AMENDMENTS RELATED TO REVENUE RECONCILIATION ACT OF 1989.

SEC. 11701. AMENDMENTS RELATED TO REVENUE RECONCILIATION ACT OF 1989. (a) Amendments Related to Section 7108.— (1) (A) Paragraph (2) of section 42(c) is amended by adding at the end thereof the following new sentence: “Such term does not include any building with respect to which moderate rehabilitation assistance is provided, at any time during the compliance period, under section 8(e)(2) of the United States Housing Act of 1937.” (B) Paragraph (1) of section 42(b) is amended by striking the last sentence. (2) Subclause (I) of section 42(d)(5)(C)(ii) is amended— (A) by inserting “which is designated by the Secretary of Housing and Urban Development and, for the most recent year for which census data are available on household income in such tract,” after “census tract”, and (B) by inserting before the period “for such year”. 104 STAT. 1388–506 (3) (A) Clause (i) of section 42(g)(2)(D) is amended by inserting before the period “and such unit continues to be rent-re-stricted”. (B) In the case of a building to which (but for this subparagraph) the amendment made by subparagraph (A) does not apply, such amendment shall apply to— (i) determinations of qualified basis for taxable years beginning after the date of the enactment of this Act, and (ii) determinations of qualified basis for taxable years beginning on or before such date except that determinations for such taxable years shall be made without regard to any reduction in gross rent after August 3, 1990, for any period before August 4, 1990. (4) Clause (ii) of section 42(g)(2)(D) is amended by adding at the end thereof the following new sentence: “In the case of a project described in section 142(d)(4)(B), the preceding sentence shall be applied by substituting ‘170 percent’ for ‘140 percent’ and by substituting ‘any low-income unit in the building is occupied by a new resident whose income exceeds 40 percent of area median gross income’ for ‘any residential unit in the building (of a size comparable to, or smaller than, such unit) is occupied by a new resident whose income exceeds such income limitation’.” (5) (A) Subparagraph (A) of section 42(g)(3) is amended by striking “the 12-month period beginning on the date the building is placed in service” and inserting “the 1st year of the credit period for such building”. (B) In the case of a building to which the amendment made by subparagraph (A) does not apply, the period specified in section 42(g)(3)(A) of the Internal Revenue Code of 1986 (as in effect before the amendment made by subparagraph (A)) shall not expire before the close of the taxable year following the taxable year in which the building is placed in service. (6) (A) The second sentence of section 42(h)(3)(C) is amended by striking “the amount described in clause (i)” and inserting “the sum of the amounts described in clauses (i) and (iii)”. (B) Subclause (II) of section 42(h)(3)(D)(ii) is amended by striking “the amount described in clause (i)” and inserting “the sum of the amounts described in clauses (i) and (iii)”. (7) (A) Clause (i) of section 42(h)(6)(B) is amended by inserting before the comma “and which prohibits the actions described in subclauses (I) and (II) of subparagraph (E)(ii)”. (B) Clause (ii) of section 42(h)(6)(B) is amended by striking “requirement” and inserting “requirement and prohibitions”. (8) (A) Subparagraph (B) of section 42(h)(6) is amended by redesignating clauses (iii) and (iv) as clauses (iv) and (v), respectively, and by inserting after clause (ii) the following new clause: “(iii) which prohibits the disposition to any person of any portion of the building to which such agreement applies unless all of the building to which such agreement applies is disposed of to such person,”. (B) Paragraph (6) of section 42(h) is amended by striking subparagraph (J) and by redesignating subparagraphs (K) and (L) as subparagraphs (J) and (K), respectively. (C) Subclause (II) of section 42(h)(6)(E)(ii) is amended by inserting before the period “not otherwise permitted under this section”. 104 STAT. 1388–507 (D) Subparagraph (F) of section 42(h)(6) is amended by inserting “the nonlowincome portion of the building for fair market value and” before “the low-income portion”. (9) Subclause (I) of section 42(h)(6)(E)(i) is amended by inserting before the comma “unless the Secretary determines that such acquisition is part of an arrangement with the taxpayer a purpose of which is to terminate such period”. (10) Paragraph (8) of section 42(i) is redesignated as paragraph (7). (11) Paragraph (2) of section 7108(r) of the Revenue Reconciliation Act of 1989 is amended by inserting before the period “but only with respect to bonds issued after such date”. (12) Paragraph (6) of section 7108(r) of the Revenue Reconciliation Act of 1989 is amended by inserting “after” after “issued”. (b) Amendments Related to Section 7202.— (1) Subparagraph (A) of section 163(e)(5) is amended by striking the last sentence and inserting the following: “For purposes of this paragraph, rules similar to the rules of subsection (i)(3)(B) shall apply in determining the amount of the original issue discount and when the original issue discount is paid.” (2) Paragraph (3) of section 163(i) is amended— (A) by striking “(or stock)” each place it appears in subparagraph (B), and (B) by adding at the end thereof the following new sentence: “Except for purposes of paragraph (1)(B), any reference to an obligation in subparagraph (B) of this paragraph shall be treated as including a reference to stock.” (c) Amendments Related to Section 7210.— (1) Subparagraph (C) of section 1630)(2) is amended by striking “less such” and inserting “reduced (but not below zero) by such”. (2) Clause (ii) of section 163(j)(2)(A) is amended by striking “and on such other days” and inserting “or on any other day”. (d) Amendments Related to Section 7211.— Clause (iii) of section 172(b)(l)(M) is amended— (1) by striking “a C corporation” in the material preceding subclause (I), (2) by striking “which acquires” in subclause (I) and inserting “a C corporation which acquires”, (3) by striking “a corporation” in subclause (II) and inserting “a C corporation”, and (4) by striking “any successor corporation” in subclause (III) and inserting “any C corporation which is a successor”. (e) Amendments Related to Section 7301.— (1) Paragraph (2) of section 4978B(e) is amended to read as follows: “(2) Section 133 securities.— The term ‘section 133 securities’ means employer securities acquired by an employee stock ownership plan in a transaction to which section 133 applied.” (2) Subsection (d) of section 4978B is amended by adding at the end thereof the following new paragraph: “(4) Coordination with other taxes.— This section shall not apply to any disposition which is subject to tax under section 4978 or section 4978A (as in effect on the day before the date of enactment of this section).” 104 STAT. 1388–508 (f) Amendment Related to Section 7401.— Paragraph (2) of section 6038(e) is amended by adding at the end thereof the following new sentence: “In the case of a specified foreign corporation (as defined in section 898), the taxable year of such corporation shall be treated as its annual accounting period.” (g) Amendments Related to Section 7506.— (1) The material preceding subclause (1) in section 4682(d)(3)(B)(i) is amended by striking “or produced” and inserting “, produced, or imported”, (2) Subclause (I) of section 4682(d)(3)(B)(i) is amended to read as follows: “(I) the amount equal to the 1986 export percentage of the aggregate tax which would (but for this subsection and subsection (g)) be imposed by this subchapter with respect to the maximum quantity of ozonedeplet-ing chemicals permitted to be manufactured or produced by such person during such calendar year under regulations prescribed by the Environmental Protection Agency (other than chemicals with respect to which subclause (II) applies),”. (3) Subclause (II) of section 4682(d)(3)(B)(i) is amended by striking “tax imposed” and inserting “tax which would (but for this subsection and subsection (g)) be imposed”. (4) Clause (i) of section 4682(d)(3)(B) is amended by striking the period at the end of subclause (II) and inserting “, and” and by adding at the end thereof the following new subclause: “(III) the aggregate tax which was imposed by this subchapter with respect to ozone-depleting chemicals imported by such person during the calendar year.”. (5) The last sentence of clause (ii) of section 4682(d)(3)(B) is amended to read as follows: “The percentage determined under the preceding sentence shall be computed by taking into account the sum of such person’s direct 1986 exports (as determined by the Environmental Protection Agency) and such person’s indirect 1986 exports (as allocated to such person by such Agency in determining such person’s consumption and production rights for ozone-depleting chemicals).”. (h) Amendment Related to Section 7601.— Effective with respect to transfers after August 3, 1990, paragraph (3) of section 1031(f) is amended by striking “section 267(b)” and inserting “section 267(b) or 707(b)(D”. (i) Amendment Related to Section 7622.— Paragraph (4) of section 1253(d) is amended by striking “or any period of amortization under this section” and inserting “under this section or any period of amortization under this subtitle for any payment described in this section”. (j) Amendments Rented to Section 7652.— (1) Subclause (II) of section 148(f)(4)(B)(i) is amended to read as follows: “(II) the requirements of paragraph (2) are met with respect to amounts not required to be spent as provided in subclause (I) (other than earnings on amounts in any bona fide debt service fund).” (2) The last sentence of clause (i) of section 148(f)(4)(B) is amended by striking “replacement fund” and all that follows and inserting “replacement fund, and gross proceeds which arise after such 6 months and which were not reasonably 104 STAT. 1388–509anticipated as of the date of issuance, shall not be considered gross proceeds for purposes of subclause (I) only.” (3) Paragraph (4) of section 148(f) is amended— (A) by redesignating subparagraphs (C) and (D) as sub-paragraphs (D) and (E), respectively, and (B) by inserting after subparagraph (B) the following new subparagraph: “(C) Exception from rebate for certain proceeds to be used to finance construction expenditures.— “(i) In general.— In the case of a construction issue, paragraph (2) shall not apply to the available construction proceeds of such issue if the spending requirements of clause (ii) are met. “(ii) Spending requirements.— The spending requirements of this clause are met if at least— “(I) 10 percent of the available construction proceeds of the construction issue are spent for the governmental purposes of the issue within the 6-month period beginning on the date the bonds are issued, “(II) 45 percent of such proceeds are spent for such purposes within the 1-year period beginning on such date, “(III) 75 percent of such proceeds are spent for such purposes within the 18-month period beginning on such date, and “(IV) 100 percent of such proceeds are spent for such purposes within the 2-year period beginning on such date. “(iii) Exception for reasonable retainage.— The spending requirement of clause (ii)(IV) shall be treated as met if— “(I) such requirement would be met at the close of such 2-year period but for a reasonable retainage (not exceeding 5 percent of the available construction proceeds of the construction issue), and “(II) 100 percent of the available construction proceeds of the construction issue are spent for the governmental purposes of the issue within the 3-year period beginning on the date the bonds are issued. “(iv) Construction issue.— For purposes of this subparagraph, the term ‘construction issue’ means any issue if— “(I) at least 75 percent of the available construction proceeds of such issue are to be used for construction expenditures with respect to property which is to be owned by a governmental unit or a 501(c)(3) organization, and “(II) all of the bonds which are part of such issue are qualified 501(c)(3) bonds, bonds which are not private activity bonds, or private activity bonds issued to finance property to be owned by a governmental unit or a 501(c)(3) organization. For purposes of this subparagraph, the term ‘construction’ includes reconstruction and rehabilitation, and 104 STAT. 1388–510rules similar to the rules of section 142(b)(l)(B) shall apply. ‘(v) Portions of issues used for construction.— If— “(I) all of the construction expenditures to be financed by an issue are to be financed from a portion thereof, and “(II) the issuer elects to treat such portion as a construction issue for purposes of this subparagraph, then, for purposes of this subparagraph and subparagraph (B), such portion shall be treated as a separate issue. (vi) Available construction proceeds.— For purposes of this subparagraph— “(I) In general.— The term ‘available construction proceeds’ means the amount equal to the issue price (within the meaning of sections 1273 and 1274) of the construction issue, increased by earnings on the issue price, earnings on amounts in any reasonably required reserve or replacement fund not funded from the issue, and earnings on all of the foregoing earnings, and reduced by the amount of the issue price in any reasonably required re-serve or replacement fund and the issuance costs financed by the issue. “(II) Earnings on reserve included only for certain periods.— The term ‘available construction proceeds’ shall not include amounts earned on any reasonably required reserve or replacement fund after the earlier of the close of the 2-year period described in clause (ii) or the date the construction is substantially completed. “(III) Payments on acquired purpose obligations excluded.— The term ‘available construction proceeds’ shall not include payments on any obligation acquired to carry out the governmental purposes of the issue and shall not include earnings on such payments. “(IV) Election to rebate on earnings on reserve.— At the election of the issuer, the term ‘available construction proceeds’ shall not include earnings on any reasonably required reserve or replacement fund. “(vii) Election to pay penalty in lieu of rebate.— “(I) In general.— At the election of the issuer, paragraph (2) shall not apply to available construction proceeds which do not meet the spending requirements of clause (ii) if the issuer pays a penalty, with respect to each 6-month period after the date the bonds were issued, equal to 116 per-cent of the amount of the available construction proceeds of the issue which, as of the close of such 6-month period, is not spent as required by clause (ii). “(II) Termination.— The penalty imposed by this clause shall cease to apply only as provided in 104 STAT. 1388–511clause (viii) or after the latest maturity date of any bond in the issue (including any refunding bond with respect thereto). “(viii) Election to terminate 1 ½ percent penalty.— At the election of the issuer (made not later than 90 days after the earlier of the end of the initial temporary period or the date the construction is substantially completed), the penalty under clause (vii) shall not apply to any 6-month period after the initial temporary period under subsection (c) if the requirements of subclauses (I), (II), and (III) are met. “(I) 3 percent penalty.— The requirement of this subclause is met if the issuer pays a penalty equal to 3 percent of the amount of available construction proceeds of the issue which is not spent for the governmental purposes of the issue as of the close of such initial temporary period multi-plied by the number of years (including fractions thereof) in the initial temporary period. “(II) Yield restriction at close of temporary period.— The requirement of this subclause is met if the amount of the available construction proceeds of the issue which is not spent for the governmental purposes of the issue as of the close of such initial temporary period is invested at a yield not exceeding the yield on the issue or which is in-vested in any tax-exempt bond which is not investment property. “(III) Redemption of bonds at earliest call date.— The requirement of this subclause is met if the amount of the available construction proceeds of the issue which is not spent for the governmental purposes of the issue as of the earliest date on which bonds may be redeemed is used to redeem bonds on such date. “(ix) Election to terminate 1 ½ percent penalty before end of temporary period.— If— “(I) the construction to be financed by a construction issue is substantially completed before the end of the initial temporary period, “(II) the issuer identifies an amount of available construction proceeds which will not be spent for the governmental purposes of the issue, “(III) the issuer has made the election under clause (viii), and “(IV) the issuer makes an election under this clause before the close of the initial temporary period and not later than 90 days after the date the construction is substantially completed, then clauses (vii) and (viii) shall be applied to the available construction proceeds so identified as if the initial temporary period ended as of the date the election is made. “(x) Failure to pay penalties.— In the case of a failure (which is not due to willful neglect) to pay any penalty required to be paid under clause (vii) or (viii) in the amount or at the time prescribed therefor, the 104 STAT. 1388–512Secretary may treat such failure as not occurring if, in addition to paying such penalty, the issuer pays a penalty equal to the sum of— “(I) 50 percent of the amount which was not paid in accordance with clauses (vii) and (viii), plus “(II) interest (at the underpayment rate established under section 6621) on the portion of the amount which was not paid on the date required for the period beginning on such date. The Secretary may waive all or any portion of the penalty under this clause. Bonds which are part of an issue with respect to which there is a failure to pay the amount required under this clause (and any refunding bond with respect thereto) shall be treated as not being, and as never having been, tax-exempt bonds. “(xi) Election for pooled financing bonds.— At the election of the issuer of an issue the proceeds of which are to be used to make or finance loans (other than nonpurpose investments) to 2 or more persons, the periods described in clauses (ii) and (iii) shall begin on— “(I) the date the loan is made, in the case of loans made within the 1-year period after the date the bonds are issued, and “(II) the date following such 1-year period, in the case of loans made after such 1-year period. If such an election applies to an issue, the requirements of paragraph (2) shall apply to amounts earned before the beginning of the periods determined under the preceding sentence. “(xii) Payments of principal not to affect requirements.— For purposes of this subparagraph, payments of principal on the bonds which are part of the construction issue shall not be treated as an expenditure of the available construction proceeds of the issue. “(xiii) Refunding bonds.— “(I) In general.— Except as provided in this clause, clause (vii)(II), and the last sentence of clause (x), this subparagraph shall not apply to any refunding bond and no proceeds of a refunded bond shall be treated for purposes of this subparagraph as proceeds of a refunding bond. “(II) Determination of construction portion of issue.— For purposes of clause (v), any portion of an issue which is used to refund any issue (or portion thereof) shall be treated as a separate issue. “(III) Coordination with rebate requirement on refunding bonds.— The requirements of paragraph (2) shall be treated as met with respect to earnings for any period if a penalty is paid under clause (vii) or (viii) with respect to such earnings for such period. “(xiv) Determination of initial temporary period.— For purposes of this subpargraph, the end of the initial temporary period shall be determined without regard to section 149(d)(3)(A)(iv). 104 STAT. 1388–513 “(xv) Elections.— Any election under this subparagraph (other than clauses (viii) and (ix)) shall be made on or before the date the bonds are issued; and, once made, shall be irrevocable. “(xvi) Time for payment of penalties.— Any penalty under this subparagraph shall be paid to the United States not later than 90 days after the period to which the penalty relates.” (4) Clause (iv) of section 148(f)(4)(B) is amended to read as follows: “(iv) Payments of principal not to affect requirements.— For purposes of this subparagraph, payments of principal on the bonds which are part of an issue shall not be treated as expended for the governmental purposes of the issue.” (5) Subparagraph (D) of section 148(c)(2) is amended— (A) by striking “subsection (f)(4)(B)(iv)(IV)” and inserting “subsection (f)(4)(C)(iv)”, and (B) by striking “subsection (f)(4)(B)(ivXVIII)” and inserting “subsection (f)(4)(C)(V)”. (6) Subsection (c) of section 7652 of the 1989 Act is amended by striking “Subparagraph (A) of section 148(c)(2)” and inserting “Section 148(c)(2)”. (7) In the case of a bond issued before the date of the enactment of this Act, the period for making the election under section 148(f)(4)(CXViii) of the Internal Revenue Code of 1986 (as added by this subsection) shall not expire before the date which is 180 days after such date of enactment. (8) Section 148(f)(4)(C)(xiii)(n) of such Code (as added by this subsection) shall apply only to refunding bonds issued after August 3, 1990. (k) Amendment Related to Section 7811.—The second sentence of section 403(b)(12)(A) is amended by inserting “involving a one-time irrevocable election” after “similar arrangement”. (l) Amendments Related to Section 7815.— (1) Subsection (d) of section 2056 is amended by redesignating the paragraph relating to reformations permitted as paragraph (5). _ (2) The period during which a proceeding may be commenced under section 2056(d)(5)(A)(ii) of the Internal Revenue Code of 1986 (as redesignated by paragraph (1)) shall not expire before the date 6 months after the date of the enactment of this Act. (3) Paragraph (16) of section 7815(d) of the Revenue Reconciliation Act of 1989 is amended by inserting “(or would have been so treated if the donor were a citizen of the United States)” after “of such Code”. (m) Amendment Related to Section 7881.— Paragraph (13) of section 4975(d) is amended by inserting before the semicolon at the end thereof the following: “or which is exempt from section 406 of such Act by reason of section 408(b) of such Act”. (n) Effective Date.— Except as otherwise provided in this section, any amendment made by this section shall take effect as if included in the provision of the Revenue Reconciliation Act of 1989 to which such amendment relates.