AMENDMENTS RELATED TO TITLE III OF 1997 ACT.

SEC. 6005. AMENDMENTS RELATED TO TITLE III OF 1997 ACT. (a) Amendments Related to Section 301 of 1997 Act.— (1) Section 219(g) of the 1986 Code is amended— (A) by inserting “or the individual’s spouse” after “individual” in paragraph (1); and (B) by striking paragraph (7) and inserting: “(7) Special rule for spouses who are not active participants.— If this subsection applies to an individual for any taxable year solely because their spouse is an active participant, then, in applying this subsection to the individual (but not their spouse)— “(A) the applicable dollar amount under paragraph (3)(B)(i) shall be $150,000; and “(B) the amount applicable under paragraph (2)(A)(ii) shall be $10,000.”. (2) Paragraph (2) of section 301(a) of the 1997 Act is amended by inserting “after ‘$10,000’” before the period. (b) Amendments Related to Section 302 of 1997 Act.— (1) Section 408A(c)(3)(A) of the 1986 Code is amended by striking “shall be reduced” and inserting “shall not exceed 112 STAT. 797an amount equal to the amount determined under paragraph (2)(A) for such taxable year, reduced”. (2) Section 408A(c)(3) of the 1986 Code (relating to limits based on modified adjusted gross income) is amended— (A) by inserting “or a married individual filing a separate return” after “joint return” in subparagraph (A)(ii), (B) in subparagraph (B)— (i) by inserting “, for the taxable year of the distribution to which such contribution relates” after “if”; and (ii) by striking “for such taxable year” in clause (i), and (C) by striking “and the deduction under section 219 shall be taken into account” in subparagraph (C)(i). (3) (A) Section 408A(d)(2) of the 1986 Code (defining qualified distribution) is amended by striking subparagraph (B) and inserting the following new subparagraph: “(B) Distributions within nonexclusion period.— A payment or distribution from a Roth IRA shall not be treated as a qualified distribution under subparagraph (A) if such payment or distribution is made within the 5- taxable year period beginning with the first taxable year for which the individual made a contribution to a Roth IRA (or such individual’s spouse made a contribution to a Roth IRA) established for such individual.”. (B) Section 408A(d)(2) of the 1986 Code is amended by adding at the end the following new subparagraph: “(C) Distributions of excess contributions and earning.— The term ‘qualified distribution’ shall not include any distribution of any contribution described in section 408(d)(4) and any net income allocable to the contribution.”. (4) Section 408A(d)(3) of the 1986 Code (relating to rollovers from IRAs other than Roth IRAs) is amended— (A) by striking clause (iii) of subparagraph (A) and inserting: “(iii) unless the taxpayer elects not to have this clause apply for any taxable year, any amount required to be included in gross income for such taxable year by reason of this paragraph for any distribution before January 1, 1999, shall be so included ratably over the 4-taxable year period beginning with such taxable year. Any election under clause (iii) for any distributions during a taxable year may not be changed after the due date for such taxable year.”; and (B) by adding at the end the following new subparagraph: “(F) Special rules for contributions to which 4-year averaging applies.— In the case of a qualified rollover contribution to a Roth IRA of a distribution to which subparagraph (A)(iii) applied, the following rules shall apply: “(i) Acceleration of inclusion.— “(I) In general.— The amount required to be included in gross income for each of the first 3112 STAT. 798taxable years in the 4-year period under subparagraph (A)(iii) shall be increased by the aggregate distributions from Roth IRAs for such taxable year which are allocable under paragraph (4) to the portion of such qualified rollover contribution required to be included in gross income under subparagraph (A)(i). “(II) Limitation on aggregate amount included.— The amount required to be included in gross income for any taxable year under subparagraph (A)(iii) shall not exceed the aggregate amount required to be included in gross income under subparagraph (A)(iii) for all taxable years in the 4-year period (without regard to subclause (I)) reduced by amounts included for all preceding taxable years. “(ii) Death of distributee.— “(I) In general.— If the individual required to include amounts in gross income under such subparagraph dies before all of such amounts are included, all remaining amounts shall be included in gross income for the taxable year which includes the date of death. “(II) Special rule for surviving spouse.— If the spouse of the individual described in subclause (I) acquires the individual’s entire interest in any Roth IRA to which such qualified rollover contribution is properly allocable, the spouse may elect to treat the remaining amounts described in subclause (I) as includible in the spouse’s gross income in the taxable years of the spouse ending with or within the taxable years of such individual in which such amounts would otherwise have been includible. Any such election may not be made or changed after the due date for the spouse’s taxable year which includes the date of death. “(G) Special rule for applying section 72.— “(i) In general.— If— “(I) any portion of a distribution from a Roth IRA is properly allocable to a qualified rollover contribution described in this paragraph; and “(II) such distribution is made within the 5- taxable year period beginning with the taxable year in which such contribution was made, then section 72(t) shall be applied as if such portion were includible in gross income. “(ii) Limitation.— Clause (i) shall apply only to the extent of the amount of the qualified rollover contribution includible in gross income under subparagraph (A)(i).”. (5) (A) Section 408A(d)(4) of the 1986 Code is amended to read as follows: “(4) Aggregation and ordering rules.— “(A) Aggregation rules.— Section 408(d)(2) shall be applied separately with respect to Roth IRAs and other individual retirement plans.112 STAT. 799 “(B) Ordering rules.— For purposes of applying this section and section 72 to any distribution from a Roth IRA, such distribution shall be treated as made— “(i) from contributions to the extent that the amount of such distribution, when added to all previous distributions from the Roth IRA, does not exceed the aggregate contributions to the Roth IRA; and “(ii) from such contributions in the following order: “(I) Contributions other than qualified rollover contributions to which paragraph (3) applies. “(II) Qualified rollover contributions to which paragraph (3) applies on a first-in, first-out basis. Any distribution allocated to a qualified rollover contribution under clause (ii)(II) shall be allocated first to the portion of such contribution required to be included in gross income.”. (B) Section 408A(d)(1) of the 1986 Code is amended to read as follows: “(1) Exclusion.— Any qualified distribution from a Roth IRA shall not be includible in gross income.”. (6) (A) Section 408A(d) of the 1986 Code (relating to distribution rules) is amended by adding at the end the following new paragraph: “(6) Taxpayer may make adjustments before due date.— “(A) In general.— Except as provided by the Secretary, if, on or before the due date for any taxable year, a taxpayer transfers in a trustee-to-trustee transfer any contribution to an individual retirement plan made during such taxable year from such plan to any other individual retirement plan, then, for purposes of this chapter, such contribution shall be treated as having been made to the transferee plan (and not the transferor plan). “(B) Special rules.— “(i) Transfer of earnings.— Subparagraph (A) shall not apply to the transfer of any contribution unless such transfer is accompanied by any net income allocable to such contribution. “(ii) No deduction.— Subparagraph (A) shall apply to the transfer of any contribution only to the extent no deduction was allowed with respect to the contribution to the transferor plan.”. (B) Section 408A(d)(3) of the 1986 Code, as amended by this subsection, is amended by striking subparagraph (D) and by redesignating subparagraphs (E), (F), and (G) as subparagraphs (D), (E), and (F), respectively. (7) Section 408A(d) of the 1986 Code, as amended by paragraph (6), is amended by adding at the end the following new paragraph: “(7) Due date.— For purposes of this subsection, the due date for any taxable year is the date prescribed by law (including extensions of time) for filing the taxpayer’s return for such taxable year.”. (8) (A) Section 4973(f) of the 1986 Code is amended— (i) by striking “such accounts” in paragraph (1)(A) and inserting “Roth IRAs”; and112 STAT. 800 (ii) by striking “to the accounts” in paragraph (2)(B) and inserting “by the individual to all individual retirement plans”. (B) Section 4973(b) of the 1986 Code is amended— (i) by inserting “a contribution to a Roth IRA or” after “other than” in paragraph (1)(A); and (ii) by inserting “(including the amount contributed to a Roth IRA)” after “annuities” in paragraph (2)(C). (C) Section 302(b) of the 1997 Act is amended by striking “Section 4973(b)” and inserting “Section 4973”. (9) Section 408A of the 1986 Code is amended by adding at the end the following new subsection: “(f) Individual Retirement Plan.— For purposes of this section— “(1) a simplified employee pension or a simple retirement account may not be designated as a Roth IRA; and “(2) contributions to any such pension or account shall not be taken into account for purposes of subsection (c)(2)(B).”. (c) Amendments Related to Section 303 of 1997 Act.— (1) Section 72(t)(8)(E) of the 1986 Code is amended— (A) by striking “120 days” and inserting “120th day”; and (B) by striking “60 days” and inserting “60th day”. (2) (A) Section 402(c)(4) of the 1986 Code is amended by striking “and” at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting “, and”, by inserting at the end the following new subparagraph: “(C) any hardship distribution described in section 401(k)(2)(B)(i)(IV).”. (B) Section 403(b)(8)(B) of the 1986 Code is amended by inserting “(including paragraph (4)(C) thereof)” after “section 402(c)”. (C) The amendments made by this paragraph shall apply to distributions after December 31, 1998. (d) Amendments Related to Section 311 of 1997 Act.— (1) Subsection (h) of section 1 of the 1986 Code (relating to maximum capital gains rate) is amended to read as follows: “(h) Maximum Capital Gains Rate.— “(1) In general.— If a taxpayer has a net capital gain for any taxable year, the tax imposed by this section for such taxable year shall not exceed the sum of— “(A) a tax computed at the rates and in the same manner as if this subsection had not been enacted on the greater of— “(i) taxable income reduced by the net capital gain; or “(i) the lesser of— “(I) the amount of taxable income taxed at a rate below 28 percent; or “(II) taxable income reduced by the adjusted net capital gain; “(B) 10 percent of so much of the adjusted net capital gain (or, if less, taxable income) as does not exceed the excess (if any) of—112 STAT. 801 “(i) the amount of taxable income which would (without regard to this paragraph) be taxed at a rate below 28 percent, over “(ii) the taxable income reduced by the adjusted net capital gain; “(C) 20 percent of the adjusted net capital gain (or, if less, taxable income) in excess of the amount on which a tax is determined under subparagraph (B); “(D) 25 percent of the excess (if any) of— “(i) the unrecaptured section 1250 gain (or, if less, the net capital gain), over “(ii) the excess (if any) of— “(I) the sum of the amount on which tax is determined under subparagraph (A) plus the net capital gain, over “(II) taxable income; and “(E) 28 percent of the amount of taxable income in excess of the sum of the amounts on which tax is determined under the preceding subparagraphs of this paragraph. “(2) Reduced capital gain rates for qualified 5-year gain.— “(A) Reduction in 10-percent rate.— In the case of any taxable year beginning after December 31, 2000, the rate under paragraph (1)(B) shall be 8 percent with respect to so much of the amount to which the 10-percent rate would otherwise apply as does not exceed qualified 5-year gain, and 10 percent with respect to the remainder of such amount. “(B) Reduction in 20-percent rate.— The rate under paragraph (1)(C) shall be 18 percent with respect to so much of the amount to which the 20-percent rate would otherwise apply as does not exceed the lesser of— “(i) the excess of qualified 5-year gain over the amount of such gain taken into account under subparagraph (A) of this paragraph; or “(ii) the amount of qualified 5-year gain (determined by taking into account only property the holding period for which begins after December 31, 2000), and 20 percent with respect to the remainder of such amount. For purposes of determining under the preceding sentence whether the holding period of property begins after December 31, 2000, the holding period of property acquired pursuant to the exercise of an option (or other right or obligation to acquire property) shall include the period such option (or other right or obligation) was held. “(3) Net capital gain taken into account as investment income.— For purposes of this subsection, the net capital gain for any taxable year shall be reduced (but not below zero) by the amount which the taxpayer takes into account as investment income under section 163(d)(4)(B)(iii). “(4) Adjusted net capital gain.— For purposes of this subsection, the term ‘adjusted net capital gain’ means net capital gain reduced (but not below zero) by the sum of— “(A) unrecaptured section 1250 gain; and “(B) 28-percent rate gain.112 STAT. 802 “(5) 28-percent rate gain.— For purposes of this subsection— “(A) In general.— The term ‘28-percent rate gain’ means the excess (if any) of— “(i) the sum of— “(I) the aggregate long-term capital gain from property held for more than 1 year but not more than 18 months; “(II) collectibles gain; and “(III) section 1202 gain, over “(ii) the sum of— “(I) the aggregate long-term capital loss (not described in subclause (IV)) from property referred to in clause (i)(I); “(II) collectibles loss; “(III) the net short-term capital loss; and “(IV) the amount of long-term capital loss carried under section 1212(b)(1)(B) to the taxable year. “(B) Special rules.— “(i) Short sale gains and holding periods.— Rules similar to the rules of section 1233(b) shall apply where the substantially identical property has been held more than 1 year but not more than 18 months; except that, for purposes of such rules— “(I) section 1233(b)(1) shall be applied by substituting ‘18 months’ for ‘1 year’ each place it appears; and “(II) the holding period of such property shall be treated as being 1 year on the day before the earlier of the date of the closing of the short sale or the date such property is disposed of. “(ii) Long-term losses.— Section 1233(d) shall be applied separately by substituting ‘18 months’ for ‘1 year’ each place it appears. “(iii) Options.— A rule similar to the rule of section 1092(f) shall apply where the stock was held for more than 18 months. “(iv) Section 1256 contracts.— Amounts treated as long-term capital gain or loss under section 1256(a)(3) shall be treated as attributable to property held for more than 18 months. “(6) Collectibles gain and loss.— For purposes of this subsection— “(A) In general.— The terms ‘collectibles gain’ and ‘collectibles loss’ mean gain or loss (respectively) from the sale or exchange of a collectible (as defined in section 408(m) without regard to paragraph (3) thereof) which is a capital asset held for more than 18 months but only to the extent such gain is taken into account in computing gross income and such loss is taken into account in computing taxable income. “(B) Partnerships, etc.— For purposes of subparagraph (A), any gain from the sale of an interest in a partnership, S corporation, or trust which is attributable to unrealized appreciation in the value of collectibles shall be treated as gain from the sale or exchange of a collectible.112 STAT. 803 Rules similar to the rules of section 751 shall apply for purposes of the preceding sentence. “(7) Unrecaptured section 1250 gain.— For purposes of this subsection— “(A) In general.— The term ‘unrecaptured section 1250 gain’ means the excess (if any) of— “(i) the amount of long-term capital gain (not otherwise treated as ordinary income) which would be treated as ordinary income if— “(I) section 1250(b)(1) included all depreciation and the applicable percentage under section 1250(a) were 100 percent, and “(II) only gain from property held for more than 18 months were taken into account, over “(ii) the excess (if any) of— “(I) the amount described in paragraph (5)(A)(ii), over “(II) the amount described in paragraph (5)(A)(i). “(B) Limitation with respect to section 1231 property.— The amount described in subparagraph (A)(i) from sales, exchanges, and conversions described in section 1231(a)(3)(A) for any taxable year shall not exceed the net section 1231 gain (as defined in section 1231(c)(3)) for such year. “(8) Section 1202 gain.— For purposes of this subsection, the term ‘section 1202 gain’ means an amount equal to the gain excluded from gross income under section 1202(a). “(9) Qualified 5-year gain.— For purposes of this subsection, the term ‘qualified 5-year gain’ means the aggregate long-term capital gain from property held for more than 5 years. The determination under the preceding sentence shall be made without regard to collectibles gain, gain described in paragraph (7)(A)(i), and section 1202 gain. “(10) Coordination with recapture of net ordinary losses under section 1231.— If any amount is treated as ordinary income under section 1231(c), such amount shall be allocated among the separate categories of net section 1231 gain (as defined in section 1231(c)(3)) in such manner as the Secretary may by forms or regulations prescribe. “(11) Regulations.— The Secretary may prescribe such regulations as are appropriate (including regulations requiring reporting) to apply this subsection in the case of sales and exchanges by pass-thru entities and of interests in such entities. “(12) Pass-thru entity defined.— For purposes of this subsection, the term ‘pass-thru entity’ means— “(A) a regulated investment company; “(B) a real estate investment trust; “(C) an S corporation; “(D) a partnership; “(E) an estate or trust; “(F) a common trust fund; “(G) a foreign investment company which is described in section 1246(b)(1) and for which an election is in effect under section 1247; and “(H) a qualified electing fund (as defined in section 1295).112 STAT. 804 “(13) Special rules for periods during 1997.— “(A) Determination of 28-percent rate gain.— In applying paragraph (5)— “(i) the amount determined under subclause (I) of paragraph (5)(A)(i) shall include long-term capital gain (not otherwise described in paragraph (5)(A)(i)) which is properly taken into account for the portion of the taxable year before May 7, 1997; “(ii) the amounts determined under subclause (I) of paragraph (5)(A)(ii) shall include long-term capital loss (not otherwise described in paragraph (5)(A)(ii)) which is properly taken into account for the portion of the taxable year before May 7, 1997; and “(iii) clauses (i)(I) and (ii)(I) of paragraph (5)(A) shall be applied by not taking into account any gain and loss on property held for more than 1 year but not more than 18 months which is properly taken into account for the portion of the taxable year after May 6, 1997, and before July 29, 1997. “(B) Other special rules.— “(i) Determination of unrecaptured section 1250 gain not to include pre-may 7, 1997 gain.— The amount determined under paragraph (7)(A)(i) shall not include gain properly taken into account for the portion of the taxable year before May 7, 1997. “(ii) Other transitional rules for 18-month holding period.— Paragraphs (6)(A) and (7)(A)(i)(II) shall be applied by substituting ‘1 year’ for ‘18 months’ with respect to gain properly taken into account for the portion of the taxable year after May 6, 1997, and before July 29, 1997. “(C) Special rules for pass-thru entities.— In applying this paragraph with respect to any pass-thru entity, the determination of when gains and loss are properly taken into account shall be made at the entity level.”. (2) Paragraph (3) of section 55(b) of the 1986 Code is amended to read as follows: “(3) Maximum rate of tax on net capital gain of noncorporate taxpayers.— The amount determined under the first sentence of paragraph (1)(A)(i) shall not exceed the sum of— “(A) the amount determined under such first sentence computed at the rates and in the same manner as if this paragraph had not been enacted on the taxable excess reduced by the lesser of— “(i) the net capital gain; or “(i) the sum of— “(I) the adjusted net capital gain, plus “(II) the unrecaptured section 1250 gain, plus “(B) 10 percent of so much of the adjusted net capital gain (or, if less, taxable excess) as does not exceed the amount on which a tax is determined under section 1(h)(1)(B), plus “(C) 20 percent of the adjusted net capital gain (or, if less, taxable excess) in excess of the amount on which tax is determined under subparagraph (B), plus112 STAT. 805 “(D) 25 percent of the amount of taxable excess in excess of the sum of the amounts on which tax is determined under the preceding subparagraphs of this paragraph. In the case of taxable years beginning after December 31, 2000, rules similar to the rules of section 1(h)(2) shall apply for purposes of subparagraphs (B) and (C). Terms used in this paragraph which are also used in section 1(h) shall have the respective meanings given such terms by section 1(h) but computed with the adjustments under this part.”. (3) Section 57(a)(7) of the 1986 Code is amended by adding at the end the following new sentence: “In the case of stock the holding period of which begins after December 31, 2000 (determined with the application of the last sentence of section 1(h)(2)(B)), the preceding sentence shall be applied by substituting ‘28 percent’ for ‘42 percent’.”. (4) Paragraphs (11) and (12) of section 1223, and section 1235(a), of the 1986 Code are each amended by striking “1 year” each place it appears and inserting “18 months”. (e) Amendments Related to Section 312 of 1997 Act.— (1) Paragraph (2) of section 121(b) of the 1986 Code is amended to read as follows: “(2) Special rules for joint returns.— In the case of a husband and wife who make a joint return for the taxable year of the sale or exchange of the property— “(A) $500,000 Limitation for certain joint returns.— Paragraph (1) shall be applied by substituting ‘$500,000’ for ‘$250,000’ if— “(i) either spouse meets the ownership requirements of subsection (a) with respect to such property; “(ii) both spouses meet the use requirements of subsection (a) with respect to such property; and “(iii) neither spouse is ineligible for the benefits of subsection (a) with respect to such property by reason of paragraph (3). “(B) Other joint returns.— If such spouses do not meet the requirements of subparagraph (A), the limitation under paragraph (1) shall be the sum of the limitations under paragraph (1) to which each spouse would be entitled if such spouses had not been married. For purposes of the preceding sentence, each spouse shall be treated as owning the property during the period that either spouse owned the property.”. (2) Section 121(c)(1) of the 1986 Code is amended to read as follows: “(1) In general.— In the case of a sale or exchange to which this subsection applies, the ownership and use requirements of subsection (a), and subsection (b)(3), shall not apply; but the dollar limitation under paragraph (1) or (2) of subsection (b), whichever is applicable, shall be equal to— “(A) the amount which bears the same ratio to such limitation (determined without regard to this paragraph) as “(B) (i) the shorter of— “(I) the aggregate periods, during the 5-year period ending on the date of such sale or exchange, such 112 STAT. 806property has been owned and used by the taxpayer as the taxpayer’s principal residence; or “(II) the period after the date of the most recent prior sale or exchange by the taxpayer to which subsection (a) applied and before the date of such sale or exchange, bears to “(ii) 2 years.”. (3) Section 312(d)(2) of the 1997 Act (relating to sales before date of the enactment) is amended by inserting “on or” before “before” each place it appears in the text and heading. (f) Amendments Related to Section 313 of 1997 Act.— (1) Subsection (a) of section 1045 of such Code is amended— (A) by striking “an individual” and inserting “a taxpayer other than a corporation”; and (B) by striking “such individual” and inserting “such taxpayer”. (2) Subsection (b) of section 1045 of the 1986 Code is amended by adding at the end the following new paragraph: “(5) Certain rules to apply.— Rules similar to the rules of subsections (f), (g), (h), (i), (j), and (k) of section 1202 shall apply.”.