HR 3286 RS
Received; read twice and referred to the Committee on Finance
Ordered, if and when reported by the Committee on Finance the bill then be referred to the Committee on Indian Affairs for the purpose of considering title 3, for a period of 10 days of session, to report or be discharged
Reported by Mr. ROTH, with amendments; referred to the Committee on Indian Affairs pursuant to the order of May 23, 1996
Subtitle A--Exclusion for Energy Conservation Subsidies Limited to Subsidies With Respect to Dwelling Units [<-Struck out] Sec. 401. Exclusion for energy conservation subsidies limited to subsidies with respect to dwelling units. [<-Struck out] Subtitle B--Foreign Trust Tax Compliance [<-Struck out] Sec. 411. Improved information reporting on foreign trusts. [<-Struck out] Sec. 412. Comparable penalties for failure to file return relating to transfers to foreign entities. [<-Struck out] Sec. 413. Modifications of rules relating to foreign trusts having one or more United States beneficiaries. [<-Struck out] Sec. 414. Foreign persons not to be treated as owners under grantor trust rules. [<-Struck out] Sec. 415. Information reporting regarding foreign gifts. [<-Struck out] Sec. 416. Modification of rules relating to foreign trusts which are not grantor trusts. [<-Struck out] Sec. 417. Residence of trusts, etc. [<-Struck out] TITLE I--CREDIT FOR ADOPTION EXPENSES [<-Struck out] SEC. 101. CREDIT FOR ADOPTION EXPENSES. [<-Struck out] (a) IN GENERAL- Subpart A of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1986 (relating to nonrefundable personal credits) is amended by inserting after section 22 the following new section: [<-Struck out] `SEC. 23. ADOPTION EXPENSES. [<-Struck out] `(a) ALLOWANCE OF CREDIT- In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter for the taxable year the amount of the qualified adoption expenses paid or incurred by the taxpayer during such taxable year. [<-Struck out] `(b) LIMITATIONS- [<-Struck out] `(1) DOLLAR LIMITATION- The aggregate amount of qualified adoption expenses which may be taken into account under subsection (a) for all taxable years with respect to the adoption of a child by the taxpayer shall not exceed $5,000. [<-Struck out] `(2) INCOME LIMITATION- The amount allowable as a credit under subsection (a) for any taxable year shall be reduced (but not below zero) by an amount which bears the same ratio to the amount so allowable (determined without regard to this paragraph but with regard to paragraph (1)) as-- [<-Struck out] `(A) the amount (if any) by which the taxpayer's adjusted gross income (determined without regard to sections 911, 931, and 933) exceeds $75,000, bears to [<-Struck out] `(B) $40,000. [<-Struck out] `(3) DENIAL OF DOUBLE BENEFIT- [<-Struck out] `(A) IN GENERAL- No credit shall be allowed under subsection (a) for any expense for which a deduction or credit is allowable under any other provision of this chapter. [<-Struck out] `(B) GRANTS- No credit shall be allowed under subsection (a) for any expense to the extent that funds for such expense are received under any Federal, State, or local program. The preceding sentence shall not apply to expenses for the adoption of a child with special needs. [<-Struck out] `(C) REIMBURSEMENT- No credit shall be allowed under subsection (a) for any expense to the extent that such expense is reimbursed and the reimbursement is excluded from gross income under section 137. [<-Struck out] `(c) CARRYFORWARDS OF UNUSED CREDIT- If the credit allowable under subsection (a) for any taxable year exceeds the limitation imposed by section 26(a) for such taxable year reduced by the sum of the credits allowable under this subpart (other than this section), such excess shall be carried to the succeeding taxable year and added to the credit allowable under subsection (a) for such taxable year. No credit may be carried forward under this subsection to any taxable year following the fifth taxable year after the taxable year in which the credit arose. For purposes of the preceding sentence, credits shall be treated as used on a first-in first-out basis. [<-Struck out] `(d) DEFINITIONS- For purposes of this section-- [<-Struck out] `(1) QUALIFIED ADOPTION EXPENSES- The term `qualified adoption expenses' means reasonable and necessary adoption fees, court costs, attorney fees, and other expenses-- [<-Struck out] `(A) which are directly related to, and the principal purpose of which is for, the legal adoption of an eligible child by the taxpayer, and [<-Struck out] `(B) which are not incurred in violation of State or Federal law or in carrying out any surrogate parenting arrangement. [<-Struck out] `(2) EXPENSES FOR ADOPTION OF SPOUSE'S CHILD NOT ELIGIBLE- The term `qualified adoption expenses' shall not include any expenses in connection with the adoption by an individual of a child who is the child of such individual's spouse. [<-Struck out] `(3) ELIGIBLE CHILD- The term `eligible child' means any individual-- [<-Struck out] `(A) who has not attained age 18 as of the time of the adoption, or [<-Struck out] `(B) who is physically or mentally incapable of caring for himself. [<-Struck out] `(4) CHILD WITH SPECIAL NEEDS- The term `child with special needs' means any child if-- [<-Struck out] `(A) a State has determined that the child cannot or should not be returned to the home of his parents, and [<-Struck out] `(B) such State has determined that there exists with respect to the child a specific factor or condition (such as his ethnic background, age, or membership in a minority or sibling group, or the presence of factors such as medical conditions or physical, mental, or emotional handicaps) because of which it is reasonable to conclude that such child cannot be placed with adoptive parents without providing adoption assistance. [<-Struck out] `(e) SPECIAL RULES FOR FOREIGN ADOPTIONS- In the case of a foreign adoption-- [<-Struck out] `(1) subsection (a) shall not apply to any qualified adoption expense with respect to such adoption unless such adoption becomes final, and [<-Struck out] `(2) any such expense which is paid or incurred before the taxable year in which such adoption becomes final shall be taken into account under this section as if such expense were paid or incurred during such year. [<-Struck out] `(f) MARRIED COUPLES MUST FILE JOINT RETURNS- Rules similar to the rules of paragraphs (2), (3), and (4) of section 21(e) shall apply for purposes of this section. [<-Struck out] `(g) BASIS ADJUSTMENTS- For purposes of this subtitle, if a credit is allowed under this section for any expenditure with respect to any property, the increase in the basis of such property which would (but for this subsection) result from such expenditure shall be reduced by the amount of the credit so allowed. [<-Struck out] `(h) REGULATIONS- The Secretary shall prescribe such regulations as may be appropriate to carry out this section and section 137, including regulations which treat unmarried individuals who pay or incur qualified adoption expenses with respect to the same child as 1 taxpayer for purposes of applying the dollar limitation in subsection (b)(1) of this section and in section 137(b)(1).'. [<-Struck out] (b) EXCLUSION OF AMOUNTS RECEIVED UNDER EMPLOYER'S ADOPTION ASSISTANCE PROGRAMS- Part III of subchapter B of chapter 1 of such Code (relating to items specifically excluded from gross income) is amended by redesignating section 137 as section 138 and by inserting after section 136 the following new section: [<-Struck out] `SEC. 137. ADOPTION ASSISTANCE PROGRAMS. [<-Struck out] `(a) IN GENERAL- Gross income of an employee does not include amounts paid or expenses incurred by the employer for qualified adoption expenses in connection with the adoption of a child by an employee if such amounts are furnished pursuant to an adoption assistance program. [<-Struck out] `(b) LIMITATIONS- [<-Struck out] `(1) DOLLAR LIMITATION- The aggregate amount excludable from gross income under subsection (a) for all taxable years with respect to the adoption of a child by the taxpayer shall not exceed $5,000. [<-Struck out] `(2) INCOME LIMITATION- The amount excludable from gross income under subsection (a) for [<-Struck out] [Struck out->] any taxable year shall be reduced (but not below zero) by an amount which bears the same ratio to the amount so excludable (determined without regard to this paragraph but with regard to paragraph (1)) as-- [<-Struck out]
`(A) the amount (if any) by which the taxpayer's adjusted gross income exceeds $75,000, bears to [<-Struck out] `(B) $40,000. [<-Struck out] `(3) DETERMINATION OF ADJUSTED GROSS INCOME- For purposes of paragraph (2), adjusted gross income shall be determined-- [<-Struck out] `(A) without regard to this section and sections 911, 931, and 933, and [<-Struck out] `(B) after the application of sections 86, 135, 219, and 469. [<-Struck out] `(c) ADOPTION ASSISTANCE PROGRAM- For purposes of this section, an adoption assistance program is a plan of an employer-- [<-Struck out] `(1) under which the employer provides employees with adoption assistance, and [<-Struck out] `(2) which meets requirements similar to the requirements of paragraphs (2), (3), and (5) of section 127(b). [<-Struck out] An adoption reimbursement program operated under section 1052 of title 10, United States Code (relating to armed forces) or section 514 of title 14, United States Code (relating to members of the Coast Guard) shall be treated as an adoption assistance program for purposes of this section. [<-Struck out] `(d) QUALIFIED ADOPTION EXPENSES- For purposes of this section, the term `qualified adoption expenses' has the meaning given such term by section 23(d). [<-Struck out] `(e) CERTAIN RULES TO APPLY- Rules similar to the rules of subsections (e) and (g) of section 23 shall apply for purposes of this section.'. [<-Struck out] (c) Conforming Amendments- [<-Struck out] (1) Sections 86(b)(2)(A) and 135(c)(4)(A) of such Code are each amended by inserting `137,' before `911'. [<-Struck out] (2) Clause (i) of section 219(g)(3)(A) of such Code is amended by inserting `, 137,' before `and 911'. [<-Struck out] (3) Clause (ii) of section 469(i)(3)(E) of such Code is amended to read as follows: [<-Struck out] `(ii) the amounts excludable from gross income under sections 135 and 137,'. [<-Struck out] (4) Subsection (a) of section 1016 of such Code is amended by striking `and' at the end of paragraph (24), by striking the period at the end of paragraph (25) and inserting `, and', and by adding at the end the following new paragraph: [<-Struck out] `(26) to the extent provided in sections 23(g) and 137(e).' [<-Struck out] (5) The table of sections for subpart A of part IV of subchapter A of chapter 1 of such Code is amended by inserting after the item relating to section 22 the following new item: [<-Struck out] `Sec. 23. Adoption expenses.'. [<-Struck out] (6) The table of sections for part III of subchapter B of chapter 1 of such Code is amended by striking the item relating to section 137 and inserting the following: [<-Struck out] `Sec. 137. Adoption assistance programs. [<-Struck out] `Sec. 138. Cross reference to other Acts.'. [<-Struck out] (d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years beginning after December 31, 1996. [<-Struck out]purposes of applying the dollar limitation in subsection (b)(1) of this section and in section 137(b)(1).'
TITLE II--INTERETHNIC ADOPTION [<-Struck out] SEC. 201. REMOVAL OF BARRIERS TO INTERETHNIC ADOPTION. [<-Struck out] (a) STATE PLAN REQUIREMENTS- Section 471(a) of the Social Security Act (42 U.S.C 671(a)) is amended-- [<-Struck out] (1) by striking `and' at the end of paragraph (16); [<-Struck out] (2) by striking the period at the end of paragraph (17) and inserting `; and'; and [<-Struck out] (3) by adding at the end the following: [<-Struck out] `(18) not later than January 1, 1997, provides that neither the State nor any other entity in the State that receives funds from the Federal Government and is involved in adoption or foster care placements may-- [<-Struck out] `(A) deny to any person the opportunity to become an adoptive or a foster parent, on the basis of the race, color, or national origin of the person, or of the child, involved; or [<-Struck out] `(B) delay or deny the placement of a child for adoption or into foster care, on the basis of the race, color, or national origin of the adoptive or foster parent, or the child, involved.'. [<-Struck out] (b) ENFORCEMENT- Section 474 of such Act (42 U.S.C. 674) is amended by adding at the end the following: [<-Struck out] `(d)(1) If a State's program operated under this part is found, as a result of a review conducted under section 1123, to have violated section 471(a)(18) during a quarter with respect to any person, then, notwithstanding subsection (a) of this section and any regulations promulgated under section 1123(b)(3), the Secretary shall reduce the amount otherwise payable to the State under this part, for the quarter and for each subsequent quarter before the 1st quarter for which the State program is found, as a result of such a review, not to have violated section 471(a)(18) with respect to any person, by-- [<-Struck out] `(A) 2 percent of such otherwise payable amount, in the case of the 1st such finding with respect to the State; [<-Struck out] `(B) 5 percent of such otherwise payable amount, in the case of the 2nd such finding with respect to the State; or [<-Struck out] `(C) 10 percent of such otherwise payable amount, in the case of the 3rd or subsequent such finding with respect to the State. [<-Struck out] `(2) Any other entity which is in a State that receives funds under this part and which violates section 471(a)(18) during a quarter with respect to any person shall remit to the Secretary all funds that were paid by the State to the entity during the quarter from such funds. [<-Struck out] `(3)(A) Any individual who is aggrieved by a violation of section 471(a)(18) by a State or other entity may bring an action seeking relief from the State or other entity in any United States district court. [<-Struck out] `(B) An action under this paragraph may not be brought more than 2 years after the date the alleged violation occurred. [<-Struck out] `(4) This subsection shall not be construed to affect the application of the Indian Child Welfare Act of 1978.'. [<-Struck out] (c) CIVIL RIGHTS- [<-Struck out] (1) PROHIBITED CONDUCT- A person or government that is involved in adoption or foster care placements may not-- [<-Struck out] (A) deny to any individual the opportunity to become an adoptive or a foster parent, on the basis of the race, color, or national origin of the individual, or of the child, involved; or [<-Struck out] (B) delay or deny the placement of a child for adoption or into foster care, on the basis of the race, color, or national origin of the adoptive or foster parent, or the child, involved. [<-Struck out] (2) ENFORCEMENT- Noncompliance with paragraph (1) is deemed a violation of title VI of the Civil Rights Act of 1964. [<-Struck out] (3) NO EFFECT ON THE INDIAN CHILD WELFARE ACT OF 1978- This subsection shall not be construed to affect the application of the Indian Child Welfare Act of 1978. [<-Struck out] (d) CONFORMING REPEAL- Section 553 of the Howard M. Metzenbaum Multiethnic Placement Act of 1994 (42 U.S.C. 5115a) is repealed. [<-Struck out] Subtitle A--Exclusion for Energy Conservation Subsidies Limited to Subsidies With Respect to Dwelling Units [<-Struck out] SEC. 401. EXCLUSION FOR ENERGY CONSERVATION SUBSIDIES LIMITED TO SUBSIDIES WITH RESPECT TO DWELLING UNITS. [<-Struck out] (a) IN GENERAL- Paragraph (1) of section 136(c) (defining energy conservation measure) is amended by striking `energy demand--' and all that follows and inserting `energy demand with respect to a dwelling unit.' [<-Struck out] (b) CONFORMING AMENDMENTS- [<-Struck out] (1) Subsection (a) of section 136 is amended to read as follows: [<-Struck out] `(a) EXCLUSION- Gross income shall not include the value of any subsidy provided (directly or indirectly) by a public utility to a customer for the purchase or installation of any energy conservation measure.' [<-Struck out] (2) Paragraph (2) of section 136(c) is amended-- [<-Struck out] (A) by striking subparagraph (A) and by redesignating subparagraphs (B) and (C) as subparagraphs (A) and (B), respectively, and [<-Struck out] (B) by striking `AND SPECIAL RULES' in the paragraph heading. [<-Struck out] (c) EFFECTIVE DATE- The amendments made by this section shall apply to amounts received after December 31, 1996, unless received pursuant to a written binding contract in effect on September 13, 1995, and at all times thereafter. [<-Struck out] Subtitle B--Foreign Trust Tax Compliance [<-Struck out] SEC. 411. IMPROVED INFORMATION REPORTING ON FOREIGN TRUSTS. [<-Struck out] (a) IN GENERAL- Section 6048 (relating to returns as to certain foreign trusts) is amended to read as follows: [<-Struck out] `SEC. 6048. INFORMATION WITH RESPECT TO CERTAIN FOREIGN TRUSTS. [<-Struck out] `(a) NOTICE OF CERTAIN EVENTS- [<-Struck out] `(1) GENERAL RULE- On or before the 90th day (or such later day as the Secretary may prescribe) after any reportable event, the responsible party shall provide written notice of such event to the Secretary in accordance with paragraph (2). [<-Struck out] `(2) CONTENTS OF NOTICE- The notice required by paragraph (1) shall contain such information as the Secretary may prescribe, including-- [<-Struck out] `(A) the amount of money or other property (if any) transferred to the trust in connection with the reportable event, and [<-Struck out] `(B) the identity of the trust and of each trustee and beneficiary (or class of beneficiaries) of the trust. [<-Struck out] `(3) REPORTABLE EVENT- For purposes of this subsection-- [<-Struck out] `(A) IN GENERAL- The term `reportable event' means-- [<-Struck out] `(i) the creation of any foreign trust by a United States person, [<-Struck out] `(ii) the transfer of any money or property (directly or indirectly) to a foreign trust by a United States person, including a transfer by reason of death, and [<-Struck out] `(iii) the death of a citizen or resident of the United States if-- [<-Struck out] `(I) the decedent was treated as the owner of any portion of a foreign trust under the rules of subpart E of part I of subchapter J of chapter 1, or [<-Struck out] `(II) any portion of a foreign trust was included in the gross estate of the decedent. [<-Struck out] `(B) EXCEPTIONS- [<-Struck out] `(i) FAIR MARKET VALUE SALES- Subparagraph (A)(ii) shall not apply to any transfer of property to a trust in exchange for consideration of at least the fair market value of the transferred property. For purposes of the preceding sentence, consideration other than cash shall be taken into account at its fair market value and the rules of section 679(a)(3) shall apply. [<-Struck out] `(ii) DEFERRED COMPENSATION AND CHARITABLE TRUSTS- Subparagraph (A) shall not apply with respect to a trust which is-- [<-Struck out] `(I) described in section 402(b), 404(a)(4), or 404A, or [<-Struck out] `(II) determined by the Secretary to be described in section 501(c)(3). [<-Struck out] `(4) RESPONSIBLE PARTY- For purposes of this subsection, the term `responsible party' means-- [<-Struck out] `(A) the grantor in the case of the creation of an inter vivos trust, [<-Struck out] `(B) the transferor in the case of a reportable event described in paragraph (3)(A)(ii) other than a transfer by reason of death, and [<-Struck out] `(C) the executor of the decedent's estate in any other case. [<-Struck out] `(b) UNITED STATES GRANTOR OF FOREIGN TRUST- [<-Struck out] `(1) IN GENERAL- If, at any time during any taxable year of a United States person, such person is treated as the owner of any portion of a foreign trust under the rules of subpart E of part I of subchapter J of chapter 1, such person shall be responsible to ensure that-- [<-Struck out] `(A) such trust makes a return for such year which sets forth a full and complete accounting of all trust activities and operations for the year, the name of the United States agent for such trust, and such other information as the Secretary may prescribe, and [<-Struck out] `(B) such trust furnishes such information as the Secretary may prescribe to each United States person (i) who is treated as the owner of any portion of such trust or (ii) who receives (directly or indirectly) any distribution from the trust. [<-Struck out] `(2) TRUSTS NOT HAVING UNITED STATES AGENT- [<-Struck out] `(A) IN GENERAL- If the rules of this paragraph apply to any foreign trust, the determination of amounts required to be taken into account with respect to such trust by a United States person under the rules of subpart E of part I of subchapter J of chapter 1 shall be determined by the Secretary. [<-Struck out] `(B) UNITED STATES AGENT REQUIRED- The rules of this paragraph shall apply to any foreign trust to which paragraph (1) applies unless such trust agrees (in such manner, subject to such conditions, and at such time as the Secretary shall prescribe) to authorize a United States person to act as such trust's limited agent solely for purposes of applying sections 7602, 7603, and 7604 with respect to-- [<-Struck out] `(i) any request by the Secretary to examine records or produce testimony related to the proper treatment of amounts required to be taken into account under the rules referred to in subparagraph (A), or [<-Struck out] `(ii) any summons by the Secretary for such records or testimony. [<-Struck out] The appearance of persons or production of records by reason of a United States person being such an agent shall not subject such persons or records to legal process for any purpose other than determining the correct treatment under this title of the amounts required to be taken into account under the rules referred to in subparagraph (A). A foreign trust which appoints an described in this subparagraph shall not be considered to have an office or a permanent establishment in the United States, or to be engaged in a trade or business in the United States, solely because of the activities of such agent pursuant to this subsection. [<-Struck out] `(C) OTHER RULES TO APPLY- Rules similar to the rules of paragraphs (2) and (4) of section 6038A(e) shall apply for purposes of this paragraph. [<-Struck out] `(c) REPORTING BY UNITED STATES BENEFICIARIES OF FOREIGN TRUSTS- [<-Struck out] `(1) IN GENERAL- If any United States person receives (directly or indirectly) during any taxable year of such person any distribution from a foreign [<-Struck out] [Struck out->] trust, such person shall make a return with respect to such trust for such year which includes-- [<-Struck out]
`(A) the name of such trust, [<-Struck out] `(B) the aggregate amount of the distributions so received from such trust during such taxable year, and [<-Struck out] `(C) such other information as the Secretary may prescribe. [<-Struck out] `(2) INCLUSION IN INCOME IF RECORDS NOT PROVIDED- [<-Struck out] `(A) IN GENERAL- If adequate records are not provided to the Secretary to determine the proper treatment of any distribution from a foreign trust, such distribution shall be treated as an accumulation distribution includible in the gross income of the distributee under chapter 1. To the extent provided in regulations, the preceding sentence shall not apply if the foreign trust elects to be subject to rules similar to the rules of subsection (b)(2)(B). [<-Struck out] `(B) APPLICATION OF ACCUMULATION DISTRIBUTION RULES- For purposes of applying section 668 in a case to which subparagraph (A) applies, the applicable number of years for purposes of section 668(a) shall be 1/2 of the number of years the trust has been in existence. [<-Struck out] `(d) SPECIAL RULES- [<-Struck out] `(1) DETERMINATION OF WHETHER UNITED STATES PERSON MAKES TRANSFER OR RECEIVES DISTRIBUTION- For purposes of this section, in determining whether a United States person makes a transfer to, or receives a distribution from, a foreign trust, the fact that a portion of such trust is treated as owned by another person under the rules of subpart E of part I of subchapter J of chapter 1 shall be disregarded. [<-Struck out] `(2) DOMESTIC TRUSTS WITH FOREIGN ACTIVITIES- To the extent provided in regulations, a trust which is a United States person shall be treated as a foreign trust for purposes of this section and section 6677 if such trust has substantial activities, or holds substantial property, outside the United States. [<-Struck out] `(3) TIME AND MANNER OF FILING INFORMATION- Any notice or return required under this section shall be made at such time and in such manner as the Secretary shall prescribe. [<-Struck out] `(4) MODIFICATION OF RETURN REQUIREMENTS- The Secretary is authorized to suspend or modify any requirement of this section if the Secretary determines that the United States has no significant tax interest in obtaining the required information.'. [<-Struck out] (b) INCREASED PENALTIES- Section 6677 (relating to failure to file information returns with respect to certain foreign trusts) is amended to read as follows: [<-Struck out] `SEC. 6677. FAILURE TO FILE INFORMATION WITH RESPECT TO CERTAIN FOREIGN TRUSTS. [<-Struck out] `(a) CIVIL PENALTY- In addition to any criminal penalty provided by law, if any notice or return required to be filed by section 6048-- [<-Struck out] `(1) is not filed on or before the time provided in such section, or [<-Struck out] `(2) does not include all the information required pursuant to such section or includes incorrect information, [<-Struck out] the person required to file such notice or return shall pay a penalty equal to 35 percent of the gross reportable amount. If any failure described in the preceding sentence continues for more than 90 days after the day on which the Secretary mails notice of such failure to the person required to pay such penalty, such person shall pay a penalty (in addition to the amount determined under the preceding sentence) of $10,000 for each 30-day period (or fraction thereof) during which such failure continues after the expiration of such 90-day period. In no event shall the penalty under this subsection with respect to any failure exceed the gross reportable amount. [<-Struck out] `(b) SPECIAL RULES FOR RETURNS UNDER SECTION 6048(b)- In the case of a return required under section 6048(b)-- [<-Struck out] `(1) the United States person referred to in such section shall be liable for the penalty imposed by subsection (a), and [<-Struck out] `(2) subsection (a) shall be applied by substituting `5 percent' for `35 percent'. [<-Struck out] `(c) GROSS REPORTABLE AMOUNT- For purposes of subsection (a), the term `gross reportable amount' means-- [<-Struck out] `(1) the gross value of the property involved in the event (determined as of the date of the event) in the case of a failure relating to section 6048(a), [<-Struck out] `(2) the gross value of the portion of the trust's assets at the close of the year treated as owned by the United States person in the case of a failure relating to section 6048(b)(1), and [<-Struck out] `(3) the gross amount of the distributions in the case of a failure relating to section 6048(c). [<-Struck out] `(d) REASONABLE CAUSE EXCEPTION- No penalty shall be imposed by this section on any failure which is shown to be due to reasonable cause and not due to willful [<-Struck out] [Struck out->] neglect. The fact that a foreign jurisdiction would impose a civil or criminal penalty on the taxpayer (or any other person) for disclosing the required information is not reasonable cause. [<-Struck out]
`(e) DEFICIENCY PROCEDURES NOT TO APPLY- Subchapter B of chapter 63 (relating to deficiency procedures for income, estate, gift, and certain excise taxes) shall not apply in respect of the assessment or collection of any penalty imposed by subsection (a).'. [<-Struck out] (c) CONFORMING AMENDMENTS- [<-Struck out] (1) Paragraph (2) of section 6724(d) is amended by striking `or' at the end of subparagraph (S), by striking the period at the end of subparagraph (T) and inserting `, or', and by inserting after subparagraph (T) the following new subparagraph: [<-Struck out] `(U) section 6048(b)(1)(B) (relating to foreign trust reporting requirements).'. [<-Struck out] (2) The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by striking the item relating to section 6048 and inserting the following new item: [<-Struck out] `Sec. 6048. Information with respect to certain foreign trusts.'. [<-Struck out] (3) The table of sections for part I of subchapter B of chapter 68 is amended by striking the item relating to section 6677 and inserting the following new item: [<-Struck out] `Sec. 6677. Failure to file information with respect to certain foreign trusts.'. [<-Struck out] (d) EFFECTIVE DATES- [<-Struck out] (1) REPORTABLE EVENTS- To the extent related to subsection (a) of section 6048 of the Internal Revenue Code of 1986, as amended by this section, the amendments made by this section shall apply to reportable events (as defined in such section 6048) occurring after the date of the enactment of this Act. [<-Struck out] (2) GRANTOR TRUST REPORTING- To the extent related to subsection (b) of such section 6048, the amendments made by this section shall apply to taxable years of United States persons beginning after December 31, 1995. [<-Struck out] (3) REPORTING BY UNITED STATES BENEFICIARIES- To the extent related to subsection (c) of such section 6048, the amendments made by this section shall apply to distributions received after the date of the enactment of this Act. [<-Struck out] SEC. 412. COMPARABLE PENALTIES FOR FAILURE TO FILE RETURN RELATING TO TRANSFERS TO FOREIGN ENTITIES. [<-Struck out] (a) IN GENERAL- Section 1494 is amended by adding at the end the following new subsection: [<-Struck out] `(c) PENALTY- In the case of any failure to file a return required by the Secretary with respect to any transfer described in section 1491, the person required to file such return shall be liable for the penalties provided in section 6677 in the same manner as if such failure were a failure to file a notice under section 6048(a).'. [<-Struck out] (b) EFFECTIVE DATE- The amendment made by subsection (a) shall apply to transfers after the date of the enactment of this Act. [<-Struck out] SEC. 413. MODIFICATIONS OF RULES RELATING TO FOREIGN TRUSTS HAVING ONE OR MORE UNITED STATES BENEFICIARIES. [<-Struck out] (a) TREATMENT OF TRUST OBLIGATIONS, ETC- [<-Struck out] (1) Paragraph (2) of section 679(a) is amended by striking subparagraph (B) and inserting the following: [<-Struck out] `(B) TRANSFERS AT FAIR MARKET VALUE- To any transfer of property to a trust in exchange for consideration of at least the fair market value of the transferred property. For purposes of the preceding sentence, consideration other than cash shall be taken into account at its fair market value.'. [<-Struck out] (2) Subsection (a) of section 679 (relating to foreign trusts having one or more United States beneficiaries) is amended by adding at the end the following new paragraph: [<-Struck out] `(3) CERTAIN OBLIGATIONS NOT TAKEN INTO ACCOUNT UNDER FAIR MARKET VALUE EXCEPTION- [<-Struck out] `(A) IN GENERAL- In determining whether paragraph (2)(B) applies to any transfer by a person described in clause (ii) or (iii) of subparagraph (C), there shall not be taken into account-- [<-Struck out] `(i) except as provided in regulations, any obligation of a person described in subparagraph (C), and [<-Struck out] `(ii) to the extent provided in regulations, any obligation which is guaranteed by a person described in subparagraph (C). [<-Struck out] `(B) TREATMENT OF PRINCIPAL PAYMENTS ON OBLIGATION- Principal payments by the trust on any obligation referred to in subparagraph (A) shall be taken into account on and after the date of the payment in determining the portion of the trust attributable to the property transferred. [<-Struck out] `(C) PERSONS DESCRIBED- The persons described in this subparagraph are-- [<-Struck out] `(i) the trust, [<-Struck out] `(ii) any grantor or beneficiary of the trust, and [<-Struck out] `(iii) any person who is related (within the meaning of section 643(i)(2)(B)) to any grantor or beneficiary of the trust.'. [<-Struck out] (b) EXEMPTION OF TRANSFERS TO CHARITABLE TRUSTS- Subsection (a) of section 679 is amended by striking `section 404(a)(4) or 404A' and inserting `section 6048(a)(3)(B)(ii)'. [<-Struck out] (c) OTHER MODIFICATIONS- Subsection (a) of section 679 is amended by adding at the end the following new paragraphs: [<-Struck out] `(4) SPECIAL RULES APPLICABLE TO FOREIGN GRANTOR WHO LATER BECOMES A UNITED STATES PERSON- [<-Struck out] `(A) IN GENERAL- If a nonresident alien individual has a residency starting date within 5 years after directly or indirectly transferring property to a foreign trust, this section and section 6048 shall be applied as if such individual transferred to such trust on the residency starting date an amount equal to the portion of such trust attributable to the property transferred by such individual to such trust in such transfer. [<-Struck out] `(B) TREATMENT OF UNDISTRIBUTED INCOME- For purposes of this section, undistributed net income for periods before such individual's residency starting date shall be taken into account in determining the portion of the trust which is attributable to property transferred by such individual to such trust but shall not otherwise be taken into account. [<-Struck out] `(C) RESIDENCY STARTING DATE- For purposes of this paragraph, an individual's residency starting date is the residency starting date determined under section 7701(b)(2)(A). [<-Struck out] `(5) OUTBOUND TRUST MIGRATIONS- If-- [<-Struck out] `(A) an individual who is a citizen or resident of the United States transferred property to a trust which was not a foreign trust, and [<-Struck out] `(B) such trust becomes a foreign trust while such individual is alive, [<-Struck out] then this section and section 6048 shall be applied as if such individual transferred to such trust on the date such trust becomes a foreign trust an amount equal to the portion of such trust attributable to the property previously transferred by such individual to such trust. A rule similar to the rule of paragraph (4)(B) shall apply for purposes of this paragraph.'. [<-Struck out] (d) MODIFICATIONS RELATING TO WHETHER TRUST HAS UNITED STATES BENEFICIARIES- Subsection (c) of section 679 is amended by adding at the end the following new paragraph: [<-Struck out] `(3) CERTAIN UNITED STATES BENEFICIARIES DISREGARDED- A beneficiary shall not be treated as a United States person in applying this section with respect to any transfer of property to foreign trust if such beneficiary first became a United States person more than 5 years after the date of such transfer.'. [<-Struck out] (e) TECHNICAL AMENDMENT- Subparagraph (A) of section 679(c)(2) is amended to read as follows: [<-Struck out] `(A) in the case of a foreign corporation, such corporation is a controlled foreign corporation (as defined in section 957(a)),'. [<-Struck out] (f) REGULATIONS- Section 679 is amended by adding at the end the following new subsection: [<-Struck out] `(d) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.'. [<-Struck out] (g) EFFECTIVE DATE- The amendments made by this section shall apply to transfers of property after February 6, 1995. [<-Struck out] SEC. 414. FOREIGN PERSONS NOT TO BE TREATED AS OWNERS UNDER GRANTOR TRUST RULES. [<-Struck out] (a) GENERAL RULE- [<-Struck out] (1) Subsection (f) of section 672 (relating to special rule where grantor is foreign person) is amended to read as follows: [<-Struck out] `(f) SUBPART NOT TO RESULT IN FOREIGN OWNERSHIP- [<-Struck out] `(1) IN GENERAL- Notwithstanding any other provision of this subpart, this subpart shall apply only to the extent such application results in an amount (if any) being currently taken into account (directly or through 1 or more entities) under this chapter in computing the income of a citizen or resident of the United States or a domestic corporation. [<-Struck out] `(2) EXCEPTIONS- [<-Struck out] `(A) CERTAIN REVOCABLE AND IRREVOCABLE TRUSTS- Paragraph (1) shall not apply to any portion of a trust if-- [<-Struck out] `(i) the power to revest absolutely in the grantor title to the trust property to which such portion is attributable is exercisable solely by the grantor without the approval or consent of any other person or with the consent of a related or subordinate party who is subservient to the grantor, or [<-Struck out] `(ii) the only amounts distributable from such portion (whether income or corpus) during the lifetime of the grantor are amounts distributable to the grantor or the spouse of the grantor. [<-Struck out] `(B) COMPENSATORY TRUSTS- Except as provided in regulations, paragraph (1) shall not apply to any portion of a trust distributions from which are taxable as compensation for services rendered. [<-Struck out] `(3) SPECIAL RULES- Except as otherwise provided in regulations prescribed by the Secretary-- [<-Struck out] `(A) a controlled foreign corporation (as defined in section 957) shall be treated as a domestic corporation for purposes of paragraph (1), and [<-Struck out] `(B) paragraph (1) shall not apply for purposes of applying section 1296. [<-Struck out] `(4) RECHARACTERIZATION OF PURPORTED GIFTS- In the case of any transfer directly or indirectly from a partnership or foreign corporation which the transferee treats as a gift or bequest, the Secretary may recharacterize such transfer in such circumstances as the Secretary determines to be appropriate to prevent the avoidance of the purposes of this subsection. [<-Struck out] `(5) SPECIAL RULE WHERE GRANTOR IS FOREIGN PERSON- If-- [<-Struck out] `(A) but for this subsection, a foreign person would be treated as the owner of any portion of a trust, and [<-Struck out] `(B) such trust has a beneficiary who is a United States person, [<-Struck out] such beneficiary shall be treated as the grantor of such portion to the extent such beneficiary or any member of such beneficiary's family (within the meaning of section 267(c)(4)) has made (directly or indirectly) transfers of property (other than in a sale for full and adequate consideration) to such foreign person. For purposes of the preceding sentence, any gift shall not be taken into account to the extent such gift would be excluded from taxable gifts under section 2503(b). [<-Struck out] `(6) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations providing that paragraph (1) shall not apply in appropriate cases.'. [<-Struck out] (2) The last sentence of subsection (c) of section 672 of such Code is amended by inserting `subsection (f) and' before `sections 674'. [<-Struck out] (b) CREDIT FOR CERTAIN TAXES- [<-Struck out] (1) Paragraph (2) of section 665(d) is amended by adding at the end the following new sentence: `Under rules or regulations prescribed by the Secretary, in the case of any foreign trust of which the settlor or another person would be treated as owner of any portion of the trust under subpart E but for section 672(f), the term `taxes imposed on the trust' includes the allocable amount of any income, war profits, and excess profits taxes imposed by any foreign country or possession of the United States on the settlor or such other person in respect of trust income.'. [<-Struck out] (2) Paragraph (5) of section 901(b) is amended by adding at the end the following new sentence: `Under rules or regulations prescribed by the Secretary, in the case of any foreign trust of which the settlor or another person would be treated as owner of any portion of the trust under subpart E but for section 672(f), the allocable amount of any income, war profits, and excess profits taxes imposed by any foreign country or possession of the United States on the settlor or such other person in respect of trust income.'. [<-Struck out] (c) DISTRIBUTIONS BY CERTAIN FOREIGN TRUSTS THROUGH NOMINEES- [<-Struck out] (1) Section 643 is amended by adding at the end the following new subsection: [<-Struck out] `(h) DISTRIBUTIONS BY CERTAIN FOREIGN TRUSTS THROUGH NOMINEES- For purposes of this part, any amount paid to a United States person which is derived directly or indirectly from a foreign trust of which the payor is not the grantor shall be deemed in the year of payment to have been directly paid by the foreign trust to such United States person.'. [<-Struck out] (2) Section 665 is amended by striking subsection (c). [<-Struck out] (d) EFFECTIVE DATE- [<-Struck out] (1) IN GENERAL- Except as provided by paragraph (2), the amendments made by this section shall take effect on the date of the enactment of this Act. [<-Struck out] (2) EXCEPTION FOR CERTAIN TRUSTS- The amendments made by this section shall not apply to any trust-- [<-Struck out] (A) which is treated as owned by the grantor under section 676 or 677 (other than subsection (a)(3) thereof) of the Internal Revenue Code of 1986, and [<-Struck out] (B) which is in existence on September 19, 1995. [<-Struck out] The preceding sentence shall not apply to the portion of any such trust attributable to any transfer to such trust after September 19, 1995. [<-Struck out] (e) TRANSITIONAL RULE- If-- [<-Struck out] (1) by reason of the amendments made by this section, any person other than a United States person ceases to be treated as the owner of a portion of a domestic trust, and [<-Struck out] (2) before January 1, 1997, such trust becomes a foreign trust, or the assets of such trust are transferred to a foreign trust, [<-Struck out] no tax shall be imposed by section 1491 of the Internal Revenue Code of 1986 by reason of such trust becoming a foreign trust or the assets of such trust being transferred to a foreign trust. [<-Struck out] SEC. 415. INFORMATION REPORTING REGARDING FOREIGN GIFTS. [<-Struck out] (a) IN GENERAL- Subpart A of part III of subchapter A of chapter 61 is amended by inserting after section 6039E the following new section: [<-Struck out] `SEC. 6039F. NOTICE OF LARGE GIFTS RECEIVED FROM FOREIGN PERSONS. [<-Struck out] `(a) IN GENERAL- If the value of the aggregate foreign gifts received by a United States person (other than an organization described in section 501(c) and exempt from tax under section 501(a)) during any taxable year exceeds $10,000, such United States person shall furnish (at such time and in such manner as the Secretary shall prescribe) such information as the Secretary may prescribe regarding each foreign gift received during such year. [<-Struck out] `(b) FOREIGN GIFT- For purposes of this section, the term `foreign gift' means any amount received from a person other than a United States person which the recipient treats as a gift or bequest. Such term shall not include any qualified transfer (within the meaning of section 2503(e)(2)) or any distribution properly disclosed in a return under section 6048(c). [<-Struck out] `(c) PENALTY FOR FAILURE TO FILE INFORMATION- [<-Struck out] `(1) IN GENERAL- If a United States person fails to furnish the information required by subsection (a) with respect to any foreign gift within the time prescribed therefor (including extensions)-- [<-Struck out] `(A) the tax consequences of the receipt of such gift shall be determined by the Secretary, and [<-Struck out] `(B) such United States person shall pay (upon notice and demand by the Secretary and in the same manner as tax) an amount equal to 5 percent of the amount of such foreign gift for each month for which the failure continues (not to exceed 25 percent of such amount in the aggregate). [<-Struck out] `(2) REASONABLE CAUSE EXCEPTION- Paragraph (1) shall not apply to any failure to report a foreign gift if the United States person shows that the failure is due to reasonable cause and not due to willful neglect. [<-Struck out] `(d) COST-OF-LIVING ADJUSTMENT- In the case of any taxable year beginning after December 31, 1996, the $10,000 amount under subsection (a) shall be increased by an amount equal to the product of such amount and the cost-of-living adjustment for such taxable year under section 1(f)(3), except that subparagraph (B) thereof shall be applied by substituting `1995' for `1992'. [<-Struck out] `(e) REGULATIONS- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.'. [<-Struck out] (b) CLERICAL AMENDMENT- The table of sections for such subpart is amended by inserting after the item relating to section 6039E the following new item: [<-Struck out] `Sec. 6039F. Notice of large gifts received from foreign persons.'. [<-Struck out] (c) EFFECTIVE DATE- The amendments made by this section shall apply to amounts received after the date of the enactment of this Act in taxable years ending after such date. [<-Struck out] SEC. 416. MODIFICATION OF RULES RELATING TO FOREIGN TRUSTS WHICH ARE NOT GRANTOR TRUSTS. [<-Struck out] (a) MODIFICATION OF INTEREST CHARGE ON ACCUMULATION DISTRIBUTIONS- Subsection (a) of section 668 (relating to interest charge on accumulation distributions from foreign trusts) is amended to read as follows: [<-Struck out] `(a) GENERAL RULE- For purposes of the tax determined under section 667(a)-- [<-Struck out] `(1) INTEREST DETERMINED USING UNDERPAYMENT RATES- The interest charge determined under this section with respect to any distribution is the amount of interest which would be determined on the partial tax computed under section 667(b) for the period described in paragraph (2) using the rates and the method under section 6621 applicable to underpayments of tax. [<-Struck out] `(2) PERIOD- For purposes of paragraph (1), the period described in this paragraph is the period which begins on the date which is the applicable number of years before the date of the distribution and which ends on the date of the distribution. [<-Struck out] `(3) APPLICABLE NUMBER OF YEARS- For purposes of paragraph (2)-- [<-Struck out] `(A) IN GENERAL- The applicable number of years with respect to a distribution is the number determined by dividing-- [<-Struck out] `(i) the sum of the products described in subparagraph (B) with respect to each undistributed income year, by [<-Struck out] `(ii) the aggregate undistributed net income. [<-Struck out] The quotient determined under the preceding sentence shall be rounded under procedures prescribed by the Secretary. [<-Struck out] `(B) PRODUCT DESCRIBED- For purposes of subparagraph (A), the product described in this subparagraph with respect to any undistributed income year is the product of-- [<-Struck out] `(i) the undistributed net income for such year, and [<-Struck out] `(ii) the sum of the number of taxable years between such year and the taxable year of the distribution (counting in each case the undistributed income year but not counting the taxable year of the distribution). [<-Struck out] `(4) UNDISTRIBUTED INCOME YEAR- For purposes of this subsection, the term `undistributed income year' means any prior taxable year of the trust for which there is undistributed net income, other than a taxable year during all of which the beneficiary receiving the distribution was not a citizen or resident of the United States. [<-Struck out] `(5) DETERMINATION OF UNDISTRIBUTED NET INCOME- Notwithstanding section 666, for purposes of this subsection, an accumulation distribution from the trust shall be treated as reducing proportionately the undistributed net income for undistributed income years. [<-Struck out] `(6) PERIODS BEFORE 1996- Interest for the portion of the period described in paragraph (2) which occurs before January 1, 1996, shall be determined-- [<-Struck out] `(A) by using an interest rate of 6 percent, and [<-Struck out] `(B) without compounding until January 1, 1996.'. [<-Struck out] (b) ABUSIVE TRANSACTIONS- Section 643(a) is amended by inserting after paragraph (6) the following new paragraph: [<-Struck out] `(7) ABUSIVE TRANSACTIONS- The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this part, including regulations to prevent avoidance of such purposes.'. [<-Struck out] (c) TREATMENT OF LOANS FROM TRUSTS- [<-Struck out] (1) IN GENERAL- Section 643 (relating to definitions applicable to subparts A, B, C, and D) is amended by adding at the end the following new subsection: [<-Struck out] `(i) LOANS FROM FOREIGN TRUSTS- For purposes of subparts B, C, and D-- [<-Struck out] `(1) GENERAL RULE- Except as provided in regulations, if a foreign trust makes a loan of cash or marketable securities directly or indirectly to-- [<-Struck out] `(A) any grantor or beneficiary of such trust who is a United States person, or [<-Struck out] `(B) any United States person not described in subparagraph (A) who is related to such grantor or beneficiary, [<-Struck out] the amount of such loan shall be treated as a distribution by such trust to such grantor or beneficiary (as the case may be). [<-Struck out] `(2) DEFINITIONS AND SPECIAL RULES- For purposes of this subsection-- [<-Struck out] `(A) CASH- The term `cash' includes foreign currencies and cash equivalents. [<-Struck out] `(B) RELATED PERSON- [<-Struck out] `(i) IN GENERAL- A person is related to another person if the relationship between such persons would result in a disallowance of losses under section 267 or 707(b). In applying section 267 for purposes of the preceding sentence, section 267(c)(4) shall be applied as if the family of an individual includes the spouses of the members of the family. [<-Struck out] `(ii) ALLOCATION- If any person described in paragraph (1)(B) is related to more than one person, the grantor or beneficiary to whom the treatment under this subsection applies shall be determined under regulations prescribed by the Secretary. [<-Struck out] `(C) EXCLUSION OF TAX-EXEMPTS- The term `United States person' does not include any entity exempt from tax under this chapter. [<-Struck out] `(D) TRUST NOT TREATED AS SIMPLE TRUST- Any trust which is treated under this subsection as making a distribution shall be treated as not described in section 651. [<-Struck out] `(3) SUBSEQUENT TRANSACTIONS REGARDING LOAN PRINCIPAL- If any loan is taken into account under paragraph (1), any subsequent transaction between the trust and the original borrower regarding the principal of the loan (by way of complete or partial repayment, satisfaction, cancellation, discharge, or otherwise) shall be disregarded for purposes of this title.'. [<-Struck out] (2) TECHNICAL AMENDMENT- Paragraph (8) of section 7872(f) is amended by inserting `, 643(i),' before `or 1274' each place it appears. [<-Struck out] (d) EFFECTIVE DATES- [<-Struck out] (1) INTEREST CHARGE- The amendment made by subsection (a) shall apply to distributions after the date of the enactment of this Act. [<-Struck out] (2) ABUSIVE TRANSACTIONS- The amendment made by subsection (b) shall take effect on the date of the enactment of this Act. [<-Struck out] (3) LOANS FROM TRUSTS- The amendment made by subsection (c) shall apply to loans of cash or marketable securities made after September 19, 1995. [<-Struck out] SEC. 417. RESIDENCE OF TRUSTS, ETC. [<-Struck out] (a) TREATMENT AS UNITED STATES PERSON- [<-Struck out] (1) IN GENERAL- Paragraph (30) of section 7701(a) is amended by striking `and' at the end of subparagraph (C) and by striking subparagraph (D) and by inserting the following new subparagraphs: [<-Struck out] `(D) any estate (other than a foreign estate, within the meaning of paragraph (31)), and [<-Struck out] `(E) any trust if-- [<-Struck out] `(i) a court within the United States is able to exercise primary supervision over the administration of the trust, and [<-Struck out] `(ii) one or more United States fiduciaries have the authority to control all substantial decisions of the trust.'. [<-Struck out] (2) CONFORMING AMENDMENT- Paragraph (31) of section 7701(a) is amended to read as follows: [<-Struck out] `(31) FOREIGN ESTATE OR TRUST- [<-Struck out] `(A) FOREIGN ESTATE- The term `foreign estate' means an estate the income of which, from sources without the United States which is not effectively connected with the conduct of a trade or business within the United States, is not includible in gross income under subtitle A. [<-Struck out] `(B) FOREIGN TRUST- The term `foreign trust' means any trust other than a trust described in subparagraph (E) of paragraph (30).'. [<-Struck out] (3) EFFECTIVE DATE- The amendments made by this subsection shall apply-- [<-Struck out] (A) to taxable years beginning after December 31, 1996, or [<-Struck out] (B) at the election of the trustee of a trust, to taxable years ending after the date of the enactment of this Act. [<-Struck out] Such an election, once made, shall be irrevocable. [<-Struck out] (b) DOMESTIC TRUSTS WHICH BECOME FOREIGN TRUSTS- [<-Struck out] (1) IN GENERAL- Section 1491 (relating to imposition of tax on transfers to avoid income tax) is amended by adding at the end the following new flush sentence: [<-Struck out] `If a trust which is not a foreign trust becomes a foreign trust, such trust shall be treated for purposes of this section as having transferred, immediately before becoming a foreign trust, all of its assets to a foreign trust.'. [<-Struck out] (2) EFFECTIVE DATE- The amendment made by this subsection shall take effect on the date of the enactment of this Act. [<-Struck out]property shall include income from the exploitation of characters, designs, scripts, scores, and other incidental income associated with such films, but only to the extent that such income is earned in connection with the ultimate use of such items by, or the ultimate sale of merchandise to, persons who are not related persons (within the meaning of section 267(b)) to the taxpayer.
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