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[Congressional Record: December 15, 2000 (House)] [Page H12406-H12439] From the Congressional Record Online via GPO Access [wais.access.gpo.gov] [DOCID:cr15de00-45] [[pp. H12406-H12439]] CONFERENCE REPORT ON H.R. 4577, DEPARTMENTS OF LABOR, HEALTH AND HUMAN SERVICES, AND EDUCATION, AND RELATED AGENCIES APPROPRIATIONS ACT, 2001 [[Continued from page H12405]] [[Page H12406]] HOUSE BILL No provision. However, H.R. 5542 conforms and enhances the tax incentives for the Round I and Round II empowerment zones and extends their designations through December 31, 2009. The bill also authorizes the designation of nine new empowerment zones (``Round III empowerment zones''). Extension of tax incentives for Round I and Round II empowerment zones The designation of empowerment zones status for Round I and II empowerment zones (other than the District of Columbia Enterprise Zone) is extended through December 31, 2009. In addition, the 20-percent wage credit is made available in all Round I and II empowerment zones for qualifying wages paid or incurred after December 31, 2001. The credit rate remains at 20 percent (rather than being phased down) through December 31, 2009, in Round I and Round II empowerment zones. In addition, $35,000 (rather than $20,000) of additional section 179 expensing in available for qualified zone property placed in service in taxable years beginning after December 31, 2001, by a qualified business in any of the empowerment zones.\12\ Businesses in the D.C. Enterprise Zone are entitled to the additional section 179 expensing until the termination of the D.C. Enterprise zone designation. --------------------------------------------------------------------------- \12\ The additional $35,000 of section 179 expensing is available throughout all areas that are part of a designated empowerment zone, including the non-contiguous ``developable sites'' that were allowed to be part of the designated Round II empowerment zones under the 1997 Act. --------------------------------------------------------------------------- Businesses located in Round I empowerment zones (other than the D.C. Enterprise Zone \13\ also are eligible for the more generous tax-exempt bond rules that apply under present law to businesses in the Round II empowerment zones (sec. 1394(f)). The bill applies to tax-exempt bonds issued after December 31, 2001. Bonds that have been issued by businesses in Round I zones before January 1, 2002, are not taken into account in applying the limitations on the amount of new empowerment zone facility bonds that can be issued under the bill. --------------------------------------------------------------------------- \13\ The present-law rules of sections 1394 and 1400A continue to apply with respect to the D.C. Enterprise Zone. --------------------------------------------------------------------------- Nine new empowerment zones The Secretaries of HUD and Agriculture are authorized to designate nine additional empowerment zones (``Round III empowerment zones''). Seven of the Round III empowerment zones will be located in urban areas, and two will be located in rural areas. The eligibility and selection criteria for the Round III empowerment zones are the same as the criteria that applied to the Round II Round empowerment zones. The Round III empowerment zones must be designated by January 1, 2002, and the tax incentives with respect to the Round III empowerment zones generally are available during the period beginning on January 1, 2002, and ending on December 31, 2009. Busineses in the Round III empowerment zones are eligible for the same tax incentives that, under the bill, are available to Round I and Round II empowerment zones (i.e., a 20 percent wage credit, an additional $35,000 of section 179 expensing, and the enhanced tax-exempt financing benefits presently available to Round II empowerment zones). GAO report The bill provides that the GAO will audit and report to Congress on January 31, 2004, and again in 2007 and 2010, on the empowerment zone and enterprise community program and its effect on poverty, unemployment, and economic growth within the designated areas. Effective date The extension of the existing empowerment zone designations is effective after the date of enactment. The extension of the tax benefits to existing empowerment zones (i.e., the expanded wage credit, the additional section 179 expensing, and the more generous tax-exempt bond rules) generally is effective after December 31, 2001. The new Round III empowerment zones must be designated by January 1, 2002, and the tax incentives with respect to the Round III empowerment zones generally are available during the period beginning on January 1, 2002, and ending on December 31, 2009. Senate Amendment No provision. However, S. 3152 contains a provision that conforms and enhances incentives of existing empowerment zones. Specifically, the provision extends the designation of empowerment zone status for Round I and II empowerment zones through December 31, 2009. In addition, a 15-percent wage credit is made available in all Round I and II empowerment zones, effective in 2002 (except in the case of the two additional Round I empowerment zones added by the 197 Act, for which the 15-percent wage credit takes effect in 2005 as scheduled under present law). For all the empowerment zones, the 15-percent wage credit expires on December 31, 2009. As in the House bill, $35,000 (rather than $20,000) in additional section 179 expensing is made available for qualified zone property placed in service in taxable years beginning after December 31, 2001, by a qualified business in any of the empowerment zones. Similarly, S. 3152 extends to businesses located in Round I empowerment zones the more generous tax-exempt bond rules that apply under present law to businesses in the Round II empowerment zones (sec. 1394(f)) for bonds issued after December 31, 2001. Businesses located in any empowerment zone also qualify for a zero-percent capital gains rate for gain from the sale of a qualifying zone assets acquired after date of enactment and before January 1, 2010, and held more than five years. Assets that qualify for this incentive are similar to the types of assets that qualify for the present-law zero percent capital gains rate for qualifying D.C. Zone assets. The zero-percent capital gains rate is limited to an aggregate amount not to exceed $25 million of gain per taxpayer. Gain attributable to the period before the date of enactment or after December 31, 2014, is not eligible for the zero-percent rate. Effective date.--The extension of the existing empowerment zone designations is effective after the date of enactment. The additional section 179 expensing and the more generous tax-exempt bond rules for the existing empowerment zones is effective after December 31,2001. The zero-percent capital gains rate applies to qualifying property purchased after the date of enactment. The 15-percent wage credit generally is effective for qualifying wages paid after December 31, 2001 (December 31, 2004 for the two additional Round I empowerment zones). Conference Agreement The conference agreement follows H.R. 5542. The conference agreement also provides that the Secretaries of HUD and Agriculture are authorized to designate a replacement empowerment zone for each empowerment zone that becomes a renewal community. The replacement empowerment zone will have the same urban or rural character as the empowerment zone that it is replacing. 2. Rollover of gain from the sale of qualified empowerment zone investments (sec. 116 of the bill and new sec. 1397B of the Code) Present Law In general, gain or loss is recognized on any sale, exchange, or other disposition of property. A taxpayer (other than a corporation) may elect to roll over without payment of tax any capital gain realized upon the sale of qualified small business stock held for more than six months where the taxpayer uses the proceeds to purchase other qualified small business stock within 60 days of the sale of the original stock. House Bill No provision. However, H.R. 5542 provides that a taxpayer can elect to roll over capital gain from the sale or exchange of any qualified empowerment zone asset purchased after the date of enactment and held for more than one year (``original zone asset'') where the taxpayer uses the proceeds to purchase other qualifying empowerment zone assets in the same zone (``replacement zone asset'') within 60 days of the sale of the original zone asset. The holding period of the replacement zone asset includes the holding period of the original zone asset, except that the replacement asset must actually be held for more than one year to qualify for another tax-free rollover. The basis of the replacement zone asset is reduced by the gain not recognized on the rollover. However, if the replacement zone asset is qualified small business stock (as defined in sec. 1202), the exclusion under section 1202 would not apply to gain accrued on the original zone asset.\14\ A ``qualified empowerment zone asset'' means an asset that would be a qualified community asset if the empowerment zone were a renewal community (and the asset is acquired after the date of enactment of the bill). Assets in the D.C. Enterprise Zone are not eligible for the tax-free rollover treatment.\15\ --------------------------------------------------------------------------- \14\ See section 1045 for rollover of qualified small business stock to other small business stock. \15\ However, a qualifying D.C. Zone asset held for more than five years is eligible for a 100-percent capital gains exclusion (sec. 1400B). --------------------------------------------------------------------------- Effective date.--The provision is effective for qualifying assets purchased after the date of enactment. senate amendment No provision. conference agreement The conference agreement follows H.R. 5542. 3. Increased exclusion of gain from the sale of qualifying empowerment zone stock (sec. 117 of the bill and sec. 1202 of the Code) Present Law Under present law, an individual, subject to limitations, may exclude 50 percent of the gain \16\ from the sale of qualifying small business stock held for more than five years (sec. 1202). --------------------------------------------------------------------------- \16\ The portion of the capital gain included in income is subject to a maximum regular tax rate of 28 percent, and 42 percent of the excluded gain is a minimum tax preference. --------------------------------------------------------------------------- House Bill No provision. However, H.R. 5542 increases the exclusion for small business stock to 60 percent for stock purchased after the date of enactment in a corporation that is a qualified business entity and that is held for more than five years. A ``qualified business entity'' means a corporation that satisfies the requirements of a qualifying business under the empowerment zone rules during substantially all the taxpayer's holding period. Effective Date.--The provision is effective for qualified stock purchased after the date of enactment. Senate Amendment No provision. Conference Agreement The conference agreement follows H.R. 5542. [[Page H12407]] C. New Markets Tax Credit (sec. 121 of the bill and new sec. 45D of the Code) present law Tax incentives are available to taxpayers making investments and loans in low-income communities. For example, tax incentives are available to taxpayers that invest in specialized small business investment companies licensed by the SBA to make loans to, or equity investments in, small businesses owned by persons who are socially or economically disadvantaged. house bill No provision. However, H.R. 5542 includes a provision that creates a new tax credit for qualified equity investments made to acquire stock in a selected community development entity (``CDE''). The maximum annual amount of qualifying equity investments is capped as follows: ------------------------------------------------------------------------ Maximum qualifying equity Calendar year investment ------------------------------------------------------------------------ 2001.................................. $1.0 billion 2002-2003............................. $1.5 billion per year 2004-2005............................. $2.0 billion per year 2006-2007............................. $3.5 billion per year ------------------------------------------------------------------------ The amount of the new tax credit to the investor (either the original purchaser or a subsequent holder) is (1) a five- percent credit for the year in which the equity interest is purchased from the CDE and the first two anniversary dates after the interest is purchased from the CDE, and (2) a six percent credit on each anniversary date thereafter for the following four years.\7\ The taxpayer's basis in the investment is reduced by the amount of the credit (other than for purposes of calculating the capital gain exclusion under sections 1202, 1400B, and 1400F). The credit is subject to the general business credit rules. --------------------------------------------------------------------------- \17\ Thus, a credit would be available on the date on which the investment is made and for each of the six anniversary dates thereafter. --------------------------------------------------------------------------- A CDE is any domestic corporation or partnership (1) whose primary mission is serving or providing investment capital for low-income communities or low-income persons, (2) that maintains accountability to residents of low-income communities by their representation on any governing board or on any advisory board of the CDE, and (3) is certified by the Treasury Department as an eligible CDE.\18\ No later than 120 days after enactment, the Treasury Department shall issue regulations that specify objective criteria to be used by the Treasury to allocate the credits among eligible CDEs. In allocating the credits, the Treasury Department will give priority to entities with records of having successfully provided capital or technical assistance to disadvantaged businesses or communities,\19\ as well as to entities that intend to invest substantially all of the proceeds from their investors in businesses in which persons unrelated to the CDE hold the majority of the equity interest. --------------------------------------------------------------------------- \18\ A specialized small business investment company and a community development financial institution are treated as satisfying the requirements for a CDE. \19\ A record of having successfully provided capital or technical assistance to disadvantaged businesses or communities could be demonstrated by the past actions of the CDE itself or an affiliate (e.g., in the case where a new CDE is established by a nonprofit organization with a history of providing assistance to disadvantaged communities). --------------------------------------------------------------------------- If a CDE fails to sell equity interests to investors up to the amount authorized within five years of the authorization, then the remaining authorization is canceled. The Treasury Department can authorize another CDE to issue equity interests for the unused portion. No authorization can be made after 2014. A ``qualified equity investment'' is defined as stock or a similar equity interest acquired directly from a CDE in exchange for cash. Substantially all of the investment proceeds must be used by the CDE to make ``qualified low- income community investments.'' Qualified low-income community investments include: (1) capital or equity investments in, or loans to, qualified active businesses located in low-income communities,\20\ (2) certain financial counseling and other services specified in regulations to businesses and residents in low-income communities, (3) the purchase from another CDE of any loan made by such entity that is a qualified low income community investment, or (4) an equity investment in, or loans to, another CDE.\21\ Treasury Department regulations will provide guidance with respect to the ``substantially all'' standard. --------------------------------------------------------------------------- \20\ Thus, a qualified low-income community investment may include an investment in a qualifying business in which the CDE (or a related party) holds a significant interest. However, as previously mentioned, in allocating the credits among eligible CDEs, the Treasury Department will give priority to CDEs that intend to invest substantially all of the proceeds from their investors in businesses in which persons unrelated to the CDE hold the majority of the equity interest. Persons are related to each other if they are described in sections 267(b) or 707(b)(1). \21\ If at least 85 percent of the aggregate gross assets of the CDE are invested (directly or indirectly) in equity interest in, or loans to, qualified active businesses located in low-income communities, then there would be no need to trace the use of the proceeds from the particular stock (or other equity ownership) issuance with respect to which the credit is claimed. --------------------------------------------------------------------------- The stock or equity interest cannot be redeemed (or otherwise cashed out) by the CDE for at least seven years. If an entity fails to be a CDE during the seven-year period following the taxpayer's investment, or if the equity interest is redeemed by the issuing CDE during that seven- year period, then any credits claimed with respect to the equity interest are recaptured (with interest) and no further credits are allowed. A ``low-income community'' is defined as census tracts with either (1) poverty rates of at least 20 percent (based on the most recent census data), or (2) median family income which does not exceed 80 percent of the greater of metropolitan area income or statewide median family income (for a non- metropolitan census tract, 80 percent of non-metropolitan statewide median family income). In addition, the Secretary may designate any area within any census tract as a ``low income community'' provided that (1) the boundary of the area is continuous,\22\ (2) the area (if it were a census tract) would satisfy the poverty rate or median income requirements within the targeted area, and (3) an inadequate access to investment capital exists in the area. --------------------------------------------------------------------------- \22\ It is intended that the continuous boundary that delineate the portion of the census tract as a ``low-income community'' should be a pre-existing boundary (such as an established neighborhood, political, or geographic boundary). --------------------------------------------------------------------------- A ``qualified active business'' is defined as a business which satisfies the following requirements: (1) at least 50 percent of the total gross income of the business is derived from the active conduct of trade or business activities in low-income communities; (2) a substantial portion of the use of the tangible property of such business is used in low- income communities; (3) a substantial portion of the services performed for such business by its employees is performed in low-income communities; and (4) less than 5 percent of the average aggregate of unadjusted bases of the property of such business is attributable to certain financial property or to collectibles (other than collectibles held for sale to customers). There is no requirement that employees of the business be residents of the low-income community. Rental of improved commercial real estate located in a low- income community is a qualified active business, regardless of the characteristics of the commercial tenants of the property. The purchase and holding of unimproved real estate is not a qualified active business. In addition, a qualified active business does not include (a) any business consisting predominantly of the development or holding of intangibles for sale or license; or (b) operation of any facility described in sec. 144(c)(6)(B). A qualified active business can include an organization that is organized on a non-profit basis. The GAO will audit and report to Congress by January 31, 2004, and again in 2007 and 2010, on the new markets tax credit program, including on all qualified community development entities that receive an allocation under the new markets tax credit program. Effective date.--The provision is effective for qualified investments made after December 31, 2000. senate amendment No provision. However, S. 3152 includes a provision that creates a new markets tax credit is similar to the provision in H.R. 5542. However, under S. 3152, the maximum annual amount of qualifying equity investments is capped as follows: ------------------------------------------------------------------------ Maximum qualifying equity Calendar year investment ------------------------------------------------------------------------ 2002.................................. $1.0 billion 2003-2006............................. $1.5 billion per year ------------------------------------------------------------------------ Under S. 3152, if a CDE fails to sell equity interests to investors up to the amount authorized within five years of the authorization, then the remaining authorization is canceled. The Treasury Department can authorize another CDE to issue equity interests for the unused portion. No authorization can be made after 2013. Effective date.--The provision is effective for qualified investments made after December 31, 2000. conference Agreement The conference agreement follows H.R. 5542. The conference agreement also clarifies that a low-income community can include a possession of the United States \23\ (and thus investments in a U.S. possession may qualify for the new markets tax credit). --------------------------------------------------------------------------- \23\ For this purpose, a U.S. possession means Puerto Rico, the Virgin Islands, Guam, the Northern Mariana Islands, and American Samoa. --------------------------------------------------------------------------- D. Increase the Low-Income Housing Tax Credit Cap and Make Other Modifications (secs. 131-137 of the bill and sec. 42 of the Code) Present Law In general The low-income housing tax credit may be claimed over a 10- year period for the cost of rental housing occupied by tenants having incomes below specified levels. The credit percentage for newly constructed or substantially rehabilitated housing that is not Federally subsidized is adjusted monthly by the Internal Revenue Service so that the 10 annual installments have a present value of 70 percent of the total qualified expenditures. The credit percentage for new substantially rehabilitated housing that is Federally subsidized and for existing housing that is substantially rehabilitated is calculated to have a present value of 30 percent qualified expenditures. Credit cap The aggregate credit authority provided annually to each State is $1.25 per resident, [[Page H12408]] except in the case of projects that also receive financing with proceeds of tax-exempt bonds issued subject to the private activity bond volume limit and certain carry-over amounts. Expenditure test Generally, the building must be placed in service in the year in which it receives an allocation to qualify for the credit. An exception is provided in the case where the taxpayer has expended an amount equal to 10-percent or more of the taxpayer's reasonably expected basis in the building by the end of the calendar year in which the allocation is received and certain other requirements are met. Basis of building eligible for the credit Buildings receiving assistance under the HOME investment partnerships act (``HOME'') are not eligible for the enhanced credit for buildings located in high cost areas (i.e., qualified census tracts and difficult development areas). Under the enhanced credit, the 70-percent and 30-percent credit are increased to a 91-percent and 39-percent credit, respectfully. Eligible basis is generally limited to the portion of the building used by qualified low-income tenants for residential living and some common areas. State allocation plan Each State must develop a plan for allocating credits and such plan must include certain allocation criteria including: (1) project location; (2) housing needs characteristics; (3) project characteristics; (4) sponsor characteristics; (5) participation of local tax-exempts; (6) tenant populations with special needs; and (7) public housing waiting lists. The State allocation plan must also give preference to housing projects: (1) that serve the lowest income tenants; and (2) that are obligated to serve qualified tenants for the longest periods. Credit administration There are no explicit requirements that housing credit agencies perform a comprehensive market study of the housing needs of the low-income individuals in the area to be served by the project, nor that such agency conduct site visits to monitor for compliance with habitability standards. Stacking rule Authority to allocate credits remains at the State (as opposed to local) government level unless State law provides otherwise.\24\ Generally, credits may be allocated only from volume authority arising during the calendar year in which the building is placed in service, except in the case of: (1) credits claimed on additions to qualified basis; (2) credits allocated in a later year pursuant to an earlier binding commitment made no later than the year in which the building is placed in service; and (3) carryover allocations. --------------------------------------------------------------------------- \24\For example, constitutional home rule cities in Illinois are guaranteed their proportionate share of the $1.25 amount, based on their population relative to that of the State as a whole. --------------------------------------------------------------------------- Each State annually receives low-income housing credit authority equal to $1.25 per State resident for allocation to qualified low-income projects.\25\ In addition to this $1.25 per resident amount, each State's ``housing credit ceiling'' includes the following amounts: (1) the unused State housing credit ceiling (if any) of such State for the preceding calendar year; \26\ (2) the amount of the State housing credit ceiling (if any) returned in the calendar year; \27\ and (3) the amount of the national pool (if any) allocated to such State by the Treasury Department. --------------------------------------------------------------------------- \25\A State's population, for these purposes, is the most recent estimate of the State's population released by the Bureau of the Census before the beginning of the year to which the limitation applies. Also, for these purposes, the District of Columbia and the U.S. possessions (i.e., Puerto Rico, the Virgin Islands, Guam, the Northern Marianas and American Samoa) are treated as States. \26\ The unused State housing credit ceiling is the amount (if positive) of the previous year's annual credit limitation plus credit returns less the credit actually allocated in that year. \27\ Credit returns are the sum of any amounts allocated to projects within a State which fail to become a qualified low- income housing project within the allowable time period plus any amounts allocated to a project within a State under an allocation which is canceled by mutual consent of the housing credit agency and the allocation recipient. --------------------------------------------------------------------------- The national pool consists of States' unused housing credit carryovers. For each State, the unused housing credit carryover for a calendar year consists of the excess (if any) of the unused State housing credit ceiling for such year over the excess (if any) of the aggregate housing credit dollar amount allocated for such year over the sum of $1.25 per resident and the credit returns for such year. The amounts in the national pool are allocated only to a State which allocated its entire housing credit ceiling for the preceding calendar year, and requested a share in the national pool not later than May 1 of the calendar year. The national pool allocation to qualified States is made on a pro rata basis equivalent to the fraction that a State's population enjoys relative to the total population of all qualified States for that year. The present-law stacking rule provides that a State is treated as using its annual allocation of credit authority ($1.25 per State resident) and any returns during the calendar year followed by any unused credits carried forward from the preceding year's credit ceiling and finally any applicable allocations from the National pool. house bill No provision. However, H.R. 5542 makes the following changes in the low-income housing credit. Credit cap The bill increases the per-capita low-income housing credit cap from $1.25 per capita to $1.50 per capita in calendar year 2001 and to $1.75 per capita in calendar year 2002. Beginning in calendar year 2003, the per-capita portion of the credit cap will be adjusted annually for inflation. For small States, a minimum annual cap of $2 million is provided for calendar years 2001 and 2002. Beginning in calendar year 2003, the small State minimum is adjusted for inflation. Expenditure test The bill allows a building which receives an allocation in the second half of a calendar to qualify under the 10-percent test if the taxpayer expends an amount equal to 10-percent or more of the taxpayer's reasonably expected basis in the building within six months of receiving the allocation regardless of whether the 10-percent test is met by the end of the calendar year. Basis of building eligible for the credit The bill makes three changes to the basis rules of the credit. First, the definition of qualified census tracts for purposes of the enhanced credit is expanded to include any census tracts with a poverty rate of 25 percent or more. Second, the bill extends the credit to a portion of the building used as a community service facility not in excess of 10 percent of the total eligible basis in the building. A community service facility is defined as any facility designed to serve primarily individuals whose income is 60 percent or less of area median income. Third, the bill provides that assistance received under the Native American Housing Assistance and Self-Determination Act of 1996 is not taken into account in determining whether a building is Federally subsidized for purposes of the credit. This allows such buildings to qualify for something other than the 30- percent credit generally applicable to Federally subsidized buildings. State allocation plans The bill strikes the plan criteria relating to participation of local tax-exempts, replacing it with two other criteria: tenant populations of individuals with children and projects intended for eventual tenant ownership. It also provides that the present-law criteria relating to sponsor characteristics include whether the project involves the use of existing housing as part of a community revitalization plan. The bill adds a third category of housing projects to the preferential list, for projects located in qualified census tracts which contribute to a concerted community revitalization plan. Credit administration The bill requires a comprehensive market study of the housing needs of the low-income individuals in the area to be served by the project and a written explanation available to the general public for any allocation not made in accordance with the established priorities and selection criteria of the housing credit agency. They also require site inspections by the housing credit agency to monitor compliance with habitability standards applicable to the project. Stacking rule The bill modifies the stacking rule so that each State is treated as using its allocation of the unused State housing credit ceiling (if any) from the preceding calendar before the current year's allocation of credit (including any credits returned to the State) and then finally any National pool allocations. Effective date The provision is generally effective for calendar years beginning after December 31, 2000, and buildings placed-in- service after such date in the case of projects that also receive financing with proceeds of tax-exempt bonds subject to the private activity bond volume limit which are issued after such date Senate Amendment Credit cap No provision. However, S. 3152 increases the annual State credit caps from $1.25 to $1.75 per resident beginning in 2001. Also, beginning in 2001 the per capita cap for each State is modified so that small population States are given a minimum of $2 million of annual credit cap. The $1.75 per capita cap and the $2 million amount are indexed for inflation beginning in calendar 2002. Expenditure test No provision. Basis of building eligible for the credit The provisions in S. 3152 relating to the treatment of buildings receiving assistance under the Native American Housing Assistance and Self-Determination Act of 1996 is the same as one of the provisions in H.R. 5542. State allocation plans No provision. Credit administration No provision. Stacking rule Same as H.R. 5542. Effective date The provisions are effective for calendar years beginning after December 31, 2000 and [[Page H12409]] buildings placed-in-service after such date in the case of projects that also receive financing with proceeds of tax- exempt bonds which are issued after such date subject to the private activity bond volume limit. Conference Agreement The conference agreement follows H.R. 5542. E. Accelerate Scheduled Increase in State Volume Limits on Tax-Exempt Private Activity Bonds (sec. 151 of the bill and sec. 146 of the Code) Present Law Interest on bonds issued by States and local governments is excluded from income if the proceeds of the bonds are used to finance activities conducted and paid for by the governmental units (sec. 103). Interest on bonds issued by these governmental units to finance activities carried out and paid for by private persons (``private activity bonds'') is taxable unless the activities are specified in the Internal Revenue Code. Private activity bonds on which interest may be tax-exempt include bonds for privately operated transportation facilities (airports, docks and wharves, mass transit, and high speed rail facilities), privately owned and/or provided municipal services (water, sewer, solid waste disposal, and certain electric and heating facilities), economic development (small manufacturing facilities and redevelopment in economically depressed areas), and certain social programs (low-income rental housing, qualified mortgage bonds, student loan bonds, and exempt activities of charitable organizations described in sec. 501(c)(3)). The volume of tax-exempt private activity bonds that States and local governments may issue for most of these purposes in each calendar year is limited by State-wide volume limits. The current annual volume limits are $50 per resident of the State or $150 million if greater. The volume limits do not apply to private activity bonds to finance airports, docks and wharves, certain governmentally owned, but privately operated solid waste disposal facilities, certain high speed rail facilities, and to certain types of private activity tax-exempt bonds that are subject to other limits on their volume (qualified veterans' mortgage bonds and certain ``new'' empowerment zone and enterprise community bonds). The current annual volume limits that apply to private activity tax-exempt bonds increase to $75 per resident of each State or $225 million, if greater, beginning in calendar year 2007. The increase is, ratably phased in, beginning with $55 per capita or $165 million, if greater, in calendar year 2003. House Bill No provision. However, H.R. 5542 increases the State volume limits from the greater of $50 per resident or $150 million to the greater of $62.50 per resident or $187.5 million in calendar year 2001. The volume limit will increase further, to the greater of $75 per resident or $225 million in calendar year 2002. Beginning in calendar year 2003, the volume limit will be adjusted annually for inflation. Effective date.--The provision is effective beginning in calendar year 2001. Senate Amendment No provision. However, S. 3152 increases the present-law annual State private activity bond volume limits to $75 per resident of each State or $225 million (if greater) beginning in calendar year 2001. In addition, the $75 per resident and the $225 million State limit will be indexed for inflation beginning in calendar year 2002. Effective date.--The provisions are effective beginning in calendar year 2001. Conference Agreement The conference agreement follows H.R. 5542. F. Extension and Modification to Expensing of Environmental Remediation Costs (sec. 152 of the bill and sec. 198 of the Code) present law Taxpayers can elect to treat certain environmental remediation expenditures that would otherwise be chargeable to capital account as deductible in the year paid or incurred (sec. 198). The deduction applies for both regular and alternative minimum tax purposes. The expenditure must be incurred in connection with the abatement or control of hazardous substances at a qualified contaminated site. A ``qualified contaminated site'' generally is any property that (1) is held for use in a trade or business, for the production of income, or as inventory; (2) is certified by the appropriate State environmental agency to be located within a targeted area; and (3) contains (or potentially contains) a hazardous substance (so-called ``brownfields''). Targeted areas are defined as: (1) empowerment zones and enterprise communities as designated under present law; (2) sites announced before February 1997, as being subject to one of the 76 Environmental Protection Agency (``EPA'') Brownfields Pilots; (3) any population census tract with a poverty rate of 20 percent or more; and (4) certain industrial and commercial areas that are adjacent to tracts described in (3) above. However, sites that are identified on the national priorities list under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 cannot qualify as targeted areas. Eligible expenditures are those paid or incurred before January 1, 2002. house bill No provision. However, H.R. 5542 extends the expiration date for eligible expenditures to include those paid or incurred before January 1, 2004. In addition, the bill eliminates the targeted area requirement, thereby, expanding eligible sites to include any site containing (or potentially containing) a hazardous substance that is certified by the appropriate State environmental agency. However, expenditures undertaken at sites that are identified on the national priorities list under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 would continue to not qualify as eligible expenditures. By extending and expanding section 198, the bill is not intended to displace the general tax law principle regarding expensing versus capitalization of expenditures which continues to apply to environmental remediation efforts not specifically covered under section 198. Effective date.--The provision to extend the expiration date if effective upon the date of enactment. The provision to expand the class of eligible sites is effective for expenditures paid or incurred after the date of enactment. senate amendment No provision. However, S. 3152 includes a provision identical to that of the House bill provision. conference agreement The conference agreement follows H.R. 5542. G. Expansion of District of Columbia Homebuyer Tax Credit (sec. 153 of the bill and sec. 1400C of the Code) present law First-time homebuyers of a principal residence in the District of Columbia are eligible for a nonrefundable tax credit of up to $5,000 of the amount of the purchase price. The $5,000 maximum credit applies both to individuals and married couples. Married individuals filing separately can claim a maximum credit of $2,500 each. The credit phases out for individual taxpayers with adjusted gross income between $70,000 and $90,000 ($110,000-$130,000 for joint filers). For purposes of eligibility, ``first-time homebuyer'' means any individual if such individual did not have a present ownership interest in a principal residence in the District of Columbia in the one year period ending on the date of the purchase of the residence to which the credit applies. The credit is scheduled to expire for residences purchased after December 31, 2001. house bill No provision. However, H.R. 5542 extends the first-time homebuyer credit for two years (through December 31, 2003). Effective date.--The provision is effective on the date of enactment. senate amendment No provision. However, S. 3152 includes a provision that extends the first-time homebuyer credit for two years, through December 31, 2003. The provision also extends the phase-out range for married individuals filing a joint return so that it is twice that of individuals. Thus, under the provision, the District of Columbia homebuyer credit is phased out for joint filers with adjusted gross income between $140,000 and $180,000. Effective date.--The provision is effective for taxable years beginning after December 31, 2000. conference agreement The conference agreement follows H.R. 5542. H. Extension of D.C. Enterprise Zone (sec. 154 of the bill and secs. 1400, 1400A and 1400B of the Code) present law The Taxpayer Relief Act of 1997 designated certain economically depressed census tracts within the District of Columbia as the District of Columbia Enterprise Zone (the ``D.C. Zone''), within which businesses and individual residents are eligible for special tax incentives. The D.C. Zone designation remains in effect for the period from January 1, 1998, through December 31, 2002. In addition to the tax incentives available with respect to a Round I empowerment zone (including a 20-percent wage credit), the D.C. Zone also has a zero-percent capital gains rate that applies to gain from the sale of certain qualified D.C. Zones assets acquired after December 31, 1997 and held for more than five years. With respect to the tax-exempt financing incentives, the D.C. Zone generally is treated like a Round I empowerment zone; therefore, the issuance of such bonds is subject to the District of Columbia's annual private activity bond volume limitation. However, the aggregate face amount of all outstanding qualified enterprise zone facility bonds per qualified D.C. Zone business may not exceed $15 million (rather than $3 million, as is the case for Round I empowerment zones).\28\ --------------------------------------------------------------------------- \28\ Section 1400A(a). --------------------------------------------------------------------------- house bill No provision. senate amendment No provision. However, S. 3152 includes a provision that extends the D.C. Zone designation through December 31, 2006. conference agreement The conference agreement follows S. 3152, except that the D.C. Zone designation is extended for one year (through December 31, 2003). [[Page H12410]] I. Extension and Modification of Enhanced Deduction for Corporate Donations of Computer Technology (sec. 155 of the bill and sec. 170(e)(6) of the Code) present law The maximum charitable contribution deduction that may be claimed by a corporation for any one taxable year is limited to 10 percent of the corporation's taxable income for that year (disregarding charitable contributions and with certain other modifications) (sec. 170(b)(2)). Corporations also are subject to certain limitations based on the type of property contributed. In the case of a charitable contribution of short-term gain property, inventory, or other ordinary income property, the amount of the deduction generally is limited to the taxpayer's basis (generally, cost) in the property. However, special rules in the Code provide an augmented deduction for certain corporate contributions. Under these special rules, the amount of the augmented deduction is equal to the lesser of (1) the basis of the donated property plus one-half of the amount of ordinary income that would have been realized if the property had been sold, or (2) twice the basis of the donated property. Section 170(e)(6) allows corporate taxpayers an augmented deduction for qualified contributions of computer technology and equipment (i.e., computer software, computer or peripheral equipment, and fiber optic cable related to computer use) to be used within the United States for educational purposes in grades K-12. Eligible donees are: (1) any educational organization that normally maintains a regular faculty and curriculum and has a regularly enrolled body of pupils in attendance at the place where its educational activities are regularly carried on; and (2) tax- exempt charitable organizations that are organized primarily for purposes of supporting elementary and secondary education. A private foundation also is an eligible donee, provided that, within 30 days after receipt of the contribution, the private foundation contributes the property to an eligible donee described above. Qualified contributions are limited to gifts made no later than two years after the date the taxpayer acquired or substantially completed the construction of the donated property. In addition, the original use of the donated property must commence with the donor or the donee. Accordingly, qualified contributions generally are limited to property that is no more than two years old. Such donated property could be computer technology or equipment that is inventory or depreciable trade or business property in the hands of the donor. Donee organizations are not permitted to transfer the donated property for money or services (e.g., a donee organization cannot sell the computers). However, a donee organization may transfer the donated property in furtherance of its exempt purposes and be reimbursed for shipping, installation, and transfer costs. For example, if a corporation contributes computers to a charity that subsequently distributes the computers to several elementary schools in a given area, the charity could be reimbursed by the elementary schools for shipping, transfer, and installation costs. The special treatment applies only to donations made by C corporations. S corporations, personal holding companies, and service organizations are not eligible donors. The provision is scheduled to expire for contributions made in taxable years beginning after December 31, 2000. house bill No provision. However, H.R. 5542 includes a provision that extends the current enhanced deduction for donations of computer technology and equipment through December 31, 2003, and expands the enhanced deduction to include donations to public libraries. H.R. 5542 provides that qualified contributions include gifts made no later than three years after the date the taxpayer acquired or substantially completed the construction of the donated property. Effective date.--The provision is effective for contributions made after December 31, 2000. senate amendment No provision. However, S. 3152 includes a provision that extends the current enhanced deduction for donations of computer technology and equipment through December 31, 2003. In addition, S. 3152 expands the enhanced deduction to include donations to public libraries. Effective date.--The provision is effective upon the date of enactment. conference agreement The conference agreement follows H.R. 5542 with a modification that contributions may be made by a person that has reacquired the property (i.e., if a computer manufacturer reacquires the computer from the original user and then contributes it). Such reacquired property must be contributed within 3 years of the date the original construction of the property was substantially completed. The conferees anticipate that for purposes of computing the enhanced deduction for a reacquirer, the Secretary will provide guidance in determining the retail value of donated computers (or other computer technology) in situations in which the number of actual retail sales of used computers similar to those donated is small in relation to the number of such computers that are donated. In addition, the conference agreement provides that the Secretary may prescribe by regulation standards to ensure that the donations meet minimum functionality and suitability standards for educational purposes. J. Treatment of Indian Tribes as Non-Profit Organizations and State or Local Governments For Purposes of the Federal Unemployment Tax (``FUTA'') (sec. 156 of the bill and sec. 3306 of the Code) present law Present law imposes a net tax on employers equal to 0.8 percent of the first $7,000 paid annually to each employee. The current gross FUTA tax is 6.2 percent, but employers in States meeting certain requirements and having no delinquent loans are eligible for a 5.4 percent credit making the net Federal tax rate 0.8 percent. Both non-profit organizations and State and local governments are not required to pay FUTA taxes. Instead they may elect to reimburse the unemployment compensation system for unemployment compensation benefits actually paid to their former employees. Generally, Indian tribes are not eligible for the reimbursement treatment allowable to non-profit organizations and State and local governments. house bill No provision. However, H.R. 5542 provides that an Indian tribe (in including any subdivision, subsidiary, or business enterprise chartered and wholly owned by an Indian tribe) is treated like a non-profit organization or State or local government for FUTA purposes (i.e., given an election to choose the reimbursement treatment). Effective date.--The provision generally is effective with respect to service performed beginning on or after the date of enactment. Under a transition rule, service performed in the employ of an Indian tribe is not treated as employment for FUTA purposes if: (1) it is service which is performed before the date of enactment and with respect to which FUTA tax has not been paid; and (2) such Indian tribe reimburses a State unemployment fund for unemployment benefits paid for service attributable to such tribe for such period. senate amendment No provision. However, S. 3152 is the same as H.R. 5542. conference agreement The conference agreement follows H.R. 5542 and S. 3152. TITLE II. MEDICAL SAVINGS ACCOUNTS (``MSAs'') (Sec. 201 of the bill and Sec. 220 of the Code) Present Law Within limits, contributions to a medical savings account (``MSA'') \29\ are deductible in determining adjusted gross income (``AGI'') if made by an eligible individual and are excludable from gross income and wages for employment tax purposes if made by the employer of an eligible individual. Earnings on amounts in an MSA are not currently taxable. Distributions from an MSA for medical expenses are not taxable. Distributions not used for medical expenses are taxable. In addition, distributions not used for medical expenses are subject to an additional 15-percent tax unless the distribution is made after age 65, death, or disability. --------------------------------------------------------------------------- \29\ In general, an MSA is a trust or custodial account created exclusively for the benefit of the account holder and is subject to rules similar to those applicable to individual retirement arrangements. The trustee of an MSA can be a bank, insurance company, or other person who demonstrates to the satisfaction of the Secretary that the manner in which such person will administer the trust will be consistent with applicable requirements. --------------------------------------------------------------------------- MSAs are available to self-employed individuals \30\ and to employees covered under an employer-sponsored high deductible plan of a small employer. An employer is a small employer if it employed, on average, no more than 50 employees on business day during either the preceding or the second preceding year. --------------------------------------------------------------------------- \30\ Self-employed individuals include more than 2-percent shareholders of S corporations who are treated as partners for purposes of fringe benefit rules pursuant to section 1372. Self-employed individuals are eligible for an MSA regardless of the size of the entity for which the individual performs services. --------------------------------------------------------------------------- In order for an employee of a small employer to be eligible to make MSA contributions (or to have employer contributions made on his or her behalf), the employee must be covered under an employer-sponsored high deductible health plan (see the definition below) and must not be covered under any other health plan (other than a plan that provides certain permitted coverage). Similarly, in order to be eligible to make contributions to an MSA, a self-employed individual must be covered under a high deductible health plan and no other health plan (other than a plan that provides certain permitted coverage). A self-employed individual is not an eligible individual (by reason of being self-employed) if the high deductible plan under which the individual is covered is established or maintained by an employer of the individual (or the individual's spouse). The maximum annual contribution that can be made to an MSA for a year is 65 percent of the deductible under the high deductible plan in the case of individual coverage and 75 percent of the deductible in the case of family coverage. A high deductible plan is a health plan with an annual deductible of at least $1,550 [[Page H12411]] and no more than $2,350 in the case of individual coverage and at least $3,100 and no more than $4,650 in the case of family coverage. In addition, the maximum out-of-pocket expenses with respect to allowed costs (including the deductible) must be no more than $3,100 in the case of individual coverage and no more than $5,700 in the case of family coverage.\31\ A plan does not fail to qualify as a high deductible plan merely because it does not have a deductible for preventive care as required by State law. A plan does not qualify as a high deductible health plan if substantially all of the coverage under the plan is for permitted coverage. In the case of a self-insured plan, the plan must in fact be insurance (e.g., there must be appropriate risk shifting) and not merely a reimbursement arrangement. --------------------------------------------------------------------------- \31\ These dollar amounts are for 2000. These amounts are indexed for inflation in $50 increments. --------------------------------------------------------------------------- The number of taxpayers benefiting annually from an MSA contribution is limited to a threshold level (generally 750,000 taxpayers). If it is determined in a year that the threshold level has been exceeded (called a ``cut-off'' year) then, in general, for succeeding years during the 4-year pilot period 1997-2000, only those individuals who (1) made an MSA contribution or had an employer MSA contribution for the year or a preceding year (i.e., are active MSA participants) or (2) are employed by a participating employer, is eligible for an MSA contribution. In determining whether the threshold for any year has been exceeded. MSAs of individuals who were not covered under a health insurance plan for the six month period ending on the date on which coverage under a high deductible plan commences would not be taken into account.\32\ However, if the threshold level is exceeded in a year, previously uninsured individuals are subject to the same restriction on contributions in succeeding years as other individuals. That is, they would not be eligible for an MSA contribution for a year following a cut-off year unless they are an active MSA participant (i.e., had an MSA contribution for the year or a preceding year) or are employed by a participating employer. --------------------------------------------------------------------------- \32\ permitted coverage does not constitute coverage under a health insurance plan for this purpose. --------------------------------------------------------------------------- The number of MSAs established has not exceeded the threshold level. After December 31, 2000, no new contributions may be made to MSAs except by or on behalf of individuals who previously had MSA contributions and employees who are employed by a participating employer. An employer is a participating employer if (1) the employer made any MSA contributions for any year to an MSA on behalf of employees or (2) at least 20 percent of the employees covered under a high deductible plan made MSA contributions of at least $100 in the year 2000. Self-employed individuals who made contributions to an MSA during the period 1997-2000 also may continue to make contributions after 2000. House Bill No provision. However, H.R. 5542 extends the MSA program through 2002. The same rules that apply to the limit on MSAs for 1999 apply to 2000 and 2001. Thus, for example, the threshold level in those years is 750,000 taxpayers. Effective date.--The provision is effective on the date of enactment. Senate Amendment No provision. Conference Agreement The conference report follows H.R. 5542, except that MSAs are renamed as Archer MSAs. The conference agreement clarifies that, as under present law, the cap and reporting requirements do not apply for 2000. TITLE III. ADMINISTRATIVE AND TECHNICAL CORRECTIONS PROVISIONS Subtitle A. Administrative Provisions A. Exempt Certain Reports From Elimination Under the Federal Reports Elimination and Sunset Act of 1995 (sec. 301 of the bill) present law Section 303 of the Federal Reports Elimination and Sunset Act of 1995 eliminates many periodic Federal reporting requirements, effective May 15, 2000. house bill No provision. However, H.R. 5542 exempts certain reports from elimination and sunset pursuant to the Federal Reports Elimination and Sunset Act of 1995. senate amendment No provision. conference agreement The conference agreement follows H.R. 5542. B. Extension of Deadlines for IRS Compliance With Certain Notice Requirements (sec. 302 of the bill and secs. 6631 and 6751(a) of the Code) present law The Internal Revenue Service Restructuring and Reform Act of 1998 (``IRS Restructing Act of 1998'') imposed several notice requirements relating to penalties, interest and installment agreements. Section 6715 of the Code, added by section 3306 of the IRS Restructing Act of 1998, requires that each notice imposing a penalty include the name of the penalty, the Code section under which the penalty is imposed, and a computation of the penalty,\33\ This requirement applies to notices issued, and penalties assessed, after December 31, 2000.\34\ --------------------------------------------------------------------------- \33\ Sec. 6715(a). \34\ P.L. 105-206, sec. 3306. --------------------------------------------------------------------------- Section 6631 of the Code, added by section 3308 of the IRS Restructuring Act of 1998, requires that every IRS notice sent to an individual taxpayer that includes an amount of interest required to be paid by the taxpayer also include a detailed computation of the interest charged and a citation of the Code section under which such interest is imposed. The provision is effective for notices issued after December 31, 2000. Section 3506 of the IRS Restructuring Act of 1998 requires the IRS to send every taxpayer in an installment agreement an annual statement of the initial balance owed, the payments made during the year, and the remaining balance. The provision became effective on July 1, 2000. house bill No provision. However, H.R. 5542 extend the deadlines for complying with the penalty, interest, and installment agreement notice requirements. Specifically, the annual installment agreement notice requirement is extended from July 1, 2000, to September 1, 2001. The deadlines for complying with the notice requirements relating to the computation of penalties and interest \35\ are both extended to June 30, 2001. In addition, for penalty notices issued after June 30, 2001, and before July 1, 2003, the notice requirements will be treated as met if the notice contains a telephone number at which the taxpayer can request a copy of the taxpayer's assessment and payment history with respect to such penalty. Similarly, for interest notices issued after June 30, 2001, and before July 1, 2003, the notice requirements will be treated as met if such notice contains a telephone number at which the taxpayer can request a copy of the taxpayer's payment history relating to interest amounts included in such notice. --------------------------------------------------------------------------- \35\ Secs. 6715(a) and 6631. --------------------------------------------------------------------------- Effective date.--The provision is effective on the date of enactment. Senate amendment No provision. Conference agreement The conference agreement follows H.R. 5542. C. Extension of Authority for Undercover Operations (sec. 303 of the bill and sec. 7608 of the Code) present law The Anti-Drug Abuse Act of 1988 exempted IRS undercover operations from the otherwise applicable statutory restrictions controlling the use of Government funds (which generally provide that all receipts must be deposited in the general fund of the Treasury and all expenses be paid out of appropriated funds). In general, the exemption permits the IRS to ``churn'' the income earned by an undercover operation to pay additional expenses incurred in the undercover operation. The IRS is required to conduct a detailed financial audit of large undercover operations in which the IRS is churning funds and to provide an annual audit report to the Congress on all such large undercover operations. The exemption originally expired on December 31, 1989, and was extended by the Comprehensive Crime Control Act of 1990 to December 31, 1991. In the Taxpayer Bill of Rights II (Public Law 104-168), the authority to churn funds from undercover operations was extended for five years, through 2000. house bill No provision. However, H.R. 5542 extends the authority of the IRS to ``churn'' the income earned from undercover operations for an additional five years, through 2005. Effective date.--The provision is effective on the date of enactment. Senate amendment No provision. conference agreement The conference agreement follows H.R. 5542. D. Competent Authority and Pre-Filing Agreements (sec. 304 of the bill and secs. 6103, 6110, and new sec. 6105 of the Code) present law Section 6103 Section 6103 of the Code sets forth the general rule that returns and return information are confidential. A return is any tax return, information return, declaration of estimated tax, or claim for refund filed under the Code on behalf of or with respect to any person. The term return also includes any amendment or supplement, including supporting schedules or attachments or lists, which are supplemental to or are part of a filed return. Return information is defined broadly. It includes the following information: A taxpayer's identity, the nature, source or amount of income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, over assessments, or tax payments; Whther the taxpayer's return was, is being, or will be examined or subject to other investigations or processing; Any other data, received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a return or with respect to the determination of the existence, or possible existence, of liability (or [[Page H12412]] the amount thereof) of any person under this title for any tax, penalty, interest, fine, forfeiture, or other imposition, or offense;\36\ --------------------------------------------------------------------------- \36\ Sec. 6103(b)(2)(A). --------------------------------------------------------------------------- Any part of any written determination or any background file document relating to such written determination which is not open to the public inspection under section 6110,\37\ and --------------------------------------------------------------------------- \37\ Sec. 6103(b)(2)(B). --------------------------------------------------------------------------- Any advance pricing agreement entered into by a taxpayer and the Secretary and any background information related to the agreement or any application for an advance pricing agreement. The term ``return information'' does not include data in a form that cannot be associated with or otherwise identify, directly or indirectly, a particular taxpayer. Secrecy of information exchanged under tax treaties U.S. tax treaties typically contain articles governing the exchange of information. These articles generally provide for the exchange of information between the tax authorities articles generally provide for the exchange of information between the tax authorities of the two countries when such information is necessary for carrying out provisions of the treaty or of the countries' domestic tax laws. Individuals referred to as ``competent authorities'' are designated by each country to make written requests for information and to receive information.\38\ --------------------------------------------------------------------------- \38\ The U.S. competent authority is the Secretary of the Treasury or his delegate. The U.S. competent authority function has been delegated to the Commissioner of Internal Revenue, who has redelegate the authority to the Director, International. On interpretive issues, the latter acts with the concurrence of the Associate Chief Counsel (International) of the IRS. --------------------------------------------------------------------------- The exchange of information articles typically cover information relating to taxes to which the treaty applies, but can also apply to other taxes( e.g., excise taxes) not covered by the treaty. Many of the treaties permit the exchange of information even if the taxpayer involved is not a resident of one of the treaty countries. The exchange of information articles may be similar to, or represent a variation on, Article 26 of the 1996 U.S. model income tax treaty. Information that is received under the exchange of information articles is subject to secrecy clauses contained in the treaties. In this regard, the country requesting information under the treaties typically is require to treat any information received as secret in the same manner as information obtained under its domestic laws. In general, disclosure is not permitted other than to persons or authorities involved in the administration assessment collection or enforcement of taxes to which the treaty applies. For example, disclosure generally can be made to legislative bodies, such as the tax-writing committees of the Congress, and the General Accounting Officer for purposes of overseeing the administration of U.S. tax laws. In addition to the exchange of information articles in U.S. tax treaties, exchange of information provisions are contained in tax information exchange agreements entered into between the United States and another country.\39\ In addition, information may be exchanged pursuant to the Convention on Mutual Administrative Assistance in Tax Matters developed by the Council of Europe and the Organization for Economic Cooperation and Development (the ``Multilateral Mutual Assistance Convention''), which limits the use of exchanged information and permits disclosure of such information only with the prior authorization of the competent authority of the country providing the information.\40\ The United States has also entered into a number of implementation and coordination agreements with possessions that provide for the exchange of tax information. Moreover, the United States has entered into various mutual legal assistance treaties with other countries, some of which can be used to obtain tax information in criminal investigations. --------------------------------------------------------------------------- \39\ Sections 274(h)(6)(C) and 927(e)(3) specifically provide the Secretary of the Treasury the authority to enter into tax information exchange agreements. This eliminates the need for Senate ratification, which is required for a tax treaty. In addition, all tax information exchange agreements are required to include specific non-disclosure provisions which provide that ``information received by either country will be disclosed only to persons or authorities (including courts and administrative bodies) involved in the administration or oversight of, or in the determination of appeals in respect of, taxes of the United States, or the beneficiary country and will be used by such persons or authorities only for such purposes.'' Sec. 274(h)(6)C)(i). \40\ The U.S. Senate ratified the Multilateral Mutual Assistance Convention, subject to certain reservations, in September 1990. The Multilateral Mutual Assistance Convention entered into force on April 1, 1995, and has been signed by the following countries: Denmark, Finland, Iceland, the Netherlands, Norway, Sweden, and the United States. --------------------------------------------------------------------------- Both the confidentiality provisions of section 6103, as well as treaty secrecy provisions can cover return information. Section 6110 and section 7121 Section 6110 of the Code provides for disclosure of written determinations. With certain exceptions, section 6110 makes the text of any written determination the Internal Revenue Service (``IRS'') issues available for pubic inspection. A written determination is any ruling, determination letter, technical advice memorandum, or Chief Counsel advice. The IRS is required to redact certain material before making these documents publicly available.\41\ Among the information to be redacted is information specifically exempted from disclosure by any statute (other than Title 26) that is applicable to the IRS. Once the IRS makes the written determination publicly available, the background file documents associated with such written determination are available for public inspection upon written request. Section 6110 defines ``background file documents'' as any written material submitted by the taxpayer or other requester in support of the request. Background file documents also include any communications between the IRS and persons outside the IRS concerning such written determination that occur before the IRS issues the determination. --------------------------------------------------------------------------- \41\ For rulings, determination letters and technical advice memorandum, section 6110(c) provides the following exemptions from disclosure: (1) The names, address, and other identifying details of the person to whom the written determination pertains and of any other person, other than a person with respect to whom a notation is made under subsection(d)(1) (relating to third party contacts), identified in the written determination or any background file document; (2) Information specifically authorized under criteria established by an Executive order to be kept secret in the interest of national defense or foreign policy, and which is in fact properly classified pursuant to such Executive order; (3) Information specifically exempted from disclosure by any statute (other than[Title 26] which is applicable to the Internal Revenue Service; (4) Trade secrets and commercial or financial information obtained from a person and privileges or confidential; (5) Information the disclosure or which would constitute a clearly unwarranted invasion of personal privacy; (6) Information contained in or related to examination, operating, or condition reports prepared by, or on behalf of, or for use of an agency responsible for the regulation or supervision of financial institutions; and (7) Geological and geophysical information and data, including maps, concerning wells. For Chief Counsel Advice, paragraphs 2 through 7 do not apply, however, material may be deleted in accordance with subsections (b) and(c) of the FOIA (except that in applying Exemption 3 of the FOIA, no statutory provision of the Code is to be taken into account.) See sec. 6110(i)(3). --------------------------------------------------------------------------- Section 6110 was added to the Code in 1976. The legislative history provided that a written determination would not be considered a ruling, technical advice memorandum, or determination letter, unless the document satisfies three criteria: (1) The document recites the relevant facts; (2) The document explains the applicable provisions of law; and (3) The document shows the application of law to the facts.\42\ --------------------------------------------------------------------------- \42\ H.R. Rep. 94-658, at 315 (1976). --------------------------------------------------------------------------- The legislative history further provided that section 6110 ``does not require public disclosure of a closing agreement entered into between the IRS and a taxpayer which finally determines the taxpayer's tax liability with respect to a taxable year... Your committee understands that a closing agreement is generally the result of a negotiated settlement and, as such, does not necessarily represent the IRS view of the law. Your committee intends, however, that the closing agreement exception is not to be used as a means of avoiding pubic disclosure of determinations which, under present practice, would be issued in a form which would be open to pubic inspection [under the bill].''\43\ --------------------------------------------------------------------------- \43\ Id. at 316. --------------------------------------------------------------------------- Closing agreements are entered into under the authority of section 7121. Closing agreements finally and conclusively settle a tax between the IRS and a taxpayer. Closing agreements may: (1) determine a taxpayer's entire tax liability for a previous tax period; or (2) fix the tax treatment of one or more specific items affecting tax liability or any tax period. Thus, closing agreements may settle the treatment of a specific item for periods ending after the execution of the agreement. A single closing agreement may cover both the determination of a taxpayer's entire tax liability for a previous tax period and fix the tax treatment of specific items for any tax period. Freedom of Information Act The Freedom of Information Act (``FOIA''), enacted in 1966, established a statutory right to access government information. While the purpose of section 6103 is to restrict access to returns and return information, the basic purpose of the FOIA is to ensure that the public has access to government documents. In general, the FOIA provides that any person has a right of access to Federal agency records, except to the extent that such records (or portions thereof) are protected from disclosure by one of nine exemptions or by one of three special law enforcement record exclusions. Exemption 3 of the FOIA allows the withholding of information prohibited from disclosure by another statue if certain requirements are met.\44\ The right of access is enforceable in court. --------------------------------------------------------------------------- \44\ 5 U.S.C. sec. 552(b)(3). --------------------------------------------------------------------------- Pending FOIA requests and litigation involving IRS records Records covered by treaty secrecy clauses A publisher of tax related material and commentary has made a FOIA request for the disclosure of competent authority agreements. The request has been pending since March 14, 2000.\45\ The IRS has not denied the [[Page H12413]] request, nor has it produced any documents responsive to the request. At this time, no suit has been filed to compel disclosure of these documents, although such a suit may be brought in the future. --------------------------------------------------------------------------- \45\ The initial FOIA request of March 14, 2000, covered all competent authority agreements executed for the United States from January 1, 1990, to date. In response to a request from the Department of Treasury, by letter dated April 17, 2000, the FOIA request was narrowed to cover competent authority agreements executed between 1997 and 1999. The right to pursue the 1990 through 1996 agreements, however, was reserved. --------------------------------------------------------------------------- In connection with a separate request, the IRS was sued under the FOIA to compel disclosure of Field Service Advice memoranda (``FSAs'').\46\ FSAs are prepared by attorneys in the IRS National Office of the Office of Chief Counsel. They are prepared in response to requests from IRS field personnel for legal guidance, usually with respect to issues relating to a particular taxpayer. FSAs usually contain a statement of issues, facts, legal analysis and conclusions. The primary purpose of FSAs is to ensure that IRS field personnel apply the law correctly and uniformly. The D.C. Circuit determined that FSAs are subject to disclosure. However, the court remanded the case to district court to address assertions of privilege, including those based on treaty secrecy. A decision on this issue by the district court is still pending.\47\ --------------------------------------------------------------------------- \46\ Tax Analysts v. IRS, 117 F.3d 607 (D.C. Cir. 1997). \47\ Tax Analysts v. IRS, No. 94-CV-923 (GK) (D.D.C.). --------------------------------------------------------------------------- Pre-filing agreements On February 11, 2000, the IRS issued Notice 2000-12, in which the IRS established a pilot program for ``Pre-filing Agreements.'' Under this program, large businesses may request a review and resolution of specific issues relating to tax returns they expect to file between September and December of 2000. The purpose of the program is to enable taxpayers and the IRS to resolve issues that are likely to be dispusted in post-filing audits. Examples of such issues include: (1) asset valuation and the allocation of a business's purchase or sale price among the assets acquired or sold; (2) the identification and documentation of hedging transactions; and (3) the determination of ``market'' for taxpayers using the lower of cost or market method of inventory valuation in situations involving the inactive markets. The program is intended to address issues for which the law is settled. In Notice 2000-12, the IRS stated that pre-filing agreements are closing agreements entered into pursuant to section 7121. As such, the notice provides that the information generated or received by the IRS during the pre- filing agreement process constitutes return information. The notice further provides that pre-filing agreements are not written determinations as defined in section 6110, nor are they subject to disclosure under the FOIA. House Bill No provision. However, H.R. 5542 affirms that closing and similar agreements, and information exchanged and agreements reached pursuant to a tax treaty, are confidential. Further, the provision clarifies that such protected documents are not to be disclosed under the FOIA or section 6110. Clarification that return information includes closing agreements and similar dispute resolution agreements Protection for closing agreements, pre-filing agreements and similar agreements not containing an exposition of the tax law The bill provides that agreements entered into under section 7121 or similar agreements are confidential return information. Similar agreements are intended to include negotiated agreements that (1) are the result of an alternative dispute resolution or dispute avoidance process relating to liability of any person under the Code for any tax, penalty, interest, fine or forfeiture or other imposition or offense and (2) do not establish, set forth, or resolve the government's interpretation of the relevant tax law. This is not meant to preclude citation, or repetition of, the Code, Treasury regulations, or other published rules. It is intended that pre-filing agreements be covered by this provision. It is the understanding of the conferees that pre-filing agreements do not explain the applicable provisions of law or otherwise contain any exposition of the tax law or the position of the IRS. In addition, it is not intended that the closing and similar agreement exception be used as a means of avoiding public disclosure of determinations that, under present law, would be issued in a form that would be open to public inspection. Thus, technical advice memoranda, chief counsel advice or other material clearly available to the public under present law section 6110, would not be exempt from disclosure by virtue of the fact that such material is contained in a background file for a closing agreement. For example, if a revenue agent seeks technical advice in connection with a pre-filing agreement, such technical advice would remain subject to the requirements of section 6110. Since the pre-filing agreement program involves only settled issues of law, it is the understanding of the conferees that documents of this nature generally would not be generated in the pre-filing agreement process. The provision is not intended to foreclose the disclosure of tax-exempt organization closing agreements to the extent such disclosure is authorized under section 6104.\48\ Since section 6103 permits the disclosure of return information as authorized by title 26, a disclosure authorized by section 6104 is permissible, notwithstanding the fact that a closing agreement is return information. --------------------------------------------------------------------------- \48\ The D.C. Circuit recently remanded to the district court for factual development the issue of whether the closing agreement in that case was submitted in support of an exemption application, and therefore, subject to disclosure under section 6104. Tax Analysts v. IRS, 214 F.3d 179 (D.C. Cir 2000), vacating and remanding 99-2 U.S.T.C. (CCH) 794 (D.D.C. 1999). --------------------------------------------------------------------------- Report on pre-filing agreement program It is intended that the Secretary make publicly available an annual report relating to the pre-filing agreement program operations for the preceding calendar year. The annual reporting requirement is for five years, or the duration of the program, whichever is shorter. The report is to include (1) the number of pre-filing agreements completed, (2) the number of applications received, (3) the number of applications withdrawn, (4) the types of issues which are resolved by completed agreements, (5) whether the program is being utilized by taxpayers who were previously subject to audit by the IRS, (6) the average length of time required to complete an agreement, (7) the number, if any, and subject of technical advice and chief counsel advice memoranda issued to address issues arising in connection with any pre-filing agreement, (8) any model agreements,\49\ and (9) any other information the Secretary deems appropriate. The first report, covering the calendar year 2000, is to be issued no later than March 30, 2001. The information required for the annual report is subject to the restrictions of section 6103. Therefore, the Secretary will disclose information only in a form that cannot be associated with or otherwise identify, directly or indirectly, a particular taxpayer. The Joint Committee on Taxation periodically may review pre-filing agreements to determine whether they contain legal interpretations that should be disclosed to the public. --------------------------------------------------------------------------- \49\ See e.g., Appendix A of Rev. Proc. 2000-38 which is a model ``Closing Agreement on Final Determination Covering Specific Matters'' regarding method of accounting for distributor commissions. Rev. Proc. 2000-38, 2000-40 I.R.B. 314-315 (October 2, 2000). That model agreement does not identify any particular taxpayer but sets forth the substance of the agreement. --------------------------------------------------------------------------- Clarification that information protected by treaty is confidential Protection for agreements and information exchanged pursuant to tax treaty The provision adds a new Code section 6105, which provides that tax convention information, with limited exceptions, cannot be disclosed. Thus, the provision confirms that agreements concluded under, and information received pursuant to, a tax convention are confidential and can only be disclosed as provided in such tax convention. Under the provision, a tax convention is defined to include any income tax or gift and estate tax convention, or any other convention or bilateral agreement (including multilateral conventions and agreements and any agreement with a possession of the United States) providing for the avoidance of double taxation, the prevention of fiscal evasion, nondiscrimination with respect to taxes, the exchange of tax relevant information with the United States, or mutual assistance in tax matters. It is the understanding of the conferees that competent authority agreements (also referred to as mutual agreements) generally do not contain an explanation of the law or application of law to facts. Instead, such agreements are negotiated arrangements to resolve issues of double taxation. Thus, the term tax convention information for purposes of the provision includes: (1) any agreement entered into with the competent authority of one or more foreign governments pursuant to a tax convention; (2) an application for relief under a tax convention (sought by either a taxpayer or another competent authority); (3) any background information related to such agreement or application; (4) documents implementing such agreement; and (5) any other information exchanged pursuant to a tax convention that is treated as confidential or secret under such tax convention. The conferees intend that tax convention information would include documents and any other information that reflects tax convention information, including the association of a particular treaty partner with a specific issue or matter. The general rule that tax convention information cannot be disclosed does not apply to the disclosure of tax convention information to persons or authorities (including courts and administrative bodies) that are entitled to disclosure under the tax convention. It also does not apply to any generally applicable procedural rules regarding applications for relief under a tax convention. This exception is intended to ensure that there is no restriction on the release by the Secretary of publicly available procedural rules concerning matters such as how or when to make a request for competent authority assistance. Thus, certain material generated by IRS, i.e., its Competent Authority procedures (primarily reflected in Rev. Proc. 96-13), or similar material produced by a treaty partner (for example, an Information Circular produced and published by the Canadian tax authority) may be made available to the public. The general rule does not apply to the disclosure of information not relating to a particular taxpayer if, after consultation with the parties to a tax convention, the Secretary determines that such disclosure would not impair tax administration. This is consistent with current practice. An example of a general agreement that could be disclosed under this provision is the agreement between the competent authorities of Mexico and the United States regarding the maquiladora industry. That agreement, which was not taxpayer specific, was [[Page H12414]] publicized by press release IR-INT-1999-13. The conferees intend that the ``impairment of tax administration'' for purposes of this provision include, but not be limited to, the release of documents that would adversely affect the working relationship of the treaty partners. Under the provision, except as otherwise provided, taxpayer-specific tax convention information could not be publicly disclosed, even if it would not impair tax administration. A taxpayer-specific competent authority agreement that relates to the existence or possible existence of liability (or amount thereof) of any person for any tax, penalty, interest, fine, forfeiture, or other imposition or offense under the Code is return information under section 6103. It is also an agreement pursuant to a tax convention under section 6105. Return information, including taxpayer-specific competent authority agreements, remains subject to the confidentiality provisions of section 6103. Thus, civil and criminal penalties for the unauthorized disclosure of returns and return information continue to apply to return information that is also covered by section 6105. However, tax convention information that is return information may only be disclosed to the extent provided in, and subject to the terms and conditions of, the relevant tax convention. Interaction with FOIA and section 6110 Under the provision, closing agreements and similar agreements would not be considered written determinations for purposes of section 6110 and, thus, would not be subject to public disclosure. Such agreements would be defined as return information under section 6103 and, therefore, such documents would be protected from disclosure pursuant to Exemption 3 of the FOIA in conjunction with section 6103. In addition, under the provision, section 6110 would not apply to material covered by section 6105. In the litigation over FSAs, there has been some dispute as to whether treaties qualify as statutes for purposes of withholding information pursuant to Exemption 3 of the FOIA. The conferees believe that treaties are the equivalent of statutes for purposes of Exemption 3 of the FOIA. Section 6105 satisfies Exemption 3 of the FOIA. Taxpayer-specific tax convention information concerning a taxpayer's tax liability, such as taxpayer- specific competent authority agreements, would be exempt from the FOIA as both return information under section 6103 and information protected from disclosure by tax convention under section 6105. Agreements not relating to a particular taxpayer, and other tax convention information related to such agreements, could be disclosed under FOIA if it is determined that the disclosure would not impair tax administration. Effective date The provision applies to disclosures on, or after, the date of enactment, and thus, applies to all documents in existence on, or created after, the date of enactment. senate amendment No provision. conference agreement The conference agreement follows H.R. 5542. E. Increase Joint Committee on Taxation Refund Review Threshold to $2 Million (sec. 305 of the bill and sec. 6405 of the Code) Present Law No refund or credit in excess of $1,000,000 of any income tax, estate or gift tax, or certain other specified taxes, may be made until 30 days after the date a report on the refund is provided to the Joint Committee on Taxation (sec. 6405). A report is also required in the case of certain tentative refunds. Additionally, the staff of the Joint Committee on Taxation conducts post-audit reviews of large deficiency cases and other select issues. House Bill No provision. However, H.R. 5542 increases the threshold above which refunds must be submitted to the Joint Committee on Taxation for review from $1,000,000 to $2,000,000. The staff of the Joint Committee on Taxation would continue to exercise its existing statutory authority to conduct a program of expanded post-audit reviews of large deficiency cases and other select issues, and the IRS is expected to cooperate fully in this expanded program. Effective date.--The provision is effective on the date of enactment, except that the higher threshold does not apply to a refund or credit with respect to which a report was made before the date of enactment. Senate Amendment No provision. Conference Agreement The conference agreement follows H.R. 5542. F. Clarifying the Allowance of Certain Tax Benefits with Respect to Kidnapped Children (sec. 306 of the bill and secs. 2, 24, 32, and 151 of the Code) Present Law The Code generally requires that a taxpayer provide over one-half of the support for each individual claimed as that taxpayer's dependent. Similarly, the child credit, the surviving spouse filing status, and the head of household filing status require that a taxpayer satisfy certain requirements with regard to individuals that qualify as the taxpayer's dependent(s). Finally, the earned income credit for taxpayers with qualifying children generally is available only if the taxpayer has the same principal place of abode for more than one-half the taxable year with an otherwise qualifying child. Recently published IRS guidance first denied a dependency exemption to certain taxpayers with kidnapped children (TAM 200034029), then allowed such tax benefits to such taxpayers (TAM 200038059). House Bill No provision. However, H.R. 5542 clarifies that the dependency exemption, the child credit, the surviving spouse filing status, the head of household filing status, and the earned income credit are available to an otherwise qualifying taxpayer with respect to a child who is presumed by law enforcement authorities to have been kidnapped by someone who is not a member of the family of such child or the taxpayer. Generally, this treatment continues for all taxable years ending during the period that the child is kidnapped. However, this treatment ends for the taxable year ending after the calendar year in which it is determined that the child is dead (or, if earlier, in which the child would have attained age 18). Effective date.--The provision is effective for taxable years ending after the date of enactment. Senate Amendment No provision. Conference Agreement The conference agreement follows H.R. 5542. G. Conforming Changes To Accommodate Reduced Issuances of Certain Treasury Securities (sec. 307 of the bill and sec. 995(f)(4) of the Code) Present Law Code section 995(f)(4) dealing with the interest charge on the deferred tax liability of the shareholders of a domestic international sales corporation provides that the interest rate be determined by reference to the average investment yield on United States Treasury bills with maturities of 52 weeks. In addition, provisions of Federal law relating to interest on monetary judgments in civil cases recovered in Federal district court and on a judgment against the United States affirmed by the Supreme Court (Title 28), interest on certain unpaid criminal fines and penalties (Title 18), and interest on compensation for certain takings of property (Title 40) determine the applicable interest rate by reference to 52-week Treasury bills. As a result of prior Congressional efforts at budgetary control, current and projected Federal budget surpluses are reducing the need of the Treasury Department to issue certain securities. The Treasury Department has informed the Congress that on grounds of efficient debt management, and predictability and liquidity for the financial markets, the Treasury Department has announced it is likely to cease issuing 52-week Treasury bills. House Bill No provision. However, H.R. 5542 modifies the Code (sec. 995(f)(4)) and certain other parts of Federal law relating to interest on monetary judgments in civil cases recovered in Federal district court and on a judgment against the United States affirmed by the Supreme Court (Title 28), interest on certain unpaid criminal fines and penalties (Title 18), and interest on compensation for certain takings of property (Title 40) that make specific reference to yields on 52-week Treasury bills. H.R. 5542 generally replaces the reference to 52-week Treasury bills with a reference to the weekly average one-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System. Effective date.--The provision is effective upon the date of enactment. Senate Amendment No provision. Conference Agreement The conference agreement follows H.R. 5542. H. Authorization of Agencies to Use Corrected Consumer Price Index (sec. 308 of the bill) present law Code section 1(f) provides for adjustments in the tax tables so that inflation will not result in tax increases. Numerous other provisions of the Code are indexed as well. Section 1(f) provides that inflation is measured by changes in the consumer price index (``CPI'') for the preceding year as published by the Department of Labor compared to the CPI for the calendar year 1992. Section 1(f) directs the Secretary to publish tables with applicable tax rates based upon calculated inflation adjustments by December 15 of the year before the year to which the tables are to apply. In addition, payments made under Social Security, certain Federal employee retirement programs, and certain payments to individuals under various welfare and income support programs are adjusted annually by changes in the CPI. On September 28, 2000, the Bureau of Labor Statistics (``BLS'') announced that the agency had discovered a computational error in quality adjustments of air conditioning as a part of the cost of housing resulting in errors in the reported CPI between January 1999 and August 2000. The BLS reported that the CPI levels starting in January 1999 have been either 0.0, 0.1, or 0.2 index points lower than the levels that would have been published [[Page H12415]] without the error. Consistent with agency guidelines and past practices, the BLS announced that it is revising the reported CPI back to January 2000 to the fully correct levels. The BLS will make no changes to reported levels for January through December 1999. However, the BLS will make the corrected levels of the CPI for 1999 available upon request. house bill No provision. However, H.R. 5542 authorizes the Secretary of the Treasury to use the corrected levels of the CPI for 1999 and 2000 for all purposes of the Code to which they might apply. H.R. 5542 directs the Secretary to prescribe new tables reflecting the correct levels of the 1999 CPI for the 2000 tax year. In addition, H.R. 5542 provides that the Director of the Office of Management and Budget (``OMB'') shall assess Federal benefit programs to ascertain the extent to which the CPI error has or will result in a shortfall in program payments to individuals for 2000 and future years. The Director is directed to issue guidelines to agency administrators to determine the extent, if any, of such shortfalls in payments to individuals. The agency administrators are to report their findings to the Director and to Congress within 30 days. H.R. 5542 provides that, within 60 days of the date of enactment, the Director instruct the head of any Federal agency which administers an affected program to make a payment or payments to compensate for the shortfall and that such payments are targeted to the amount of the shortfall experienced by individual beneficiaries. Applicable Federal benefit programs include the old-age and survivors insurance program, the disability insurance program and the supplemental security income program under the Social Security Act and other programs as determined by the Director. H.R. 5542 directs the Director to report to the Congress on the activities performed pursuant to this provision by April 1, 2001. Effective date.--The provision is effective on the date of enactment. senate bill No provision. conference agreement The conference agreement follows H.R. 5542, except that the conference agreement directs the Secretary to prescribe new tables reflecting the correct levels of the CPI for the 2001 tax year. The conferees note that error in the CPI was computational in nature. The conferees support the BLS's policy to incorporate methodological changes only on a prospective basis. The conferees also understand that BLS policy provides that published indices generally not be revised except for those found to be in error for the year in which the error was discovered or within the past twelve months. The conferees recognize that the errors in the CPI date to as long as 20 months prior to the announcement of the error. The conferees recognize that the BLS's policy of not publishing corrected index numbers, beyond those provided as described above, has been applied in those rare cases where an error has been discovered in the past. However, the conferees understand that in the past 25 years the few errors that have been discovered have involved sub-indices and have not affected the level of the CPI itself. The last time the U.S. City Average All Items CPI was revised was in December 1974, when the values for the months of April through October 1974 were recalculated and released with issuance of the November CPI. Therefore, past precedent does not strictly apply to the present situation. The conferees believe that integrity of official government data is vital to policymakers and private individuals and businesses throughout the country. The conferees emphasize that the CPI plays an important role in economic planning. For this reason the conferees are concerned that, while the BLS has published corrected CPI numbers for 2000, the BLS does not intend to publish correct CPI numbers for 1999 as part of the official CPI series. To its credit, the BLS announced the error publicly. The national press reported the error.\50\ In the absence of a correction to the official CPI series, the Federal government will be left in the position of maintaining, as an official data series, index numbers that the Federal government has admitted are incorrect. The conferees believe that the public's trust in the integrity of official government data is a paramount goal and the conferees strongly encourage the Commissioner of the Bureau of Labor Statistics to review carefully the agency's current policy with the respect to publishing as part of an official series corrections to data found to be in error for reasons of computational error. The conferees believe such a review should be made both with respect of computational error. The conferees believe such a review should be made both with respect to the error announced on September 28, 2000, and as a matter for the future for those rate circumstances when such a similar computational error might once again arise. --------------------------------------------------------------------------- \50\ For example, John M. Berry, ``Inflation Higher Than Reported,'' The Washington Post, September 27, 2000, p. E-1, John M. Berry, ``Rent Error Leads to Revision Of the CPI,'' The Washington Post, September 29, 2000, p. E-3, Nicholas Kulish, ``Major Price Index Is Revised Upward As Result of Error,'' The Wall Street Journal, September 28, 2000, p. A2, and Nicholas Kulish, ``Second-Period GDP Rose at 5.6% Annual Rate,'' The Wall Street Journal, September 29, 2000, p. A2. The conferees observe that these press reports highlight the potential confusion for the public regarding these data. The Washington Post reported that ``the CPI figures for 1999 were not revised'' (September 29, 2000 story) while The Wall Street Journal reported that ``[t]he BLS said a complete revision of all the data sets would be released'' (September 28, 2000 story) and ``it [BLS] announced that it would revise the index'' (September 29, 2000 story. --------------------------------------------------------------------------- 1. Prevent Duplication or Acceleration of Loss Through Assumption of Certain Liabilities (sec. 309 of the bill and sec. 358 of the Code) present law Generally, no gain or loss is recognized when one or more persons transfer property to a corporation in exchange for stock and immediately after the exchange such person or persons control the corporation. However, a transfer recognizes gain to the extent it receives money or other property (``boot'') as part of the exchange (sec. 351). The assumption of liabilities by the controlled corporation generally is not treated as boot received by the transferor,\51\ except that the transferor recognizes gain to the extent that the liabilities assumed exceed the total of the adjusted basis of the property transferred to the controlled corporation pursuant to the exchange (sec. 357(c)). --------------------------------------------------------------------------- \51\ The assumption of liabilities is treated as boot if it can be shown that ``the principal purpose'' of the assumption is tax avoidance on the exchange, or is a non-bona fide business purpose (sec. 357(b)). --------------------------------------------------------------------------- The assumption of liabilities by the controlled corporation generally reduces the transferor's basis in the stock of the controlled corporation that assumed the liabilities. The transferor's basis in the stock of the controlled corporation is the same as the basis of the property contributed to the controlled corporation, increased by the amount of any gain (or dividend) recognized by the transferor on the exchange, and reduced by the amount of any money or property received, and by the amount of any loss recognized by the transferor (sec. 358). For this purpose, the assumption of a liability is treated as money received by the transferor. An exception to the general treatment of assumption of liabilities applies to assumptions of liabilities that would give rise to a deduction, provided the incurrence of such liabilities did not result in the creation or increase of basis of any property. The assumption of such liabilities is not treated as money received by the transferor in determining whether the transferor has gain on the exchange. Similarly, the transferor's basis in the stock of the controlled corporation is not reduced by the assumption of such liabilities. The Internal Revenue Service has ruled that the assumption by an accrual basis corporation of certain contingent liabilities for soil and groundwater remediation would be covered by this exception.\52\ --------------------------------------------------------------------------- \52\ Rev. Rul. 95-74, 1995-2 C.B. 36. The ruling addressed a parent corporation's transfer to a subsidiary of substantially all the assets of a manufacturing business, in exchange for stock and the assumption of liabilities associated with the business, including certain contingent environmental remediation liabilities. These liabilities arose due to contamination of land during the parent corporation's operation of the manufacturing business. The transferor has no plan or intention to dispose of (or to have the subsidiary issue) any subsidiary stock. The IRS ruled that the contingent liabilities would not reduce the transferor's basis in the stock of the subsidiary because the liabilities would not reduce the transferor's basis in the stock of the subsidiary because the liabilities had not been taken into account by the transfer prior to the transfer and had not given rise to deductions or basis for the transferor. --------------------------------------------------------------------------- House Bill No provision. However, H.R. 5542 contains a provisions to limit the acceleration or duplication of losses through assumptions of liabilities. Under H.R. 5542, if the basis of stock (determined without regard to this provision) received by a transferor as part of a tax-free exchange with a controlled corporation exceeds the fair market value of the stock, then the basis of the stock received is reduced (but not below the fair market value) by the amount (determined as of the date of the exchange) of any liability that (1) is assumed in exchange for such stock, and (2) did not otherwise reduced the transferor's basis of the stock by reason on the assumption. Except as provided by the Secretary of the Treasury, this provision does not apply where the trade or business with which the liability is associated is transferred to the corporation as part of the exchange, or where substantially all the assets which the liability is associated are transferred to the corporation as part of the exchange. The exception for transfers of a trade or business, or substantially all the assets with which a liability is associated, are intended to obviate the need for valuation or basis reduction in such cases. The exceptions are not intended to apply to situation involving the selective transfer of assets that may bear some relationship to the liability, but that do not represent the full scope of the trade or business, (or substantially all the assets) with which the liability is associated. For purposes of the provision, the term ``liability'' includes fixed or contingent obligation to make payments, without regard to whether such obligation or potential obligation is otherwise taken into account under the Code. The determination whether a liability (as more broadly defined for purposes of this provision) has been assumed is made in accordance with the provisions of section 357(d)(1) of the Code. Under the standard of 357(d)(1), a recourse liability is treated as assumed if, based on all the facts and circumstances, the transferee has agreed to and [[Page H12416]] is expected to satisfy such liability (or portion thereof), whether or not the transferor has been relieved of the liability. For example, if a transferee corporation does not formally assume a recourse obligation or potential obligation of the transferor, but instead agrees and is expected to indemnify the transferor with respect to all or a portion of a such an obligation, then the amount that is agreed to be indemnified is treated as assumed for purposes of the provision, whether or not the transferor has been relieved of such liability. Similarly, a nonrecourse liability is treated as assumed by the transferee of any asset subject to such liability.\53\ --------------------------------------------------------------------------- \53\ Section 357(d)(2) contains a limitation in the case of certain non recourse liabilities. Also, under section 357, regulations if issued, may provide for different results. --------------------------------------------------------------------------- The application of the provision is illustrated in the following example: Assume a taxpayer transfers assets with an adjusted basis and fair market value of $100 to its wholly- owned corporation and the corporation assumes $40 of liabilities (the payment of which would give rise to a deduction). Thus, the value of the stock received by the transferor is $60. Under present law, the basis of the stock would be $100. The provision requires that the basis of the stock be reduced to $60 (i.e., a reduction of $40). Except is provided by the Secretary, no basis reduction is required if the transferred assets consisted of the trade or business, or substantially all the assets, with which the liability associated. The provision does not change the tax treatment with respect to the transferee corporation. The Secretary of the Treasury is directed to prescribe rules providing appropriate adjustments to prevent the acceleration or duplication of losses through the assumption of liabilities (as defined in the provision) in transactions involving partnerships. The Secretary may also provide appropriate adjustments in the case of transactions involving S. corporations. In the case of S corporations, such rules may be applied instead of the otherwise applicable basis reduction rules. Effective Date.--The provision is effective for assumption of liabilities on or after October 19, 1999. Except as provided by the Secretary, the rule addressing transactions involving partnerships are effective with the same effective date. Any rules addressing transactions involving S corporations may likewise be effective for assumptions of liabilities on or after October 19, 1999, or such later date as may be prescribed in such rules. senate amendment No provision. On April 4, 2000, Senators Roth and Moynihan introduced a bill (S. 2354) that is the same as the provision in H.R. 5542. conference agreement The conference agreement follow H.R. 5542. J. Disclosure of Return Information to the Congressional Budget Office (sec. 310 of the bill and new sec. 6103(j)(6) of the Code) present law Federal tax returns and return information are confidential and cannot be disclosed unless authorized by the Code. Section 6103 authorizes certain agencies to receive tax returns and return information for statistical use and for other specified purposes.\54\ Section 6103 also permits the Secretary of the Treasury (``the Secretary'') to provide return information to any person authorized to receive it by any mode or means that the Secretary determines necessary or appropriate.\55\ Persons making unauthorized disclosures or inspections of tax returns and return information are subject to criminal and civil penalties.\56\ --------------------------------------------------------------------------- \54\ E.g., sec. 6103(j), and 6103(1)(1) and (5). \55\ Sec. 6103(p)(2)(B). \56\ Sec. secs. 7431, 7213, and 7213A. --------------------------------------------------------------------------- House Bill No provision. Senate Amendment No provision. Conference Agreement Disclosure of return information The Congressional Budget Office (``CBO'') is in the process of developing the capability to make projections of the Social Security and Medicare programs over long periods of time. To facilitate the development and operation of long- term models of Social Security and Medicare, CBO needs continuing access to records from the IRS. Specifically, CBO seeks two SSA files that contain return information--the Social Security Earnings Record and the Master Beneficiary Record. These files contain individual earnings data compiled from tax returns (Forms W-2), which are protected from disclosure by section 6103. In addition, CBO may request other records, including those matched with survey data. The conference agreement amends section 6103 to permit the Secretary to furnish to CBO return information to the extent such information is necessary for purposes of CBO's long-term models of Social Security and Medicare. This authority extends to the development, operation, and maintenance by CBO of its long-term models of Social Security and Medicare. It is the intent of Congress that all requests for information made by CBO under this provision be made to the Secretary and that the Secretary use his authority under section 6103(p)(2) such that the SSA or other agency can furnish directly to CBO, for purposes of CBO's long-term models of Social Security and Medicare, the files they possess that incorporate return information. It is also the intent of Congress that the Secretary furnish such other return information under this provision as is necessary for purposes of CBO's Social Security and Medicare long-term models. Under the provision, CBO is subject to the present-law safeguard requirements for tax returns and return information.\57\ Further, CBO is prohibited from disclosing any tax returns and return information received under this provision except in a form that cannot be associated with, or otherwise identify, directly or indirectly a particular taxpayer. Present-law civil and criminal penalties apply to the unauthorized disclosure or inspection of tax returns or return information.\58\ --------------------------------------------------------------------------- \57\ Sec. 6103(p)(4). \58\ See secs. 7431, 7213, and 7213A. --------------------------------------------------------------------------- Addition of general CBO confidentiality provisions The conference agreement adds to the Congressional Budget Act of 1974 \59\ additional confidentiality provisions which would require CBO to provide the same level of confidentiality to data it obtains from other agencies as that to which the agencies themselves are subject. Officials and employees of CBO would be subject to the same statutory penalties for unauthorized disclosure as the employees of the agencies from which CBO obtain the data. --------------------------------------------------------------------------- \59\ 2 U.S.C. sec. 601(d). --------------------------------------------------------------------------- Subtitle B.--Tax Technical Corrections (secs. 311-319 of the bill) house bill No provision. However, H.R. 5542 includes tax technical corrections.\60\ Except as otherwise provided, the technical corrections contained in the bill generally are effective as if included in the originally enacted related legislation. The provisions under the IRS Restructuring Act of 1998 relating to innocent spouse and to procedural and administrative issues (other than the provision relating to clarification of Tax Court authority to issue appealable decisions) are effective upon the date of enactment of the bill. --------------------------------------------------------------------------- \60\ In addition to other tax technical corrections, the bill contains the technical corrections contained in H.R. 2488, the Financial Freedom Act of 1999 (106th Cong. 1st Sess., reported by the House Committee on Ways and Means, H. Rept. 106-238, July 16, 1999, 393-397), as passed by the House, and S. 1429, the Taxpayer Refund Act of 1999 (reported by the Senate Committee on Finance, S. Rept. 106-120, July 23, 1999, 221-225), as passed by the Senate. (The technical corrections were not included in the conference agreement to H.R. 2488, the Taxpayer Refund and Relief Act of 1999 (106th Cong., 1st Sess., H. Rept. 106-289, Aug. 4, 1999, 542-543). The Taxpayer Refund and Relief Act of 1999 was vetoed by President Clinton.) However, the bill does not include the following provisions enacted in other legislation: sections 1601(b)(2) and (c) of H.R. 2488 (and section 504(c) of S. 1429), relating to the Vaccine Trust Fund, which were enacted in the ``Ticket to Work and Work Incentives Improvement Act of 1999'' (P.L. 106-170, sec. 523(b)). --------------------------------------------------------------------------- Amendments relating to the Ticket to Work and Work Incentives Improvement Act of 1999 Research credit.--The provision clarifies the anti-double dip rule coordinating the research credit (sec. 41) and the Puerto Rico economic activity credit (sec. 30A). It is arguable that the present-law provisions could be construed so that the amount of wages on which a taxpayer could claim the section 30A credit is reduced only by the amount of credit claimed under section 41, rather than by the amount of wages upon which the section 41 credit is based. This result is inconsistent with the legislative history of the original provisions. The provision deletes the words ``or credit'' after ``deduction'' in section 280C(c)(1), and adds a new subsection in section 30A specifying that wages or other expenses taken into account for section 30A may not be taken into account for section 41. Taxable REIT subsidiaries.--The provision clarifies that a REIT's redetermined rents (described in sec. 857(b)(7)(B)) that are subject to tax under section 857(b)(7)(A) do not include amounts received from a taxable REIT subsidiary that would be excluded from unrelated business taxable income (under sec. 512(b)(3), relating to certain rents, if received by certain types of organizations described in sec. 511(a)(2)). Partnership basis adjustments.--The provision provides that the rule in the consolidated return regulations (Treas. Reg. sec. 1.1502-34) aggregating stock ownership for purposes of section 332 (relating to complete liquidation of a subsidiary that is a controlled corporation) also applies for purposes of section 732(f) (relating to basis adjustments to assets of a controlled corporation received in a partnership distribution). Amendments related to the Tax and Trade Relief Extension Act of 1998 Exempt organizations.--The provision clarifies that nonexempt charitable trusts and nonexempt private foundations are subject to the public disclosure requirements of section 6104(d). Capital gains.--The provision clarifies that if (1) a charitable remainder trust sold section 1250 property after July 28, 1997, and before January 1, 1998, (2) the property was held more than one year but not more than 18 months, and (3) the capital gain is distributed after December 31, 1997, then any capital gain attributable to depreciation will be taxed at 25 percent (rather than 28 percent). Treasury has published a notice (Notice 99-17, 1999-14 I.R.B., April 5, 1999) providing that the gain is taxed at 25 percent. [[Page H12417]] Amendments related to the Internal Revenue Service Restructuring and Reform Act of 1998 Innocent spouse Timing of request for relief.--Confusion currently exists as to the appropriate point at which a request for innocent spouse relief should be made by the taxpayer and considered by the IRS. Some have read the statute to prohibit consideration by the IRS of requests for relief until after an assessment has been made, i.e., after the examination has been concluded, and if challenged, judicially determined. Others have read the statute to permit claims for relief from deficiencies to be made upon the filing of the return before any preliminary determination as to whether a deficiency exists or whether the return will be examined. The consideration of innocent spouse relief requires that the IRS focus on the particular items causing a deficiency; until such items are identified, the IRS cannot consider these claims. Congress did not intend that taxpayers be prohibited from seeking innocent spouse relief until after an assessment has been made; Congress intended the proper time to raise and have the IRS consider a claim to be at the same point where a deficiency is being considered and asserted by the IRS. This is the least disruptive for both the taxpayer and the IRS since it allows both to focus on the innocent spouse issue while also focusing on the items that might cause a deficiency. It also permits every issue, including the innocent spouse issue, to be resolved in single administrative and judicial process. The bill clarifies the intended time by permitting the election under (b) and (c) to be made at any point after a deficiency has been asserted by the IRS. A deficiency is considered to have been asserted by the IRS at the time the IRS states that additional taxes may be owed. Most commonly, this occurs during the Examination process. It does not require an assessment to have been made, nor does it require the exhaustion of administrative remedies in order for a taxpayer to be permitted to request innocent spouse relief. Allowance of refunds.--The current placement in the statute of the provision for allowance of refunds may inappropriately suggest that the provision applies only to the United States Tax Court, whereas it was intended to apply administratively and in all courts. The bill clarifies this by moving the provision to its own subsection. Non-exclusivity of judicial remedy.--Some have suggested that the IRS Restructuring Act administrative and judicial process for innocent spouse relief was intended to be the exclusive avenue by which relief could be sought. The bill clarifies Congressional intent that the procedures of section 6015(e) were intended to be additional, non-exclusive avenues by which innocent spouse relief could be considered. Time for filing a petition with the Tax Court.--As enacted, the time period for seeking a redetermination in the Tax Court of innocent spouse relief begins on the date of the determination as opposed to the day after the determination. This period is one day shorter than that generally applicable to petition the Tax Court with respect to a deficiency notice (sec. 6213) and the period during which collection activities are prohibited and the limitations period is suspended. The bill clarifies the computation of this period and conforms it to the generally applicable 90-day period for petitioning the Tax Court. Conforming amendments are made as to the period for which collection activities are prohibited and collection limitations suspended. Waiver of final determination upon agreement as to relief.--Congress intended in enacting section 6015 to provide a simple and efficient procedure by which the IRS could consider relief, and if relief was denied (in whole or in part) and the spouse requesting such relief did not agree with such denial, such issue could be considered by the Tax Court. Congress did not intend to require a rigid formal process when the IRS and the spouse requesting relief agreed on the extent of relief to be granted. However, the provisions of section 6015(e) have been interpreted as requiring the issuance in all circumstances of a formal ``Notice of Determination,'' which contains a statement of the time period within which a petition may be filed with the Tax Court and which delays final resolution of the request for relief until the expiration of the period for filing a petition with the Tax Court. The issuance of the Notice of Determination is confusing to the taxpayer when the requested relief was fully granted or when the IRS and the taxpayer otherwise agreed on the application of the innocent spouse provisions to the taxpayer's case. It also may cause unnecessary filings with the Tax Court and delay the closing of the case until the time for filing with the Tax Court expires. Congress has addressed the analogous situation in the deficiency context in section 6213(d). In such situations, upon written agreement, the IRS may adjust the taxpayer's liability as agreed, and no additional formal notice is necessary. The bill reflects that an analogous waiver was intended to apply in the innocent spouse context. The bill consequently permits taxpayers and the IRS to enter into a similar written agreement in innocent spouse cases, which allows for the taxpayer's liability to be immediately adjusted as agreed, and makes unnecessary a formal Notice of Determination or Tax Court review. This written agreement is to specify the details of the agreement between the IRS and the taxpayer as to the nature and extent of innocent spouse relief that will be provided. Conforming amendments are made as to the period for which collection activities are prohibited and collection limitations suspended. Procedural and administrative issues Disputes involving $50,000 or less.--The provision clarifies that the small case procedures of the Tax Court are available with respect to innocent spouse disputes and disputes continuing from the pre-levy administrative due process hearing. The small case procedures provide an accessible forum for taxpayers who have small claims with less formal rules of evidence and procedure. Use of the procedure is optional to the taxpayer, with the concurrence of the Tax Court. In view of the recent enactment of the innocent spouse and pre-levy administrative due process hearing provisions, it is anticipated that the Tax Court will give careful consideration to (1) a motion by the Commissioner of Internal Revenue to remove the small case designation (as authorized by Rules 172 and 173 of the Tax Court Rules) when the orderly conduct of the work of the Court or the administration of the tax laws would be better served by a regular trial of the case, as well as (2) the financial impact upon the taxpayer, including additional legal fees and costs, of not utilizing small case treatment. For example, removing the small case designation may be appropriate when a decision in the case will provide a precedent for the disposition of a substantial number of other cases. It is anticipated that motions by the Commissioner to remove the small case designation will be made infrequently. Authority to enjoin collection actions.--While a dispute is pending under the pre-levy administrative due process hearing procedures, levy action is statutorily suspended for that period. The Tax Court and district courts are expressly granted authority to enjoin improper levy action in general, but that authority does not explicitly extend to improper levy action that occurs during the period when levy action is statutorily suspended under the administrative due process provisions. The provision clarifies the ability of the courts (including the Tax Court) to enjoin levy during the period that levy is required to be suspended with respect to a dispute under the pre-levy administrative due process hearing procedures. Clarification of permissible extension of limitations period for installment agreements.--Uncertainty exists as to whether the permissible extension of the period of limitations in the context of installment agreements is governed by reference to an agreement of the parties pursuant to section 6502 or by reference to the period of time during which the installment agreement is in effect pursuant to sections 6331(k)(3) and (i)(5). The provision clarifies that the permissible extension of the period of limitations in the context of installment agreements is governed by the pertinent provisions of section 6502. Clarification of Tax Court authority to issue appealable decisions.--The statutory provision for judicial review of a dispute concerning the pre-levy administrative due process hearing may be unclear as to whether a determination of the Tax Court is an appealable decision. The provision clarifies that the determination of the Tax Court (other than under the small case procedures) in a dispute concerning the pre-levy administrative due process hearing is a decision of the Tax Court and would be reviewable as such. Other issues IRS restructuring.--When the Office of the Chief Inspector was replaced by the Treasury Inspector General for Tax Administration (TIGTA) under the IRS Restructuring and Reform Act of 1998, Inspection's responsibilities were assigned to the TIGTA. TIGTA personnel are Treasury, rather than IRS, personnel. TIGTA personnel still need to make investigative disclosures to carry out the duties they took over from Inspection and their additional tax administration responsibilities. However, section 6103(k)(6) refers only to ``internal revenue'' personnel. The provision clarifies that section 6103(k)(6) permits TIGTA personnel to make investigative disclosures. Compliance.--Section 3509 of the IRS Restructuring and Reform Act of 1998 expanded the disclosure rules of section 6110 to also cover Chief Counsel advice (sec. 6110(i)). This is a conforming change related to ongoing investigations. The provision adds to section 6110(g)(5)(A), after the words technical advice memorandum, ``or Chief Counsel advice.'' Amendments related to the Taxpayer Relief Act of 1997 Deficiency created by overstatement of refundable child credit.--The provision treats the refundable portion of the child credit under section 24(d) as part of a ``deficiency.'' Thus, the usual assessment procedures applicable to income taxes will apply to both the nonrefundable and the refundable portions of the child credit. (This will reverse the conclusion reached by Internal Revenue Service Chief Counsel Memorandum 199948027 interpreting present law.) Roth IRAs.--Code section 3405 provides for withholding with respect to designated distributions from certain tax-favored arrangements, including IRAs. In general, section 3405(e)(1)(B)(ii) excludes from the definition of a designated distribution the portion of any distribution which it is reasonable to believe is excludable from gross income. However, all distributions from IRAs are treated [[Page H12418]] as includible in income. The exception was consistent with prior law when all IRA distributions were taxable, but does not account for the tax-free nature of certain Roth IRA distributions. The provision extends the exception to Roth IRAs. Capital gain election.--The provision provides that an election to recognize gain or loss made pursuant to section 311(e) of the Taxpayer Relief Act of 1997 does not apply to assets disposed of in a recognition transaction within one year of the date the election would otherwise have been effective. Thus, for example, if an asset is sold in 2001, no election may be made with respect to that asset. In addition, it is clarified that the deemed sale and repurchase by reason of the election is not taken into account in applying the wash sales rules of section 1091. Straight-line depreciation under AMT.--The provision clarifies that the Taxpayer Relief Act of 1997 did not change the requirement that the straight-line method of depreciation be used in computing the alternative minimum tax (``AMT'') depreciation allowance for section 1250 property. It is arguable that the changes made by that Act could be read as inadvertently allowing accelerated depreciation under the AMT for section 1250 property which is allowed accelerated depreciation under the regular tax. Transportation benefits.--Under present law, salary reduction amounts are generally treated as compensation for purposes of the limits on contributions and benefits under qualified plans. In addition, an employer can elect whether or not to include such amounts for nondiscrimination testing purposes. The IRS Reform Act permitted employers to offer a cash option in lieu of qualified transportation benefits. The provision treats salary reduction amounts used for qualified transportation benefits the same as other salary reduction amounts for purposes of defining compensation under the qualified plan rules. Tax Court jurisdiction.--The Tax Court recently held that its jurisdiction pursuant to section 7436 extends only to employment status, not to be amount of employment tax in dispute (Henry Randolph Consulting v. Comm'r, 112 T.C. #1. Jan. 6, 1999). The provision provides that the Tax Court also has jurisdiction over the amount. Amendments related to the Balanced Budget Act of 1997 Tobacco floor stocks tax.--The provision clarifies that the floor stocks taxes imposed on January 1, 2000, and January 1, 2002, apply only to cigarettes rather than to all tobacco products. As enacted, the law could be construed as ambiguous, referring to imposition on all tobacco products but imposing liability only with respect to cigarettes. Tobacco excise tax.--Conforming amendments are provided to two provisions to reflect the fact that the tax on cigarette papers is not imposed on ``books'' or papers since January 1, 2000. Coordination of trade rules and tobacco excise tax.-- Clarification is provided that the penalty on reimporting cigarettes other than for return to a manufacturer (effective January 1, 2000) does not apply to cigarettes re-imported by individuals to the extent those cigarettes can be entered into the U.S. without duty or tax under the Harmonized Tariff Schedule. Amendment related to the Small Business Job Protection Act of 1996 Work opportunity tax credit.--Section 51(d)(2) refers to eligibility for the work opportunity tax credit with respect to certain welfare recipients without taking into account the enactment of the temporary assistance for needy families (``TANF'') program. The provisions conform references in the work opportunity tax credit to the operation of TANF. Electing small business trusts holding S corporation stock.--The provision allows an electing small business trust (sec. 1361(e)) to have an organization described in section 170(c)(1) (relating to State and local governments) as a beneficiary if the organization holds a contingent interest and is not a potential current beneficiary. Definition of lump-sum distribution.--Section 1401(b) of the Small Business Job Protection Act of 1996 Act repealed 5- year averaging for lump-sum distributions. The definition of lump-sum distribution was preserved for other provisions, primarily those relating to NUA in employer securities. The definition was moved from section 402(d)(4)(A) to section 402(e)(4)(D)(i). This definition included the following sentence: ``A distribution of an annuity contract from a trust or annuity plan referred to in the first sentence of this subparagraph shall be treated as a lump sum distribution.'' The provision adds this language back into the definition of lump-sum distribution. The sentence is relevant to section 401(k)(1)(B), which permits certain distributions if made as a ``lump-sum distribution.'' IRAs for nonworking spouses.--Section 1427 of the Small Business Job Protection Act of 1996 expanded the IRA deduction for nonworking spouses. The maximum permitted IRA contributions is generally limited by the individual's earned income. However, under present law, it is possible for a nonworking (or lesser earning) spouse to make IRA contributions in excess of the couple's combined earned income. The following example illustrates present law. Example: Suppose H and W retire in the middle of January, 1999. In that year, H earns $1,000 and W earns $500. Both are active participants in an employer-sponsored retirement plan. Their modified AGI is $60,000. They make no Roth IRA contributions. Before application of the income phase-out rules, the maximum deductible IRA contribution that H can make is $1,000 (sec. 219(b)(1)). After application of the income phase-out rule in section 219(g), H's maximum contribution is $200, and H contributes that amount to an IRA. Under 408(o)(2)(B), H can make nondeductible contributions of $800 ($1,000-$200). W's maximum permitted deductible contribution under section 219(c)(1)(B), before the income phase-out, is $1,300 (the sum of H and W's earned income ($1,500), less H's deductible IRA contribution ($200)). Under the income phase-out, W's deductible contribution is limited to $200, and she can make a nondeductible contribution of $1,000 ($1,300-$200). The total permitted contributions for H and W are $2,300 ($1,000 for H plus $1,300 for W). The combined contribution should be limited to $1,500, their combined earned income of the spouses. The provision provides that the contributions for the spouse with the lesser income cannot exceed the combined earned income of the spouses. Amendment related to the Revenue Reconciliation Act of 1990 Qualified tertiary injectant expenses.--The provision clarifies that the enhanced oil recovery credit (sec. 43) applies with respect to qualified tertiary injectant expenses described in section 193(b) that are paid or incurred in connection with a qualified enhanced oil recovery project, and that are deductible for the taxable year (regardless of the provision allowing the deduction). Purchased and self- produced injectants are treated the same for purposes of the section 43 credit. Amendments to other Acts (sec. 318 of the bill) Insurance.--The legislative history of section 7702A(a) (enacted in the Technical and Miscellaneous Revenue Act of 1988) indicated that if a life insurance contract became a modified endowment contract (``MEC''), then the MEC status could not be eliminated by exchanging the MEC for another contract. Section 7702A(a)(2), however, arguably might be read to allow a policyholder to exchange a MEC for a contract that does not fail the 7-pay test of section 7702A(b), then exchange the second contract for a third contract, which would not literally have been received in exchange for a contract that failed to meet the 7-pay test. The provision clarifies section 7702A(a)(2) to correspond to the legislative history, effective as if enacted with the Technical and Miscellaneous Revenue Act of 1988 (generally, for contracts entered into on or after June 21, 1988). Insurance.--Under section 7702A, if a life insurance contract that is not a modified endowment contract is actually or deemed exchanged for a new life insurance contract, then the 7-pay limit under the new contract is first be computed without reference to the premium paid using the cash surrender value of the old contract, and then would be reduced by \1/7\ of the premium paid taking into account the cash surrender value of the old contract. For example, if the old contract had a cash surrender value of $14,000 and the 7-pay premium on the new contract would equal $10,000 per year but for the fact that there was an exchange, the 7-pay premium on the new contract would equal $8,000 ($10,000- $14,000/7). However, section 7702A(c)(3)(A) arguably might be read to suggest that if the cash surrender value on the new contract was $0 in the first two years (due to surrender charges), then the 7-pay premium might be $10,000 in this example, unintentionally permitting policyholders to engage in a series of ``material changes'' to circumvent the premium limitations in section 7702A. The provision clarifies section 7702A(c)(3)(A) to refer to the cash surrender value of the old contract, effective as if enacted with the Technical and Miscellaneous Revenue Act of 1988 (generally, for contracts entered into on or after June 21, 1988). Worthless securities.--Section 165(g)(3) provides a special rule for worthless securities of an affiliated corporation. The test for affiliation in section 165(g)(3)(A) is the 80- percent vote test for affiliated groups under section 1504(a) that was in effect prior to 1984. When section 1504(a) was amended in the Deficit Reduction Act of 1984 to adopt the vote and value test of present law, no corresponding change was made to section 165(g)(3)(A), even though the tests had been identical until then. The provision conforms the affiliation test of section 165(g)(3)(A) to the test in section 1504(a)(2), effective for taxable years beginning after December 31, 1984. Exception for certain annuities under OID rules.--The Deficit Reduction Act of 1984 expanded the prior--law rules for inclusion in income of original issue discount (``OID'') on debt instruments. That Act provided an exception from the definition of a debt instrument for certain annuity contracts, including any annuity contract to which section 72 applies and that is issued by an insurance company subject to tax under subchapter L of the Code (and meets certain other requirements) (sec. 1275(a)(1)(B)(ii)). The provision clarifies that an annuity contract otherwise meeting the applicable requirements also comes within the exception of section 1275(a)(1)(B)(ii) if it is issued by an entity described in section 501(c) and exempt from tax under section 501(a), that would be subject to [[Page H12419]] tax as an insurance company under subchapter L if it were not exempt under section 501(a). For example, the provision clarifies that an annuity contract otherwise meeting the requirements that is issued by a fraternal beneficiary society which is exempt from Federal income tax under section 501(a), and which is described in section 501(c)(8), comes within the exception under section 1275(a)(1)(B)(ii). It is understood that charitable gift annuities (as defined in sec. 501(m)) depend (in whole or in substantial part) on the life expectancy of one or more individuals, and thus come within the exception under section 1275(a)(1)(B)(i). The provision is effective as if included with section 41 of the Deficit Reduction Act of 1984 (i.e., for taxable years ending after July 18, 1984). Losses from section 1256 contracts.--Section 6411 allows tentative refunds for NOL carry-backs, business credit carrybacks and, for corporations only, capital loss carrybacks. Individuals normally cannot carry back a capital loss. However, section 1212(c) does allow a carryback of section 1256 losses, if elected by the taxpayer. The provision amends section 6411(a) by including a reference to section 1212(c), effective as if included with section 504 of the Economic Recovery Tax Act of 1981. Highway Trust Fund.--The provision modifies administrative procedures of the Highway Trust Fund to conform to the 1993 repeal of the special tax rate applicable to ethanol prior to 1994. The provision is effective for taxes received after the date of enactment. This ensures that retroactive adjustments, if any, are not made to the Highway Trust Fund. Conforming amendment for expenditures from Vaccine Injury Compensation Trust Fund.--The provision makes a conforming amendment to the expenditure purposes of the Vaccine Injury Compensation Trust Fund to enable certain payments to be made from the Trust Fund. Clerical changes The bill makes a number of clerical and typographical amendments to the Code. senate amendment No provision. Conference Agreement The conference agreement follows H.R. 5542. TITLE IV. TAX TREATMENT OF SECURITIES FUTURES CONTRACTS (sec. 401 of the bill and secs. 1234B and 1256 of the Code) present law In general Generally, gain or loss from the sale of property, including stock, is recognized at the time of sale or other disposition of the property, unless there is a specific statutory provision of nonrecognition (sec. 1001). Gains and losses from the sale or exchange of capital assets are subject to special rules. In the case of individuals, net capital gain is generally subject to a maximum tax rate of 20 percent (sec. 1(h)). Net capital gain is the excess of net long-term capital gains over net short- term capital losses. Also, capital losses are allowed only to the extent of capital gains plus, in the case of individuals, $3,000 (sec. 1211). Capital losses of individuals may be carried forward indefinitely and capital losses of corporations may be carried back three years and forward five years (sec. 1212). Generally, in order for gains or losses on a sale or exchange of a capital asset to be long-term capital gains or losses, the asset must be held for more than one year (sec. 1222).\61\ A capital asset generally includes all property held by the taxpayer except certain enumerated types of property such as inventory (sec. 1221). --------------------------------------------------------------------------- \61\ The holding period for futures transactions in a commodity is 6 months. The 6-month holding period does not apply to futures which are subject to the mark-to-market rules of section 1256, discussed below. --------------------------------------------------------------------------- Section 1256 contracts Special rules apply to ``section 1256 contracts,'' which include regulated futures contracts, certain foreign currency contracts, nonequity options, and dealer equity options. Each section 1256 contract is treated as if it were sold (and repurchased) for its fair market value on the last business day of the year (i.e., ``marked to market''). Any gain or loss with respect to a section 1256 contract which is subject to the mark-to-market rule is treated as if 40 percent of the gain or loss were short-term capital gain or loss and 60 percent were long-term capital gain or loss. This results in a maximum rate of 27.84 percent on any gain for taxpayers other than corporations. The mark-to-market rule (and the special 60/40 capital treatment) is inapplicable to hedging transactions. A ``regulated futures contract'' is a contract (1) which is traded on or subject to the rules of a national securities exchange registered with the Securities Exchange Commission, a domestic board of trade designated a contract market by the Commodities Futures Trading Commission, or similar exchange, board of trade, or market, and (2) with respect to which the amount required to be deposited and which may be withdrawn depends on a system of marking to market. A ``dealer equity option'' means, with respect to an options dealer, an equity option purchased in the normal course of the activity of dealing in options and listed on the qualified board or exchange on which the options dealer is registered. An equity option is an option to buy or sell stock or an option the value of which is determined by reference to any stock, group or stocks, or stock index, other than an option on certain broad-based groups of stock or stock index.\62\ An options dealer is any person who is registered with an appropriate national securities exchange as a market maker or specialist in listed options, or who the Secretary of the Treasury determines performs functions similar to market makers and specialists.\63\ --------------------------------------------------------------------------- \62\ Rev. Rul. 94-63, 1994-2 C.B. 188, provides that the determination made by the Securities and Exchange Commission will determine whether or not an option is ``broad based''. \63\ A special rule provides that any gain or loss with respect to dealer equity options, which are allocable to limited partners or limited entrepreneurs are treated as short-term capital gain or loss and do not qualify for the 60 percent long-term, 40 percent short-term capital gain or loss treatment of section 1256(a)(3). --------------------------------------------------------------------------- Mark to market accounting for dealers in securities Under present law, a dealer in securities must compute its income from dealer in securities pursuant to mark-to-market of accounting (sec. 475). Gains and losses are treated as ordinary income and loss. Traders in securities, and dealers and traders in commodities may elect to use this method of accounting, including the ordinary income treatment. Section 1256 contracts are not treated as securities for purposes of section 475.\64\ --------------------------------------------------------------------------- \64\ As discussed above, dealers in equity options are subject to mark-to-market accounting and the special capital gain rules of section 1256. --------------------------------------------------------------------------- Short sales In the case of a ``short sale'' (i.e., where he taxpayer sells borrowed property and later closes the sale by repaying the lender with substantially identical property), any gain or loss on the closing transaction is considered gain or loss from the sale or exchange of a capital asset if the property used to close the short sale is a capital asset in the hands of the taxpayer, but the gain is ordinarily treated as short- term gain (sec. 1233(a)). The Internal Revenue Code (the ``Code'') also contains several rules intended to prevent the transformation of short-term capital gain into long-term capital gain or long- term capital loss into short-term loss by simultaneously holding property and selling short substantially identical property (sec. 1233(b) and (d)). Under these rules, if taxpayer holds property for less than the long-term holding period and sells short substantially identical property, any gain or loss upon the closing of the short sale is considered short-term capital gain, and the holding period of the substantially identical property is generally considered to begin on the date of the closing of the short sale. Also, if a taxpayer has held property for more than the long-term holding period and sells short substantially identical property, any loss on the closing of the short sale is considered a long-term capital loss. For purposes of these short sale rules, property includes stock, securities, and commodity futures, but commodity futures are not considered substantially identical if they call for delivery in different months. For purposes of the short-sale rules relating to short-term gains, the acquisition of an option to sell at a fixed price is treated as a short sale, and the exercise or failure to exercise the option is considered a closing of the short sale. \65\ --------------------------------------------------------------------------- \65\ An exception applies to sell acquired on the same day as the property identified as intended to be used (and is so used) in exercising the option is acquired (sec. 1233(c)). --------------------------------------------------------------------------- The Code also treats a taxpayer as recognizing gain where the taxpayer holds appreciated property and enters into a short sale of the same or substantially identical property, or enters into a contract to sell that same or substantially identical property (sec. 1259). Wash sales The wash-sale rule (sec. 1091) disallows certain losses from the disposition of stock or securities if substantially identical stock or securities (or an option or contract to acquire such property) are acquired by the taxpayer during the period beginning 30 days before the date of sale and ending 30 days after such date of sale. Commodity futures are not treated as stock or securities for purposes of this rule. The basis of the substantially identical stock or securities is adjusted to include the disallowed loss. Similar rules apply to disallow any loss realized on the closing of a short sale of stock or securities where substantially identical stock or securities are sold (or a short sale, option or contract to sell is entered into) during the applicable period before and after the closing of the short sale. Straddle rules If a taxpayer realizes a loss with respect to a position in a straddle, the taxpayer may recognize that loss for the taxable year only to the extent that the loss exceeds the unrecognized gain (if any) with respect to offsetting positions in the straddle (sec. 1092). Disallowed losses are carried forward to the succeeding taxable year and are subject to the same limitation in that taxable year. A ``straddle'' generally refers to offsetting positions with respect to actively traded personal property. Positions are offsetting if there is a substantial diminution of risk of loss from holding one position by reason of [[Page H12420]] holding one or more other positions in personal property. A ``position'' in personal property is an interest (including a futures or forward contract or option) in personal property. The straddle rules provide that the Secretary of the Treasury may issue regulations applying the short sale holding period rules to positions in a straddle. Temporary regulations have been issued setting forth the holding period rules applicable to positions in a straddle. \66\ To the extent these rules apply to a position, the rules in section 1233(b) and (d) do not apply. --------------------------------------------------------------------------- \66\ Reg. sec. 1.1092(b)--2T. --------------------------------------------------------------------------- The straddle rules generally do not apply to positions in stock. However the straddle rules apply if one of the positions is stock and at least one of the offsetting positions is either (1) an option with respect to stock or (2) a position with respect to substantially similar or related property (other than stock) as defined in Treasury regulations. Under property Treasury regulations, a position with respect to substantially similar or related property does not include stock or a short sale of stock, but includes any other position with respect to substantially similar or related property. \67\ --------------------------------------------------------------------------- \67\ Prop. Reg. sec. 1.1092(d)--2(c). --------------------------------------------------------------------------- If a straddle consists of both positions that are section 1256 contracts and positions that are not such contracts, the taxpayer may designate the positions as a mixed straddle. Positions in a mixed straddle are not subject to the mark-to- market rule of section 1256, but instead are subject to rules written under regulations to prevent the deferral of tax or the conversion of short-term capital gain to long-term capital gain or long-term capital loss into short-term capital loss. Transactions by a corporation in its own stock A corporation does not recognize gain or loss on the receipt of money or other property in exchange for its own stock. Likewise, a corporation does not recognize gain or loss when it redeems its stock with cash, for less or more than it received when the stock was issued. In addition, a corporation does not recognize gain or loss on any lapse or acquisition or an option to buy or sell its stock (sec. 1032). House Bill No provision. However, section 124(c) and (d) of H.R. 4541 \68\ contained the following provisions: --------------------------------------------------------------------------- \68\ H.R. 4541 passed the House of Representatives on October 19, 2000. --------------------------------------------------------------------------- In general Except in the case of dealer securities futures contracts described below, securities futures contracts are not treated as section 1256 contracts. Thus, holders of these contracts are not subject to the mark-to-market rules of section 1256 and are not eligible for 60-percent long-term capital gain treatment under section 1256. Instead, gain or loss on these contracts will be recognized under the general rules relating to the disposition of property. \69\ --------------------------------------------------------------------------- \69\ Any securities futures contract which is not a section 1256 contract will be treated as a ``security'' for purposes of section 475. Thus, for example, traders in securities futures contracts --------------------------------------------------------------------------- A securities futures contract is defined in section 3(a)(55)(A) of the Securities Exchange Act of 1934, as added by the bill. In general, that definition provides that a securities futures contract means a contract of sale for future delivery of a single security or a narrow-based security index. A securities futures contract will not be treated as a commodities futures contract for purposes of the Code. Treatment of gains and losses The bill provides that any gain or loss from the sale or exchange of a securities futures contract (other than a dealer securities futures contract) will be considered as gain or loss from the sale or exchange of property which has the same character as the property to which the contract relates has (or would have) in the hands of the taxpayer. Thus, if the underlying security would be a capital asset in the taxpayer's hands, then gain or loss from the sale or exchange of the securities futures contract would be capital gain or loss. The bill also provides that the termination of a securities futures contract which is a capital asset will be treated as a sale or exchange of the contract. Capital gain treatment will not apply to contracts which themselves are not capital assets because of the exceptions to the definition of a capital asset relating to inventory (sec. 1221(a)(1)) or hedging (sec. 1221(a)(7)), or to any income derived in connection with a contract which would otherwise be treated as ordinary income. Except as otherwise provided in regulations under section 1092(b) (which treats certain losses from a straddle as long- term capital losses) and section 1234B, as added by the bill, any capital gain or loss from the sale or exchange of a securities futures contract to sell property (i.e., the short side of a securities futures contract) will be short-term capital gain or loss. In other words, a securities futures contract to sell property is treated as equivalent to a short sale of the underlying property. Wash sale rules The bill clarifies that, under the ash sale rules, a contract or option to acquire or sell stock or securities shall include options and contracts that are (or may be) settled in cash or property other than the stock or securities to which the contract relates. Thus, for example, the acquisition, within the period set forth in section 1091, of a securities futures contract to acquire stock of a corporation could cause the taxpayer's loss on the sale of stock in that corporation to be disallowed, notwithstanding that the contract may be settled in cash. Short sale rules In applying the short sale rules, a securities futures contract to acquire property will be treated in manner similar to the property itself. Thus, for example, the holding of a securities futures contract to acquire property and the short sale of property which is substantially identical to the property under the contract will result in the application of the rules of section 1233(b).\70\ In addition, as stated above, a securities futures contract to sell is treated in a manner similar to a short sale of the property. --------------------------------------------------------------------------- \70\ Because securities futures contracts are not treated as futures contracts with respect to commodities, the rule providing that commodity futures are not substantially identical if they call for delivery in different months does not apply. --------------------------------------------------------------------------- Straddle rules Stock which is part of a straddle at least one of the offsetting positions of which is a securities futures contract with respect to the stock or substantially identical stock will be subject to the straddle rules of section 1092. Treasury regulations under section 1092 applying the principles of the section 1233(b) and (d) short sale rules to positions in a straddle will also apply. For example, assume a taxpayer holds a long-term position in actively traded stock (which is a capital asset in the taxpayer's hands) and enters into a securities futures contract to sell substantially identical stock (at a time when the position in the stock has not appreciated in value so that the constructive sale rules of section 1259 do not apply). The taxpayer has a straddle. Treasury regulations prescribed under section 1092(b) applying the principles of section 1233(d) will apply, so that any loss on closing the securities futures contract will be a long-term capital loss. Section 1032 A corporation will not recognize gain or loss on transactions in securities futures contracts with respect to its own stock. Holding period If property is delivered in satisfaction of a securities futures contract to acquire property (other than a contract to which section 1256 applies), the holding period for the property will include the period the taxpayer held the contract, provided that the contract was a capital asset in the hands of the taxpayer. Regulations The Secretary of the Treasury or his delegate has the authority to prescribe regulations to provide for the proper treatment of securities futures contracts under provisions of the Internal Revenue Code. Dealers in securities futures contracts In general, the bill provides that securities futures contracts and options on such contracts are not section 1256 contracts. The bill provides, however, that ``dealer securities futures contracts'' will be treated as section 1256 contracts. The term `'dealer securities futures contract'' means a securities futures contract which is entered into by a dealer in the normal course of his or her trade or business activity of dealing in such contracts, and is traded on a qualified board of trade or exchange. The term also includes any option to enter into securities futures contracts purchased or granted by a dealer in the normal course of his or her trade or business activity of dealing in such options. The determination of who is to be treated as a dealer in securities futures contracts is to be made by the Secretary of the Treasury or his delegate not later than July 1, 2001. Accordingly, the bill authorizes the Secretary to treat a person as a dealer in securities futures contracts or options on such contracts if the Secretary determines that the person performs, with respect to such contracts or options, functions similar to an equity options dealer, as defined under present law. The determination of who is a dealer in securities futures contracts is to be made in a manner that is appropriate to carry out the purposes of the provision, which generally is to provide comparable tax treatment between dealers in securities futures contracts, on the one hand, and dealers in equity options, on the other. Although traders in securities futures contracts (and options on such contracts) may not have the same market-making obligations as market makers or specialists in equity options, many traders are expected to perform analogous functions to such market makers or specialists by providing market liquidity for securities futures contracts (and options) even in the absence of a legal obligation to do so. Accordingly, the absence of market-making obligations is not inconsistent with a determination that a class of traders are dealers in securities futures contracts (and options), if the relevant factors, including providing market liquidity for such contracts (and options), indicate that the market functions of the traders is comparable to that of equity options dealers. As in the case of dealer equity options, gains and losses allocated to any limited partner or limited entrepreneur with respect to a dealer securities futures contract will be treated as short-term capital gain or loss. Treatment of options under section 1256 The bill modifies the definition of ``equity option'' for purposes of section 1256 to take [[Page H12421]] into account changes made by the non-tax provisions of the bill. Only options dealers are eligible for section 1256 with respect to equity options. The term ``equity option'' is modified to include an option to buy or sell stock, or an option the value of which is determined, directly or indirectly, by reference to any stock, or any ``narrow-based security index,'' as defined in section 3(a)(55) of the Securities Exchange Act of 1934 (as modified by the bill). An equity option includes an option with respect to a group of stocks only if the group meets the requirements for a narrow- based security index. As under present law, listed options that are not ``equity options'' are considered ``nonequity options'' to which section 1256 applies for all taxpayers. For example, options relating to broad-based groups of stocks and broad based stock indexes will continue to be treated as nonequity options under section 1256. Definition of contract markets The non-tax provisions of the bill designate certain new contract markets. The new contract markets will be contract markets for purposes of the Code, except to the extent provided in Treasury regulations. Effective Date These provisions will take effect on the date of enactment of the bill. Senate Amendment No provision. Conference Agreement The conference agreement follows the tax provisions contained in H.R. 4541. TAX COMPLEXITY ANALYSIS Section 4022(b) of the Internal Revenue Service Reform and Restructuring Act of 1998 (the ``IRS Reform Act'') requires the Joint Committee on Taxation (in consultation with the Internal Revenue Service and the Department of the Treasury) to provide a tax complexity analysis. The complexity analysis is required for all legislation reported by the House Committee on Ways and Means, the Senate Committee on Finance, or any committee of conference if the legislation includes a provision that directly or indirectly amends the Internal Revenue Code and has widespread applicability to individuals or small businesses. The staff of the Joint Committee on Taxation has determined that a complexity analysis is not required under section 4022(b) of the IRS Reform Act because the bill contains no provisions that amend the Internal Revenue Code and that have ``widespread applicability'' to individuals or small businesses. [[Page H12422]] [GRAPHIC] [TIFF OMITTED] TH15DE00.068 [[Page H12423]] [GRAPHIC] [TIFF OMITTED] TH15DE00.069 [[Page H12424]] [GRAPHIC] [TIFF OMITTED] TH15DE00.070 [[Page H12425]] NEW MARKETS VENTURE CAPITAL PROGRAM ACT OF 2000 The conference agreement would enact the provisions of H.R. 5663, as introduced on December 14, 2000. The text of that bill follows: A BILL to provide for community renewal and new markets initiatives Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SEC. 101. NEW MARKETS VENTURE CAPITAL PROGRAM. (a) Short Title.--This section may be cited as the ``New Markets Venture Capital Program Act of 2000''. (b) New Markets Venture Capital Program.--Title III of the Small Business Investment Act of 1958 (15 U.S.C. 681 et seq.) is amended-- (1) in the heading for the title, by striking ``SMALL BUSINESS INVESTMENT COMPANIES'' and inserting ``INVESTMENT DIVISION PROGRAMS''; (2) by inserting before the heading for section 301 the following: ``PART A--SMALL BUSINESS INVESTMENT COMPANIES''; and (3) by adding at the end the following: ``PART B--NEW MARKETS VENTURE CAPITAL PROGRAM ``SEC. 351. DEFINITIONS. ``In this part, the following definitions apply: ``(1) Developmental venture capital.--The term `developmental venture capital' means capital in the form of equity capital investments in businesses made with a primary objective of fostering economic development in low-income geographic areas. For the purposes of this paragraph, the term `equity capital' has the same meaning given such term in section 303(g)(4). ``(2) Low-income individual.--The term `low-income individual' means an individual whose income (adjusted for family size) does not exceed-- ``(A) for metropolitan areas, 80 percent of the area median income; and ``(B) for nonmetropolitan areas, the greater of-- ``(i) 80 percent of the area median income; or ``(ii) 80 percent of the statewide nonmetropolitan area median income. ``(3) Low-income geographic area--the term `low-income geographic area' means-- ``(A) any population census tract (or in the case of an area that is not tracted for population census tracts, the equivalent county division, as defined by the Bureau of the Census of the Department of Commerce for purposes of defining poverty areas), if-- ``(i) the poverty rate for that census tract is not less than 20 percent; ``(ii) in the case of a tract-- ``(I) that is located within a metropolitan area, 50 percent or more of the households in that census tract have an income equal to less than 60 percent of the area median gross income; or ``(II) that is not located within a metropolitan area, the median household income for such tract does not exceed 80 percent of the statewide median household income; or ``(iii) as determined by the Administrator based on objective criteria, a substantial population of low-income individuals reside, an inadequate access to investment capital exists, or other indications of economic distress exist in that census tract; or ``(B) any area located within-- ``(i) a HUBZone (as defined in section 3(p) of the Small Business Act and the implementing regulations issued under that section); ``(ii) an urban empowerment zone or urban enterprise community (as designated by the Secretary of Housing and Urban Development); or ``(iii) a rural empowerment zone or rural enterprise community (as designated by the Secretary of Agriculture). ``(4) New markets venture capital company.--The term `New Markets Venture Capital company' means a company that-- ``(A) has been granted final approval by the Administrator under section 354(e); and ``(B) has entered into a participation agreement with the Administrator. ``(5) Operational assistance.--The term `operational assistance' means management, marketing, and other technical assistance that assists a small business concern with business development. ``(6) Participation agreement.--The term `participation agreement' means an agreement, between the Administrator and a company granted final approval under section 354(e), that-- ``(A) details the company's operating plan and investment criteria; and ``(B) requires the company to make investments in smaller enterprises at least 80 percent of which are located in low- income geographic areas. ``(7) Specialized small business investment company.--The term `specialized small business investment company' means any small business investment company that-- ``(A) invests solely in small business concerns that contribute to a well-balanced national economy by facilitating ownership in such concerns by persons whose participation in the free enterprise system is hampered because of social or economic disadvantages; ``(B) is organized or chartered under State business or nonprofit corporations statutes, or formed as a limited partnership; and ``(C) was licensed under section 301(d), as in effect before September 30, 1996. ``(8) State.--The term `State' means such of the several States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, the Commonwealth of the Northern Mariana Islands, and any other commonwealth, territory, or possession of the United States; ``SEC. 352. PURPOSES. ``The purposes of the New Markets Venture Capital Program established under this part are-- ``(1) to promote economic development and the creation of wealth and job opportunities in low-income geographic areas and among individuals living in such areas by encouraging developmental venture capital investments in smaller enterprises primarily located in such areas; and ``(2) to establish a developmental venture capital program, with the mission of addressing the unmet equity investment needs of small enterprises located in low-income geographic areas, to be administered by the Administrator-- ``(A) to enter into participation agreements with New Markets Venture Capital companies; ``(B) to guarantee debentures of New Markets Venture Capital companies to enable each such company to make developmental venture capital investments in smaller enterprises in low-income geographic areas; and ``(C) to make grants to New Markets Venture Capital companies, and to other entities, for the purpose of providing operational assistance to smaller enterprises financed, or expected to be financed, by such companies. ``SEC. 353. ESTABLISHMENT. ``In accordance with this part, the Administrator shall establish a New Markets Venture Capital Program, under which the Administrator may-- ``(1) enter into participation agreements with companies granted final approval under section 354(e) for the purposes set forth in section 352; ``(2) guarantee the debentures issued by New Markets Venture Capital companies as provided in section 355; and ``(3) make grants to New Markets Venture Capital companies, and to other entities, under section 358. ``SEC. 354. SELECTION OF NEW MARKETS VENTURE CAPITAL COMPANIES. ``(a) Eligibility.--A company shall be eligible to apply to participate, as a New Markets Venture Capital company, in the program established under this part if-- ``(1) the company is a newly formed for-profit entity or a newly formed for-profit subsidiary of an existing entity; ``(2) the company has a management team with experience in community development financing or relevant venture capital financing; and ``(3) the company has a primary objective of economic development of low-income geographic areas. ``(b) Application.--To participate, as a New Markets Venture Capital company, in the program established under this part a company meeting the eligibility requirements set forth in subsection (a) shall submit an application to the Administrator that includes-- ``(1) a business plan describing how the company intends to make successful developmental venture capital investments in identified low-income geographic areas; ``(2) information regarding the community development finance or relevant venture capital qualifications and general reputation of the company's management; ``(3) a description of how the company intends to work with community organizations and to seek to address the unmet capital needs of the communities served; ``(4) a proposal describing how the company intends to use the grant funds provided under this part to provide operational assistance to smaller enterprises financed by the company, including information regarding whether the company intends to use licensed professionals, when necessary, on the company's staff or from an outside entity; ``(5) with respect to binding commitments to be made to the company under this part, an estimate of the ratio of cash to in-kind contributions; ``(6) a description of the criteria to be used to evaluate whether and to what extent the company meets the objectives of the program established under this part; ``(7) information regarding the management and financial strength of any parent firm, affiliated firm, or any other firm essential to the success of the company's business plan; and ``(8) such other information as the Administrator may require. ``(c) Conditional Approval.-- ``(1) In general.--From among companies submitting applications under subsection (b), the Administrator shall, in accordance with this subsection, conditionally approval companies to participate in the New Markets Venture Capital Program. ``(2) Selection criteria.--In selecting companies under paragraph (1), the Administrator shall consider the following: ``(A) The likelihood that the company will meet the goal of its business plan. ``(B) The experience and background of the company's management team. ``(C) The need for developmental venture capital investments in the geographic areas in which the company intends to invest. ``(D) The extent to which the company will concentrate its activities on serving the geographic areas in which it intends to invest. ``(E) The likelihood that the company will be able to satisfy the conditions under subsection (d). ``(F) The extent to which the activities proposed by the company will expand economic opportunities in the geographic areas in which the company intends to invest. ``(G) The strength of the company's proposal to provide operational assistance under this part as the proposal relates to the ability of the applicant to meet applicable cash requirements and properly utilize in-kind contributions, including the use of resources for the services of [[Page H12426]] licensed professionals, when necessary, whether provided by persons on the company's staff or by persons outside of the company. ``(H) Any other factors deemed appropriate by the Administrator. ``(3) Nationwide distribution.--The Administrator shall select companies under paragraph (1) in such a way that promotes investment nationwide. ``(d) Requirements To Be Met for Final Approval--The Administrator shall grant each conditionally approved company a period of time, not to exceed 2 years, to satisfy the following requirements: ``(1) Capital requirement.--Each conditionally approved company shall raise not less than $5,000,000 of private capital or binding capital commitments from one or more investors (other than agencies or departments of the Federal Government) who met criteria established by the Administrator. ``(2) Nonadministration resources for operational assistance.-- ``(A) In general.--In order to provide operational assistance to smaller enterprises expected to be financed by the company, each conditionally approved company-- ``(i) shall have binding commitments (for contribution in cash or in kind)-- ``(I) from any sources other than the Small Business Administration that meet criteria established by the Administrator; ``(II) payable or available over a multiyear period acceptable to the Administrator (not to exceed 10 years); and ``(III) in an amount not less than 30 percent of the total amount of capital and commitments raised under paragraph (1); ``(ii) shall have purchased an annuity-- ``(I) from an insurance company acceptable to the Administrator; ``(II) using funds (other than the funds raised under paragraph (1)), from any source other than the Administrator; and ``(III) that yields cash payments over a multiyear period acceptable to the Administrator (not to exceed 10 years) in an amount not less than 30 percent of the total amount of capital and commitments raised under paragraph (1); or ``(iii) shall have binding commitments (for contributions in cash or in kind) of the type described in clause (i) and shall have purchased an annuity of the type described in clause (ii), which in the aggregate make available, over a multiyear period acceptable to the Administrator (not to exceed 10 years), an amount not less than 30 percent of the total amount of capital and commitments raised under paragraph (1). ``(B) Exception.--The Administrator may, in the discretion of the Administrator and based upon a showing of special circumstances and good cause, consider an applicant to have satisfied the requirements of subparagraph (A) if the applicant has-- ``(i) a viable plan that reasonably projects the capacity of the applicant to raise the amount (in cash or in-kind) required under subparagraph (A); and ``(ii) binding commitments in an amount equal to not less than 20 percent of the total amount required under paragraph (A). ``(C) Limitation.--In order to comply with the requirements of subparagraphs (A) and (B), the total amount of a company's in-kind contributions may not exceed 50 percent of the company's total contributions. ``(e) Final Approval; Designation--The Administrator shall, with respect to each applicant conditionally approved to operate as a New Markets Venture Capital company under subsection (c), either-- ``(1) grant final approval to the applicant to operate as a New Markets Venture Capital company under this part and designate the applicant as such a company, if the applicant-- ``(A) satisfies the requirements of subsection (d) on or before the expiration of the time period described in that subsection; and ``(B) enters into a participation agreement with the Administrator; or ``(2) if the applicant fails to satisfy the requirements of subsection (d) on or before the expiration of the time period described in that subsection, revoke the conditional approval granted under that subsection. ``SEC. 355. DEBENTURES. ``(a) In General.--The Administrator may guarantee the timely payment of principal and interest, as scheduled, on debentures issued by any New Markets Venture Capital company. ``(b) Terms and Conditions.--The Administrator may make guarantees under this section on such terms and conditions as it deems appropriate, except that the term of any debenture guaranteed under this section shall not exceed 15 years. ``(c) Full Faith and Credit of the United States.--The full faith and credit of the United States is pledged to pay all amounts that may be required to be paid under any guarantee under this part. ``(d) Maximum Guarantee.-- ``(1) In general.--Under this section, the Administrator may guarantee the debentures issued by a New Markets Venture Capital company only to be extent that the total face amount of outstanding guaranteed debentures of such company does not exceed 150 percent of the private capital of the company, as determined by the Administrator. ``(2) Treatment of certain federal funds.--For the purposes of paragraph (1), private capital shall include capital that is considered to be Federal funds, if such capital is contributed by an investor other than an agency or department of the Federal Government. ``SEC. 356. ISSUANCE AND GUARANTEE OF TRUST CERTIFICATES. ``(a) Issuance.--The Administrator may issue trust certificates representing ownership of all or a fractional part of debentures issued by a New Markets Venture Capital company and guaranteed by the Administrator under this part, if such certificates are based on and backed by a trust or pool approved by the Administrator and composed solely of guaranteed debentures. ``(b) Guarantee.-- ``(1) In general.--The Administrator may, under such terms and conditions as it deems appropriate, guarantee the timely payment of the principal of and interest on trust certificates issued by the Administrator or its agents for purposes of this section. ``(2) Limitation.--Each guarantee under this subsection shall be limited to the extent of principal and interest on the guaranteed debentures that compose the trust or pool. ``(3) Prepayment or default.--In the event that a debenture in a trust or pool is prepaid, or in the event of default of such a debenture, the guarantee of timely payment of principal and interest on the trust certificates shall be reduced in proportion to the amount of principal and interest such prepaid debenture represents in the trust or pool. Interest on prepaid or defaulted debentures shall accrue and be guaranteed by the Administrator only through the date of payment of the guarantee. At any time during its term, a trust certificate may be called for redemption due to prepayment or default of all debentures. ``(c) Full Faith and Credit of the United States.--The full faith and credit of the United States is pledged to pay all amounts that may be required to be paid under any guarantee of a trust certificate issued by the Administrator or its agents under this section. ``(d) Fees.--The Administrator shall not collect a fee for any guarantee of a trust certificate under this section, but any agent of the Administrator may collect a fee approved by the Administrator for the functions described in subsection (f)(2). ``(e) Subrogation and Ownership Rights.-- ``(1) Subrogation.--In the event the Administrator pays a claim under a guarantee issued under this section, it shall be subrogated fully to the rights satisfied by such payment. ``(2) Ownership rights.--No Federal, State, or local law shall preclude or limit the exercise by the Administrator of its ownership rights in the debentures residing in a trust or pool against which trust certificates are issued under this section. ``(f) Management and Administration.-- ``(1) Registration.--The Administrator may provide for a central registration of all trust certificates issued under this section. ``(2) Contracting of functions.-- ``(A) In general.--The Administrator may contract with an agent or agents to carry out on behalf of the Administrator the pooling and the central registration functions provided for in this section including, notwithstanding any other provision of law-- ``(i) maintenance, on behalf of and under the direction of the Administrator, of such commercial bank accounts or investments in obligations of the United States as may be necessary to facilitate the creation of trusts or pools backed by debentures guaranteed under this part; and ``(ii) the issuance of trust certificates to facilitate the creation of such trusts or pools. ``(B) Fidelity bond or insurance requirement.--Any agent performing functions on behalf of the Administrator under this paragraph shall provide a fidelity bond or insurance in such amounts as the Administrator determines to be necessary to fully protect the interests of the United States. ``(3) Regulation of brokers and dealers.--The Administrator may regulate brokers and dealers in trust certificates issued under this section. ``(4) Electronic registration.--Nothing in this subsection may be construed to prohibit the use of a book-entry or other electronic form of registration for trust certificates issued under this section. ``SEC. 357. FEES. ``Except as provided in section 356(d), the Administrator may charge such fees as it deems appropriate with respect to any guarantee or grant issued under this part. ``SEC. 358. OPERATIONAL ASSISTANCE GRANTS. ``(a) In General.-- ``(1) Authority.--In accordance with this section, the Administrator may make grants to New Markets Venture Capital companies and to other entities, as authorized by this part, to provide operational assistance to smaller enterprises financed, or expected to be financed, by such companies or other entities. ``(2) Terms.--Grants made under this subsection shall be made over a multiyear period not to exceed 10 years, under such other terms as the Administrator may require. ``(3) Grants to specialized small business investment companies.-- ``(A) Authority.--In accordance with this section, the Administrator may make grants to specialized small business investment companies to provide operational assistance to smaller enterprises financed, or expected to be financed, by such companies after the effective date of the New Markets Venture Capital Program Act of 2000. ``(B) Use of funds.--The proceeds of a grant made under this paragraph may be used by the company receiving such grant only to provide operational assistance in connection with an equity investment (made with capital raised after the effective date of the New Markets Venture Capital Program Act of 2000) in a business located in a low-income geographic area. ``(C) Submission of plans.--A specialized small business investment company shall be eligible for a grant under this section only if the company submits to the Administrator, in such form and manner as the Administrator may require, a plan for use of the grant. [[Page H12427]] ``(4) Grant amount.-- ``(A) New markets venture capital companies.--The amount of a grant made under this subsection to a New Markets Venture Capital company shall be equal to the resources (in cash or in kind) raised by the company under section 354(d)(2). ``(B) Other entities.--The amount of a grant made under this subsection to any entity other than a New Markets Venture Capital company shall be equal to the resources (in cash or in kind) raised by the entity in accordance with the requirements applicable to New Market Venture Capital companies set forth in section 354(d)(2). ``(5) Pro rata reductions.--If the amount made available to carry out this section is insufficient for the Administrator to provide grants in the amounts provided for in paragraph (4), the Administrator shall make pro rata reductions in the amounts otherwise payable to each company and entity under such paragraph. ``(b) Supplemental Grants.-- ``(1) In general.--The Administrator may make supplemental grants to New Markets Venture Capital companies and to other entities, as authorized by this part under such terms as the Administrator may require, to provide additional operational assistance to smaller enterprises financed, or expected to be financed, by the companies. ``(2) Matching requirement.--The Administrator may require, as a condition of any supplemental grant made under this subsection, that the company or entity receiving the grant provide from resources (in a cash or in kind), other then those provided by the Administrator, a matching contribution equal to the amount of the supplemental grant. ``(c) Limitation.--None of the assistance made available under this section may be used for any overhead or general and administrative expense of a New Markets Venture Capital company or a specialized small business investment company. ``SEC. 359. BANK PARTICIPATION. ``(a) In General.--Except as provided in subsection (b), any national bank, any member bank of the Federal Reserve System, and (to the extent permitted under applicable State law) any insured bank that is not a member of such system, may invest in any New Markets Venture Capital company, or in any entity established to invest solely in New Markets Venture Capital companies. ``(b) Limitation.--No bank described in subsection (a) may make investments described in such subsection that are greater than 5 percent of the capital and surplus of the bank. ``SEC. 360. FEDERAL FINANCING BANK. ``Section 318 shall not apply to any debenture issued by a New Markets Venture Capital company under this part. ``SEC. 361. REPORTING REQUIREMENT. ``Each New Markets Venture Capital company that participates in the program established under this part shall provide to the Administrator such information as the Administrator may require, including-- ``(1) information related to the measurement criteria that the company proposed in its program application; and ``(2) in each case in which the company under this part makes an investment in, or a loan or grant to, a business that is not located in a low-income geographic area, a report on the number and percentage of employees of the business who reside in such areas. ``SEC. 362. EXAMINATIONS. ``(a) In General.--Each New Markets Venture Capital company that participates in the program established under this part shall be subject to examinations made at the direction of the Investment Division of the Small Business Administration in accordance with this section. ``(b) Assistance of Private Sector Entities.--Examinations under this section may be conducted with the assistance of a private sector entity that has both the qualifications and the expertise necessary to conduct such examinations. ``(c) Costs.-- ``(1) Assessment.-- ``(A) In general.--The Administrator may assess the cost of examinations under this section, including compensation of the examiners, against the company examined. ``(B) Payment.--Any company against which the Administrator assesses costs under this paragraph shall pay such costs. ``(d)Deposit of Funds.--Funds collected under this section shall be deposited in the account for salaries and expenses of the Small Business Administration. ``SEC. 363. INJUNCTIONS AND OTHER ORDERS. ``(a) In General.--Whenever, in the judgment of the Administrator, a New Markets Venture Capital company or any other person has engaged or is about to engage in any acts or practices which constitute or will constitute a violation of any provision of this Act, or of any rule or regulation under this Act, or of any order issued under this Act, the Administrator may make application to the proper district court of the United States or a United States court of any place subject to the jurisdiction of the United States for an order enjoining such acts or practices, or for an order enforcing compliance with such provision, rule, regulation, or order, and such courts shall have jurisdiction of such actions and, upon a showing by the Administrator that such New Markets Venture Capital company or other person has engaged or is about to engage in any such acts or practices, a permanent or temporary injunction, restraining order, or other order, shall be granted without bond. ``(b) Jurisdiction.--In any proceeding under subsection (a), the court as a court of equity may, to such extent as it deems necessary, take exclusive jurisdiction of the New Market Venture Capital company and the assets thereof, wherever located, and the court shall have jurisdiction in any such proceeding to appoint a trustee or receiver to hold or administer under the direction of the court the assets so possessed. ``(c) Administrator As Trustee or Receiver.-- ``(1) Authority.--The Administrator may act as trustee or receiver of a New Markets Venture Capital company. ``(2) Appointment.--Upon request of the Administrator, the court may appoint the Administrator to act as a trustee or receiver of a New Markets Venture Capital company unless the court deems such appointment inequitable or otherwise inappropriate by reason of the special circumstances involved. ``SEC. 364. ADDITIONAL PENALTIES FOR NONCOMPLIANCE ``(a) In General.--With respect to any New Markets Venture Capital company that violates or fails to comply with any of the provisions of this Act, of any regulation issued under this Act, or of any participation agreement entered into under this Act, the Administrator may in accordance with this section-- ``(1) void the participation agreement between the Administrator and the company; and (2) cause the company to forfeit all of the rights and privileges derived by the company from this Act. ``(b) Adjudication of Noncompliance.-- ``(1) In general.--Before the Administrator may cause a New Markets Venture Capital company to forfeit rights or privileges under subsection (a), a court of the United States of competent jurisdiction must find that the company committed a violation, or failed to comply, in a cause of action brought for that purpose in the district, territory, or other place subject to the jurisdiction of the United States, in which the principal office of the company is located. ``(2) Parties authorized to file causes of action.--Each cause of action brought by the United States under this subsection shall be brought by the Administrator or by the Attorney General. ``SEC. 365. UNLAWFUL ACTS AND OMISSIONS; BREACH OF FIDUCIARY DUTY. ``(a) Parties Deemed To Commit a Violation.--Whenever any New Markets Venture Capital company violates any provision of this Act, of a regulation issued under this Act, or of a participation agreement entered into under this Act, by reason of its failure to comply with its terms or by reason of its engaging in any act or practice that constitutes or will constitute a violation thereof, such violation shall also be deemed to be a violation and an unlawful act committed by any person who, directly or indirectly, authorizes, orders, participates in, causes, brings about, counsels, aids, or abets in the commission of any acts, practices, or transactions that constitute or will constitute, in whole or in part, such violation. ``(b) Fiduciary Duties.--It shall be unlawful for any officer, director, employee, agent, or other participant in the management or conduct of the affairs of a New Markets Venture Capital company to engage in any act or practice, or to omit any act or practice, in breach of the person's fiduciary duty as such officer, director, employee, agent, or participant if, as a result thereof, the company suffers or is in imminent danger of suffering financial loss or other damage. ``(c) Unlawful Acts.--Except with the written consent of the Administrator, it shall be unlawful-- ``(1) for any person to take office as an officer, director, or employee of any New Markets Venture Capital company, or to become an agent or participant in the conduct of the affairs or management of such a company, if the person-- ``(A) has been convicted of a felony, or any other criminal offense involving dishonesty or breach of trust, or ``(B) has been found civilly liable in damages, or has been permanently or temporarily enjoined by an order, judgment, or decree of a court of competent jurisdiction, by reason of any act or practice involving fraud, or breach of trust; and ``(2) for any person continue to serve in any of the capacities described in paragraph (1), if-- ``(A) the person is convicted of a felony, or any other criminal offense involving dishonesty or breach of trust, or ``(B) the person is found civilly liable in damages, or is permanently or temporarily enjoined by an order, judgment, or decree of a court of competent jurisdiction, by reason of any act or practice involving fraud or breach of trust. ``SEC. 366. REMOVAL OR SUSPENSION OF DIRECTORS OR OFFICERS. ``Using the procedures for removing or suspending a director or an officer of a licensee set forth in section 313 (to the extent such procedures are not inconsistent with the requirements of this part), the Administrator may remove or suspend any director or officer of any New Markets Venture Capital company. ``SEC. 367. REGULATIONS. ``The Administrator may issue such regulations as it deems necessary to carry out the provisions of this part in accordance with its purposes. ``SEC. 368. AUTHORIZATIONS OF APPROPRIATIONS. ``(a) In General.--There are authorized to be appropriated for fiscal years 2001 through 2006, to remain available until expended, the following sums: ``(1) Such subsidy budget authority as may be necessary to guarantee $150,000,000 of debentures under this part. ``(2) $30,000,000 to make grants under this part. ``(b) Funds Collected for Examinations.--Funds deposited under section 362(c)(2) are authorized to be appropriated only for the costs of [[Page H12428]] examinations under section 362 and for the costs of other oversight activities with respect to the program established under this part.'' (c) Conforming Amendment.--Section 20(e)(1)(C) of the Small Business Act (15 U.S.C. 631 note) is amended by inserting `part A of' before ``title III''. (d) Calculation of Maximum Amount of SBIC Leverage.-- (1) Maximum leverage.--Section 303(b)(2) of the Small Business Investment Act of 1958 (15 U.S.C. 683(b)(2)) is amended to read as follows: ``(2) Maximum leverage.-- ``(A) In general.--After March 31, 1993, the maximum amount of outstanding leverage made available to a company licensed under section 301(c) of this Act shall be determined by the amount of such company's private capital-- ``(i) if the company has private capital of not more than $15,000,000, the total amount of leverage shall not exceed 300 percent of private capital; ``(ii) if the company has private capital of more than $15,000,000 but not more than $30,000,000, the total amount of leverage shall not exceed $45,000,000 plus 200 percent of the amount of private capital over $15,000,000; and ``(iii) if the company has private capital of more than $30,000,000, the total amount of leverage shall not exceed $75,000,000 plus 100 percent of the amount of private capital over $30,000,000 but not to exceed an additional $15,000,000. ``(B) Adjustments.-- ``(i) In general.--The dollar amounts in clauses (i), (ii), and (iii) of subparagraph (A) shall be adjusted annually to reflect increases in the Consumer Price Index established by the Bureau of Labor Statistics of the Department of Labor. ``(ii) Initial adjustments.--The initial adjustments made under this subparagraph after the date of the enactment of the Small Business Reauthorization Act of 1937 shall reflect only increases from March 31, 1993. ``(C) Investments in low-income geographic areas.--In calculating the outstanding leverage of a company for the purposes of subparagraph (A), the Administrator shall not include the amount of the cost basis of any equity investment made by the company in a smaller enterprise located in a low- income geographic area (as defined in section 351), to the extent that the total of such amounts does not exceed 50 percent of the company's private capital.''. (2) Maximum aggregate leverage.--Section 303(b)(4) of the Small Business Investment Act of 1958 (15 U.S.C. 683(b)(4)) is amended by adding at the end the following new subparagraph: ``(D) Investments in low-income geographic areas.--In calculating the aggregate outstanding leverage of a company for the purposes of subparagraph (A), the Administrator shall not include the amount of the cost basis of any equity investment made by the company in a smaller enterprise located in a low-income geographic area (as defined in section 351), to the extent that the total of such amounts does not exceed 50 percent of the company's private capital.'' (e) Bankruptcy Exemption for New Markets Venture Capital Companies.--Section 109(b)(2) of title 11, United States Code, is amended by inserting ``a New Markets Venture Capital company as defined in section 351 of the Small Business Investment Act of 1958,'' after ``homestead association,''. (f) Federal Savings Associations.--Section 5(c)(4) of the Home Owners' Loan Act (12 U.S.C. 1464(c)(4)) is amended by adding at the end the following: ``(F) New markets venture capital companies.--A Federal savings association may invest in stock, obligations, or other securities of any New Markets Venture Capital company as defined in section 351 of the Small Business Investment Act of 1958, except that a Federal savings association may not make any investment under this subparagraph if its aggregate outstanding investment under this subparagraph would exceed 5 percent of the capital and surplus of such savings association.''. SEC. 102. BUSINESSLINC GRANTS AND COOPERATIVE AGREEMENTS. Section 8 of the Small Business Act (15 U.S.C. 637) is amended by adding at the end the following: ``(n) Business Grants and Cooperative Agreements.-- ``(1) In general.--In accordance with this subsection, the Administrator may make grants to and enter into cooperative agreements with any coalition of private entities, public entities, or any combination of private and public entities-- ``(A) to expand business-to-business relationships between large and small businesses; and ``(B) to provide businesses, directly or indirectly, with online information and a database of companies that are interested in mentor-protege programs or community-based, statewide, or local business development programs. ``(2) Matching requirement.--Subject to subparagraph (B), the Administrator may make a grant to a coalition under paragraph (1) only if the coalition provides for activities described in paragraph (1)(A) or (1)(B) an amount, either in kind or in cash, equal to the grant amount. ``(3) Authorization of appropriations.--There is authorized to be appropriated to carry out this subsection $6,600,000, to remain available until expended, for each of fiscal years 2001 through 2006.''. SMALL BUSINESS REAUTHORIZATION ACT OF 2000 The conference agreement would enact the provisions of H.R. 5667, as introduced on December 15, 2000. The text of that bill follows: To provide for reauthorization of small business loan and other programs, and for other purposes. Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE; TABLE OF CONTENTS. (a) Short Title.--This Act may be cited as the ``Small Business Reauthorization Act of 2000''. (b) Table of Contents.--The table of contents for this Act is as follows: Sec. 1. Short title; table of contents. TITLE I--SMALL BUSINESS INNOVATION RESEARCH PROGRAM Sec. 101. Short title. Sec. 102. Findings. Sec. 103. Extension of SBIR program. Sec. 104. Annual report. Sec. 105. Third phase assistance. Sec. 106. Report on programs for annual performance plan. Sec. 107. Output and outcome data. Sec. 108. National Research Council reports. Sec. 109. Federal agency expenditures for the SBIR program. Sec. 110. Policy directive modifications. Sec. 111. Federal and State technology partnership program. Sec. 112. Mentoring networks. Sec. 113. Simplified reporting requirements. Sec. 114. Rural outreach program extension. TITLE II--BUSINESS LOAN PROGRAMS Sec. 201. Short title. Sec. 202. Levels of participation. Sec. 203. Loan amounts. Sec. 204. Interest on defaulted loans. Sec. 205. Prepayment of loans. Sec. 206. Guarantee fees. Sec. 207. Lease terms. Sec. 208. Appraisals for loans secured by real property. Sec. 209. Sale of guaranteed loans made for export purposes. Sec. 210. Microloan program. TITLE III--CERTIFIED DEVELOPMENT COMPANY PROGRAM Sec. 301. Short title. Sec. 302. Women-owned businesses. Sec. 303. Maximum debenture size. Sec. 304. Fees. Sec. 305. Premier certified lenders program. Sec. 306. Sale of certain defaulted loans. Sec. 307. Loan liquidation. TITLE IV--CORRECTIONS TO THE SMALL BUSINESS INVESTMENT ACT OF 1958 Sec. 401. Short title. Sec. 402. Definitions. Sec. 403. Investment in small business investment companies. Sec. 404. Subsidy fees. Sec. 405. Distributions. Sec. 406. Conforming amendment. TITLE V--REAUTHORIZATION OF SMALL BUSINESS PROGRAMS Sec. 501. Short title. Sec. 502. Reauthorization of small business programs. Sec. 503. Additional reauthorizations. Sec. 504. Cosponsorship. TITLE VI--HUBZONE PROGRAM Subtitle A--HUBZones in Native America Sec. 601. Short title. Sec. 602. HUBZone small business concern. Sec. 603. Qualified HUBZone small business concern. Sec. 604. Other definitions. Subtitle B--Other HUBZone Provisions Sec. 611. Definitions. Sec. 612. Eligible contracts. Sec. 613. HUBZone redesignated areas. Sec. 614. Community development. Sec. 615. Reference corrections. TITLE VII--NATIONAL WOMEN'S BUSINESS COUNCIL REAUTHORIZATION Sec. 701. Short title. Sec. 702. Membership of the Council. Sec. 703. Repeal of procurement project. Sec. 704. Studies and other research. Sec. 705. Authorization of appropriations. TITLE VIII--MISCELLANEOUS PROVISIONS Sec. 801. Loan application processing. Sec. 802. Application of ownership requirements. Sec. 803. Subcontracting preference for veterans. Sec. 804. Small Business Development Center Program funding. Sec. 805. Surety bonds. Sec. 806. Size standards. Sec. 807. Native Hawaiian organizations under section 8(a). Sec. 808. National Veterans Business Development Corporation correction. Sec. 809. Private sector resources for SCORE. Sec. 810. Contract data collection. Sec. 811. Procurement program for women-owned small business concerns. TITLE I--SMALL BUSINESS INNOVATION RESEARCH PROGRAM SECTION 101. SHORT TITLE. (a) Short Title.--This title may be cited as the ``Small Business Innovation Research Program Reauthorization Act of 2000''. SEC. 102. FINDINGS. Congress finds that-- (1) the small business innovation research program established under the Small Business Innovation Development Act of 1982, and reauthorized by the Small Business Research and Development Enhancement Act of 1992 (in this title referred to as the ``SBIR program'') is highly successful in involving small businesses in federally funded research and development; (2) the SBIR program made the cost-effective and unique research and development capabilities possessed by the small businesses of the Nation available to Federal agencies and departments; (3) the innovative goods and services developed by small businesses that participated in the SBIR program have produced innovations of [[Page H12429]] critical importance in a wide variety of high-technology fields, including biology, medicine, education, and defense; (4) the SBIR program is a catalyst in the promotion of research and development, the commercialization of innovative technology, the development of new products and services, and the continued excellence of this Nation's high-technology industries; and (5) the continuation of the SBIR program will provide expanded opportunities for one of the Nation's vital resources, its small businesses, will foster invention, research, and technology, will create jobs, and will increase this Nation's competitiveness in international markets. SEC. 103. EXTENSION OF SBIR PROGRAM. Section 9(m) of the Small Business Act (15 U.S.C. 638(m)) is amended to read as follows: ``(m) Termination.--The authorization to carry out the Small Business Innovation Research Program established under this section shall terminate on September 30, 2008.''. SEC. 104. ANNUAL REPORT. Section 9(b)(7) of the Small Business Act (15 U.S.C. 638(b)(7)) is amended by striking ``and the Committee on Small Business of the House of Representatives'' and inserting ``, and to the Committee on Science and the Committee on Small Business of the House of Representatives,''. SEC. 105. THIRD PHASE ASSISTANCE. Section 9(e)(4)(C)(i) of the Small Business Act (15 U.S.C. 638(e)(4)(C)(i)) is amended by striking ``; and'' and inserting ``; or''. SEC. 106. REPORT ON PROGRAMS FOR ANNUAL PERFORMANCE PLAN. Section 9(g) of the Small Business Act (15 U.S.C. 638(g)) is amended-- (1) in paragraph (7), by striking ``and'' at the end; (2) in paragraph (8), by striking the period at the end and inserting a semicolon; and (3) by adding at the end the following: ``(9) include, as part of its annual performance plan as required by subsections (a) and (b) of section 1115 of title 31, United States Code, a section on its SBIR program, and shall submit such section to the Committee on Small Business of the Senate, and the Committee on Science and the Committee on Small Business of the House of Representatives; and''. SEC. 107. OUTPUT AND OUTCOME DATA. (a) Collection.--Section 9(g) of the Small Business Act (15 U.S.C. 638(g)), as amended by section 106 of this Act, is further amended by adding at the end the following: ``(10) collect, and maintain in a common format in accordance with subsection (v), such information from awardees as is necessary to assess the SBIR program, including information necessary to maintain the database described in subsection (k).''. (b) Report to Congress.--Section 9(b)(7) of the Small Business Act (15 U.S.C. 638(b)(7)), as amended by section 104 of this Act, is further amended by inserting before the period at the end ``, including the data on output and outcomes collected pursuant to subsections (g)(10) and (o)(9), and a description of the extent to which Federal agencies are providing in a timely manner information needed to maintain the database described in subsection (k)''. (c) Database.--Section 9(k) of the Small Business Act (15 U.S.C. 638(k)) is amended to read as follows: ``(k) Database.-- ``(1) Public database.--Not later than 180 days after the date of enactment of the Small Business Innovation Research Program Reauthorization Act of 2000, the Administrator shall develop, maintain, and make available to the public a searchable, up-to-date, electronic database that includes-- ``(A) the name, size, location, and an identifying number assigned by the Administrator, of each small business concern that has received a first phase or second phase SBIR award from a Federal agency; ``(B) a description of each first phase or second phase SBIR award received by that small business concern, including-- ``(i) an abstract of the project funded by the award, excluding any proprietary information so identified by the small business concern; ``(ii) the Federal agency making the award; and ``(iii) the date and amount of the award; ``(C) an identification of any business concern or subsidiary established for the commercial application of a product or service for which an SBIR award is made; and ``(D) information regarding mentors and Mentoring Networks, as required by section 35(d). ``(2) Government database.--Not later than 180 days after the date of enactment of the Small Business Innovation Research Program Reauthorization Act of 2000, the Administrator, in consultation with Federal agencies required to have an SBIR program pursuant to subsection (f)(1), shall develop and maintain a database to be used solely for SBIR program evaluation that-- ``(A) contains for each second phase award made by a Federal agency-- ``(i) information collected in accordance with paragraph (3) on revenue from the sale of new products or services resulting from the research conducted under the award; ``(ii) information collected in accordance with paragraph (3) on additional investment from any source, other than first phase or second phase SBIR or STTR awards, to further the research and development conducted under the award; and ``(iii) any other information received in connection with the award that the Administrator, in conjunction with the SBIR program managers of Federal agencies, considers relevant and appropriate; ``(B) includes any narrative information that a small business concern receiving a second phase award voluntarily submits to further describe the outputs and outcomes of its awards; ``(C) includes for each applicant for a first phase or second phase award that does not receive such an award-- ``(i) the name, size, and location, and an identifying number assigned by the Administration; ``(ii) an abstract of the project; and ``(iii) the Federal agency to which the application was made; ``(D) includes any other data collected by or available to any Federal agency that such agency considers may be useful for SBIR program evaluation; and ``(E) is available for use solely for program evaluation purposes by the Federal Government or, in accordance with policy directives issued by the Administration, by other authorized persons who are subject to a use and nondisclosure agreement with the Federal Government covering the use of the database. ``(3) Updating information for database.-- ``(A) In general.--A small business concern applying for a second phase award under this section shall be required to update information in the database established under this subsection for any prior second phase award received by that small business concern. In complying with this paragraph, a small business concern may apportion sales or additional investment information relating to more than one second phase award among those awards, if it notes the apportionment for each award. ``(B) Annual updates upon termination.--A small business concern receiving a second phase award under this section shall-- ``(i) update information in the database concerning that award at the termination of the award period; and ``(ii) be requested to voluntarily update such information annually thereafter for a period of 5 years. ``(4) Protection of information.--Information provided under paragraph (2) shall be considered privileged and confidential and not subject to disclosure pursuant to section 552 of title 5, United States Code. ``(5) Rule of construction.--Inclusion of information in the database under this subsection shall not be considered to be publication for purposes of subsection (a) or (b) of section 102 of title 35, United States Code.''. SEC. 108. NATIONAL RESEARCH COUNCIL REPORTS. (a) Study and Recommendations.--The head of each agency with a budget of more than $50,000,000 for its SBIR program for fiscal year 1999, in consultation with the Small Business Administration, shall, not later than 6 months after the date of enactment of this Act, cooperatively enter into an agreement with the National Academy of Sciences for the National Research Council to-- (1) conduct a comprehensive study of how the SBIR program has stimulated technological innovation and used small businesses to meet Federal research and development needs, including-- (A) a review of the value to the Federal research agencies of the research projects being conducted under the SBIR program, and of the quality of research being conducted by small businesses participating under the program, including a comparison of the value of projects conducted under the SBIR program to those funded by other Federal research and development expenditures; (B) to the extent practicable, an evaluation of the economic benefits achieved by the SBIR program, including the economic rate of return, and a comparison of the economic benefits, including the economic rate of return, achieved by the SBIR program with the economic benefits, including the economic rate of return, of other Federal research and development expenditures; (C) an evaluation of the noneconomic benefits achieved by the SBIR program over the life of the program; (D) a comparison of the allocation for fiscal year 2000 of Federal research and development funds to small businesses with such allocation for fiscal year 1983, and an analysis of the factors that have contributed to such allocation; and (E) an analysis of whether Federal agencies, in fulfilling their procurement needs, are making sufficient effort to use small businesses that have completed a second phase award under the SBIR program; and (2) make recommendations with respect to-- (A) measures of outcomes for strategic plans submitted under section 306 of title 5, United States Code, and performance plans submitted under section 1115 of title 31, United States Code, of each Federal agency participating in the SBIR program; (B) whether companies who can demonstrate project feasibility, but who have not received a first phase award, should be eligible for second phase awards, and the potential impact of such awards on the competitive selection process of the program; (C) whether the Federal Government should be permitted to recoup some or all of its expenses if a controlling interest in a company receiving an SBIR award is sold to a foreign company or to a company that is not a small business concern; (D) how to increase the use by the Federal Government in its programs and procurements of technology-oriented small businesses; and (E) improvements to the SBIR program, if any are considered appropriate. (b) Participation by Small Business.-- (1) In general.--In a manner consistent with law and with National Research Council study guidelines and procedures, knowledgeable individuals from the small business community with experience in the SBIR program shall be included-- (A) in any panel established by the National Research Council for the purpose of performing the study conducted under this section; and [[Page H12430]] (B) among those who are asked by the National Research Council to peer review the study. (2) Consultation.--To ensure that the concerns of small business are appropriately considered under this subsection, the National Research Council shall consult with and consider the views of the Office of Technology and the Office of Advocacy of the Small Business Administration and other interested parties, including entities, organizations, and individuals actively engaged in enhancing or developing the technological capabilities of small business concerns. (c) Progress Reports.--The National Research Council shall provide semiannual progress reports on the study conducted under this section to the Committee on Science and the Committee on Small Business of the House of Representatives, and to the Committee on Small Business of the Senate. (d) Report.--The National Research Council shall transmit to the heads of agencies entering into an agreement under this section and to the Committee on Science and the Committee on Small Business of the House of Representatives, and to the Committee on Small Business of the Senate-- (1) not later than 3 years after the date of enactment of this Act, a report including the results of the study conducted under subsection (a)(1) and recommendations made under subsection (a)(2); and (2) not later than 6 years after that date of enactment, an update of such report. SEC. 109. FEDERAL AGENCY EXPENDITURES FOR THE SBIR PROGRAM. Section 9(i) of the Small Business Act (15 U.S.C. 638(i)) is amended-- (1) by striking ``(i) Each Federal'' and inserting the following: ``(i) Annual Reporting.-- ``(1) In general.--Each Federal''; and (2) by adding at the end the following: ``(2) Calculation of extramural budget.-- ``(A) Methodology.--Not later than 4 months after the date of enactment of each appropriations Act for a Federal agency required by this section to have an SBIR program, the Federal agency shall submit to the Administrator a report, which shall include a description of the methodology used for calculating the amount of the extramural budget of that Federal agency. ``(B) Administrator's analysis.--The Administrator shall include an analysis of the methodology received from each Federal agency referred to in subparagraph (A) in the report required by subsection (b)(7).''. SEC. 110. POLICY DIRECTIVE MODIFICATIONS. Section 9(j) of the Small Business Act (15 U.S.C. 638(j)) is amended by adding at the end the following: ``(3) Additional modifications.--Not later than 120 days after the date of enactment of the Small Business Innovation Research Program Reauthorization Act of 2000, the Administrator shall modify the policy directives issued pursuant to this subsection-- ``(A) to clarify that the rights provided for under paragraph (2)(A) apply to all Federal funding awards under this section, including the first phase (as described in subsection (e)(4)(A)), the second phase (as described in subsection (e)(4)(B)), and the third phase (as described in subsection (e)(4)(C)); ``(B) to provide for the requirement of a succinct commercialization plan with each application for a second phase award that is moving toward commercialization; ``(C) to require agencies to report to the Administration, not less frequently than annually, all instances in which an agency pursued research, development, or production of a technology developed by a small business concern using an award made under the SBIR program of that agency, and determined that it was not practicable to enter into a follow-on non-SBIR program funding agreement with the small business concern, which report shall include, at a minimum-- ``(i) the reasons why the follow-on funding agreement with the small business concern was not practicable; ``(ii) the identity of the entity with which the agency contracted to perform the research, development, or production; and ``(iii) a description of the type of funding agreement under which the research, development, or production was obtained; and ``(D) to implement subsection (v), including establishing standardized procedures for the provision of information pursuant to subsection (k)(3).''. SEC. 111. FEDERAL AND STATE TECHNOLOGY PARTNERSHIP PROGRAM. (a) Findings.--Congress finds that-- (1) programs to foster economic development among small high-technology firms vary widely among the States; (2) States that do not aggressively support the development of small high-technology firms, including participation by small business concerns in the SBIR program, are at a competitive disadvantage in establishing a business climate that is conducive to technology development; and (3) building stronger national, State, and local support for science and technology research in these disadvantaged States will expand economic opportunities in the United States, create jobs, and increase the competitiveness of the United States in the world market. (b) Federal and State Technology Partnership Program.--The Small Business Act (15 U.S.C. 631 et seq.) is amended-- (1) by redesignating section 34 as section 36; and (2) by inserting after section 33 the following: ``SEC. 34. FEDERAL AND STATE TECHNOLOGY PARTNERSHIP PROGRAM. ``(a) Definitions.--In this section and section 35, the following definitions apply: ``(1) Applicant.--The term `applicant' means an entity, organization, or individual that submits a proposal for an award or a cooperative agreement under this section. ``(2) Business advice and counseling.--The term `business advice and counseling' means providing advice and assistance on matters described in section 35(c)(2)(B) to small business concerns to guide them through the SBIR and STTR program process, from application to award and successful completion of each phase of the program. ``(3) FAST program.--The term `FAST program' means the Federal and State Technology Partnership Program established under this section. ``(4) Mentor.--The term `mentor' means an individual described in section 35(c)(2). ``(5) Mentoring network.--The term `Mentoring Network' means an association, organization, coalition, or other entity (including an individual) that meets the requirements of section 35(c). ``(6) Recipient.--The term `recipient' means a person that receives an award or becomes party to a cooperative agreement under this section. ``(7) SBIR program.--The term `SBIR program' has the same meaning as in section 9(e)(4). ``(8) State.--The term `State' means each of the several States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa. ``(9) STTR program.--The term `STTR program' has the same meaning as in section 9(e)(6). ``(b) Establishment of Program.--The Administrator shall establish a program to be known as the Federal and State Technology Partnership Program, the purpose of which shall be to strengthen the technological competitiveness of small business concerns in the States. ``(c) Grants and Cooperative Agreements.-- ``(1) Joint review.--In carrying out the FAST program under this section, the Administrator and the SBIR program managers at the National Science Foundation and the Department of Defense shall jointly review proposals submitted by applicants and may make awards or enter into cooperative agreements under this section based on the factors for consideration set forth in paragraph (2), in order to enhance or develop in a State-- ``(A) technology research and development by small business concerns; ``(B) technology transfer from university research to technology-based small business concerns; ``(C) technology deployment and diffusion benefiting small business concerns; ``(D) the technological capabilities of small business concerns through the establishment or operation of consortia comprised of entities, organizations, or individuals, including-- ``(i) State and local development agencies and entities; ``(ii) representatives of technology-based small business concerns; ``(iii) industries and emerging companies; ``(iv) universities; and ``(v) small business development centers; and ``(E) outreach, financial support, and technical assistance to technology-based small business concerns participating in or interested in participating in an SBIR program, including initiatives-- ``(i) to make grants or loans to companies to pay a portion or all of the cost of developing SBIR proposals; ``(ii) to establish or operate a Mentoring Network within the FAST program to provide business advice and counseling that will assist small business concerns that have been identified by FAST program participants, program managers of participating SBIR agencies, the Administration, or other entities that are knowledgeable about the SBIR and STTR programs as good candidates for the SBIR and STTR programs, and that would benefit from mentoring, in accordance with section 35; ``(iii) to create or participate in a training program for individuals providing SBIR outreach and assistance at the State and local levels; and ``(iv) to encourage the commercialization of technology developed through SBIR program funding. ``(2) Selection considerations.--In making awards or entering into cooperative agreements under this section, the Administrator and the SBIR program managers referred to in paragraph (1)-- ``(A) may only consider proposals by applicants that intend to use a portion of the Federal assistance provided under this section to provide outreach, financial support, or technical assistance to technology-based small business concerns participating in or interested in participating in the SBIR program; and ``(B) shall consider, at a minimum-- ``(i) whether the applicant has demonstrated that the assistance to be provided would address unmet needs of small business concerns in the community, and whether it is important to use Federal funding for the proposed activities; ``(ii) whether the applicant has demonstrated that a need exists to increase the number or success of small high- technology businesses in the State, as measured by the number of first phase and second phase SBIR awards that have historically been received by small business concerns in the State; ``(iii) whether the projected costs of the proposed activities are reasonable; ``(iv) whether the proposal integrates and coordinates the proposed activities with other State and local programs assisting small high-technology firms in the State; and ``(v) the manner in which the applicant will measure the results of the activities to be conducted. [[Page H12431]] ``(3) Proposal limit.--Not more than 1 proposal may be submitted for inclusion in the FAST program under this section to provide services in any one State in any 1 fiscal year. ``(4) Process.--Proposals and applications for assistance under this section shall be in such form and subject to such procedures as the Administrator shall establish. ``(d) Cooperation and Coordination.--In carrying out the FAST program under this section, the Administrator shall cooperate and coordinate with-- ``(1) Federal agencies required by section 9 to have an SBIR program; and ``(2) entities, organizations, and individuals actively engaged in enhancing or developing the technological capabilities of small business concerns, including-- ``(A) State and local development agencies and entities; ``(B) State committees established under the Experimental Program to Stimulate Competitive Research of the National Science Foundation (as established under section 113 of the National Science Foundation Authorization Act of 1988 (42 U.S.C. 1862g)); ``(C) State science and technology councils; and ``(D) representatives of technology-based small business concerns. ``(e) Administrative Requirements.-- ``(1) Competitive basis.--Awards and cooperative agreements under this section shall be made or entered into, as applicable, on a competitive basis. ``(2) Matching requirements.-- ``(A) In general.--The non-Federal share of the cost of an activity (other than a planning activity) carried out using an award or under a cooperative agreement under this section shall be-- ``(i) 50 cents for each Federal dollar, in the case of a recipient that will serve small business concerns located in one of the 18 States receiving the fewest SBIR first phase awards (as described in section 9(e)(4)(A)); ``(ii) except as provided in subparagraph (B), 1 dollar for each Federal dollar, in the case of a recipient that will serve small business concerns located in one of the 16 States receiving the greatest number of such SBIR first phase awards; and ``(iii) except as provided in subparagraph (B), 75 cents for each Federal dollar, in the case of a recipient that will serve small business concerns located in a State that is not described in clause (i) or (ii) that is receiving such SBIR first phase awards. ``(B) Low-income areas.--The non-Federal share of the cost of the activity carried out using an award or under a cooperative agreement under this section shall be 50 cents for each Federal dollar that will be directly allocated by a recipient described in subparagraph (A) to serve small business concerns located in a qualified census tract, as that term is defined in section 42(d)(5)(C)(ii) of the Internal Revenue Code of 1986. Federal dollars not so allocated by that recipient shall be subject to the matching requirements of subparagraph (A). ``(C) Types of funding.--The non-Federal share of the cost of an activity carried out by a recipient shall be comprised of not less than 50 percent cash and not more than 50 percent of indirect costs and in-kind contributions, except that no such costs or contributions may be derived from funds from any other Federal program. ``(D) Rankings.--For purposes of subparagraph (A), the Administrator shall reevaluate the ranking of a State once every 2 fiscal years, beginning with fiscal year 2001, based on the most recent statistics compiled by the Administrator. ``(3) Duration.--Awards may be made or cooperative agreements entered into under this section for multiple years, not to exceed 5 years in total. ``(f) Reports.-- ``(1) Initial report.--Not later than 120 days after the date of enactment of the Small Business Innovation Research Program Reauthorization Act of 2000, the Administrator shall prepare and submit to the Committee on Small Business of the Senate and the Committee on Science and the Committee on Small Business of the House of Representatives a report, which shall include, with respect to the FAST program, including Mentoring Networks-- ``(A) a description of the structure and procedures of the program; ``(B) a management plan for the program; and ``(C) a description of the merit-based review process to be used in the program. ``(2) Annual reports.--The Administrator shall submit an annual report to the Committee on Small Business of the Senate and the Committee on Science and the Committee on Small Business of the House of Representatives regarding-- ``(A) the number and amount of awards provided and cooperative agreements entered into under the FAST program during the preceding year; ``(B) a list of recipients under this section, including their location and the activities being performed with the awards made or under the cooperative agreements entered into; and ``(C) the Mentoring Networks and the mentoring database, as provided for under section 35, including-- ``(i) the status of the inclusion of mentoring information in the database required by section 9(k); and ``(ii) the status of the implementation and description of the usage of the Mentoring Networks. ``(g) Reviews by Inspector General.-- ``(1) In general.--The Inspector General of the Administration shall conduct a review of-- ``(A) the extent to which recipients under the FAST program are measuring the performance of the activities being conducted and the results of such measurements; and ``(B) the overall management and effectiveness of the FAST program. ``(2) Report.--During the first quarter of fiscal year 2004, the Inspector General of the Administration shall submit a report to the Committee on Small Business of the Senate and the Committee on Science and the Committee on Small Business of the House of Representatives on the review conducted under paragraph (1). ``(h) Program Levels.-- ``(1) In general.--There is authorized to be appropriated to carry out the FAST program, including Mentoring Networks, under this section and section 35, $10,000,000 for each of fiscal years 2001 through 2005. ``(2) Mentoring database.--Of the total amount made available under paragraph (1) for fiscal years 2001 through 2005, a reasonable amount, not to exceed a total of $500,000, may be used by the Administration to carry out section 35(d). ``(i) Termination.--The authority to carry out the FAST program under this section shall terminate on September 30, 2005.''. (c) Coordination of Technology Development Programs.-- Section 9 of the Small Business Act (15 U.S.C. 638) is amended by adding at the end the following: ``(u) Coordination of Technology Development Programs.-- ``(1) Definition of technology development program.--In this subsection, the term `technology development program' means-- ``(A) the Experimental Program to Stimulate Competitive Research of the National Science Foundation, as established under section 113 of the National Science Foundation Authorization Act of 1988 (42 U.S.C. 1862g); ``(B) the Defense Experimental Program to Stimulate Competitive Research of the Department of Defense; ``(C) the Experimental Program to Stimulate Competitive Research of the Department of Energy; ``(D) the Experimental Program to Stimulate Competitive Research of the Environmental Protection Agency; ``(E) the Experimental Program to Stimulate Competitive Research of the National Aeronautics and Space Administration; ``(F) the Institutional Development Award Program of the National Institutes of Health; and ``(G) the National Research Initiative Competitive Grants Program of the Department of Agriculture. ``(2) Coordination requirements.--Each Federal agency that is subject to subsection (f) and that has established a technology development program may, in each fiscal year, review for funding under that technology development program-- ``(A) any proposal to provide outreach and assistance to 1 or more small business concerns interested in participating in the SBIR program, including any proposal to make a grant or loan to a company to pay a portion or all of the cost of developing an SBIR proposal, from an entity, organization, or individual located in-- ``(i) a State that is eligible to participate in that program; or ``(ii) a State described in paragraph (3); or ``(B) any proposal for the first phase of the SBIR program, if the proposal, though meritorious, is not funded through the SBIR program for that fiscal year due to funding restraints, from a small business concern located in-- ``(i) a State that is eligible to participate in a technology development program; or ``(ii) a State described in paragraph (3). ``(3) Additionally eligible state.--A State referred to in subparagraph (A)(ii) or (B)(ii) of paragraph (2) is a State in which the total value of contracts awarded to small business concerns under all SBIR programs is less than the total value of contracts awarded to small business concerns in a majority of other States, as determined by the Administrator in biennial fiscal years, beginning with fiscal year 2000, based on the most recent statistics compiled by the Administrator.''. SEC. 112. MENTORING NETWORKS. The Small Business Act (15 U.S.C. 631 et seq.) is amended by inserting after section 34, as added by section 111(b)(2) of this Act, the following: ``SEC. 35. MENTORING NETWORKS. ``(a) Findings.--Congress finds that-- ``(1) the SBIR and STTR programs create jobs, increase capacity for technological innovation, and boost international competitiveness; ``(2) increasing the quantity of applications from all States to the SBIR and STTR programs would enhance competition for such awards and the quality of the completed projects; and ``(3) mentoring is a natural complement to the FAST program of reaching out to new companies regarding the SBIR and STTR programs as an effective and low-cost way to improve the likelihood that such companies will succeed in such programs in developing and commercializing their research. ``(b) Authorization for Mentoring Networks.--The recipient of an award or participant in a cooperative agreement under section 34 may use a reasonable amount of such assistance for the establishment of a Mentoring Network under this section. ``(c) Criteria for Mentoring Networks.--A Mentoring Network established using assistance under section 34 shall-- ``(1) provide business advice and counseling to high technology small business concerns located in the State or region served by the Mentoring Network and identified under section 34(c)(1)(E)(ii) as potential candidates for the SBIR or STTR programs; ``(2) identify volunteer mentors who-- ``(A) are persons associated with a small business concern that has successfully completed [[Page H12432]] one or more SBIR or STTR funding agreements; and ``(B) have agreed to guide small business concerns through all stages of the SBIR or STTR program process, including providing assistance relating to-- ``(i) proposal writing; ``(ii) marketing; ``(iii) Government accounting; ``(iv) Government audits; ``(v) project facilities and equipment; ``(vi) human resources; ``(vii) third phase partners; ``(viii) commercialization; ``(ix) venture capital networking; and ``(x) other matters relevant to the SBIR and STTR programs; ``(3) have experience working with small business concerns participating in the SBIR and STTR programs; ``(4) contribute information to the national database referred to in subsection (d); and ``(5) agree to reimburse volunteer mentors for out-of- pocket expenses related to service as a mentor under this section. ``(d) Mentoring Database.--The Administrator shall-- ``(1) include in the database required by section 9(k)(1), in cooperation with the SBIR, STTR, and FAST programs, information on Mentoring Networks and mentors participating under this section, including a description of their areas of expertise; ``(2) work cooperatively with Mentoring Networks to maintain and update the database; ``(3) take such action as may be necessary to aggressively promote Mentoring Networks under this section; and ``(4) fulfill the requirements of this subsection either directly or by contract.''. SEC. 113. SIMPLIFIED REPORTING REQUIREMENTS. Section 9 of the Small Business Act (15 U.S.C. 638), as amended by this Act, is further amended by adding at the end the following: ``(v) Simplified Reporting Requirements.--The Administrator shall work with the Federal agencies required by this section to have an SBIR program to standardize reporting requirements for the collection of data from SBIR applicants and awardees, including data for inclusion in the database under subsection (k), taking into consideration the unique needs of each agency, and to the extent possible, permitting the updating of previously reported information by electronic means. Such requirements shall be designed to minimize the burden on small businesses.''. SEC. 114. RURAL OUTREACH PROGRAM EXTENSION. (a) Extension of Termination Date.--Section 501(b)(2) of the Small Business Reauthorization Act of 1997 (15 U.S.C. 638 note; 111 Stat. 2622) is amended by striking ``2001'' and inserting ``2005''. (b) Extension of Authorization of Appropriations.--Section 9(s)(2) of the Small Business Act (15 U.S.C. 638(s)(2)) is amended by striking ``for fiscal year 1998, 1999, 2000, or 2001'' and inserting ``for each of the fiscal years 2000 through 2005,''. TITLE II--BUSINESS LOAN PROGRAMS SEC. 201. SHORT TITLE. This title may be cited as the ``Small Business Loan Improvement Act of 2000''. SEC. 202. LEVELS OF PARTICIPATION. Section 7(a)(2)(A) of the Small Business Act (15 U.S.C. 636(a)(2)(A)) is amended-- (1) in paragraph (i) by striking ``$100,000'' and inserting ``$150,000''; and (2) in paragraph (ii)-- (A) by striking ``80 percent'' and inserting ``85 percent''; and (B) by striking ``$100,000'' and inserting ``$150,000''. SEC. 203. LOAN AMOUNTS. Section 7(a)(3)(A) of the Small Business Act (15 U.S.C. 636(a)(3)(A)) is amended by striking ``$750,000,'' and inserting, ``$1,000,000 (or if the gross loan amount would exceed $2,000,000),''. SEC. 204. INTEREST ON DEFAULTED LOANS. Section 7(a)(4)(B) of the Small Business Act (15 U.S.C. 636(a)(4)(B)) is amended by adding at the end the following: ``(iii) Applicability.--Clauses (i) and (ii) shall not apply to loans made on or after October 1, 2000.''. SEC. 205. PREPAYMENT OF LOANS. Section 7(a)(4) of the Small Business Act (15 U.S.C. 636(a)(4)) is further amended-- (1) by striking ``(4) Interest rates and fees.--'' and inserting ``(4) Interest rates and prepayment charges.--''; and (2) by adding at the end the following: ``(C) Prepayment charges.-- ``(i) In general.--A borrower who prepays any loan guaranteed under this subsection shall remit to the Administration a subsidy recoupment fee calculated in accordance with clause (ii) if-- ``(I) the loan is for a term of not less than 15 years; ``(II) the prepayment is voluntary; ``(III) the amount of prepayment in any calendar year is more than 25 percent of the outstanding balance of the loan; and ``(IV) the prepayment is made within the first 3 years after disbursement of the loan proceeds. ``(ii) Subsidy recoupment fee.--The subsidy recoupment fee charged under clause (i) shall be-- ``(I) 5 percent of the amount of prepayment, if the borrower prepays during the first year after disbursement; ``(II) 3 percent of the amount of prepayment, if the borrower prepays during the second year after disbursement; and ``(III) 1 percent of the amount of prepayment, if the borrower prepays during the third year after disbursement.''. SEC. 206. GUARANTEE FEES. Section 7(a)(18) of the Small Business Act (15 U.S.C. 636(a)(18)) is amended to read as follows: ``(18) Guarantee fees.-- ``(A) In general.--With respect to each loan guaranteed under this subsection (other than a loan that is repayable in 1 year or less), the Administration shall collect a guarantee fee, which shall be payable by the participating lender, and may be charged to the borrower, as follows: ``(i) A guarantee fee equal to 2 percent of the deferred participation share of a total loan amount that is not more than $150,000. ``(ii) A guarantee fee equal to 3 percent of the deferred participation share of a total loan amount that is more than $150,000, but not more than $700,000. ``(iii) A guarantee fee equal to 3.5 percent of the deferred participation share of a total loan amount that is more than $700,000. ``(B) Retention of certain fees.--Lenders participating in the programs established under this subsection may retain not more than 25 percent of a fee collected under subparagraph (A)(i).''. SEC. 207. LEASE TERMS. Section 7(a) of the Small Business Act (15 U.S.C. 636(a)) is further amended by adding at the end the following: ``(28) Leasing.--In addition to such other lease arrangements as may be authorized by the Administration, a borrower may permanently lease to one or more tenants not more than 20 percent of any property constructed with the proceeds of a loan guaranteed under this subsection, if the borrower permanently occupies and uses not less than 60 percent of the total business space in the property.''. SEC. 208. APPRAISALS FOR LOANS SECURED BY REAL PROPERTY. (a) Small Business Act.--Section 7(a) of the Small Business Act (15 U.S.C. 636(a)) is amended by adding at the end the following: ``(29) Real estate appraisals.--With respect to a loan under this subsection that is secured by commercial real property, an appraisal of such property by a State licensed or certified appraiser-- ``(A) shall be required by the Administration in connection with any such loan for more than $250,000; or ``(B) may be required by the Administration or the lender in connection with any such loan for $250,000 or less, if such appraisal is necessary for appropriate evaluation of creditworthiness.''. (b) Small Business Investment Act of 1958.--Section 502(3)(E) of the Small Business Investment Act of 1958 (15 U.S.C. 696(3)(E)) is amended-- (1) by striking ``The collateral'' and inserting the following: ``(i) In general.--The collateral''; and (2) by adding at the end the following: ``(ii) Appraisals.--With respect to commercial real property provided by the small business concern as collateral, an appraisal of the property by a State licensed or certified appraiser-- ``(I) shall be required by the Administration before disbursement of the loan if the estimated value of that property is more than $250,000; or ``(II) may be required by the Administration or the lender before disbursement of the loan if the estimated value of that property is $250,000 or less, and such appraisal is necessary for appropriate evaluation of creditworthiness.''. SEC. 209. SALE OF GUARANTEED LOANS MADE FOR EXPORT PURPOSES. Section 5(f)(1)(C) of the Small Business Act (15 U.S.C. 634(f)(1)(C)) is amended to read as follows: ``(C) each loan, except each loan made under section 7(a)(14), shall have been fully disbursed to the borrower prior to any sale.''. SEC. 210. MICROLOAN PROGRAM. (a) In General.--Section 7(m) of the Small Business Act (15 U.S.C. 636(m)) is amended-- (1) in paragraphs (1)(B)(iii) and (3)(E), by striking ``$25,000'' each place it appears and inserting ``$35,000''; (2) in paragraphs (1)(A)(iii)(I), (3)(A)(ii), and (4)(C)(i)(II), by striking ``$7,500'' each place it appears and inserting ``$10,000''; (3) in paragraph (3)(E), by striking ``$15,000'' and inserting ``$20,000''; (4) in paragraph (5)(A)-- (A) by striking ``25 grants'' and inserting ``55 grants''; and (B) by striking ``$125,000'' and inserting ``$200,000''; (5) in paragraph (6)(B), by striking ``$10,000'' and inserting ``$15,000''; and (6) in paragraph (7), by striking subparagraph (A) and inserting the following: ``(A) Number of participants.--Under the program authorized by this subsection, the Administration may fund, on a competitive basis, not more than 300 intermediaries.''. (b) Conforming Amendments.--Section 7(m)(11)(B) of the Small Business Act (15 U.S.C. 636(m)(11)(B)) is amended by striking ``$25,000'' and inserting ``$35,000''. TITLE III--CERTIFIED DEVELOPMENT COMPANY PROGRAM SEC. 301. SHORT TITLE. This title may be cited as the ``Certified Development Company Program Improvements Act of 2000''. SEC. 302. WOMEN-OWNED BUSINESSES. Section 501(d)(3)(C) of the Small Business Investment Act of 1958 (15 U.S.C. 695(d)(3)(C)) is amended by inserting before the comma ``or women-owned business development''. SEC. 303. MAXIMUM DEBENTURE SIZE. Section 502(2) of the Small Business Investment Act of 1958 (15 U.S.C. 696(2)) is amended to read as follows: ``(2) Loans made by the Administration under this section shall be limited to $1,000,000 for each such identifiable small business concern, except loans meeting the criteria specified in section [[Page H12433]] 501(d)(3), which shall be limited to $1,300,000 for each such identifiable small business concern.''. SEC. 304. FEES. Section 503(f) of the Small Business Investment Act of 1958 (15 U.S.C. 697(f)) is amended to read as follows: ``(f) Effective Date.--The fees authorized by subsections (b) and (d) shall apply to financings approved by the Administration on or after October 1, 1996, but shall not apply to financings approved by the Administration on or after October 1, 2003.''. SEC. 305. PREMIER CERTIFIED LENDERS PROGRAM. Section 217(b) of the Small Business Administration Reauthorization and Amendments Act of 1994 (Public Law 103- 403, 15 U.S.C. 697 note) (relating to section 508 of the Small Business Investment Act of 1958) is repealed. SEC. 306. SALE OF CERTAIN DEFAULTED LOANS. Section 508 of the Small Business Investment Act of 1958 (15 U.S.C. 697e) is amended-- (1) in subsection (a), by striking ``On a pilot program basis, the'' and inserting ``The''; (2) by redesignating subsections (d) through (i) as subsections (e) through (j), respectively; (3) in subsection (f) (as redesignated by paragraph (2)), by striking ``subsection (f)'' and inserting ``subsection (g)''; (4) in subsection (h) (as redesignated by paragraph (2)), by striking ``subsection (f)'' and inserting ``subsection (g)''; and (5) by inserting after subsection (c) the following: ``(d) Sale of Certain Defaulted Loans.-- ``(1) Notice.--If, upon default in repayment, the Administration acquires a loan guaranteed under this section and identifies such loan for inclusion in a bulk asset sale of defaulted or repurchased loans or other financings, it shall give prior notice thereof to any certified development company which has a contingent liability under this section. The notice shall be given to the company as soon as possible after the financing is identified, but not less than 90 days before the date the Administration first makes any records on such financing available for examination by prospective purchasers prior to its offering in a package of loans for bulk sale. ``(2) Limitations.--The Administration shall not offer any loan described in paragraph (1) as part of a bulk sale unless it-- ``(A) provides prospective purchasers with the opportunity to examine the Administration's records with respect to such loan; and ``(B) provides the notice required by paragraph (1).''. SEC. 307. LOAN LIQUIDATION. (a) Liquidation and Foreclosure.--Title V of the Small Business Investment Act of 1958 (15 U.S.C. 695 et seq.) is amended by adding at the end the following: ``SEC. 510. FORECLOSURE AND LIQUIDATION OF LOANS. ``(a) Delegation of Authority.--In accordance with this section, the Administration shall delegate to any qualified State or local development company (as defined in section 503(e)) that meets the eligibility requirements of subsection (b)(1) the authority to foreclose and liquidate, or to otherwise treat in accordance with this section, defaulted loans in its portfolio that are funded with the proceeds of debentures guaranteed by the Administration under section 503. ``(b) Eligibility for Delegation.-- ``(1) Requirements.--A qualified State or local development company shall be eligible for a delegation of authority under subsection (a) if-- ``(A) the company-- ``(i) has participated in the loan liquidation pilot program established by the Small Business Programs Improvement Act of 1996 (15 U.S.C. 695 note), as in effect on the day before promulgation of final regulations by the Administration implementing this section; ``(ii) is participating in the Premier Certified Lenders Program under section 508; or ``(iii) during the 3 fiscal years immediately prior to seeking such a delegation, has made an average of not less than 10 loans per year that are funded with the proceeds of debentures guaranteed under section 503; and ``(B) the company-- ``(i) has one or more employees-- ``(I) with not less than 2 years of substantive, decision- making experience in administering the liquidation and workout of problem loans secured in a manner substantially similar to loans funded with the proceeds of debentures guaranteed under section 503; and ``(II) who have completed a training program on loan liquidation developed by the Administration in conjunction with qualified State and local development companies that meet the requirements of this paragraph; or ``(ii) submits to the Administration documentation demonstrating that the company has contracted with a qualified third-party to perform any liquidation activities and secures the approval of the contract by the Administration with respect to the qualifications of the contractor and the terms and conditions of liquidation activities. ``(2) Confirmation.--On request the Administration shall examine the qualifications of any company described in subsection (a) to determine if such company is eligible for the delegation of authority under this section. If the Administration determines that a company is not eligible, the Administration shall provide the company with the reasons for such ineligibility. ``(c) Scope of Delegated Authority.-- ``(1) In general.--Each qualified State or local development company to which the Administration delegates authority under section (a) may with respect to any loan described in subsection (a)-- ``(A) perform all liquidation and foreclosure functions, including the purchase in accordance with this subsection of any other indebtedness secured by the property securing the loan, in a reasonable and sound manner according to commercially accepted practices, pursuant to a liquidation plan approved in advance by the Administration under paragraph (2)(A); ``(B) litigate any matter relating to the performance of the functions described in subparagraph (A), except that the Administration may-- ``(i) defend or bring any claim if-- ``(I) the outcome of the litigation may adversely affect the Administration's management of the loan program established under section 502; or ``(II) the Administration is entitled to legal remedies not available to a qualified State or local development company and such remedies will benefit either the Administration or the qualified State or local development company; or ``(ii) oversee the conduct of any such litigation; and ``(C) take other appropriate actions to mitigate loan losses in lieu of total liquidation or foreclosures, including the restructuring of a loan in accordance with prudent loan servicing practices and pursuant to a workout plan approved in advance by the Administration under paragraph (2)(C). ``(2) Administration approval.-- ``(A) Liquidation plan.-- ``(i) In general.--Before carrying out functions described in paragraph (1)(A), a qualified State or local development company shall submit to the Administration a proposed liquidation plan. ``(ii) Administration action on plan.-- ``(I) Timing.--Not later than 15 business days after a liquidation plan is received by the Administration under clause (i), the Administration shall approve or reject the plan. ``(II) Notice of no decision.--With respect to any plan that cannot be approved or denied within the 15-day period required by subclause (I), the Administration shall within such period provide in accordance with subparagraph (E) notice to the company that submitted the plan. ``(iii) Routine actions.--In carrying out functions described in paragraph (1)(A), a qualified State or local development company may undertake routine actions not addressed in a liquidation plan without obtaining additional approval from the Administration. ``(B) Purchase of indebtedness.-- ``(i) In general.--In carrying out functions described in paragraph (1)(A), a qualified State or local development company shall submit to the Administration a request for written approval before committing the Administration to the purchase of any other indebtedness secured by the property securing a defaulted loan. ``(ii) Administration action on request.-- ``(I) Timing.--Not later than 15 business days after receiving a request under clause (i), the Administration shall approve or deny the request. ``(II) Notice of no decision.--With respect to any request that cannot be approved or denied within the 15-day period required by subclause (I), the Administration shall within such period provide in accordance with subparagraph (E) notice to the company that submitted the request. ``(C) Workout plan.-- ``(i) In general.--In carrying out functions described in paragraph (1)(C), a qualified State or local development company shall submit to the Administration a proposed workout plan. ``(ii) Administration action on plan.-- ``(I) Timing.--Not later than 15 business days after a workout plan is received by the Administration under clause (i), the Administration shall approve or reject the plan. ``(II) Notice of no decision.--With respect to any workout plan that cannot be approved or denied within the 15-day period required by subclause (I), the Administration shall within such period provide in accordance with subparagraph (E) notice to the company that submitted the plan. ``(D) Compromise of indebtedness.--In carrying out functions described in paragraph (1)(A), a qualified State or local development company may-- ``(i) consider an offer made by an obligor to compromise the debt for less than the full amount owing; and ``(ii) pursuant to such an offer, release any obligor or other party contingently liable, if the company secures the written approval of the Administration. ``(E) Contents of notice of no decision.--Any notice provided by the Administration under subparagraph (A)(ii)(II), (B)(ii)(II), or (C)(ii)(II)-- ``(i) shall be in writing; ``(ii) shall state the specific reason for the Administration's inability to act on a plan or request; ``(iii) shall include an estimate of the additional time required by the Administration to act on the plan or request; and ``(iv) if the Administration cannot act because insufficient information or documentation was provided by the company submitting the plan or request, shall specify the nature of such additional information or documentation. ``(3) Conflict of interest.--In carrying out functions described in paragraph (1), a qualified State or local development company shall take no action that would result in an actual or apparent conflict of interest between the company (or any employee of the company) and any third party lender, associate of a third party lender, or any other person participating in a liquidation, foreclosure, or loss mitigation action. ``(d) Suspension or Revocation of Authority.--The Administration may revoke or suspend a delegation of authority under this section to any qualified State or local development company, if the Administration determines that the company-- ``(1) does not meet the requirements of subsection (b)(1); ``(2) has violated any applicable rule or regulation of the Administration or any other applicable law; or [[Page H12434]] ``(3) fails to comply with any reporting requirement that may be established by the Administration relating to carrying out of functions described in paragraph (1). ``(e) Report.-- ``(1) In general.--Based on information provided by qualified State and local development companies and the Administration, the Administration shall annually submit to the Committees on Small Business of the House of Representatives and of the Senate a report on the results of delegation of authority under this section. ``(2) Contents.--Each report submitted under paragraph (1) shall include the following information: ``(A) With respect to each loan foreclosed or liquidated by a qualified State or local development company under this section, or for which losses were otherwise mitigated by the company pursuant to a workout plan under this section-- ``(i) the total cost of the project financed with the loan; ``(ii) the total original dollar amount guaranteed by the Administration; ``(iii) the total dollar amount of the loan at the time of liquidation, foreclosure, or mitigation of loss; ``(iv) the total dollar losses resulting from the liquidation, foreclosure, or mitigation of loss; and ``(v) the total recoveries resulting from the liquidation, foreclosure, or mitigation of loss, both as a percentage of the amount guaranteed and the total cost of the project financed. ``(B) With respect to each qualified State or local development company to which authority is delegated under this section, the totals of each of the amounts described in clauses (i) through (v) of subparagraph (A). ``(C) With respect to all loans subject to foreclosure, liquidation, or mitigation under this section, the totals of each of the amounts described in clauses (i) through (v) of subparagraph (A). ``(D) A comparison between-- ``(i) the information provided under subparagraph (C) with respect to the 12-month period preceding the date on which the report is submitted; and ``(ii) the same information with respect to loans foreclosed and liquidated, or otherwise treated, by the Administration during the same period. ``(E) The number of times that the Administration has failed to approve or reject a liquidation plan in accordance with subparagraph (A)(i), a workout plan in accordance with subparagraph (C)(i), or to approve or deny a request for purchase of indebtedness under subparagraph (B)(i), including specific information regarding the reasons for the Administration's failure and any delays that resulted.''. (b) Regulations.-- (1) In general.--Not later than 150 days after the date of enactment of this Act, the Administrator shall issue such regulations as may be necessary to carry out section 510 of the Small Business Investment Act of 1958, as added by subsection (a) of this section. (2) Termination of pilot program.--Beginning on the date on which final regulations are issued under paragraph (1), section 204 of the Small Business Programs Improvement Act of 1996 (15 U.S.C. 695 note) shall cease to have effect. TITLE IV--CORRECTIONS TO THE SMALL BUSINESS INVESTMENT ACT OF 1958 SEC. 401. SHORT TITLE. This title may be cited as the ``Small Business Investment Corrections Act of 2000''. SEC. 402. DEFINITIONS. (a) Small Business Concern.--Section 103(5)(A)(i) of the Small Business Investment Act of 1958 (15 U.S.C. 662(5)(A)(i)) is amended by inserting before the semicolon at the end the following: ``regardless of the allocation of control during the investment period under any investment agreement between the business concern and the entity making the investment''. (b) Long Term.--Section 103 of the Small Business Investment Act of 1958 (15 U.S.C. 662) is amended-- (1) in paragraph (15), by striking ``and'' at the end; (2) in paragraph (16), by striking the period at the end and inserting ``; and''; and (3) by adding at the end the following: ``(17) the term `long term', when used in connection with equity capital or loan funds invested in any small business concern or smaller enterprise, means any period of time not less than 1 year.''. SEC. 403. INVESTMENT IN SMALL BUSINESS INVESTMENT COMPANIES. Section 302(b) of the Small Business Investment Act of 1958 (15 U.S.C. 682(b)) is amended-- (1) by striking ``(b) Notwithstanding'' and inserting the following: ``(b) Financial Institution Investments.-- ``(1) Certain banks.--Notwithstanding''; and (2) by adding at the end the following: ``(2) Certain savings associations.--Notwithstanding any other provision of law, any Federal savings association may invest in any 1 or more small business investment companies, or in any entity established to invest solely in small business investment companies, except that in no event may the total amount of such investments by any such Federal savings association exceed 5 percent of the capital and surplus of the Federal savings association.''. SEC. 404. SUBSIDY FEES. (a) Debentures.--Section 303(b) of the Small Business Investment Act of 1958 (15 U.S.C. 683(b)) is amended by striking ``plus an additional charge of 1 percent per annum which shall be paid to and retained by the Administration'' and inserting ``plus, for debentures obligated after September 30, 2000, an additional charge, in an amount established annually by the Administration, of not more than 1 percent per year as necessary to reduce to zero the cost (as defined in section 502 of the Federal Credit Reform Act of 1990 (2 U.S.C. 661a)) to the Administration of purchasing and guaranteeing debentures under this Act, which shall be paid to and retained by the Administration''. (b) Participating Securities.--Section 303(g)(2) of the Small Business Investment Act of 1958 (15 U.S.C. 683(g)(2)) is amended by striking ``plus an additional charge of 1 percent per annum which shall be paid to and retained by the Administration'' and inserting ``plus, for participating securities obligated after September 30, 2000, an additional charge, in an amount established annually by the Administration, of not more than 1 percent per year as necessary to reduce to zero the cost (as defined in section 502 of the Federal Credit Reform Act of 1990 (2 U.S.C. 661a)) to the Administration of purchasing and guaranteeing participating securities under this Act, which shall be paid to and retained by the Administration''. SEC. 405. DISTRIBUTIONS. Section 303(g)(8) of the Small Business Investment Act of 1958 (15 U.S.C. 683(g)(8)) is amended-- (1) by striking ``subchapter s corporation'' and inserting ``subchapter S corporation''; (2) by striking ``the end of any calendar quarter based on a quarterly'' and inserting ``any time during any calendar quarter based on an''; and (3) by striking ``quarterly distributions for a calendar year,'' and inserting ``interim distributions for a calendar year,''. SEC. 406. CONFORMING AMENDMENT. Section 310(c)(4) of the Small Business Investment Act of 1958 (15 U.S.C. 687b(c)(4)) is amended by striking ``five years'' and inserting ``1 year''. TITLE V--REAUTHORIZATION OF SMALL BUSINESS PROGRAMS SEC. 501. SHORT TITLE. This title may be cited as the ``Small Business Programs Reauthorization Act of 2000''. SEC. 502. REAUTHORIZATION OF SMALL BUSINESS PROGRAMS. Section 20 of the Small Business Act (15 U.S.C. 631 note) is amended by adding at the end the following: ``(g) Fiscal Year 2001.-- ``(1) Program levels.--The following program levels are authorized for fiscal year 2001: ``(A) For the programs authorized by this Act, the Administration is authorized to make-- ``(i) $45,000,000 in technical assistance grants as provided in section 7(m); and ``(ii) $60,000,000 in direct loans, as provided in 7(m). ``(B) For the programs authorized by this Act, the Administration is authorized to make $19,050,000,000 in deferred participation loans and other financings. Of such sum, the Administration is authorized to make-- ``(i) $14,500,000,000 in general business loans as provided in section 7(a); ``(ii) $4,000,000,000 in financings as provided in section 7(a)(13) of this Act and section 504 of the Small Business Investment Act of 1958; ``(iii) $500,000,000 in loans as provided in section 7(a)(21); and ``(iv) $50,000,000 in loans as provided in section 7(m). ``(C) For the programs authorized by title III of the Small Business Investment Act of 1958, the Administration is authorized to make-- ``(i) $2,500,000,000 in purchases of participating securities; and ``(ii) $1,500,000,000 in guarantees of debentures. ``(D) For the programs authorized by part B of title IV of the Small Business Investment Act of 1958, the Administration is authorized to enter into guarantees not to exceed $4,000,000,000 of which not more than 50 percent may be in bonds approved pursuant to section 411(a)(3) of that Act. ``(E) The Administration is authorized to make grants or enter cooperative agreements for a total amount of $5,000,000 for the Service Corps of Retired Executives program authorized by section 8(b)(1). ``(2) Additional authorizations.-- ``(A) There are authorized to be appropriated to the Administration for fiscal year 2001 such sums as may be necessary to carry out the provisions of this Act not elsewhere provided for, including administrative expenses and necessary loan capital for disaster loans pursuant to section 7(b), and to carry out title IV of the Small Business Investment Act of 1958, including salaries and expenses of the Administration. ``(B) Notwithstanding any other provision of this paragraph, for fiscal year 2001-- ``(i) no funds are authorized to be used as loan capital for the loan program authorized by section 7(a)(21) except by transfer from another Federal department or agency to the Administration, unless the program level authorized for general business loans under paragraph (1)(B)(i) is fully funded; and ``(ii) the Administration may not approve loans on its own behalf or on behalf of any other Federal department or agency, by contract or otherwise, under terms and conditions other than those specifically authorized under this Act or the Small Business Investment Act of 1958, except that it may approve loans under section 7(a)(21) of this Act in gross amounts of not more than $1,250,000. ``(h) Fiscal Year 2002.-- ``(1) Program levels.--The following program levels are authorized for fiscal year 2002: ``(A) For the programs authorized by this Act, the Administration is authorized to make-- ``(i) $60,000,000 in technical assistance grants as provided in section 7(m); and ``(ii) $80,000,000 in direct loans, as provided in 7(m). ``(B) For the programs authorized by this Act, the Administration is authorized to make $20,050,000,000 in deferred participation loans and other financings. Of such sum, the Administration is authorized to make-- [[Page H12435]] ``(i) $15,000,000,000 in general business loans as provided in section 7(a); ``(ii) $4,500,000,000 in financings as provided in section 7(a)(13) of this Act and section 504 of the Small Business Investment Act of 1958; ``(iii) $500,000,000 in loans as provided in section 7(a)(21); and ``(iv) $50,000,000 in loans as provided in section 7(m). ``(C) For the programs authorized by title III of the Small Business Investment Act of 1958, the Administration is authorized to make-- ``(i) $3,500,000,000 in purchases of participating securities; and ``(ii) $2,500,000,000 in guarantees of debentures. ``(D) For the programs authorized by part B of title IV of the Small Business Investment Act of 1958, the Administration is authorized to enter into guarantees not to exceed $5,000,000,000 of which not more than 50 percent may be in bonds approved pursuant to section 411(a)(3) of that Act. ``(E) The Administration is authorized to make grants or enter cooperative agreements for a total amount of $6,000,000 for the Service Corps of Retired Executives program authorized by section 8(b)(1). ``(2) Additional authorizations.-- ``(A) There are authorized to be appropriated to the Administration for fiscal year 2002 such sums as may be necessary to carry out the provisions of this Act not elsewhere provided for, including administrative expenses and necessary loan capital for disaster loans pursuant to section 7(b), and to carry out title IV of the Small Business Investment Act of 1958, including salaries and expenses of the Administration. ``(B) Notwithstanding any other provision of this paragraph, for fiscal year 2002-- ``(i) no funds are authorized to be used as loan capital for the loan program authorized by section 7(a)(21) except by transfer from another Federal department or agency to the Administration, unless the program level authorized for general business loans under paragraph (1)(B)(i) is fully funded; and ``(ii) the Administration may not approve loans on its own behalf or on behalf of any other Federal department or agency, by contract or otherwise, under terms and conditions other than those specifically authorized under this Act or the Small Business Investment Act of 1958, except that it may approve loans under section 7(a)(21) of this Act in gross amounts of not more than $1,250,000. ``(i) Fiscal Year 2003.-- ``(1) Program levels.--The following program levels are authorized for fiscal year 2003: ``(A) For the programs authorized by this Act, the Administration is authorized to make-- ``(i) $70,000,000 in technical assistance grants as provided in section 7(m); and ``(ii) $100,000,000 in direct loans, as provided in 7(m). ``(B) For the programs authorized by this Act, the Administration is authorized to make $21,550,000,000 in deferred participation loans and other financings. Of such sum, the Administration is authorized to make-- ``(i) $16,000,000,000 in general business loans as provided in section 7(a); ``(ii) $5,000,000,000 in financings as provided in section 7(a)(13) of this Act and section 504 of the Small Business Investment Act of 1958; ``(iii) $500,000,000 in loans as provided in section 7(a)(21); and ``(iv) $50,000,000 in loans as provided in section 7(m). ``(C) For the programs authorized by title III of the Small Business Investment Act of 1958, the Administration is authorized to make-- ``(i) $4,000,000,000 in purchases of participating securities; and ``(ii) $3,000,000,000 in guarantees of debentures. ``(D) For the programs authorized by part B of title IV of the Small Business Investment Act of 1958, the Administration is authorized to enter into guarantees not to exceed $6,000,000,000 of which not more than 50 percent may be in bonds approved pursuant to section 411(a)(3) of that Act. ``(E) The Administration is authorized to make grants or enter into cooperative agreements for a total amount of $7,000,000 for the Service Corps of Retired Executives program authorized by section 8(b)(1). ``(2) Additional authorizations.-- ``(A) There are authorized to be appropriated to the Administration for fiscal year 2003 such sums as may be necessary to carry out the provisions of this Act not elsewhere provided for, including administrative expenses and necessary loan capital for disaster loans pursuant to section 7(b), and to carry out title IV of the Small Business Investment Act of 1958, including salaries and expenses of the Administration. ``(B) Notwithstanding any other provision of this paragraph, for fiscal year 2003-- ``(i) no funds are authorized to be used as loan capital for the loan program authorized by section 7(a)(21) except by transfer from another Federal department or agency to the Administration, unless the program level authorized for general business loans under paragraph (1)(B)(i) is fully funded; and ``(ii) the Administration may not approve loans on its own behalf or on behalf of any other Federal department or agency, by contract or otherwise, under terms and conditions other than those specifically authorized under this Act or the Small Business Investment Act of 1958, except that it may approve loans under section 7(a)(21) of this Act in gross amounts of not more than $1,250,000.''. SEC. 503. ADDITIONAL REAUTHORIZATIONS. (a) Drug-Free Workplace Program.--Section 27 of the Small Business Act (15 U.S.C. 654) is amended-- (1) in the section heading, by striking ``DRUG-FREE WORKPLACE DEMONSTRATION PROGRAM'' and inserting ``PAUL D. COVERDELL DRUG-FREE WORKPLACE PROGRAM''; and (2) in subsection (g)(1), by striking ``$10,000,000 for fiscal years 1999 and 2000'' and inserting ``$5,000,000 for each of fiscal years 2001 through 2003''. (b) HUBZone Program.--Section 31 of the Small Business Act (15 U.S.C. 657a) is amended by adding at the end the following: ``(d) Authorization of Appropriations.--There is authorized to be appropriated to carry out the program established by this section $10,000,000 for each of fiscal years 2001 through 2003.''. (c) Very Small Business Concerns Program.--Section 304(i) of the Small Business Administration Reauthorization and Amendments Act of 1994 (Public Law 103-403; 15 U.S.C. 644 note) is amended by striking ``September 30, 2000'' and inserting ``September 30, 2003''. (d) Socially and Economically Disadvantaged Businesses Program.--Section 7102(c) of the Federal Acquisition Streamlining Act of 1994 (Public Law 103-355; 15 U.S.C. 644 note) is amended by striking ``September 30, 2000'' and inserting ``September 30, 2003''. (e) SBDC Services.--Section 21(c)(3)(T) of the Small Business Act (15 U.S.C. 648(c)(3)(T)) is amended by striking ``2000'' and inserting ``2003''. SEC. 504. COSPONSORSHIP. (a) In General.--Section 8(b)(1)(A) of the Small Business Act (15 U.S.C. 637(b)(1)(A)) is amended to read as follows: ``(1)(A) to provide-- ``(i) technical, managerial, and informational aids to small business concerns-- ``(I) by advising and counseling on matters in connection with Government procurement and policies, principles, and practices of good management; ``(II) by cooperating and advising with-- ``(aa) voluntary business, professional, educational, and other nonprofit organizations, associations, and institutions (except that the Administration shall take such actions as it determines necessary to ensure that such cooperation does not constitute or imply an endorsement by the Administration of the organization or its products or services, and shall ensure that it receives appropriate recognition in all printed materials); and ``(bb) other Federal and State agencies; ``(III) by maintaining a clearinghouse for information on managing, financing, and operating small business enterprises; and ``(IV) by disseminating such information, including through recognition events, and by other activities that the Administration determines to be appropriate; and ``(ii) through cooperation with a profit-making concern (referred to in this paragraph as a `cosponsor'), training, information, and education to small business concerns, except that the Administration shall-- ``(I) take such actions as it determines to be appropriate to ensure that-- ``(aa) the Administration receives appropriate recognition and publicity; ``(bb) the cooperation does not constitute or imply an endorsement by the Administration of any product or service of the cosponsor; ``(cc) unnecessary promotion of the products or services of the cosponsor is avoided; and ``(dd) utilization of any 1 cosponsor in a marketing area is minimized; and ``(II) develop an agreement, executed on behalf of the Administration by an employee of the Administration in Washington, the District of Columbia, that provides, at a minimum, that-- ``(aa) any printed material to announce the cosponsorship or to be distributed at the cosponsored activity, shall be approved in advance by the Administration; ``(bb) the terms and conditions of the cooperation shall be specified; ``(cc) only minimal charges may be imposed on any small business concern to cover the direct costs of providing the assistance; ``(dd) the Administration may provide to the cosponsorship mailing labels, but not lists of names and addresses of small business concerns compiled by the Administration; ``(ee) all printed materials containing the names of both the Administration and the cosponsor shall include a prominent disclaimer that the cooperation does not constitute or imply an endorsement by the Administration of any product or service of the cosponsor; and ``(ff) the Administration shall ensure that it receives appropriate recognition in all cosponsorship printed materials.''. (b) Extension of Cosponsorship Authority.--Section 401(a)(2) of the Small Business Administration Reauthorization and Amendments Act of 1994 (15 U.S.C. 637 note) is amended by striking ``September 30, 2000'' and inserting ``September 30, 2003''. TITLE VI--HUBZONE PROGRAM Subtitle A--HUBZones in Native America SEC. 601. SHORT TITLE. This subtitle may be cited as the ``HUBZones in Native America Act of 2000''. SEC. 602. HUBZONE SMALL BUSINESS CONCERN. Section 3(p)(3) of the Small Business Act (15 U.S.C. 632(p)(3)) is amended to read as follows: ``(3) Hubzone small business concern.--The term `HUBZone small business concern' means-- ``(A) a small business concern that is owned and controlled by 1 or more persons, each of whom is a United States citizen; ``(B) a small business concern that is-- ``(i) an Alaska Native Corporation owned and controlled by Natives (as determined pursuant to section 29(e)(1) of the Alaska Native Claims Settlement Act (43 U.S.C. 1626(e)(1))); or ``(ii) a direct or indirect subsidiary corporation, joint venture, or partnership of an Alaska [[Page H12436]] Native Corporation qualifying pursuant to section 29(e)(1) of the Alaska Native Claims Settlement Act (43 U.S.C. 1626(e)(1)), if that subsidiary, joint venture, or partnership is owned and controlled by Natives (as determined pursuant to section 29(e)(2)) of the Alaska Native Claims Settlement Act (43 U.S.C. 1626(e)(2))); or ``(C) a small business concern-- ``(i) that is wholly owned by 1 or more Indian tribal governments, or by a corporation that is wholly owned by 1 or more Indian tribal governments; or ``(ii) that is owned in part by 1 or more Indian tribal governments, or by a corporation that is wholly owned by 1 or more Indian tribal governments, if all other owners are either United States citizens or small business concerns.''. SEC. 603. QUALIFIED HUBZONE SMALL BUSINESS CONCERN. (a) In General.--Section 3(p)(5)(A)(i) of the Small Business Act (15 U.S.C. 632(p)(5)(A)(i)) is amended by striking subclauses (I) and (II) and inserting the following: ``(I) it is a HUBZone small business concern-- ``(aa) pursuant to subparagraph (A) or (B) of paragraph (3), and that its principal office is located in a HUBZone and not fewer than 35 percent of its employees reside in a HUBZone; or ``(bb) pursuant to paragraph (3)(C), and not fewer than 35 percent of its employees engaged in performing a contract awarded to the small business concern on the basis of a preference provided under section 31(b) reside within any Indian reservation governed by 1 or more of the tribal government owners, or reside within any HUBZone adjoining any such Indian reservation; ``(II) the small business concern will attempt to maintain the applicable employment percentage under subclause (I) during the performance of any contract awarded to the small business concern on the basis of a preference provided under section 31(b); and''. (b) Clarifying Amendment.--Section 3(p)(5)(D)(i) of the Small Business Act (15 U.S.C. 632(p)(5)(D)(i)) is amended by inserting ``once the Administrator has made the certification required by subparagraph (A)(i) regarding a qualified HUBZone small business concern and has determined that subparagraph (A)(ii) does not apply to that concern,'' before ``include''. SEC. 604. OTHER DEFINITIONS. Section 3(p) of the Small Business Act (15 U.S.C. 632(p)) is amended by adding at the end the following: ``(6) Native american small business concerns.-- ``(A) Alaska native corporation.--The term `Alaska Native Corporation' has the same meaning as the term `Native Corporation' in section 3 of the Alaska Native Claims Settlement Act (43 U.S.C. 1602). ``(B) Alaska native village.--The term `Alaska Native Village' has the same meaning as the term `Native village' in section 3 of the Alaska Native Claims Settlement Act (43 U.S.C. 1602). ``(C) Indian reservation.--The term `Indian reservation'-- ``(i) has the same meaning as the term `Indian country' in section 1151 of title 18, United States Code, except that such term does not include-- ``(I) any lands that are located within a State in which a tribe did not exercise governmental jurisdiction on the date of enactment of this paragraph, unless that tribe is recognized after that date of enactment by either an Act of Congress or pursuant to regulations of the Secretary of the Interior for the administrative recognition that an Indian group exists as an Indian tribe (part 83 of title 25, Code of Federal Regulations); and ``(II) lands taken into trust or acquired by an Indian tribe after the date of enactment of this paragraph if such lands are not located within the external boundaries of an Indian reservation or former reservation or are not contiguous to the lands held in trust or restricted status on that date of enactment; and ``(ii) in the State of Oklahoma, means lands that-- ``(I) are within the jurisdictional areas of an Oklahoma Indian tribe (as determined by the Secretary of the Interior); and ``(II) are recognized by the Secretary of the Interior as eligible for trust land status under part 151 of title 25, Code of Federal Regulations (as in effect on the date of enactment of this paragraph).''. Subtitle B--Other HUBZone Provisions SEC. 611. DEFINITIONS. (a) Qualified Census Tract.--Section 3(p)(4)(A) of the Small Business Act (15 U.S.C. 632(p)(4)(A)) is amended by striking ``(I)''. (b) Qualified Nonmetropolitan County.--Section 3(p)(4) of the Small Business Act (15 U.S.C. 632(p)(4)) is amended by striking subparagraph (B) and inserting the following: ``(B) Qualified nonmetropolitan county.--The term `qualified nonmetropolitan county' means any county-- ``(i) that was not located in a metropolitan statistical area (as defined in section 143(k)(2)(B) of the Internal Revenue Code of 1986) at the time of the most recent census taken for purposes of selecting qualified census tracts under section 42(d)(5)(C)(ii) of the Internal Revenue Code of 1986; and ``(ii) in which-- ``(I) the median household income is less than 80 percent of the nonmetropolitan State median household income, based on the most recent data available from the Bureau of the Census of the Department of Commerce; or ``(II) the unemployment rate is not less than 140 percent of the Statewide average unemployment rate for the State in which the county is located, based on the most recent data available from the Secretary of Labor.''. SEC. 612. ELIGIBLE CONTRACTS. (a) Commodities Contracts.--Section 31(b)(3) of the Small Business Act (15 U.S.C. 657a(b)(3)) is amended-- (1) by striking ``In any'' and inserting the following: ``(A) In general.--Subject to subparagraph (B), in any''; and (2) by adding at the end the following: ``(B) Procurement of commodities.--For purchases by the Secretary of Agriculture of agricultural commodities, the price evaluation preference shall be-- ``(i) 10 percent, for the portion of a contract to be awarded that is not greater than 25 percent of the total volume being procured for each commodity in a single invitation; ``(ii) 5 percent, for the portion of a contract to be awarded that is greater than 25 percent, but not greater than 40 percent, of the total volume being procured for each commodity in a single invitation; and ``(iii) zero, for the portion of a contract to be awarded that is greater than 40 percent of the total volume being procured for each commodity in a single invitation. ``(C) Treatment of preference.--A contract awarded to a HUBZone small business concern under a preference described in subparagraph (B) shall not be counted toward the fulfillment of any requirement partially set aside for competition restricted to small business concerns.''. (b) Definitions.--Section 3(p) of the Small Business Act (15 U.S.C. 632(p)), as amended by this Act, is amended-- (1) in paragraph (5)(A)(i)(III)-- (A) in item (aa), by striking ``and'' at the end; and (B) by adding at the end the following: ``(cc) in the case of a contract for the procurement by the Secretary of Agriculture of agricultural commodities, none of the commodity being procured will be obtained by the prime contractor through a subcontract for the purchase of the commodity in substantially the final form in which it is to be supplied to the Government; and''; and (2) by adding at the end the following: ``(7) Agricultural commodity.--The term `agricultural commodity' has the same meaning as in section 102 of the Agricultural Trade Act of 1978 (7 U.S.C. 5602).''. SEC. 613. HUBZONE REDESIGNATED AREAS. Section 3(p) of the Small Business Act (15 U.S.C. 632(p)) is amended-- (1) in paragraph (1)-- (A) in subparagraph (B), by striking ``or'' at the end; (B) in subparagraph (C), by striking the period at the end and inserting ``; or''; and (C) by adding at the end the following: ``(D) redesignated areas.''; and (2) in paragraph (4), by adding at the end the following: ``(C) Redesignated area.--The term `redesignated area' means any census tract that ceases to be qualified under subparagraph (A) and any nonmetropolitan county that ceases to be qualified under subparagraph (B), except that a census tract or a nonmetropolitan county may be a `redesignated area' only for the 3-year period following the date on which the census tract or nonmetropolitan county ceased to be so qualified.''. SEC. 614. COMMUNITY DEVELOPMENT. Section 3(p) of the Small Business Act (15 U.S.C. 632(p)), as amended by this Act, is amended-- (1) in paragraph (3)-- (A) in subparagraph (B), by striking ``or'' at the end; (B) in subparagraph (C), by striking the period at the end and inserting ``; or''; and (C) by adding at the end the following: ``(D) a small business concern that is-- ``(i) wholly owned by a community development corporation that has received financial assistance under Part 1 of Subchapter A of the Community Economic Development Act of 1981 (42 U.S.C. 9805 et seq.); or ``(ii) owned in part by 1 or more community development corporations, if all other owners are either United States citizens or small business concerns.''; and (2) in paragraph (5)(A)(i)(I)(aa), by striking ``subparagraph (A) or (B)'' and inserting ``subparagraph (A), (B), or (D)''. SEC. 615. REFERENCE CORRECTIONS. (a) Section 3.--Section 3(p)(5)(C) of the Small Business Act (15 U.S.C. 632(p)(5)(C)) is amended by striking ``subclause (IV) and (V) of subparagraph (A)(i)'' and inserting ``items (aa) and (bb) of subparagraph (A)(i)(III)''. (b) Section 8.--Section 8(d)(4)(D) of the Small Business Act (15 U.S.C. 637(d)(4)(D)) is amended by inserting ``qualified HUBZone small business concerns,'' after ``small business concerns,''. TITLE VII--NATIONAL WOMEN'S BUSINESS COUNCIL REAUTHORIZATION SEC. 701. SHORT TITLE. This title may be cited as the ``National Women's Business Council Reauthorization Act of 2000''. SEC. 702. MEMBERSHIP OF THE COUNCIL. Section 407 of the Women's Business Ownership Act of 1988 (15 U.S.C. 631 note) is amended-- (1) in subsection (a), by striking ``Not later'' and all that follows through ``the President'' and inserting ``The President''; (2) in subsection (b)-- (A) by striking ``Not later'' and all that follows through ``the Administrator'' and inserting ``The Administrator''; and (B) by striking ``the Assistant Administrator of the Office of Women's Business Ownership and''; (3) in subsection (d), by striking ``, except that'' and all that follows through the end of the subsection and inserting a period; and [[Page H12437]] (4) in subsection (h), by striking ``Not later'' and all that follows through ``the Administrator'' and inserting ``The Administrator''. SEC. 703. REPEAL OF PROCUREMENT PROJECT. Section 409 of the Women's Business Ownership Act of 1988 (15 U.S.C. 631 note) is repealed. SEC. 704. STUDIES AND OTHER RESEARCH. Section 410 of the Women's Business Ownership Act of 1988 (15 U.S.C. 631 note) is amended to read as follows: ``SEC. 409. STUDIES AND OTHER RESEARCH. ``(a) In General.--The Council may conduct such studies and other research relating to the award of Federal prime contracts and subcontracts to women-owned businesses, to access to credit and investment capital by women entrepreneurs, or to other issues relating to women-owned businesses, as the Council determines to be appropriate. ``(b) Contract Authority.--In conducting any study or other research under this section, the Council may contract with 1 or more public or private entities.''. SEC. 705. AUTHORIZATION OF APPROPRIATIONS. Section 411 of the Women's Business Ownership Act of 1988 (15 U.S.C. 631 note) is amended to read as follows: ``SEC. 410. AUTHORIZATION OF APPROPRIATIONS. ``(a) In General.--There is authorized to be appropriated to carry out this title $1,000,000, for each of fiscal years 2001 through 2003, of which $550,000 shall be available in each such fiscal year to carry out section 409. ``(b) Budget Review.--No amount made available under this section for any fiscal year may be obligated or expended by the Council before the date on which the Council reviews and approves the operating budget of the Council to carry out the responsibilities of the Council for that fiscal year.''. TITLE VIII--MISCELLANEOUS PROVISIONS SEC. 801. LOAN APPLICATION PROCESSING. (a) Study.--The Administrator of the Small Business Administration shall conduct a study to determine the average time that the Administration requires to process an application for each type of loan or loan guarantee made under the Small Business Act (15 U.S.C. 631 et seq.). (b) Transmittal.--Not later than 1 year after the date of enactment of this Act, the Administrator shall transmit to Congress the results of the study conducted under subsection (a). SEC. 802. APPLICATION OF OWNERSHIP REQUIREMENTS. (a) Small Business Act.--Section 7(a) of the Small Business Act (15 U.S.C. 636(a)) is amended by adding at the end the following: ``(30) Ownership requirements.--Ownership requirements to determine the eligibility of a small business concern that applies for assistance under any credit program under this Act shall be determined without regard to any ownership interest of a spouse arising solely from the application of the community property laws of a State for purposes of determining marital interests.''. (b) Small Business Investment Act of 1958.--Section 502 of the Small Business Investment Act of 1958 (15 U.S.C. 696) is amended by adding at the end the following: ``(6) Ownership requirements.--Ownership requirements to determine the eligibility of a small business concern that applies for assistance under any credit program under this title shall be determined without regard to any ownership interest of a spouse arising solely from the application of the community property laws of a State for purposes of determining marital interests.''. SEC. 803. SUBCONTRACTING PREFERENCE FOR VETERANS. Section 8(d) of the Small Business Act (15 U.S.C. 637(d)) is amended-- (1) in paragraph (1), by inserting ``small business concerns owned and controlled by veterans,'' after ``small business concerns,'' the first place that term appears in each of the first and second sentences; (2) in paragraph (3)-- (A) in subparagraph (A), by inserting ``small business concerns owned and controlled by service-disabled veterans,'' after ``small business concerns owned and controlled by veterans,'' in each of the first and second sentences; and (B) in subparagraph (F), by inserting ``small business concern owned and controlled by service-disabled veterans,'' after ``small business concern owned and controlled by veterans,''; and (3) in each of paragraphs (4)(D), (4)(E), (6)(A), (6)(C), (6)(F), and (10)(B), by inserting ``small business concerns owned and controlled by service-disabled veterans,'' after ``small business concerns owned and controlled by veterans,''. SEC. 804. SMALL BUSINESS DEVELOPMENT CENTER PROGRAM FUNDING. (a) Authorization.-- (1) In general.--Section 20(a)(1) of the Small Business Act (15 U.S.C. 631 note) is amended by striking ``For fiscal year 1985'' and all that follows through ``expended.'' and inserting the following: ``For fiscal year 2000 and each fiscal year thereafter, there are authorized to be appropriated such sums as may be necessary and appropriate, to remain available until expended, and to be available solely-- ``(A) to carry out the Small Business Development Center Program under section 21, but not to exceed the annual funding level, as specified in section 21(a); ``(B) to pay the expenses of the National Small Business Development Center Advisory Board, as provided in section 21(i); ``(C) to pay the expenses of the information sharing system, as provided in section 21(c)(8); ``(D) to pay the expenses of the association referred to in section 21(a)(3)(A) for conducting the certification program, as provided in section 21(k)(2); and ``(E) to pay the expenses of the Administration, including salaries of examiners, for conducting examinations as part of the certification program conducted by the association referred to in section 21(a)(3)(A).''. (2) Technical amendment.--Section 20(a) of the Small Business Act (15 U.S.C. 631 note) is amended by moving the margins of paragraphs (3) and (4), including subparagraphs (A) and (B) of paragraph (4), 2 ems to the left. (b) Funding Formula.--Section 21(a)(4)(C) of the Small Business Act (15 U.S.C. 648(a)(4)(C)) is amended to read as follows: ``(C) Funding formula.-- ``(i) In general.--Subject to clause (iii), the amount of a formula grant received by a State under this subparagraph shall be equal to an amount determined in accordance with the following formula: ``(I) The annual amount made available under section 20(a) for the Small Business Development Center Program, less any reductions made for expenses authorized by clause (v) of this subparagraph, shall be divided on a pro rata basis, based on the percentage of the population of each State, as compared to the population of the United States. ``(II) If the pro rata amount calculated under subclause (I) for any State is less than the minimum funding level under clause (iii), the Administration shall determine the aggregate amount necessary to achieve that minimum funding level for each such State. ``(III) The aggregate amount calculated under subclause (II) shall be deducted from the amount calculated under subclause (I) for States eligible to receive more than the minimum funding level. The deductions shall be made on a pro rata basis, based on the population of each such State, as compared to the total population of all such States. ``(IV) The aggregate amount deducted under subclause (III) shall be added to the grants of those States that are not eligible to receive more than the minimum funding level in order to achieve the minimum funding level for each such State, except that the eligible amount of a grant to any State shall not be reduced to an amount below the minimum funding level. ``(ii) Grant determination.--The amount of a grant that a State is eligible to apply for under this subparagraph shall be the amount determined under clause (i), subject to any modifications required under clause (iii), and shall be based on the amount available for the fiscal year in which performance of the grant commences, but not including amounts distributed in accordance with clause (iv). The amount of a grant received by a State under any provision of this subparagraph shall not exceed the amount of matching funds from sources other than the Federal Government, as required under subparagraph (A). ``(iii) Minimum funding level.--The amount of the minimum funding level for each State shall be determined for each fiscal year based on the amount made available for that fiscal year to carry out this section, as follows: ``(I) If the amount made available is not less than $81,500,000 and not more than $90,000,000, the minimum funding level shall be $500,000. ``(II) If the amount made available is less than $81,500,000, the minimum funding level shall be the remainder of $500,000 minus a percentage of $500,000 equal to the percentage amount by which the amount made available is less than $81,500,000. ``(III) If the amount made available is more than $90,000,000, the minimum funding level shall be the sum of $500,000 plus a percentage of $500,000 equal to the percentage amount by which the amount made available exceeds $90,000,000. ``(iv) Distributions.--Subject to clause (iii), if any State does not apply for, or use, its full funding eligibility for a fiscal year, the Administration shall distribute the remaining funds as follows: ``(I) If the grant to any State is less than the amount received by that State in fiscal year 2000, the Administration shall distribute such remaining funds, on a pro rata basis, based on the percentage of shortage of each such State, as compared to the total amount of such remaining funds available, to the extent necessary in order to increase the amount of the grant to the amount received by that State in fiscal year 2000, or until such funds are exhausted, whichever first occurs. ``(II) If any funds remain after the application of subclause (I), the remaining amount may be distributed as supplemental grants to any State, as the Administration determines, in its discretion, to be appropriate, after consultation with the association referred to in subsection (a)(3)(A). ``(v) Use of amounts.-- ``(I) In general.--Of the amounts made available in any fiscal year to carry out this section-- ``(aa) not more than $500,000 may be used by the Administration to pay expenses enumerated in subparagraphs (B) through (D) of section 20(a)(1); and ``(bb) not more than $500,000 may be used by the Administration to pay the examination expenses enumerated in section 20(a)(1)(E). ``(II) Limitation.--No funds described in subclause (I) may be used for examination expenses under section 20(a)(1)(E) if the usage would reduce the amount of grants made available under clause (i)(I) of this subparagraph to less than $85,000,000 (after excluding any amounts provided in appropriations Acts for specific institutions or for purposes other than the general small business development center program) or would further reduce the amount of such grants below such amount. ``(vi) Exclusions.--Grants provided to a State by the Administration or another Federal agency to carry out subsection (a)(6) or (c)(3)(G), or for supplemental grants set forth in clause [[Page H12438]] (iv)(II) of this subparagraph, shall not be included in the calculation of maximum funding for a State under clause (ii) of this subparagraph. ``(vii) Authorization of appropriations.--There is authorized to be appropriated to carry out this subparagraph $125,000,000 for each of fiscal years 2001, 2002, and 2003. ``(viii) State defined.--In this subparagraph, the term `State' means each of the several States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.''. SEC. 805. SURETY BONDS. (a) Contract Amounts.--Section 411 of the Small Business Investment Act of 1958 (15 U.S.C. 694b) is amended-- (1) in subsection (a)(1), by striking ``$1,250,000'' and inserting ``$2,000,000''; and (2) in subsection (e)(2), by striking ``$1,250,000'' and inserting ``$2,000,000''. (b) Extension of Certain Authority.--Section 207 of the Small Business Administration Reauthorization and Amendment Act of 1988 (15 U.S.C. 694b note) is amended by striking ``2000'' and inserting ``2003''. SEC. 806. SIZE STANDARDS. (a) Industry Classifications.--Section 15(a) of the Small Business Act (15 U.S.C. 644(a)) is amended in the eighth sentence, by striking ``four-digit standard'' and all that follows through ``published'' and inserting ``definition of a `United States industry' under the North American Industry Classification System, as established''. (b) Annual Receipts.--Section 3(a)(1) of the Small Business Act (15 U.S.C. 632(a)(1)) is amended by striking ``$500,000'' and inserting ``$750,000''. SEC. 807. NATIVE HAWAIIAN ORGANIZATIONS UNDER SECTION 8(A). Section 8(a)(15)(A) of the Small Business Act (15 U.S.C. 637(a)(15)(A)) is amended to read as follows: ``(A) is a nonprofit corporation that has filed articles of incorporation with the director (or the designee thereof) of the Hawaii Department of Commerce and Consumer Affairs, or any successor agency,''. SEC. 808. NATIONAL VETERANS BUSINESS DEVELOPMENT CORPORATION CORRECTION. Section 33(k) of the Small Business Act (15 U.S.C. 657c(k)) is amended-- (1) by striking paragraph (1) and inserting the following: ``(1) In general.--Subject to paragraph (2), there are authorized to be appropriated to the Corporation to carry out this section-- ``(A) $4,000,000 for fiscal year 2001; ``(B) $4,000,000 for fiscal year 2002; ``(C) $2,000,000 for fiscal year 2003; and ``(D) $2,000,000 for fiscal year 2004.''; (2) in paragraph (2)(A), by striking ``2001'' each place it appears and inserting ``2002''; and (3) in paragraph (2)(B), by striking ``2002 or 2003'' and inserting ``2003 or 2004''. SEC. 809. PRIVATE SECTOR RESOURCES FOR SCORE. Section 8(b)(1)(B) of the Small Business Act (15 U.S.C. 637(b)(1)(B)) is amended by adding at the end the following: ``Notwithstanding any other provision of law, SCORE may solicit cash and in-kind contributions from the private sector to be used to carry out its functions under this Act, and may use payments made by the Administration pursuant to this subparagraph for such solicitation.''. SEC. 810. CONTRACT DATA COLLECTION. Section 15 of the Small Business Act (15 U.S.C. 644) is amended by adding at the end the following new subsection: ``(p) Database, Analysis, and Annual Report With Respect to Bundled Contracts.-- ``(1) Bundled contract defined.--In this subsection, the term `bundled contract' has the meaning given such term in section 3(o)(1). ``(2) Database.-- ``(A) In general.--Not later than 180 days after the date of the enactment of this subsection, the Administrator of the Small Business Administration shall develop and shall thereafter maintain a database containing data and information regarding-- ``(i) each bundled contract awarded by a Federal agency; and ``(ii) each small business concern that has been displaced as a prime contractor as a result of the award of such a contract. ``(3) Analysis.--For each bundled contract that is to be recompeted as a bundled contract, the Administrator shall determine-- ``(A) the amount of savings and benefits (in accordance with subsection (e)) achieved under the bundling of contract requirements; and ``(B) whether such savings and benefits will continue to be realized if the contract remains bundled, and whether such savings and benefits would be greater if the procurement requirements were divided into separate solicitations suitable for award to small business concerns. ``(4) Annual report on contract bundling.-- ``(A) In general.--Not later than 1 year after the date of the enactment of this paragraph, and annually in March thereafter, the Administration shall transmit a report on contract bundling to the Committees on Small Business of the House of Representatives and the Senate. ``(B) Contents.--Each report transmitted under subparagraph (A) shall include-- ``(i) data on the number, arranged by industrial classification, of small business concerns displaced as prime contractors as a result of the award of bundled contracts by Federal agencies; and ``(ii) a description of the activities with respect to previously bundled contracts of each Federal agency during the preceding year, including-- ``(I) data on the number and total dollar amount of all contract requirements that were bundled; and ``(II) with respect to each bundled contract, data or information on-- ``(aa) the justification for the bundling of contract requirements; ``(bb) the cost savings realized by bundling the contract requirements over the life of the contract; ``(cc) the extent to which maintaining the bundled status of contract requirements is projected to result in continued cost savings; ``(dd) the extent to which the bundling of contract requirements complied with the contracting agency's small business subcontracting plan, including the total dollar value awarded to small business concerns as subcontractors and the total dollar value previously awarded to small business concerns as prime contractors; and ``(ee) the impact of the bundling of contract requirements on small business concerns unable to compete as prime contractors for the consolidated requirements and on the industries of such small business concerns, including a description of any changes to the proportion of any such industry that is composed of small business concerns. ``(5) Access to data.-- ``(A) Federal procurement data system.--To assist in the implementation of this section, the Administration shall have access to information collected through the Federal Procurement Data System. ``(B) Agency procurement data sources.--To assist in the implementation of this section, the head of each contracting agency shall provide, upon request of the Administration, procurement information collected through existing agency data collection sources.''. SEC. 811. PROCUREMENT PROGRAM FOR WOMEN-OWNED SMALL BUSINESS CONCERNS. Section 8 of the Small Business Act (15 U.S.C. 637) is amended by adding at the end the following: ``(m) Procurement Program for Women-owned Small Business Concerns.-- ``(1) Definitions.--In this subsection, the following definitions apply: ``(A) Contracting officer.--The term `contracting officer' has the meaning given such term in section 27(f)(5) of the Office of Federal Procurement Policy Act (41 U.S.C. 423(f)(5)). ``(B) Small business concern owned and controlled by women.--The term `small business concern owned and controlled by women' has the meaning given such term in section 3(n), except that ownership shall be determined without regard to any community property law. ``(2) Authority to restrict competition.--In accordance with this subsection, a contracting officer may restrict competition for any contract for the procurement of goods or services by the Federal Government to small business concerns owned and controlled by women, if-- ``(A) each of the concerns is not less than 51 percent owned by 1 or more women who are economically disadvantaged (and such ownership is determined without regard to any community property law); ``(B) the contracting officer has a reasonable expectation that 2 or more small business concerns owned and controlled by women will submit offers for the contract; ``(C) the contract is for the procurement of goods or services with respect to an industry identified by the Administrator pursuant to paragraph (3); ``(D) the anticipated award price of the contract (including options) does not exceed-- ``(i) $5,000,000, in the case of a contract assigned an industrial classification code for manufacturing; or ``(ii) $3,000,000, in the case of all other contracts; ``(E) in the estimation of the contracting officer, the contract award can be made at a fair and reasonable price; and ``(F) each of the concerns-- ``(i) is certified by a Federal agency, a State government, or a national certifying entity approved by the Administrator, as a small business concern owned and controlled by women; or ``(ii) certifies to the contracting officer that it is a small business concern owned and controlled by women and provides adequate documentation, in accordance with standards established by the Administration, to support such certification. ``(3) Waiver.--With respect to a small business concern owned and controlled by women, the Administrator may waive subparagraph (2)(A) if the Administrator determines that the concern is in an industry in which small business concerns owned and controlled by women are substantially underrepresented. ``(4) Identification of industries.--The Administrator shall conduct a study to identify industries in which small business concerns owned and controlled by women are underrepresented with respect to Federal procurement contracting. ``(5) Enforcement; penalties.-- ``(A) Verification of eligibility.--In carrying out this subsection, the Administrator shall establish procedures relating to-- ``(i) the filing, investigation, and disposition by the Administration of any challenge to the eligibility of a small business concern to receive assistance under this subsection (including a challenge, filed by an interested party, relating to the veracity of a certification made or information provided to the Administration by a small business concern under paragraph (2)(F)); and ``(ii) verification by the Administrator of the accuracy of any certification made or information provided to the Administration by a small business concern under paragraph (2)(F). ``(B) Examinations.--The procedures established under subparagraph (A) may provide for program examinations (including random program examinations) by the Administrator of any [[Page H12439]] small business concern making a certification or providing information to the Administrator under paragraph (2)(F). ``(C) Penalties.--In addition to the penalties described in section 16(d), any small business concern that is determined by the Administrator to have misrepresented the status of that concern as a small business concern owned and controlled by women for purposes of this subsection, shall be subject to-- ``(i) section 1001 of title 18, United States Code; and ``(ii) sections 3729 through 3733 of title 31, United States Code. ``(6) Provision of data.--Upon the request of the Administrator, the head of any Federal department or agency shall promptly provide to the Administrator such information as the Administrator determines to be necessary to carry out this subsection.''. John Edward Porter, C.W. Bill Young, Henry Bonilla, Ernest J. Istook, Jr., Dan Miller, Jay Dickey, Roger F. Wicker, Anne M. Northup, Randy ``Duke'' Cunningham, David R. Obey, Steny H. Hoyer, Nancy Pelosi, Nita M. Lowey, Rosa L. DeLauro, Jesse L. Jackson, Jr., (Except elimination of LIHEAP and CCDBG advanced funding; immigration and charitable choice provisions), Managers on the Part of the House. Arlen Specter, Thad Cochran, Slade Gorton, Judd Gregg, Kay Bailey Hutchison, Ted Stevens, Pete V. Domenici, Tom Harkin, Ernest F. Hollings, Daniel K. Inouye, Harry Reid, Herb Kohl, Patty Murray, Dianne Feinstein, Robert C. Byrd Managers on the Part of the Senate.

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