subsection: ‘‘(c) TREATMENT OF CERTAIN TRANSFERS IN TRUST.—Notwith- standing any other provision of this section and except as provided in regulations, a transfer in trust shall be treated as a taxable gift under section 2503, unless the trust is treated as wholly owned by the donor or the donor’s spouse under subpart E of part I of sub- chapter J of chapter 1.’’. (f) EFFECTIVE DATES.— (1) SUBSECTIONS (a) AND (b).—The amendments made by subsections (a) and (b) shall apply to estates of decedents dying, and gifts made, after December 31, 2001. (2) SUBSECTION (c).—The amendment made by subsection (c) shall apply to estates of decedents dying, and gifts made, after December 31, 2002. (3) SUBSECTIONS (d) AND (e).—The amendments made by subsections (d) and (e) shall apply to gifts made after December 31, 2009. VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00038 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 35 Subtitle C—Increase in Exemption Amounts SEC. 521. INCREASE IN EXEMPTION EQUIVALENT OF UNIFIED CREDIT, LIFETIME GIFTS EXEMPTION, AND GST EXEMPTION AMOUNTS. (a) IN GENERAL.—Subsection (c) of section 2010 (relating to ap- plicable credit amount) is amended by striking the table and insert- ing the following new table: ‘‘In the case of estates of decedents dying during: The applicable exclusion amount is: 2002 and 2003 .................................................................. $1,000,000 2004 and 2005 .................................................................. $1,500,000 2006, 2007, and 2008 ....................................................... $2,000,000 2009 ................................................................................... $3,500,000.’’. (b) LIFETIME GIFT EXEMPTION INCREASED TO $1,000,000.— (1) FOR PERIODS BEFORE ESTATE TAX REPEAL.—Paragraph (1) of section 2505(a) (relating to unified credit against gift tax) is amended by inserting ‘‘(determined as if the applicable exclu- sion amount were $1,000,000)’’ after ‘‘calendar year’’. (2) FOR PERIODS AFTER ESTATE TAX REPEAL.—Paragraph (1) of section 2505(a) (relating to unified credit against gift tax), as amended by paragraph (1), is amended to read as follows: ‘‘(1) the amount of the tentative tax which would be deter- mined under the rate schedule set forth in section 2502(a)(2) if the amount with respect to which such tentative tax is to be computed were $1,000,000, reduced by’’. (c) GST EXEMPTION.— (1) IN GENERAL.—Subsection (a) of 2631 (relating to GST exemption) is amended by striking ‘‘of $1,000,000’’ and insert- ing ‘‘amount’’. (2) EXEMPTION AMOUNT.—Subsection (c) of section 2631 is amended to read as follows: ‘‘(c) GST EXEMPTION AMOUNT.—For purposes of subsection (a), the GST exemption amount for any calendar year shall be equal to the applicable exclusion amount under section 2010(c) for such cal- endar year.’’. (d) REPEAL OF SPECIAL BENEFIT FOR FAMILY-OWNED BUSINESS INTERESTS.—Section 2057 (relating to family-owned business inter- ests) is amended by adding at the end the following new subsection: ‘‘(j) TERMINATION.—This section shall not apply to the estates of decedents dying after December 31, 2003.’’. (e) EFFECTIVE DATES.— (1) IN GENERAL.—Except as provided in paragraphs (2) and (3), the amendments made by this section shall apply to estates of decedents dying, and gifts made, after December 31, 2001. (2) SUBSECTION (b)(2).—The amendments made by sub- section (b)(2) shall apply to gifts made after December 31, 2009. (3) SUBSECTIONS (c) AND (d).—The amendments made by subsections (c) and (d) shall apply to estates of decedents dying, and generation-skipping transfers, after December 31, 2003. Subtitle D—Credit for State Death Taxes SEC. 531. REDUCTION OF CREDIT FOR STATE DEATH TAXES. (a) IN GENERAL.—Section 2011(b) (relating to amount of credit) is amended— VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00039 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01 36 (1) by striking ‘‘CREDIT.—The credit allowed’’ and inserting ‘‘CREDIT.— ‘‘(1) IN GENERAL.—Except as provided in paragraph (2), the credit allowed’’, (2) by striking ‘‘For purposes’’ and inserting the following: ‘‘(3) ADJUSTED TAXABLE ESTATE.—For purposes’’, and (3) by inserting after paragraph (1) the following new para- graph: ‘‘(2) REDUCTION OF MAXIMUM CREDIT.— ‘‘(A) IN GENERAL.—In the case of estates of decedents dying after December 31, 2001, the credit allowed by this section shall not exceed the applicable percentage of the credit otherwise determined under paragraph (1). ‘‘(B) APPLICABLE PERCENTAGE.— ‘‘In the case of estates of decedents dying during: The applicable percentage is: 2002 ................................................................................... 75 percent 2003 ................................................................................... 50 percent 2004 ................................................................................... 25 percent.’’. (b) EFFECTIVE DATE.—The amendments made by this sub- section shall apply to estates of decedents dying after December 31, 2001. SEC. 532. CREDIT FOR STATE DEATH TAXES REPLACED WITH DEDUC- TION FOR SUCH TAXES. (a) REPEAL OF CREDIT.—Section 2011 (relating to credit for State death taxes) is amended by adding at the end the following new subsection: ‘‘(g) TERMINATION.—This section shall not apply to the estates of decedents dying after December 31, 2004.’’. (b) DEDUCTION FOR STATE DEATH TAXES.—Part IV of sub- chapter A of chapter 11 is amended by adding at the end the fol- lowing new section: ‘‘SEC. 2058. STATE DEATH TAXES. ‘‘(a) ALLOWANCE OF DEDUCTION.—For purposes of the tax im- posed by section 2001, the value of the taxable estate shall be deter- mined by deducting from the value of the gross estate the amount of any estate, inheritance, legacy, or succession taxes actually paid to any State or the District of Columbia, in respect of any property included in the gross estate (not including any such taxes paid with respect to the estate of a person other than the decedent). ‘‘(b) PERIOD OF LIMITATIONS.—The deduction allowed by this section shall include only such taxes as were actually paid and de- duction therefor claimed before the later of— ‘‘(1) 4 years after the filing of the return required by section 6018, or ‘‘(2) if— ‘‘(A) a petition for redetermination of a deficiency has been filed with the Tax Court within the time prescribed in section 6213(a), the expiration of 60 days after the decision of the Tax Court becomes final, ‘‘(B) an extension of time has been granted under sec- tion 6161 or 6166 for payment of the tax shown on the re- turn, or of a deficiency, the date of the expiration of the pe- riod of the extension, or VerDate 11-MAY-2000 09:18 Jun 04, 2001 Jkt 010199 PO 00000 Frm 00040 Fmt 6659 Sfmt 6603 E:\PICKUP\HR084.107 txed01 PsN: txed01