AMENDMENTS RELATED TO ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001.

SEC. 411. AMENDMENTS RELATED TO ECONOMIC GROWTH AND TAX RELIEF RECONCILIATION ACT OF 2001. (a) Amendments Related to Section 101 of the Act.— (1) In general.—Subsection (b) of section 6428 is amended to read as follows: “(b) Credit Treated as Nonrefundable Personal Credit.—For purposes of this title, the credit allowed under this section shall be treated as a credit allowable under subpart A of part IV of subchapter A of chapter 1.”. (2) Conforming amendments.— “(A) Subsection (d) of section 6428 is amended to read as follows: “(d) Coordination with Advance Refunds of Credit.— “(1) In general.—The amount of credit which would (but for this paragraph) be allowable under this section shall be reduced (but not below zero) by the aggregate refunds and credits made or allowed to the taxpayer under subsection (e). Any failure to so reduce the credit shall be treated as arising out of a mathematical or clerical error and assessed according to section 6213(b)(1). “(2) Joint returns.—In the case of a refund or credit made or allowed under subsection (e) with respect to a joint return, half of such refund or credit shall be treated as having been made or allowed to each individual filing such return.”. (B) Paragraph (2) of section 6428(e) is amended to read as follows: “(2) Advance refund amount.—For purposes of paragraph (1), the advance refund amount is the amount that would have been allowed as a credit under this section for such first taxable year if— “(A) this section (other than subsections (b) and (d) and this subsection) had applied to such taxable year, and “(B) the credit for such taxable year were not allowed to exceed the excess (if any) of— “(i) the sum of the regular tax liability (as defined in section 26(b)) plus the tax imposed by section 55, over “(ii) the sum of the credits allowable under part IV of subchapter A of chapter 1 (other than the credits allowable under subpart C thereof, relating to refundable credits).”.116 STAT. 45 (b) Amendment Related to Section 201 of the Act..—Subparagraph (B) of section 24(d)(1) is amended by striking “amount of credit allowed by this section” and inserting “aggregate amount of credits allowed by this subpart”. (c) Amendments Related to Section 202 of the Act.— (1) Corrections to credit for adoption expenses.— (A) Paragraph (1) of section 23(a) is amended to read as follows: “(1) In general.—In the case of an individual, there shall be allowed as a credit against the tax imposed by this chapter the amount of the qualified adoption expenses paid or incurred by the taxpayer.”. (B) Subsection (a) of section 23 is amended by adding at the end the following new paragraph: “(3) $10,000 credit for adoption of child with special needs regardless of expenses.—In the case of an adoption of a child with special needs which becomes final during a taxable year, the taxpayer shall be treated as having paid during such year qualified adoption expenses with respect to such adoption in an amount equal to the excess (if any) of $10,000 over the aggregate qualified adoption expenses actually paid or incurred by the taxpayer with respect to such adoption during such taxable year and all prior taxable years.”. (C) Paragraph (2) of section 23(a) is amended by striking the last sentence. (D) Paragraph (1) of section 23(b) is amended by striking “subsection (a)(1)(A)” and inserting “subsection (a)”. (E) Subsection (i) of section 23 is amended by striking “the dollar limitation in subsection (b)(1)” and inserting “the dollar amounts in subsections (a)(3) and (b)(1)”. (F) Expenses paid or incurred during any taxable year, beginning before January 1, 2002, may be taken into account in determining the credit under section 23 of the Internal Revenue Code of 1986 only to the extent the aggregate of such expenses does not exceed the applicable limitation under section 23(b)(1) of such Code as in effect on the day before the date of the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001. (2) Corrections to exclusion for employer-provided adoption assistance.— (A) Subsection (a) of section 137 is amended to read as follows: “(a) Exclusion.— “(1) 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. “(2) $10,000 exclusion for adoption of child with special needs regardless of expenses.—In the case of an adoption of a child with special needs which becomes final during a taxable year, the qualified adoption expenses with respect to such adoption for such year shall be increased by an amount equal to the excess (if any) of $10,000 over the actual aggregate qualified adoption expenses with respect to such adoption during such taxable year and all prior taxable years.”.116 STAT. 46 (B) Paragraph (2) of section 137(b) is amended by striking “subsection (a)(1)” and inserting “subsection (a)”. (3) Effective date.—The amendments made by this subsection shall apply to taxable years beginning after December 31, 2002; except that the amendments made by paragraphs (1)(C), (1)(D), and (2)(B) shall apply to taxable years beginning after December 31, 2001. (d) Amendments Related to Section 205 of the Act.— (1) Section 45F(d)(4)(B) is amended by striking “subpart A, B, or D of this part” and inserting “this chapter or for purposes of section 55”. (2) Section 38(b)(15) is amended by striking “45F” and inserting “45F(a)”. (e) Amendments Related to Section 301 of the Act.— (1) Section 63(c)(2) is amended— (A) in subparagraph (A), by striking “subparagraph (C)” and inserting “subparagraph (D)”, (B) by striking “or” at the end of subparagraph (B), (C) by redesignating subparagraph (C) as subparagraph (D), (D) by inserting after subparagraph (B) the following new subparagraph: “(C) one-half of the amount in effect under subparagraph (A) in the case of a married individual filing a separate return, or”, and (E) by inserting the following flush sentence at the end: “If any amount determined under subparagraph (A) is not a multiple of $50, such amount shall be rounded to the next lowest multiple of $50.”. (2) (A) Section 63(c)(4) is amended by striking “paragraph (2) or (5)” and inserting “paragraph (2)(B), (2)(1)), or (5)”. (B) Section 63(c)(4)(B)(i) is amended by striking “paragraph (2)” and inserting “paragraph (2)(B), (2)(D),”. (C) Section 63(c)(4) is amended by striking the flush sentence at the end (as added by section 301(c)(2) of Public Law 107-17). (f) Amendment Related to Section 401 of the Act.—Section 530(d)(4)(B)(iv) is amended by striking “because the taxpayer elected under paragraph (2)(C) to waive the application of paragraph (2)” and inserting “by application of paragraph (2)(C)(i)(II)”. (g) Amendments Related to Section 511 of the Act.— (1) Section 2511(c) is amended by striking “taxable gift under section 2503,” and inserting “transfer of property by gift,”. (2) Section 2101(b) is amended by striking the last sentence, (h) Amendment Related to Section 532 of the Act.—Section 2016 is amended by striking “any State, any possession of the United States, or the District of Columbia,”. (i) Amendments Relating to Section 602 of the Act.— (1) Subparagraph (A) of section 408(q)(3) is amended to read as follows: “(A) Qualified employer plan.—The term ‘qualified employer plan’ has the meaning given such term by section 72(p)(4)(A)(i); except that such term shall also include an eligible deferred compensation plan (as defined in section 116 STAT. 47 457(b)) of an eligible employer described in section 457(e)(1)(A).”. (2) Section 4(c) of Employee Retirement Income Security Act of 1974 is amended— (A) by inserting “and part 5 (relating to administration and enforcement)” before the period at the end, and (B) by adding at the end the following new sentence: “Such provisions shall apply to such accounts and annuities in a manner similar to their application to a simplified employee pension under section 408(k) of the Internal Revenue Code of 1986.”. (j) Amendments Relating to Section 611 of the Act.— (1) Section 408(k) is amended— (A) in paragraph (2)(C) by striking “$300” and inserting “$450”, and (B) in paragraph (8) by striking “$300” both places it appears and inserting “$450”. (2) Section 409(o)(1)(C)(ii) is amended— (A) by striking “$500,000” both places it appears and inserting “$800,000”, and (B) by striking “$100,000” and inserting “$160,000”. (3) Section 611(i) of the Economic Growth and Tax Relief Reconciliation Act of 2001 is amended by adding at the end the following new paragraph: “(3) Special rule.—In the case of plan that, on June 7, 2001, incorporated by reference the limitation of section 415(b)(1)(A) of the Internal Revenue Code of 1986, section 411(d)(6) of such Code and section 204(g)(1) of the Employee Retirement Income Security Act of 1974 do not apply to a plan amendment that— “(A) is adopted on or before June 30, 2002, “(B) reduces benefits to the level that would have applied without regard to the amendments made by subsection (a) of this section, and “(C) is effective no earlier than the years described in paragraph (2).”. (k) Amendments Relating to Section 613 of the Act.— (1) Section 416(c)(1)(C)(iii) is amended by striking “Exception for frozen plan” and inserting “exception for plan under which no key employee (or former key employee) benefits for plan year”. (2) Section 416(g)(3)(B) is amended by striking “separation from service” and inserting “severance from employment”. (l) Amendments Relating to Sections 614 and 616 of the Act.— (1) Section 404(a)(12) is amended by striking “(9),” and inserting “(9) and subsection (h)(1)(C),”. (2) Section 404(n) is amended by striking “subsection (a),” and inserting “subsection (a) or paragraph (1)(C) of subsection (h)”. (3) Section 402(h)(2)(A) is amended by striking “15 percent” and inserting “25 percent”. (4) Section 404(a)(7)(C) is amended to read as follows: “(C) Paragraph not to apply in certain cases.— “(i) Beneficiary test.—This paragraph shall not have the effect of reducing the amount otherwise deductible under paragraphs (1), (2), and (3), if no 116 STAT. 48 employee is a beneficiary under more than 1 trust or under a trust and an annuity plan. “(ii) Elective deferrals.—If, in connection with 1 or more defined contribution plans and 1 or more defined benefit plans, no amounts (other than elective deferrals (as defined in section 402(g)(3))) are contributed to any of the defined contribution plans for the taxable year, then subparagraph (A) shall not apply with respect to any of such defined contribution plans and defined benefit plans.”. (m) Amendment Relating to Section 618 of the Act.—Section 25B(d)(2)(A) is amended to read as follows: “(A) In general.—The qualified retirement savings contributions determined under paragraph (1) shall be reduced (but not below zero) by the aggregate distributions received by the individual during the testing period from any entity of a type to which contributions under paragraph (1) may be made. The preceding sentence shall not apply to the portion of any distribution which is not includible in gross income by reason of a trustee-to-trustee transfer or a rollover distribution.”. (n) Amendments Relating to Section 619 of the Act.— (1) Section 45E(e)(1) is amended by striking “(n)” and inserting “(m)”. (2) Section 619(d) of the Economic Growth and Tax Relief 26 USC 38 note. Reconciliation Act of 2001 is amended by striking “established” and inserting “first effective”. (o) Amendments Relating to Section 631 of the Act.— (1) Section 402(g)(1) is amended by adding at the end the following: “(C) Catch-up contributions.—In addition to subparagraph (A), in the case of an eligible participant (as defined in section 414(v)), gross income shall not include elective deferrals in excess of the applicable dollar amount under subparagraph (B) to the extent that the amount of such elective deferrals does not exceed the applicable dollar amount under section 414(v)(2)(B)(i) for the taxable year (without regard to the treatment of the elective deferrals by an applicable employer plan under section 414(v)).”. (2) Section 401(a)(30) is amended by striking “402(g)(1)” and inserting “402(g)(1)(A)”. (3) Section 414(v)(2) is amended by adding at the end the following: “(D) Aggregation of plans.—For purposes of this paragraph, plans described in clauses (i), (ii), and (iv) of paragraph (6)(A) that are maintained by the same employer (as determined under subsection (b), (c), (m) or (o)) shall be treated as a single plan, and plans described in clause (iii) of paragraph (6)(A) that are maintained by the same employer shall be treated as a single plan.”. (4) Section 414(v)(3)(A)(i) is amended by striking “section 402(g), 402(h), 403(b), 404(a), 404(h), 408(k), 408(p), 415, or 457” and inserting “sections 401(a)(30), 402(h), 403(b), 408, 415(c), and 457(b)(2) (determined without regard to section 457(b)(3))”. (5) Section 414(v)(3)(B) is amended by striking “section 401(a)(4), 401(a)(26), 401(k)(3), 401(k)(11), 401(k)(12), 116 STAT. 49 403(b)(12), 408(k), 408(p), 408B, 410(b), or 416” and inserting “section 401(a)(4), 401(k)(3), 401(k)(11), 403(b)(12), 408(k), 410(b), or 416”. (6) Section 414(v)(4)(B) is amended by inserting before the period at the end the following: “, except that a plan described in clause (i) of section 410(b)(6)(C) shall not be treated as a plan of the employer until the expiration of the transition period with respect to such plan (as determined under clause (ii) of such section)”. (7) Section 414(v)(5) is amended— (A) by striking “, with respect to any plan year,” in the matter preceding subparagraph (A), (B) by amending subparagraph (A) to read as follows: “(A) who would attain age 50 by the end of the taxable year,”, and (C) in subparagraph (B) by striking “plan year” and inserting “plan (or other applicable) year”. (8) Section 414(v)(6)(C) is amended to read as follows: “(C) Exception for section 457 plans.—This subsection shall not apply to a participant for any year for which a higher limitation applies to the participant under section 457(b)(3).”. (9) Section 457(e) is amended by adding at the end the following new paragraph: “(18) Coordination with catch-up contributions for individuals age 50 or older.—In the case of an individual who is an eligible participant (as defined by section 414(v)) and who is a participant in an eligible deferred compensation plan of an employer described in paragraph (I)(A), subsections (b)(3) and (c) shall be applied by substituting for the amount otherwise determined under the applicable subsection the greater of— “(A) the sum of— “(i) the plan ceiling established for purposes of subsection (b)(2) (without regard to subsection (b)(3)), plus “(ii) the applicable dollar amount for the taxable year determined under section 414(v)(2)(B)(i), or “(B) the amount determined under the applicable subsection (without regard to this paragraph).”. (p) Amendments Relating to Section 632 of the Act.— (1) Section 403(b)(1) is amended in the matter following subparagraph (E) by striking “then amounts contributed” and all that follows and inserting the following: “then contributions and other additions by such employer for such annuity contract shall be excluded from the gross income of the employee for the taxable year to the extent that the aggregate of such contributions and additions (when expressed as an annual addition (within the meaning of section 415(c)(2))) does not exceed the applicable limit under section 415. The amount actually distributed to any distributee under such contract shall be taxable to the distributee (in the year in which so distributed) under section 72 (relating to annuities). For purposes of applying the rules of this subsection to contributions and other additions by an employer for a taxable year, amounts transferred to a contract described in this paragraph by reason of a rollover contribution described in paragraph 116 STAT. 50 (8) of this subsection or section 408(d)(3)(A)(ii) shall not be considered contributed by such employer.”. (2) Section 403(b) is amended by striking paragraph (6). (3) Section 403(b)(3) is amended— (A) in the first sentence by inserting the following before the period at the end: and which precedes the taxable year by no more than five years”, and (B) in the second sentence by striking “or any amount received by a former employee after the fifth taxable year following the taxable year in which such employee was terminated”. (4) Section 415(c)(7) is amended to read as follows: “(7) Special rules relating to church plans.— “(A) Alternative contribution limitation.— “(i) In general.—Notwithstanding any other provision of this subsection, at the election of a participant who is an employee of a church or a convention or association of churches, including an organization described in section 414(e)(3)(B)(ii), contributions and other additions for an annuity contract or retirement income account described in section 403(b) with respect to such participant, when expressed as an annual addition to such participant's account, shall be treated as not exceeding the limitation of paragraph (1) if such annual addition is not in excess of $10,000. “(ii) $40,000 aggregate limitation.—The total amount of additions with respect to any participant which may be taken into account for purposes of this subparagraph for all years may not exceed $40,000. “(B) Number of years of service for duly ordained, commissioned, or licensed ministers or lay employees.—For purposes of this paragraph— “(i) all years of service by— “(I) a duly ordained, commissioned, or licensed minister of a church, or “(II) a lay person, as an employee of a church, a convention or association of churches, including an organization described in section 414(e)(3)(B)(ii), shall be considered as years of service for 1 employer, and “(ii) all amounts contributed for annuity contracts by each such church (or convention or association of churches) or such organization during such years for such minister or lay person shall be considered to have been contributed by 1 employer. “(C) Foreign missionaries.—In the case of any individual described in subparagraph (D) performing services outside the United States, contributions and other additions for an annuity contract or retirement income account described in section 403(b) with respect to such employee, when expressed as an annual addition to such employee's account, shall not be treated as exceeding the limitation of paragraph (1) if such annual addition is not in excess of the greater of $3,000 or the employee's includible compensation determined under section 403(b)(3). 116 STAT. 51 “(D) Annual addition.—For purposes of this paragraph, the term ‘annual addition’ has the meaning given such term by paragraph (2). “(E) Church, convention or association of churches.—For purposes of this paragraph, the terms ‘church’ and ‘convention or association of churches’ have the same meaning as when used in section 414(e).”. (5) Section 457(e)(5) is amended to read as follows: “(5) Includible compensation.—The term ‘includible compensation’ has the meaning given to the term ‘participant's compensation’ by section 415(c)(3).”. (6) Section 402(g)(7)(B) is amended by striking “2001.” and inserting “2001).”. (q) Amendments Relating to Section 643 of the Act.— (1) Section 401(a)(31)(C)(i) is amended by inserting “is a qualified trust which is part of a plan which is a defined contribution plan and” before “agrees”. (2) Section 402(c)(2) is amended by adding at the end the following flush sentence: “In the case of a transfer described in subparagraph (A) or (B), the amount transferred shall be treated as consisting first of the portion of such distribution that is includible in gross income (determined without regard to paragraph (1)).”. (r) Amendments Relating to Section 648 of the Act.— (1) Section 417(e) is amended— (A) in paragraph (1) by striking “exceed the dollar limit under section 411(a)(11)(A)” and inserting “exceed the amount that can be distributed without the participant's consent under section 411(a)(11)”, and (B) in paragraph (2)(A) by striking “exceeds the dollar limit under section 411(a)(11)(A)” and inserting “exceeds the amount that can be distributed without the participant's consent under section 411(a)(11)”. (2) Section 205(g) of the Employee Retirement Income Security Act of 1974 is amended— (A) in paragraph (1) by striking “exceed the dollar limit under section 203(e)(1)” and inserting “exceed the amount that can be distributed without the participant's consent under section 203(e)”, and (B) in paragraph (2)(A) by striking “exceeds the dollar limit under section 203(e)(1)” and inserting “exceeds the amount that can be distributed without the participant's consent under section 203(e)”. (s) Amendment Relating to Section 652 of the Act.—Section 404(a)(1)(D)(iv) is amended by striking “Plans maintained by professional service employers” and inserting “Special rule for terminating plans”. (t) Amendments Relating to Section 657 of the Act.—Section 404(c)(3) of the Employee Retirement Income Security Act of 1974 is amended— (1) by striking “the earlier of” in subparagraph (A) the second place it appears, and (2) by striking “if the transfer” and inserting “a transfer that”. (u) Amendments Relating to Section 659 of the Act.— (1) Section 4980F is amended—116 STAT. 52 (A) in subsection (e)(1) by striking “written notice” and inserting “the notice described in paragraph (2)”, (B) by amending subsection (f)(2)(A) to read as follows: “(A) any defined benefit plan described in section 401(a) which includes a trust exempt from tax under section 501(a), or”, and (C) in subsection (f)(3) by striking “significantly” both places it appears. (2) Section 204(h)(9) of the Employee Retirement Income Security Act of 1974 is amended by striking “significantly” both places it appears. (3) Section 659(c)(3)(B) of the Economic Growth and Tax Relief Reconciliation Act of 2001 is amended by striking “(or” and inserting “(and”. (v) Amendments Relating to Section 661 of the Act.— (1) Section 412(c)(9)(B) is amended— (A) in clause (ii) by striking “125 percent” and inserting “100 percent”, and (B) by adding at the end the following new clause: “(i) Limitation.—A change in funding method to use a prior year valuation, as provided in clause (ii), may not be made unless as of the valuation date within the prior plan year, the value of the assets of the plan are not less than 125 percent of the plan's current liability (as defined in paragraph (7)(B)).”. (2) Section 302(c)(9)(B) of the Employee Retirement Income Security Act of 1974 is amended— (A) in clause (ii) by striking “125 percent” and inserting “100 percent”, and (B) by adding at the end the following new clause: “(iv) A change in funding method to use a prior year valuation, as provided in clause (ii), may not be made unless as of the valuation date within the prior plan year, the value of the assets of the plan are not less than 125 percent of the plan's current liability (as defined in paragraph (7)(B)).”. (w) Amendments Relating to Section 662 of the Act.— (1) Section 404(k) is amended— (A) in paragraph (1) by striking “during the taxable year”, (B) in paragraph (2)(B) by striking “(A)(iii)” and inserting “(A)(iv)”, (C) in paragraph (4)(B) by striking “(iii)” and inserting “(iv)”, and (D) by redesignating subparagraph (B) of paragraph (4) (as amended by subparagraph (C)) as subparagraph (C) of paragraph (4) and by inserting after subparagraph (A) the following new subparagraph: “(B) Reinvestment dividends.—For purposes of subparagraph (A), an applicable dividend reinvested pursuant to clause (iii)(II) of paragraph (2)(A) shall be treated as paid in the taxable year of the corporation in which such dividend is reinvested in qualifying employer securities or in which the election under clause (iii) of paragraph (2)(A) is made, whichever is later.”. (2) Section 404(k) is amended by adding at the end the following new paragraph:116 STAT. 53 “(7) Full vesting.—In accordance with section 411, an applicable dividend described in clause (iii)(II) of paragraph (2)(A) shall be subject to the requirements of section 411(a)(1).”. (x) Effective Date.—Except as provided in subsection (c), the amendments made by this section shall take effect as if included in the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 to which they relate.