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Health Security Act
  Title VII
TITLE VII_REVENUE PROVISIONS


table of contents of title


Sec._7001._Amendment of 1986 Code.
Subtitle A_Financing Provisions
Part 1_Increase in Tax on Tobacco Products
Sec._7111._Increase in excise taxes on tobacco _products.
Sec._7112._Modifications of certain tobacco tax provisions.
Sec._7113._Imposition of excise tax on manufacture or importation
of roll-your-own tobacco.
Part 2_Health Related Assessment
Sec._7121._Assessment on corporate alliance employers.
Part 3_Recapture of Certain Health Care Subsidies
Sec._7131._Recapture of certain health care subsidies received by
high-income individuals.
Part 4_Other Provisions
Sec._7141._Modification to self-employment tax treatment of
certain S corporation shareholders and partners.
Sec._7142._Extending medicare coverage of, and application of
hospital insurance tax to, all State and local government
employees.
Subtitle B_Tax Treatment of Employer-Provided Health Care
Sec._7201._Limitation on exclusion for employer-provided health
benefits.
Sec._7202._Health benefits may not be provided under cafeteria
plans.
Sec._7203._Increase in deduction for health insurance costs of
self-employed individuals.
Sec._7204._Limitation on prepayment of medical insurance
premiums.
Subtitle C_Employment Status Provisions
Sec._7301._Definition of employee.
Sec._7302._Increase in services reporting penalties.
Sec._7303._Revision of section 530 safe harbor rules.
Subtitle D_Tax Treatment of Funding of Retiree Health Benefits
Sec._7401._Post-retirement medical and life insurance reserves.
Sec._7402._Health benefits accounts maintained by pension plans.
Subtitle E_Coordination With COBRA Continuing Care Provisions
Sec._7501._Coordination with COBRA continuing care provisions.
Subtitle F_Tax Treatment of Organizations Providing Health Care
Services and Related Organizations
Sec._7601._Treatment of nonprofit health care organizations.
Sec._7602._Tax treatment of taxable organizations providing
health insurance and other prepaid health care services.
Sec._7603._Exemption from income tax for regional alliances.
Subtitle G_Tax Treatment of Long-term Care Insurance and Services
Sec._7701._Qualified long-term care services treated as medical
care.
Sec._7702._Treatment of long-term care insurance.
Sec._7703._Tax treatment of accelerated death benefits under life
insurance contracts.
Sec._7704._Tax treatment of companies issuing qualified
accelerated death benefit riders.
Subtitle H_Tax Incentives for Health Services Providers
Sec._7801._Nonrefundable credit for certain primary health
services providers.
Sec._7802._Expensing of medical equipment.
Subtitle I_Miscellaneous Provisions
Sec._7901._Credit for cost of personal assistance services
required by employed individuals.
Sec._7902._Denial of tax-exempt status for borrowings of health
care-related entities.
Sec._7903._Disclosure of return information for administration of
certain programs under the Health Security Act.

SEC. 7001. AMENDMENT OF 1986 CODE.
Except as otherwise expressly provided, whenever in this title an
amendment or repeal is expressed in terms of an amendment to, or
repeal of, a section or other provision, the reference shall be
considered to be made to a section or other provision of the
Internal Revenue Code of 1986.
  Title VII, Subtitle A
Subtitle A_Financing Provisions
PART 1_INCREASE IN TAX ON TOBACCO PRODUCTS
SEC. 7111. INCREASE IN EXCISE TAXES ON TOBACCO _PRODUCTS.
__(a) Cigarettes._Subsection (b) of section 5701 is amended_
__(1) by striking ``$12 per thousand ($10 per thousand on
cigarettes removed during 1991 or 1992)'' in paragraph (1) and
inserting ``$49.50 per thousand'', and
__(2) by striking ``$25.20 per thousand ($21 per thousand on
cigarettes removed during 1991 or 1992)'' in paragraph (2) and
inserting ``$103.95 per thousand''.
__(b) Cigars._Subsection (a) of section 5701 is amended_
__(1) by striking ``$1.125 cents per thousand (93.75 cents per
thousand on cigars removed during 1991 or 1992)'' in paragraph
(1) and inserting ``$38.62\1/2\ per thousand'', and
__(2) by striking ``equal to'' and all that follows in paragraph
(2) and inserting ``equal to 52.594 percent of the price for
which sold but not more than $123.75 per thousand.''
__(c) Cigarette Papers._Subsection (c) of section 5701 is amended
by striking ``0.75 cent (0.625 cent on cigarette papers removed
during 1991 or 1992)'' and inserting ``3.09 cents''.
__(d) Cigarette Tubes._Subsection (d) of section 5701 is amended
by striking ``1.5 cents (1.25 cents on cigarette tubes removed
during 1991 or 1992)'' and inserting ``6.19 cents''.
__(e) Smokeless Tobacco._Subsection (e) of section 5701 is
amended_
__(1) by striking ``36 cents (30 cents on snuff removed during
1991 or 1992)'' in paragraph (1) and inserting ``$12.86'', and
__(2) by striking ``12 cents (10 cents on chewing tobacco removed
during 1991 or 1992)'' in paragraph (2) and inserting ``$12.62''.
__(f) Pipe Tobacco._Subsection (f) of section 5701 is amended by
striking ``67.5 cents (56.25 cents on pipe tobacco removed during
1991 or 1992)'' and inserting ``$13.17\1/2\''.
__(g) Effective Date._The amendments made by this section shall
apply to articles removed (as defined in section 5702(k) of the
Internal Revenue Code of 1986, as amended by this Act) after
September 30, 1994.
__(h) Floor Stocks Taxes._
__(1) Imposition of tax._On tobacco products and cigarette papers
and tubes manufactured in or imported into the United States
which are removed before October 1, 1994, and held on such date
for sale by any person, there is hereby imposed a tax in an
amount equal to the excess of_
__(A) the tax which would be imposed under section 5701 of the
Internal Revenue Code of 1986 on the article if the article had
been removed on such date, over
__(B) the prior tax (if any) imposed under section 5701 or 7652
of such Code on such article.
__(2) Authority to exempt cigarettes held in vending machines._To
the extent provided in regulations prescribed by the Secretary,
no tax shall be imposed by paragraph (1) on cigarettes held for
retail sale on October 1, 1994, by any person in any vending
machine. If the Secretary provides such a benefit with respect to
any person, the Secretary may reduce the $500 amount in paragraph
(3) with respect to such person.
__(3) Credit against tax._Each person shall be allowed as a
credit against the taxes imposed by paragraph (1) an amount equal
to $500. Such credit shall not exceed the amount of taxes imposed
by paragraph (1) for which such person is liable.
__(4) Liability for tax and method of payment._
__(A) Liability for tax._A person holding cigarettes on October
1, 1994, to which any tax imposed by paragraph (1) applies shall
be liable for such tax.
__(B) Method of payment._The tax imposed by paragraph (1) shall
be paid in such manner as the Secretary shall prescribe by
regulations.
__(C) Time for payment._The tax imposed by paragraph (1) shall be
paid on or before December 31, 1994.
__(5) Articles in foreign trade zones._Notwithstanding the Act of
June 18, 1934 (48 Stat. 998, 19 U.S.C. 81a) and any other
provision of law, any article which is located in a foreign trade
zone on October 1, 1994, shall be subject to the tax imposed by
paragraph (1) if_
__(A) internal revenue taxes have been determined, or customs
duties liquidated, with respect to such article before such date
pursuant to a request made under the 1st proviso of section 3(a)
of such Act, or
__(B) such article is held on such date under the supervision of
a customs officer pursuant to the 2d proviso of such section
3(a).
__(6) Definitions._For purposes of this subsection_
__(A) In general._Terms used in this subsection which are also
used in section 5702 of the Internal Revenue Code of 1986 shall
have the respective meanings such terms have in such section, and
such term shall include articles first subject to the tax imposed
by section 5701 of such Code by reason of the amendments made by
this Act.
__(B) Secretary._The term ``Secretary'' means the Secretary of
the Treasury or his delegate.
__(7) Controlled groups._Rules similar to the rules of section
5061(e)(3) of such Code shall apply for purposes of this
subsection.
__(8) Other laws applicable._All provisions of law, including
penalties, applicable with respect to the taxes imposed by
section 5701 of such Code shall, insofar as applicable and not
inconsistent with the provisions of this subsection, apply to the
floor stocks taxes imposed by paragraph (1), to the same extent
as if such taxes were imposed by such section 5701. The Secretary
may treat any person who bore the ultimate burden of the tax
imposed by paragraph (1) as the person to whom a credit or refund
under such provisions may be allowed or made.
SEC. 7112. MODIFICATIONS OF CERTAIN TOBACCO TAX PROVISIONS.
__(a) Exemption for Exported Tobacco Products and Cigarette
Papers and Tubes To Apply Only to Articles Marked for Export._
__(1) Subsection (b) of section 5704 is amended by adding at the
end thereof the following new sentence: ``Tobacco products and
cigarette papers and tubes may not be transferred or removed
under this subsection unless such products or papers and tubes
bear such marks, labels, or notices as the Secretary shall by
regulations prescribe.''
__(2) Section 5761 is amended by redesignating subsections (c)
and (d) as subsections (d) and (e), respectively, and by
inserting after subsection (b) the following new subsection:
__``(c) Sale of Tobacco Products and Cigarette Papers and Tubes
for Export._Except as provided in subsections (b) and (d) of
section 5704_
__``(1) every person who sells, relands, or receives within the
jurisdiction of the United States any tobacco products or
cigarette papers or tubes which have been labeled or shipped for
exportation under this chapter,
__``(2) every person who sells or receives such relanded tobacco
products or cigarette papers or tubes, and
__``(3) every person who aids or abets in such selling,
relanding, or receiving,
shall, in addition to the tax and any other penalty provided in
this title, be liable for a penalty equal to the greater of
$1,000 or 5 times the amount of the tax imposed by this chapter.
All tobacco products and cigarette papers and tubes relanded
within the jurisdiction of the United States, and all vessels,
vehicles, and aircraft used in such relanding or in removing such
products, papers, and tubes from the place where relanded, shall
be forfeited to the United States.''
__(3) Subsection (a) of section 5761 is amended by striking
``subsection (b)'' and inserting ``subsection (b) or (c)''.
__(4) Subsection (d) of section 5761, as redesignated by
paragraph (2), is amended by striking ``The penalty imposed by
subsection (b)'' and inserting ``The penalties imposed by
subsections (b) and (c)''.
__(5)(A) Subpart F of chapter 52 is amended by adding at the end
thereof the following new section:
``SEC. 5754. RESTRICTION ON IMPORTATION OF PREVIOUSLY EXPORTED
TOBACCO PRODUCTS.
__``(a) In General._Tobacco products and cigarette papers and
tubes previously exported from the United States may be imported
or brought into the United States only as provided in section
5704(d).
``(b) Cross Reference._
_I41_``For penalty for the sale of cigarettes in the United
States which are labeled for export, see section 5761(d).''
__(B) The table of sections for subpart F of chapter 52 is
amended by adding at the end thereof the following new item:


``Sec. 5754. Restriction on importation of previously exported
tobacco products.''
(b) Importers Required To Be Qualified._
__(1) Sections 5712, 5713(a), 5721, 5722, 5762(a)(1), and 5763(b)
and (c) are each amended by inserting ``or importer'' after
``manufacturer''.
__(2) The heading of subsection (b) of section 5763 is amended by
inserting ``Qualified Importers,'' after ``Manufacturers,''.
__(3) The heading for subchapter B of chapter 52 is amended by
inserting ``and Importers'' after ``Manufacturers''.
__(4) The item relating to subchapter B in the table of
subchapters for chapter 52 is amended by inserting ``and
importers'' after ``manufacturers''.
__(c) Repeal of Tax-Exempt Sales to Employees of Cigarette
Manufacturers._
__(1) Subsection (a) of section 5704 is amended_
__(A) by striking ``Employee Use or'' in the heading, and
__(B) by striking ``for use or consumption by employees or'' in
the text.
__(2) Subsection (e) of section 5723 is amended by striking ``for
use or consumption by their employees, or for experimental
purposes'' and inserting ``for experimental purposes''.
__(d) Repeal of Tax-Exempt Sales to United States._Subsection (b)
of section 5704 is amended by striking ``and manufacturers may
similarly remove such articles for use of the United States;''.
__(e) Books of 25 or Fewer Cigarette Papers Subject to
Tax._Subsection (c) of section 5701 is amended by striking ``On
each book or set of cigarette papers containing more than 25
papers,'' and inserting ``On cigarette papers,''.
__(f) Storage of Tobacco Products._Subsection (k) of section 5702
is amended by inserting ``under section 5704'' after ``internal
revenue bond''.
__(g) Authority To Prescribe Minimum Manufacturing Activity
Requirements._Section 5712 is amended by striking ``or'' at the
end of paragraph (1), by redesignating paragraph (2) as paragraph
(3), and by inserting after paragraph (1) the following new
paragraph:
__``(2) the activity proposed to be carried out at such premises
does not meet such minimum capacity or activity requirements as
the Secretary may prescribe, or''.
__(h) Limitation on Cover Over of Tax on Tobacco
Products._Section 7652 is amended by adding at the end thereof
the following new subsection:
__``(h) Limitation on Cover Over of Tax on Tobacco Products._For
purposes of this section, with respect to taxes imposed under
section 5701 or this section on any tobacco product or cigarette
paper or tube, the amount covered into the treasuries of Puerto
Rico and the Virgin Islands shall not exceed the rate of tax
under section 5701 in effect on the article on the day before the
date of the enactment of the Health Security Act.''
__(i) Effective Date._The amendments made by this section shall
apply to articles removed (as defined in section 5702(k) of the
Internal Revenue Code of 1986, as amended by this Act) after
September 30, 1994.
SEC. 7113. IMPOSITION OF EXCISE TAX ON MANUFACTURE OR IMPORTATION
OF ROLL-YOUR-OWN TOBACCO.
__(a) In General._Section 5701 (relating to rate of tax) is
amended by redesignating subsection (g) as subsection (h) and by
inserting after subsection (f) the following new subsection:
__``(g) Roll-Your-Own Tobacco._On roll-your-own tobacco,
manufactured in or imported into the United States, there shall
be imposed a tax of $12.50 per pound (and a proportionate tax at
the like rate on all fractional parts of a pound).''
__(b) Roll-Your-Own Tobacco._Section 5702 (relating to
definitions) is amended by adding at the end thereof the
following new subsection :
__``(p) Roll-Your-Own Tobacco._The term `roll-your-own tobacco'
means any tobacco which, because of its appearance, type,
packaging, or labeling, is suitable for use and likely to be
offered to, or purchased by, consumers as tobacco for making
cigarettes.''
__(c) Technical Amendments._
__(1) Subsection (c) of section 5702 is amended by striking ``and
pipe tobacco'' and inserting ``pipe tobacco, and roll-your-own
tobacco''.
__(2) Subsection (d) of section 5702 is amended_
__(A) in the material preceding paragraph (1), by striking ``or
pipe tobacco'' and inserting ``pipe tobacco, or roll-your-own
tobacco'', and
__(B) by striking paragraph (1) and inserting the following new
paragraph:
__``(1) a person who produces cigars, cigarettes, smokeless
tobacco, pipe tobacco, or roll-your-own tobacco solely for his
own personal consumption or use, and''.
__(3) The chapter heading for chapter 52 is amended to read as
follows:
``CHAPTER 52_TOBACCO PRODUCTS AND CIGARETTE PAPERS AND TUBES''.
__(4) The table of chapters for subtitle E is amended by striking
the item relating to chapter 52 and inserting the following new
item:


``Chapter 52. Tobacco products and cigarette papers and tubes.''
(d) Effective Date._
__(1) In general._The amendments made by this section shall apply
to roll-your-own tobacco removed (as defined in section 5702(k)
of the Internal Revenue Code of 1986, as amended by this Act)
after September 30, 1994.
__(2) Transitional rule._Any person who_
__(A) on the date of the enactment of this Act is engaged in
business as a manufacturer of roll-your-own tobacco or as an
importer of tobacco products or cigarette papers and tubes, and
__(B) before October 1, 1994, submits an application under
subchapter B of chapter 52 of such Code  to engage in such
business,
may, notwithstanding such subchapter B, continue to engage in
such business pending final action on such application. Pending
such final action, all provisions of such chapter 52 shall apply
to such applicant in the same manner and to the same extent as if
such applicant were a holder of a permit under such chapter 52 to
engage in such business.
PART 2_HEALTH RELATED ASSESSMENT
SEC. 7121. ASSESSMENT ON CORPORATE ALLIANCE EMPLOYERS.
__(a) In General._Subtitle C (relating to employment taxes) is
amended by inserting after chapter 24 the following new chapter:
``CHAPTER 24A_ASSESSMENT ON CORPORATE ALLIANCE EMPLOYERS


``Sec. 3461. Assessment on corporate alliance employers.
``SEC. 3461. ASSESSMENT ON CORPORATE ALLIANCE EMPLOYERS.
__``(a) Imposition of Assessment._Every corporate alliance
employer shall pay (in addition to any other amount imposed by
this subtitle) for each calendar year an assessment equal to 1
percent of the payroll of such employer.
__``(b) Definitions._For purposes of this section_
__``(1) Corporate alliance employer._The term `corporate alliance
employer' means any employer if any individual, by reason of
being an employee of such employer, is provided with health
coverage through any corporate alliance described in section 1311
of the Health Security Act.
__``(2) Payroll._The term `payroll' means the sum of_
__``(A) the wages (as defined in section 3121(a) without regard
to paragraph (1) thereof) paid by the employer during the
calendar year, plus
__``(B)(i) in the case of a sole proprietorship, the net earnings
from self-employment of the proprietor from such trade or
business for the taxable year ending with or within the calendar
year,
__``(ii) in the case of a partnership, the aggregate of the net
earnings from self-employment of each partner which is
attributable to such partnership for the taxable year of such
partnership ending with or within the calendar year, and
__``(ii) in the case of an S corporation, the aggregate of the
net earnings from self-employment of each shareholder which is
attributable to such corporation for the taxable year of such
corporation ending with or within the calendar year.
__``(3) Net earnings from self-employment._The term `net earnings
from self-employment' has the meaning given such term by section
1402; except that the amount thereof_
__``(A) may never be less than zero, and
__``(B) shall be determined without regard to any deduction for
an assessment under this section.
__``(4) Employer._
__``(A) In general._The term `employer' means any person for whom
an individual performs services, of whatever nature, as an
employee (as defined in section 3401(c)).
__``(B) Special rules._
__``(i) An individual who owns the entire interest in an
unincorporated trade or business shall be treated as his own
employer.
__``(ii) A partnership shall be treated as the employer of each
partner who is an employee within the meaning of section
401(c)(1).
__``(iii) An S corporation shall be treated as the employer of
each shareholder who is an employee within the meaning of section
401(c)(1).
__``(c) Special Rules._For purposes of this section_
__``(1) Treatment of certain employers._In the case of an
employer who is a corporate alliance employer solely by reason of
employees who are provided with health coverage through a
corporate alliance the eligible sponsor of which is a
multiemployer plan described in section 1311(b)(1)(B) of the
Health Security Act, the payroll of such employer shall be
determined by taking into account only such employees.
__``(2) Controlled group rules._All persons treated as a single
employer under section 1901 of the Health Security Act (relating
to employer premiums for comprehensive health care) shall be
treated as a single employer.
__``(3) Application of assessment beginning in 1996._
__``(A) In general._Every employer eligible to elect to be an
eligible sponsor under section 1311 of the Health Security Act
shall be treated as a corporate alliance employer as of January
1, 1996, unless the employer waives such employer's rights ever
to be treated as such a sponsor. The waiver under this
subparagraph shall be irrevocable.
__``(B) Exception._Subparagraph (A) shall not apply to any
employer referred to in paragraph (1).
__``(4) Treatment of federal government._Nothing in any provision
of law shall be construed to exempt any agency or instrumentality
of the United States from the assessment under this section.
__``(d) Administrative Provisions._
__``(1) Payment._The assessment under this section shall be paid
at the same time and manner as the tax imposed by chapter 21.
__``(2) Collection, etc._For purposes of subtitle F, the
assessment under this section shall be treated as if it were a
tax imposed by this subtitle.''
__(b) Clerical Amendment._The table of chapters for subtitle C is
amended by inserting after the item relating to chapter 24 the
following new item:


``Chapter 24A. Assessment on corporate alliance employers.''
(c) Effective Date._The amendments made by this section shall
take effect on January 1, 1996.
PART 3_RECAPTURE OF CERTAIN HEALTH CARE SUBSIDIES
SEC. 7131. RECAPTURE OF CERTAIN HEALTH CARE SUBSIDIES RECEIVED BY
HIGH-INCOME INDIVIDUALS.
__(a) In General._Subchapter A of chapter 1 is amended by adding
at the end thereof the following new part:
``PART VIII_CERTAIN HEALTH CARE SUBSIDIES RECEIVED BY HIGH-INCOME
INDIVIDUALS

``Sec. 59B. Recapture of certain health care subsidies.
``SEC.  59B. RECAPTURE OF CERTAIN HEALTH CARE SUBSIDIES.
__``(a) Imposition of Recapture Amount._In the case of an
individual, if the modified adjusted gross income of the taxpayer
for the taxable year exceeds the threshold amount, such taxpayer
shall pay (in addition to any other amount imposed by this
subtitle) a recapture amount for such taxable year equal to the
sum of_
__``(1) the aggregate of the Medicare part B recapture amounts
(if any) for months during such year that a premium is paid under
part B of title XVIII of the Social Security Act for the coverage
of the individual under such part, and
__``(2) the aggregate reductions (if any) in the individual's
liability for periods after December 31, 1999, under section 6111
of the Health Security Act (relating to repayment of alliance
credit by certain families) pursuant to section 6114 of such Act
(relating to special treatment of certain retirees and qualified
spouses and children) for months during such year.
__``(b) Medicare Part B Premium Recapture Amount for Month._For
purposes of this section, the Medicare part B premium recapture
amount for any month is the amount equal to the excess of_
__``(1) 150 percent of the monthly actuarial rate for enrollees
age 65 and over determined for that calendar year under section
1839(b) of the Social Security Act, over
__``(2) the total monthly premium under section 1839 of the
Social Security Act (determined without regard to subsections (b)
and (f) of section 1839 of such Act).
__``(c) Phasein of Recapture Amount._If the modified adjusted
gross income of the taxpayer for any taxable year exceeds the
threshold amount by less than $10,000, the recapture amount
imposed by this section for such taxable year shall be an amount
which bears the same ratio to the recapture amount which would
(but for this subsection) be imposed by this section for such
taxable year as such excess bears to $10,000.
__``(d) Other Definitions and Special Rules._For purposes of this
section_
__``(1) Threshold amount._The term `threshold amount' means_
__``(A) except as otherwise provided in this paragraph, $90,000,
__``(B) $115,000 in the case of a joint return, and
__``(C) zero in the case of a taxpayer who_
__``(i) is married (as determined under section 7703) but does
not file a joint return for such year, and
__``(ii) does not live apart from his spouse at all times during
the taxable year.
__``(2) Modified adjusted gross income._The term `modified
adjusted gross income' means adjusted gross income_
__``(A) determined without regard to sections 135, 911, 931, and
933, and
__``(B) increased by the amount of interest received or accrued
by the taxpayer during the taxable year which is exempt from tax.
__``(3) Joint returns._In the case of a joint return_
__``(A) the recapture amount under subsection (a) shall be the
sum of the recapture amounts determined separately for each
spouse, and
__``(B) subsections (a) and (c) shall be applied by taking into
account the combined modified adjusted gross income of the
spouses.
__``(4) Coordination with other provisions._
__``(A) Treated as tax for subtitle f._For purposes of subtitle
F, the recapture amount imposed by this section shall be treated
as if it were a tax imposed by section 1.
__``(B) Not treated as tax for certain purposes._The recapture
amount imposed by this section shall not be treated as a tax
imposed by this chapter for purposes of determining_
__``(i) the amount of any credit allowable under this chapter, or
__``(ii) the amount of the minimum tax under section 55.''
__(b) Transfers to Supplemental Medical Insurance Trust Fund._
__(1) In general._There are hereby appropriated to the
Supplemental Medical Insurance Trust Fund amounts equivalent to
the aggregate increase in liabilities under chapter 1 of the
Internal Revenue Code of 1986 which is attributable to the
application of section 59B(a)(1) of such Code, as added by this
section.
__(2) Transfers._The amounts appropriated by paragraph (1) to the
Supplemental Medical Insurance Trust Fund shall be transferred
from time to time (but not less frequently than quarterly) from
the general fund of the Treasury on the basis of estimates made
by the Secretary of the Treasury of the amounts referred to in
paragraph (1). Any quarterly payment shall be made on the first
day of such quarter and shall take into account the recapture
amounts referred to in such section 59B(a)(1) for such quarter.
Proper adjustments shall be made in the amounts subsequently
transferred to the extent prior estimates were in excess of or
less than the amounts required to be transferred.
__(c) Reporting Requirements._
__(1)(A) Paragraph (1) of section 6050F(a) (relating to returns
relating to social security benefits) is amended by striking
``and'' at the end of subparagraph (B) and by inserting after
subparagraph (C) the following new subparagraph:
__``(D) the number of months during the calendar year for which a
premium was paid under part B of title XVIII of the Social
Security Act for the coverage of such individual under such part,
and''.
__(B) Paragraph (2) of section 6050F(b) is amended to read as
follows:
__``(2) the information required to be shown on such return with
respect to such individual.''
__(C) Subparagraph (A) of section 6050F(c)(1) is amended by
inserting before the comma ``and in the case of the information
specified in subsection (a)(1)(D)''.
__(D) The heading for section 6050F is amended by inserting
``_G2and medicare part b coverage'' before the period.
__(E) The item relating to section 6050F in the table of sections
for subpart B of part III of subchapter A of chapter 61 is
amended by inserting ``and Medicare part B coverage'' before the
period.
__(2)(A) Subpart B of part III of subchapter A of chapter 61
(relating to information concerning transactions with other
persons) is amended by adding at the end thereof the following
new section:
``SEC. 6050Q. RETURNS RELATING TO CERTAIN RETIREE HEALTH CARE
SUBSIDIES.
__``(a) In General._Every alliance (as defined in section 1301 of
the Health Security Act) that reduces an individual's liability
under section 6111 of such Act (relating to repayment of alliance
credit by certain families) pursuant to section 6114 of such Act
(relating to special treatment of certain retirees and qualified
spouses and children) shall make a return (according to the forms
and regulations prescribed by the Secretary) setting forth_
__``(1) the aggregate amount of such reductions by such alliance
with respect to any individual during such calendar year, and
__``(2) the name and address of such individual.
__``(b) Statements To Be Furnished to Individuals With Respect to
Whom Information Is Required To Be Reported._Every alliance
required to make a return under subsection (a) shall furnish to
each individual whose name is required to be set forth in such
return a written statement showing_
__``(1) the name and address of such alliance, and
__``(2) the information required to be shown on the return with
respect to such individual.

The written statement required under the preceding sentence shall
be furnished to the individual as soon as practicable after the
close of the calendar year for which the return under subsection
(a) was made.''
__(B) Subparagraph (B) of section 6724(d)(1) is amended by
inserting after clause (viii) the following new clause (and by
redesignating the following clauses accordingly):
__``(ix) section 6050Q (relating to returns relating to certain
retiree health care subsidies),''.
__(C) Paragraph (2) of section 6724(d) is amended by
redesignating subparagraphs (Q) through (T) as subparagraphs (R)
through (U), respectively, and by inserting after subparagraph
(P) the following new subparagraph:
__``(Q) section 6050Q(b) (relating to returns relating to certain
retiree health care subsidies),''.
__(D) The table of sections for subpart B of part III of
subchapter A of chapter 61 is amended by adding at the end
thereof the following new item:


``Sec. 6050Q. Returns relating to certain retiree health care
subsidies.''
(d) Waiver of Estimated Tax Penalties for 1996._No addition to
tax shall be imposed under section 6654 of the Internal Revenue
Code of 1986 (relating to failure to pay estimated income tax)
for any period before_
__(1) April 16, 1997, with respect to any underpayment to the
extent that such underpayment resulted from section 59B(a)(1) of
the Internal Revenue Code of 1986, as added by this section, and
__(2) April 16, 2001, with respect to any underpayment to the
extent that such underpayment resulted from section 59B(a)(2) of
such Code, as added by this section.
__(e) Clerical Amendment._The table of parts for subchapter A of
chapter 1 is amended by adding at the end thereof the following
new item:

``Part VIII. Certain health care subsidies received by
high-income individuals.''
(f) Effective Date._The amendments made by this section shall
apply to periods after December 31, 1995, in taxable years ending
after such date.

PART 4_OTHER PROVISIONS
SEC. 7141. MODIFICATION TO SELF-EMPLOYMENT TAX TREATMENT OF
CERTAIN S CORPORATION SHAREHOLDERS AND PARTNERS.
__(a) Treatment of Certain S Corporation Shareholders._
__(1) Amendment to internal revenue code._Section 1402 (relating
to definitions) is amended by adding at the end thereof the
following new subsection:
__``(k) Treatment of Certain S Corporation Shareholders._
__``(1) In general._In the case of any individual_
__``(A) who is a 2-percent shareholder (as defined in section
1372(b)) of an S corporation for any taxable year of such
corporation, and
__``(B) who materially participates in the activities of such S
corporation during such taxable year,
such shareholder's net earnings from self-employment for such
shareholder's taxable year in which the taxable year of the S
corporation ends shall include such shareholder's pro rata share
(as determined under section 1366(a)) of the taxable income or
loss of such corporation from service-related businesses carried
on by such corporation.
__``(2) Certain exceptions to apply._In determining the amount to
be taken into account under paragraph (1), the exceptions
provided in subsection (a) shall apply, except that, in the case
of the exceptions provided in subsection (a)(5), the rules of
subparagraph (B) thereof shall apply to shareholders in S
corporations.
__``(3) Service-related business._For purposes of this
subsection, the term `service-related business' means any trade
or business described in subparagraph (A) of section
1202(e)(3).''
__(2) Amendment to social security act._Section 211 of the Social
Security Act is amended by adding at the end the following new
subsection:
``Treatment of Certain S Corporation Shareholders
__``(k)(1) In the case of any individual_
__``(A) who is a 2-percent shareholder (as defined in section
1372(b) of the Internal Revenue Code of 1986) of an S corporation
for any taxable year of such corporation, and
__``(B) who materially participates in the activities of such S
corporation during such taxable year,
such shareholder's net earnings from self-employment for such
shareholder's taxable year in which the taxable year of the S
corporation ends shall include such shareholder's pro rata share
(as determined under section 1366(a) of such Code) of the taxable
income or loss of such corporation from service-related
businesses (as defined in section 1402(k)(3) of such Code)
carried on by such corporation.
__``(2) In determining the amount to be taken into account under
paragraph (1), the exceptions provided in subsection (a) shall
apply, except that, in the case of the exceptions provided in
subsection (a)(5), the rules of subparagraph (B) thereof shall
apply to shareholders in S corporations.''.
__(b) Treatment of Certain Limited Partners._
__(1) Amendment of internal revenue code._Paragraph (13) of
section 1402(a) is amended by striking ``limited partner, as
such'' and inserting ``limited partner who does not materially
participate in the activities of the partnership''.
__(2) Amendment of social security act._Paragraph (12) of section
211(a) of the Social Security Act is amended by striking
``limited partner, as such'' and inserting ``limited partner who
does not materially participate in the activities of the
partnership''.
__(c) Effective Date._The amendments made by this section shall
apply to taxable years of individuals beginning after December
31, 1995, and to taxable years of S corporations and partnerships
ending with or within such taxable years of individuals.

SEC. 7142. EXTENDING MEDICARE COVERAGE OF, AND APPLICATION OF
HOSPITAL INSURANCE TAX TO, ALL STATE AND LOCAL GOVERNMENT
EMPLOYEES.
__(a) In General._
__(1) Application of hospital insurance tax._Section 3121(u)(2)
is amended by striking subparagraphs (C) and (D).
__(2) Coverage under medicare._Section 210(p) of the Social
Security Act (42 U.S.C. 410(p)) is amended by striking paragraphs
(3) and (4).
__(3) Effective date._The amendments made by this subsection
shall apply to services performed after September 30, 1995.
__(b) Transition in Benefits for State and Local Government
Employees and Former Employees._
__(1) In general._
__(A) Employees newly subject to tax._For purposes of sections
226, 226A, and 1811 of the Social Security Act, in the case of
any individual who performs services during the calendar quarter
beginning October 1, 1995, the wages for which are subject to the
tax imposed by section 3101(b) of the Internal Revenue Code of
1986 only because of the amendment made by subsection (a), the
individual's medicare qualified State or local government
employment (as defined in subparagraph (B)) performed before
October 1, 1995, shall be considered to be ``employment'' (as
defined for purposes of title II of such Act), but only for
purposes of providing the individual (or another person) with
entitlement to hospital insurance benefits under part A of title
XVIII of such Act for months beginning with October 1995.
__(B) Medicare qualified state or local government employment
defined._In this paragraph, the term ``medicare qualified State
or local government employment'' means medicare qualified
government employment described in section 210(p)(1)(B) of the
Social Security Act (determined without regard to section
210(p)(3) of such Act, as in effect before its repeal under
subsection (a)(2)).
__(2) Authorization of appropriations._There are authorized to be
appropriated to the Federal Hospital Insurance Trust Fund from
time to time such sums as the Secretary of Health and Human
Services deems necessary for any fiscal year on account of_
__(A) payments made or to be made during such fiscal year from
such Trust Fund with respect to individuals who are entitled to
benefits under title XVIII of the Social Security Act solely by
reason of paragraph (1),
__(B) the additional administrative expenses resulting or
expected to result therefrom, and
__(C) any loss in interest to such Trust Fund resulting from the
payment of those amounts, in order to place such Trust Fund in
the same position at the end of such fiscal year as it would have
been in if this subsection had not been enacted.
__(3) Information to individuals who are prospective medicare
beneficiaries based on state and local government
employment._Section 226(g) of the Social Security Act (42 U.S.C.
426(g)) is amended_
__(A) by redesignating paragraphs (1) through (3) as
subparagraphs (A) through (C), respectively,
__(B) by inserting ``(1)'' after ``(g)'', and
__(C) by adding at the end the following new paragraph:
__``(2) The Secretary, in consultation with State and local
governments, shall provide procedures designed to assure that
individuals who perform medicare qualified government employment
by virtue of service described in section 210(a)(7) are fully
informed with respect to (A) their eligibility or potential
eligibility for hospital insurance benefits (based on such
employment) under part A of title XVIII, (B) the requirements
for, and conditions of, such eligibility, and (C) the necessity
of timely application as a condition of becoming entitled under
subsection (b)(2)(C), giving particular attention to individuals
who apply for an annuity or retirement benefit and whose
eligibility for such annuity or retirement benefit is based on a
disability.''
__(c) Technical Amendments._
__(1) Subparagraph (A) of section 3121(u)(2) is amended by
striking ``subparagraphs (B) and (C),'' and inserting
``subparagraph (B),''.
__(2) Subparagraph (B) of section 210(p)(1) of the Social
Security Act (42 U.S.C. 410(p)(1)) is amended by striking
``paragraphs (2) and (3).'' and inserting ``paragraph (2).''

__(3) Section 218 of the Social Security Act (42 U.S.C. 418) is
amended by striking subsection (n).

__(4) The amendments made by this subsection shall apply after
September 30, 1995.
  Title VII, Subtitle B
Subtitle B_Tax Treatment of Employer-Provided Health Care
SEC. 7201. LIMITATION ON EXCLUSION FOR EMPLOYER-PROVIDED HEALTH
BENEFITS.
__(a) General Rule._Section 106 (relating to contributions by
employer to accident and health plans) is amended to read as
follows:
``SEC. 106. CONTRIBUTIONS BY EMPLOYER TO ACCIDENT AND HEALTH
PLANS.
__``(a) General Rule._Except as otherwise provided in this
section, gross income of an employee does not include
employer-provided coverage under an accident or health plan.
__``(b) Inclusion of Certain Benefits Not Part of Comprehensive
Benefit Package._
__``(1) In general._Effective on and after January 1, 2003, gross
income of an employee shall include employer-provided coverage
under any accident or health plan except to the extent that_
__``(A) such coverage consists of comprehensive health coverage
described in section 1101 of the Health Security Act, or
__``(B) such coverage consists of permitted coverage.
__``(2) Permitted coverage._For purposes of this subsection, the
term `permitted coverage' means_
__``(A) any coverage providing wages or payments in lieu of wages
for any period during which the employee is absent from work on
account of sickness or injury,
__``(B) any coverage providing for payments referred to in
section 105(c),
__``(C) any coverage provided to an employee or former employee
after such employee has attained age 65, unless such coverage is
provided by reason of the current employment of the individual
(within the meaning of section 1862(b)(1)(A)(i)(I) of the Social
Security Act) with the employer providing the coverage,
__``(D) any coverage under a qualified long-term care insurance
policy (as defined in section 7702B),
__``(E) any coverage provided under Federal law to any individual
(or spouse or dependent thereof) by reason of such individual
being_
__``(i) a member of the Armed Forces of the United States, or
__``(ii) a veteran, and
__``(F) any other coverage to the extent that the Secretary
determines that the continuation of an exclusion for such
coverage is  not inconsistent with the purposes of this
subsection.
__``(3) Special rules for flexible spending arrangements._
__``(A) In general._To the extent that any employer-provided
coverage is provided through a flexible spending or similar
arrangement, paragraph (1) shall be applied by substituting
`January 1, 1997,' for `January 1, 2003'.
__``(B) Flexible spending arrangement._For purposes of this
paragraph, a flexible spending arrangement is a benefit program
which provides employees with coverage under which_
__``(i) specified incurred expenses may be reimbursed (subject to
reimbursement maximums and other reasonable conditions), and
__``(ii) the maximum amount of reimbursement which is reasonably
available to a participant for such coverage is less than 200
percent of the value of such coverage.
In the case of an insured plan, the maximum amount reasonably
available shall be determined on the basis of the underlying
coverage.
__``(c) Special Rules for Determining Amount of Inclusion._
__``(1) In general._For purposes of this section, the value of
any coverage shall be determined on the basis of the average cost
of providing such coverage to the beneficiaries receiving such
coverage.
__``(2) Special rule._To the extent provided by the Secretary,
cost determinations under paragraph (1) may be made on the basis
of reasonable estimates.
__``(d) Potential Cash Payment Not To Affect Exclusion._No amount
shall be included in the gross income of an employee solely
because the employee may select coverage under an accident or
health plan which results in a cash payment referred to in
section 1607 of the Health Security Act.''
__(b) Employment Tax Treatment._
__(1) Social security tax._
__(A) Subsection (a) of section 3121 is amended by inserting
after paragraph (21) the following new sentence:
``Nothing in paragraph (2) shall exclude from the term `wages'
any amount which is required to be included in gross income under
section 106(b).''
__(B) Subsection (a) of section 209 of the Social Security Act is
amended by inserting after paragraph (21) the following new
sentence:
``Nothing in paragraph (2) shall exclude from the term `wages'
any amount which is required to be included in gross income under
section 106(b) of the Internal Revenue Code of 1986.''
__(2) Railroad retirement tax._Paragraph (1) of section 3231(e)
is amended by adding at the end thereof the following new
sentence: ``Nothing in clause (i) of the second sentence of this
paragraph shall exclude from the term `compensation' any amount
which is required to be included in gross income under section
106(b).''
__(3) Unemployment tax._Subsection (b) of section 3306 is amended
by inserting after paragraph (16) the following new sentence:
``Nothing in paragraph (2) shall exclude from the term `wages'
any amount which is required to be included in gross income under
section 106(b).''
__(4) Wage withholding._Subsection (a) of section 3401 is amended
by adding at the end thereof the following new sentence:
``Nothing in the preceding provisions of this subsection shall
exclude from the term `wages' any amount which is required to be
included in gross income under section 106(b).''
__(c) Effective Date._The amendments made by this section shall
take effect on January 1, 1997.
SEC. 7202. HEALTH BENEFITS MAY NOT BE PROVIDED UNDER CAFETERIA
PLANS.
__(a) General Rule._Subsection (f) of section 125 (defining
qualified benefits) is amended by adding at the end thereof the
following new sentence: ``Such term shall not include any
benefits or coverage (other than coverage described in section
106(b)(2)(A)) under an accident or health plan.''
__(b) Conforming Amendment._Subsection (g) of section 125 is
amended by striking paragraph (2) and redesignating paragraphs
(3) and (4) as paragraphs (2) and (3), respectively.
__(c) Effective Date._The amendments made by this section shall
take effect on January 1, 1997.
SEC. 7203. INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS OF
SELF-EMPLOYED INDIVIDUALS.
__(a) Provision Made Permanent._
__(1) In general._Subsection (l) of section 162 (relating to
special rules for health insurance costs of self-employed
individuals) is amended by striking paragraph (6).
__(2) Effective date._The amendment made by paragraph (1) shall
apply to taxable years beginning after December 31, 1993.
__(b) Deduction Limited to Basic Coverage Purchased From Health
Alliance._
__(1) In general._Paragraphs (1) and (2) of section 162(l) are
amended to read as follows:
__``(1) In general._In the case of an individual who is an
employee within the meaning of section 401(c), there shall be
allowed as a deduction under this section an amount equal to 100
percent of the amount paid during the taxable year for insurance
which constitutes medical care for the taxpayer, his spouse, and
dependents; but only to the extent such insurance is
comprehensive health coverage described in section 1101 of the
Health Security Act purchased from a qualified alliance described
in section 1311 of such Act.
__``(2) Limitations._
__``(A) Lower percentage in certain cases._If_
__``(i) the taxpayer has 1 or more employees in a trade or
business with respect to which such taxpayer is treated as an
employee within the meaning of section 401(c), and
__``(ii) the taxpayer does not pay at least 100 percent of the
weighted average premium applicable under the Health Security Act
for each of such employees,
paragraph (1) shall be applied by substituting for `100 percent'
the lowest percentage of such weighted average premium paid by
the taxpayer for any of such employees.
__``(B) Deduction limited to earned income._No deduction shall be
allowed under paragraph (1) to the extent that the amount of such
deduction exceeds the taxpayer's earned income (within the
meaning of section 401(c)).
__``(C) Other coverage._Paragraph (1) shall not apply to amounts
paid for coverage for any individual for any calendar month if
such individual is employed on a full-time basis (within the
meaning of section 1901 of the Health Security Act) by an
employer during such month.''
__(2) Conforming amendment._Subparagraph (A) of section 162(l)(5)
is amended by striking ``shall be treated as such individual's
earned income'' and inserting ``shall be included in such
individual's earned income''.
__(3) Effective date._The amendments made by this subsection
shall take effect on the earlier of_
__(A) January 1, 1997, or
__(B) the first day on which the taxpayer could purchase
comprehensive health coverage from a qualified alliance.
SEC. 7204. LIMITATION ON PREPAYMENT OF MEDICAL INSURANCE
PREMIUMS.
__(a) General Rule._Subsection (d) of section 213 is amended by
adding at the end thereof the following new paragraph:
__``(10) Limitation on prepayments._If the taxpayer pays a
premium or other amount which constitutes medical care under
paragraph (1), to the extent such premium or other amount is
properly allocable to insurance coverage or care to be provided
during periods more than 12 months after the month in which such
payment is made, such premium shall be treated as paid ratably
over the period during which such insurance coverage or care is
to be provided. The preceding sentence shall not apply to any
premium to which paragraph (7) applies nor to any premium paid
under a qualified long-term care insurance policy.''
__(b) Effective Date._The amendment made by subsection (a) shall
apply to amounts paid after December 31, 1996.
  Title VII, Subtitle C
Subtitle C_Employment Status Provisions
SEC. 7301. DEFINITION OF EMPLOYEE.
__(a) General Rule._Chapter 25 (relating to general provisions
applicable to employment taxes) is amended by adding at the end
thereof the following new section:
``SEC. 3510. DEFINITION OF EMPLOYEE.
__``(a) Regulations._The Secretary shall prescribe regulations
setting forth rules for determining whether an individual is an
employee for purposes of_
__``(1) the employment taxes imposed under this subtitle, and
__``(2) to the extent provided in such regulations, subtitle A.
__``(b) Override of Current Rules._To the extent provided in the
regulations prescribed in subsection (a), such regulations shall
be in lieu of the rules (statutory or otherwise) otherwise
applicable for the determination referred to in subsection (a).
Nothing in such regulations shall override the provisions of
section 3511.''
__(b) Clerical Amendment._The table of sections for chapter 25 is
amended by adding at the end thereof the following new item:


``Sec. 3510. Definition of employee.''






SEC. 7302. INCREASE IN SERVICES REPORTING PENALTIES.
__(a) Increase in Penalty._Section 6721(a) (relating to
imposition of penalty) is amended by adding at the end the
following new paragraph:
__``(3) Increased penalty for returns involving payments for
services._
__``(A) In general._Subject to the overall limitation of
paragraph (1), the amount of the penalty under paragraph (1) for
any failure with respect to any applicable return shall be equal
to the greater of $50 or 5 percent of the amount required to be
reported correctly but not so reported.
__``(B) Exception where substantial compliance._Subparagraph (A)
shall not apply to failures with respect to applicable returns
required to be filed by a person during any calendar year if the
aggregate amount which is timely and correctly reported on
applicable returns filed by the person for the calendar year is
at least 97 percent of the aggregate amount which is required to
be reported on applicable returns by the person for the calendar
year.
__``(C) Applicable return._For purposes of this paragraph, the
term `applicable return' means any information return required to
be filed under_
__``(i) section 6041(a) which relates to payments to any person
for services performed by such person (other than as an
employee), or
__``(ii) section 6041A(a).''
__(b) Conforming Amendment._Section 6721(a)(1) is amended by
striking ``In'' and inserting ``Except as provided in paragraph
(3), in''.
__(c) Effective Date._The amendments made by this section shall
apply to returns the due date for which (without regard to
extensions) is more than 30 days after the date of the enactment
of this Act.
SEC. 7303. REVISION OF SECTION 530 SAFE HARBOR RULES.
__(a) General Rule._Chapter 25 (relating to general provisions
applicable to employment taxes) is amended by adding at the end
thereof the following new section:
``SEC. 3511. PROTECTION AGAINST RETROACTIVE EMPLOYMENT TAX
RECLASSIFICATIONS.
__``(a) General Rule._If_
__``(1) for purposes of employment taxes, the taxpayer treats an
individual as not being an employee for any period,
__``(2) for such period, the taxpayer meets_
__``(A) the consistency requirements of subsection (b),
__``(B) the return filing requirements of subsection (c), and
__``(C) the safe harbor requirement of subsection (d), and
__``(3) the Secretary has not notified the taxpayer in writing
before the beginning of such period that the Secretary has
determined that the taxpayer should treat such individual (or any
individual holding a substantially similar position) as an
employee,
then, for purposes of applying this subtitle for such period, the
individual shall be deemed not to be an employee of the taxpayer.
__``(b) Consistency Requirements._A taxpayer meets the
consistency requirements of this subsection with respect to any
individual for any period if the taxpayer treats such individual
(and all other individuals holding substantially similar
positions) as not being an employee for purposes of the
employment taxes for such period and all prior periods.
__``(c) Return Filing Requirements._
__``(1) In general._The taxpayer meets the return filing
requirements of this subsection with respect to any individual
for any period if all Federal tax returns (including information
returns) required to be filed by the taxpayer for such period
with respect to such individual (and all other individuals
holding substantially similar positions) are timely filed on a
basis consistent with the taxpayer's treatment of such
individuals as not being employees.
__``(2) Special rules._For purposes of paragraph (1)_
__``(A) any return filed for which the penalty under section
6721(a) is reduced or waived pursuant to subsection (b) or (c) of
section 6721 shall be considered timely filed, and
__``(B) a taxpayer shall not be considered as failing to meet the
requirements of paragraph (1) solely because the taxpayer failed
to timely file accurate information returns in respect of
payments to individuals holding substantially similar positions
if the taxpayer satisfies the requirements of section
6721(a)(3)(B) for such period.
__``(d) Safe Harbors._
__``(1) In general._The taxpayer meets the safe harbor
requirement of this subsection with respect to any individual for
any period if the taxpayer's treatment of such individual as not
being an employee for such period was_
__``(A) in reasonable reliance on a written determination (as
defined in section 6110(b)(1)) issued to or in respect of the
taxpayer that addressed the employment status of the individual
or an individual holding a substantially similar position;
__``(B) in reasonable reliance on a concluded Internal Revenue
Service audit of the taxpayer_
__``(i) which was for a period in which the rules for determining
employment status were the same as for the period in question,
and
__``(ii) in which the employment status of the individual or any
individual holding a substantially similar position was examined
without change to any such individual's status;
__``(C) in reasonable reliance on a longstanding recognized
practice of a significant segment of the industry in which the
individual is engaged; or
__``(D) supported by substantial authority.
For purposes of subparagraph (D), the term `substantial
authority' has the same meaning as when used in section
6662(d)(2)(B)(i); except that such term shall not include any
private letter ruling issued to a person other than the taxpayer.
__``(2) Special rules._
__``(A) Subsequent authority._The taxpayer shall not be
considered to meet the safe harbor requirement of paragraph
(1)(B) with respect to any individual for any period if the
treatment of such individual as not being an employee is
inconsistent with any regulation, Revenue Ruling, Revenue
Procedure, or other authority published by the Secretary before
the beginning of such period and after the conclusion of the
audit referred to in paragraph (1)(B).
__``(B) Termination of industry practice safe harbor._The
taxpayer shall not be considered to meet the safe harbor
requirement of paragraph (1)(C) with respect to any individual
for_
__``(i) any period beginning after the date on which the
Secretary prescribes regulations pursuant to section 3510, or
__``(ii) any period if the treatment of such individual as not
being an employee is inconsistent with any regulation, Revenue
Ruling, Revenue Procedure, or other authority published by the
Secretary before the beginning of such period.



__``(e) Definitions and Special Rules._For purposes of this
section_
__``(1) Employment tax._The term `employment tax' means any tax
imposed by this subtitle.
__``(2) Taxpayer._The term `taxpayer' includes any person or
entity (including a governmental entity) which is (or would be
but for this section) liable for any employment tax. Such term
includes any predecessor or successor to the taxpayer.
__``(f) Regulations._The Secretary shall prescribe such
regulations as may be appropriate to carry out the purposes of
this section.''
__(b) Rules to Apply for Income Tax Purposes._Part I of
subchapter B of chapter 1 is amended by adding at the end thereof
the following new section:
``SEC. 69. DETERMINATION OF EMPLOYMENT STATUS.
__``For purposes of this subtitle, an individual shall be treated
as a self-employed individual with respect to any services
performed by such individual for another person if, under the
rules of section 3511, such individual is treated as not being an
employee of such other person with respect to such services.''
__(c) Conforming Amendment._Section 530 of the Revenue Act of
1978 is hereby repealed.
__(d) Clerical Amendments._
__(1) The table of sections for chapter 25 is amended by adding
at the end thereof the following new item:

``Sec. 3511. Protection against retroactive employment tax
reclassifications.''
__(2) The table of sections for part I of subchapter B of chapter
1 is amended by adding at the end thereof the following new item:

``Sec. 69. Determination of employment status.''
(e) Effective Date._
__(1) In general._Except as provided in paragraph (2), the
amendments made by this section shall apply to all periods
beginning after December 31, 1995.
__(2) Repeal of limitations on regulations and rulings._The
repeal made by subsection (c), insofar as it relates to section
530(b) of the Revenue Act of 1978, shall take effect on the date
of the enactment of this Act.
  Title VII, Subtitle D
Subtitle D_Tax Treatment of Funding of Retiree Health Benefits
SEC. 7401. POST-RETIREMENT MEDICAL AND LIFE INSURANCE RESERVES.
__(a) Minimum Period for Working Lives._Section 419A(c)(2)
(relating to additional reserves for post-retirement medical and
life insurance benefits) is amended by inserting ``(but not less
than 10 years)'' after ``working lives of the covered
employees''.
__(b) Separate Accounting._
__(1) Requirement._Section 419A(c)(2) is amended by adding at the
end the following new flush sentence:
``Such reserve shall be maintained as a separate account.''
__(2) Use of reserve for other purposes._Paragraph (1) of section
4976(b) (defining disqualified benefit) is amended by striking
``and'' at the end of subparagraph (B), by striking the period at
the end of subparagraph (C) and inserting ``, and'', and by
adding after subparagraph (C) the following new subparagraph:
__``(D) any payment to which subparagraph (C) does not apply
which is out of an account described in section 419A(c)(2) and
which is not used to provide a post-retirement medical benefit or
life insurance benefit.''
__(c) Special Limitations._Section 419A(e) (relating to special
limitations on reserves) is amended by adding at the end the
following new paragraph:
__``(3) Benefits must be excludable._Post-retirement medical
benefits and life insurance benefits shall not be taken into
account under subsection (c)(2) to the extent it may be
reasonably anticipated that such benefits will be required to be
included in gross income when provided.''
__(d) Effective Dates._
__(1) In general._Except as provided in paragraph (2), the
amendments made by this section shall apply to contributions paid
or accrued after December 31, 1994, in taxable years ending after
such date.
__(2) Separate accounting._The amendments made by subsection (b)
shall apply to contributions paid or accrued after the date of
the enactment of this Act, in taxable years ending after such
date.
SEC. 7402. HEALTH BENEFITS ACCOUNTS MAINTAINED BY PENSION PLANS.
__(a) Termination of Accounts._
__(1) In general._Section 401(h) (relating to medical, etc.,
benefits for retired employees and their spouses and dependents)
is amended by adding at the end the following new paragraph:
__``(2) Termination._
__``(A) In general._In the case of a pension or annuity plan to
which paragraph (1) applies_
__``(i) no contributions may be made to the separate account
described in paragraph (1)(C) other than allowable contributions,
and
__``(ii) such plan may pay benefits described in paragraph (1)
only from funds attributable to allowable contributions and
earnings allocable to such contributions.
__``(B) Allowable contribution._For purposes of subparagraph (A),
the term `allowable contribution' means_
__``(i) any contribution made before January 1, 1995,
__``(ii) in the case of a plan maintained pursuant to 1 or more
collective bargaining agreements between employee representatives
and 1 or more employees ratified on or before October 29, 1993,
any contribution under such plan made before the earlier of_
__``(I) the date on which the last of such agreements terminates
(determined without regard to any extension after October 29,
1993), or, if later, January 1, 1995, or
__``(II) January 1, 1998, or
__``(iii) any qualified transfer under section 420.''
__(2) Conforming amendments._Section 401(h) is amended_
__(A) by striking ``Under'' and inserting:
__``(1) In general._Under'',
__(B) by redesignating paragraphs (1) through (6) as
subparagraphs (A) through (F), respectively,
__(C) by striking ``paragraph (6)'' and inserting ``subparagraph
(F)'', and
__(D) by striking ``paragraph (1)'' and inserting ``subparagraph
(A)''.
__(b) Minimum Cost Requirements of Employer._Paragraph (3) of
section 420(c) (relating to minimum cost requirements) is amended
by adding at the end the following new subparagraph:
__``(E) Adjustment for cost savings under health security act._To
the extent provided by the Secretary, a plan shall not be treated
as failing to meet the requirements of this section to the extent
such failure is attributable to a reduction in qualified current
retiree health liabilities by reason of the enactment of the
Health Security Act.''
  Title VII, Subtitle E
Subtitle E_Coordination With COBRA Continuing Care Provisions
SEC. 7501. COORDINATION WITH COBRA CONTINUING CARE PROVISIONS.
__(a) Period of Coverage._Clause (iv) of section 4980B(f)(2)(B)
(defining period of coverage) is amended_
__(1) by striking ``or'' at the end of subclause (I), by striking
the period at the end of subclause (II) and inserting ``, or'',
and by adding at the end the following new subclause:
__``(III) eligible for comprehensive health coverage described in
section 1101 of the Health Security Act.'', and
__(2) by striking ``or medicare entitlement'' in the heading and
inserting ``, medicare entitlement, or health security act
eligibility''.
__(b) Qualified Beneficiary._Section 4980B(g)(1) (defining
qualified beneficiary) is amended by adding at the end the
following new subparagraph:
__``(E) Special rule for individuals covered by health security
act._The term `qualified beneficiary' shall not include any
individual who, upon termination of coverage under a group health
plan, is eligible for comprehensive health coverage described in
section 1101 of the Health Security Act.''
__(c) Repeal Upon Implementation of Health Security Act._
__(1) In general._Section 4980B (relating to failure to satisfy
continuation coverage requirements of group health care plans) is
hereby repealed.
__(2) Conforming amendments._
__(A) Section 414(n)(3)(C) is amended by striking ``505, and
4980B'' and inserting ``and 505''.

__(B) Section 414(t)(2) is amended by striking ``505, or 4980B''
and inserting ``or 505''.

__(C) The table of sections for chapter 43 is amended by striking
the item relating to section 4980B.
__(3) Effective date._The amendments made by this subsection
shall take effect on the earlier of_
__(A) January 1, 1998, or
__(B) the first day of the first calendar year following the
calendar year in which all States have in effect plans under
which individuals are eligible for comprehensive health coverage
described in section 1101 of this Act.
Such amendments shall not apply in determining the amount of any
tax under section 4980B of the Internal Revenue Code of 1986 with
respect to any failure occurring before the date determined under
the preceding sentence.

  Title VII, Subtitle F
Subtitle F_Tax Treatment of Organizations Providing Health Care
Services and Related Organizations
SEC. 7601. TREATMENT OF NONPROFIT HEALTH CARE ORGANIZATIONS.
__(a) Treatment of Hospitals and Other Entities Providing Health
Care Services._Section 501 (relating to exemption from tax on
corporations, certain trusts, etc.) is amended by redesignating
subsection (n) as subsection (o) and by inserting after
subsection (m) the following new subsection:
__``(n) Qualification of Organizations Providing Health Care
Services as Charitable Organizations._For purposes of subsection
(c)(3), the provision of health care services shall not be
treated as an activity that accomplishes a charitable purpose
unless the organization providing such services, on a periodic
basis (no less frequently than annually), and with the
participation of community representatives_
__``(1) assesses the health care needs of its community, and
__``(2) develops a plan to meet those needs.
In the case of a health maintenance organization, the provision
of health care services shall not be treated as an activity that
accomplishes a charitable purpose for purposes of subsection
(c)(3) unless, in addition to meeting the requirement of the
preceding sentence, such services are provided as described in
subsection (m)(3)(B)(i).''
__(b) Treatment of Health Maintenance Organizations._Section
501(m) is amended by adding at the end thereof the following new
paragraph:
__``(6) Insurance provided by health maintenance organizations._
__``(A) Certain insurance not treated as commercial-type
insurance._Health insurance provided by a health maintenance
organization shall not be treated as commercial-type insurance if
such insurance relates to care provided other than pursuant to a
pre-existing arrangement with such organization. In applying the
preceding sentence, care described in subparagraph (B)(iv) shall
not be taken into account.
__``(B) Certain insurance treated as commercial-type
insurance._Health insurance provided by a health maintenance
organization shall be treated as commercial-type insurance if it
relates to_
__``(i) care provided by such organization to its members at its
own facilities through health care professionals who do not
provide substantial health care services other than on behalf of
such organization,
__``(ii) primary care provided by a health care professional to a
member of such organization on a basis under which the amount
paid to such professional does not vary with the amount of care
provided to such member,
__``(iii) services other than primary care provided pursuant to a
pre-existing arrangement with such organization, or
__``(iv) emergency care provided to a member of such organization
at a location outside such member's area of residence.''
__(c) Treatment of Parent Organizations of Health Care
Providers._Section 509(a) (defining private foundation) is
amended by striking ``and'' at the end of paragraph (3), by
redesignating paragraph (4) as paragraph (5), and by inserting
after paragraph (3) the following new paragraph:
__``(4) an organization which is organized and operated for the
benefit of, and which directly or indirectly controls, an
organization described in section 170(b)(1)(A)(iii), and''.
__(d) Effective Dates._
__(1) In general._Except as provided in paragraph (2), the
amendments made by this section shall take effect on January 1,
1995.
__(2) Subsections (b) and (c)._The amendments made by subsections
(b) and (c) shall take effect on the date of the enactment of
this Act.
SEC. 7602. TAX TREATMENT OF TAXABLE ORGANIZATIONS PROVIDING
HEALTH INSURANCE AND OTHER PREPAID HEALTH CARE SERVICES.
__(a) General Rule._Section 833 is amended to read as follows:
``SEC. 833. TREATMENT OF ORGANIZATIONS PROVIDING HEALTH INSURANCE
AND OTHER PREPAID HEALTH CARE SERVICES.
__``(a) General Rule._Any organization to which this section
applies shall be taxable under this part in the same manner as if
it were an insurance company other than a life insurance company.
__``(b) Organizations To Which Section Applies._This section
shall apply to any organization_
__``(1) which is not exempt from taxation under this subtitle,
and
__``(2) the primary and predominant business activity of which
during the taxable year consists of 1 or more of the following:
__``(A) Issuing accident and health insurance contracts or the
reinsuring of risks undertaken by other insurance companies under
such contracts.
__``(B) Operating as a health maintenance organization.
__``(C) Entering into arrangements under which_
__``(i) fixed payments or premiums are received as consideration
for the organization's agreement to provide or arrange for the
provision of health care services, regardless of how the health
care services are provided or arranged to be provided, and
__``(ii) such fixed payments or premiums do not vary depending on
the amount of health care services provided.''
__(b) Conforming Amendments._
__(1) Subsection (c) of section 56 is amended by striking
paragraph (3).
__(2) The table of sections for part II of subchapter L of
chapter 1 is amended by striking the item relating to section 833
and inserting the following:


``Sec. 833. Treatment of organizations providing health insurance
and other prepaid health care services.''
(c) Effective Dates._
__(1) In general._Except as otherwise provided in this
subsection, the amendments made by this section shall apply to
taxable years beginning after December 31, 1996.
__(2) Transition rules for blue cross and blue shield
organizations._
__(A) Prior fresh start preserved._The adjusted basis of any
asset determined under section 1012(c)(3)(A)(ii) of the Tax
Reform Act of 1986 shall not be affected by the amendments made
by this section nor by reason of any failure to qualify in
taxable years beginning after December 31, 1996, as an existing
Blue Cross or Blue Shield organization (as defined in section
833(c)(2) of the Internal Revenue Code of 1986, as in effect on
the day before the date of the enactment of this Act).
__(B) Recoupment of prior reserve benefit._In the case of any
organization entitled to the benefits of section 833(a)(3) of the
Internal Revenue Code of 1986 (as in effect on the day before the
date of the enactment of this Act) for such organization's last
taxable year beginning before January 1, 1997, the amount
determined under paragraph (4) of section 832(b) of such Code for
each of such organization's first 6 taxable years beginning after
December 31, 1996, shall be increased by an amount equal to 3
\1/3\ percent of its unearned premiums on outstanding business as
of the close of such organization's last taxable year beginning
before January 1, 1997.
__(C) Phase-out of special deduction for certain organizations._
__(i) In general._In the case of an organization which meets the
requirements of clause (ii)_
__(I) such organization shall continue to be entitled to the
deduction provided under section 833(b) of the Internal Revenue
Code of 1986 (as in effect on the day before the date of the
enactment of this Act) for its first 2 taxable years beginning
after December 31, 1996, except that
__(II) the amount of such deduction for such organization's
taxable year beginning in 1997 shall be 67 percent of the amount
which would have been determined under such section 833(b) as so
in effect, and the amount of such deduction for organization's
taxable year beginning in 1998 shall be 33 percent of the amount
which would have been so determined.
Notwithstanding the amendment made by subsection (b)(1), any
deduction under the preceding sentence shall not be allowable in
computing alternative minimum taxable income.
__(ii) Requirements._An organization meets the requirements of
this clause if, for each of its taxable years beginning in 1995
and 1996, such organization_
__(I) was an organization to which section 833 of such Code (as
so in effect) applied, and
__(II) met the requirements of subparagraph (A) of section
833(c)(3) of such Code (as so in effect).
__(3) Transitional rules for other companies._
__(A) Organizations to which paragraph applies._This paragraph
shall apply to any organization to which section 833 of the
Internal Revenue Code of 1986 (as amended by subsection (a))
applies for such organization's first taxable year beginning
after December 31, 1996; except that this paragraph shall not
apply if such organization treated itself as an insurance company
taxable under part II of subchapter L of chapter 1 of such Code
on its original Federal income tax return for its taxable year
beginning in 1992 and for all of its taxable years thereafter
beginning before January 1, 1997.
__(B) Treatment of currently taxable companies._Except as
provided in subparagraph (C), in the case of any organization to
which this paragraph applies_
__(i) the amendments made by this section shall be treated as a
change in the method of accounting, and
__(ii) all adjustments required to be taken into account under
section 481 of the Internal Revenue Code of 1986, shall be taken
into account for such company's first taxable year beginning
after December 31, 1996.
__(C) Treatment of currently tax exempt companies._In the case of
any organization to which this paragraph applies and which was
exempt from tax under chapter 1 of the Internal Revenue Code of
1986 for such organization's last taxable year beginning before
January 1, 1997_
__(i) no adjustment shall be made under section 481 (or any other
provision) of such Code on account of a change in its method of
accounting required by this section for its first taxable year
beginning after December 31, 1996, and
__(ii) for purposes of determining gain or loss, the adjusted
basis of any asset held by such organization on the first day of
such taxable year shall be treated as equal to its fair market
value as of such day.
SEC. 7603. EXEMPTION FROM INCOME TAX FOR REGIONAL ALLIANCES.
__(a) In General._Subsection (c) of section 501 (relating to
exemption from tax on corporations, certain trusts, etc.) is
amended by adding at the end thereof the following new paragraph:
__``(26) Any regional alliance described in section 1301 of the
Health Security Act. Such an alliance shall be treated as not
described in any other paragraph of this subsection.''
__(b) Effective Date._The amendment made by subsection (a) shall
apply to taxable years beginning after the date of the enactment
of this Act.
  Title VII, Subtitle G
Subtitle G_Tax Treatment of Long-term Care Insurance and Services
SEC. 7701. QUALIFIED LONG-TERM CARE SERVICES TREATED AS MEDICAL
CARE.
__(a) General Rule._Paragraph (1) of section 213(d) (defining
medical care) is amended by striking ``or'' at the end of
subparagraph (B), by redesignating subparagraph (C) as
subparagraph (D), and by inserting after subparagraph (B) the
following new subparagraph:
__``(C) for qualified long-term care services (as defined in
subsection (g)), or''.
__(b) Qualified Long-Term Care Services Defined._Section 213
(relating to the deduction for medical, dental, etc., expenses)
is amended by adding at the end thereof the following new
subsection:
__``(g) Qualified Long-Term Care Services._For purposes of this
section_
__``(1) In general._The term `qualified long-term care services'
means necessary diagnostic, curing, mitigating, treating,
preventive, therapeutic, and rehabilitative services, and
maintenance and personal care services (whether performed in a
residential or nonresidential setting) which_
__``(A) are required by an individual during any period the
individual is an incapacitated individual (as defined in
paragraph (2)),
__``(B) have as their primary purpose_
__``(i) the provision of needed assistance with 1 or more
activities of daily living (as defined in paragraph (3)), or
__``(ii) protection from threats to health and safety due to
severe cognitive impairment, and
__``(C) are provided pursuant to a continuing plan of care
prescribed by a licensed professional (as defined in paragraph
(4)).
__``(2) Incapacitated individual._The term `incapacitated
individual' means any individual who_
__``(A) is unable to perform, without substantial assistance from
another individual (including assistance involving cueing or
substantial supervision), at least 2 activities of daily living
as defined in paragraph (3), or
__``(B) has severe cognitive impairment as defined by the
Secretary in consultation with the Secretary of Health and Human
Services.
Such term shall not include any individual otherwise meeting the
requirements of the preceding sentence unless a licensed
professional within the preceding 12-month period has certified
that such individual meets such requirements.
__``(3) Activities of daily living._Each of the following is an
activity of daily living:
__``(A) Eating.
__``(B) Toileting.
__``(C) Transferring.
__``(D) Bathing.
__``(E) Dressing.
__``(4) Licensed professional._The term `licensed professional'
means_
__``(A) a physician or registered professional nurse, or
__``(B) any other individual who meets such requirements as may
be prescribed by the Secretary after consultation with the
Secretary of Health and Human Services.
__``(5) Certain services not included._The term `qualified
long-term care services' shall not include any services provided
to an individual_
__``(A) by a relative (directly or through a partnership,
corporation, or other entity) unless the relative is a licensed
professional with respect to such services, or
__``(B) by a corporation or partnership which is related (within
the meaning of section 267(b) or 707(b)) to the individual.
For purposes of this paragraph, the term `relative' means an
individual bearing a relationship to the individual which is
described in paragraphs (1) through (8) of section 152(a).''
__(c) Technical Amendments._
__(1) Subparagraph (D) of section 213(d)(1) (as redesignated by
subsection (a)) is amended to read as follows:
__``(D) for insurance (including amounts paid as premiums under
part B of title XVIII of the Social Security Act, relating to
supplementary medical insurance for the aged) covering medical
care referred to in_
__``(i) subparagraphs (A) and (B), or
__``(ii) subparagraph (C), but only if such insurance is provided
under a qualified long-term care insurance policy (as defined in
section 7702B(b)) and the amount paid for such insurance is not
disallowed under section  7702B(d)(4).''
__(2) Paragraph (6) of section 213(d) is amended_
__(A) by striking ``subparagraphs (A) and (B)'' and inserting
``subparagraph (A), (B), and (C)'', and
__(B) by striking ``paragraph (1)(C)'' in subparagraph (A) and
inserting ``paragraph (1)(D)''.
__(d) Effective Date._The amendments made by this section shall
apply to taxable years beginning after December 31, 1995.
SEC. 7702. TREATMENT OF LONG-TERM CARE INSURANCE.
__(a) General Rule._Chapter 79 (relating to definitions) is
amended by inserting after section 7702A the following new
section:
``SEC. 7702B. TREATMENT OF LONG-TERM CARE INSURANCE.
__``(a) In General._For purposes of this title_
__``(1) a qualified long-term care insurance policy (as defined
in subsection (b)) shall be treated as an accident and health
insurance contract,
__``(2) amounts (other than policyholder dividends (as defined in
section 808) or premium refunds) received under a qualified
long-term care insurance policy shall be treated as amounts
received for personal injuries and sickness and shall be treated
as reimbursement for expenses actually incurred for medical care
(as defined in section 213(d)),
__``(3) any plan of an employer providing coverage under a
qualified long-term care insurance policy shall be treated as an
accident and health plan with respect to such coverage,
__``(4) amounts paid for a qualified long-term care insurance
policy providing the benefits described in subsection (b)(6)(B)
shall be treated as payments made for insurance for purposes of
section 213(d)(1)(D), and
__``(5) a qualified long-term care insurance policy shall be
treated as a guaranteed renewable contract subject to the rules
of section 816(e).
__``(b) Qualified Long-Term Care Insurance Policy._For purposes
of this title_
__``(1) In general._The term `qualified long-term care insurance
policy' means any long-term care insurance policy (as defined in
section 2304 of the Health Security Act) that_
__``(A) satisfies the requirements of subpart B of part 3 of
subtitle B of title II of the Health Security Act,
__``(B) limits benefits under such policy to individuals who are
certified by a licensed professional (as defined in section
213(g)(4)) within the preceding 12-month period as being unable
to perform, without substantial assistance from another
individual (including assistance involving cueing or substantial
supervision), 2 or more activities of daily living (as defined in
section 213(g)(3)), or who have a severe cognitive impairment (as
defined in section 213(g)(2)(B)), and
__``(C) satisfies the requirements of paragraphs (2), (3), (4),
(5), and (6).
__``(2) Premium requirements._The requirements of this paragraph
are met with respect to a policy if such policy provides that
premium payments may not be made earlier than the date such
payments would have been made if the contract provided for level
annual payments over the life expectancy of the insured or 20
years, whichever is shorter. A policy shall not be treated as
failing to meet the requirements of the preceding sentence solely
by reason of a provision in the policy providing for a waiver of
premiums if the insured becomes an individual certified in
accordance with paragraph (1)(B).
__``(3) Prohibition of cash value._The requirements of this
paragraph are met if the policy does not provide for a cash value
or other money that can be paid, assigned, pledged as collateral
for a loan, or borrowed, other than as provided in paragraph (4).
__``(4) Refunds of premiums and dividends._The requirements of
this paragraph are met with respect to a policy if such policy
provides that_
__``(A) policyholder dividends are required to be applied as a
reduction in future premiums or, to the extent permitted under
paragraph (6), to increase benefits described in subsection
(a)(2), and
__``(B) refunds of premiums upon a partial surrender or a partial
cancellation are required to be applied as a reduction in future
premiums, and
__``(C) any refund on the death of the insured, or on a complete
surrender or cancellation of the policy, cannot exceed the
aggregate premiums paid under the contract.
Any refund on a complete surrender or cancellation of the policy
shall be includible in gross income to the extent that any
deduction or exclusion was allowable with respect to the
premiums.
__``(5) Coordination with other entitlements._The requirements of
this paragraph are met with respect to a policy if such policy
does not cover expenses incurred to the extent that such expenses
are also covered under title XVIII of the Social Security Act or
are covered under comprehensive health coverage described in
section 1101 of the Health Security Act.
__``(6) Maximum benefit._
__``(A) In general._The requirements of this paragraph are met if
the benefits payable under the policy for any period (whether on
a periodic basis or otherwise) shall not exceed the dollar amount
in effect for such period.
__``(B) Nonreimbursement payments permitted._Benefits shall
include all payments described in subsection (a)(2) to or on
behalf of an insured individual without regard to the expenses
incurred during the period to which the payments relate. For
purposes of section 213(a), such payments shall be treated as
compensation for expenses paid for medical care.
__``(C) Dollar amount._The dollar amount in effect under this
paragraph shall be $150 per day (or the equivalent amount within
the calendar year in the case of payments on other than a per
diem basis).
__``(D) Adjustments for increased costs._
__``(i) In general._In the case of any calendar year after 1996,
the dollar amount in effect under subparagraph (C) for any period
or portion thereof occurring during such calendar year shall be
equal to the sum of_
__``(I) the amount in effect under subparagraph (C) for the
preceding calendar year (after application of this subparagraph),
plus
__``(II) the product of the amount referred to in subclause (I)
multiplied by the cost-of-living adjustment for the calendar year
of the amount under subclause (I).
__``(ii) Cost-of-living adjustment._For purposes of clause (i),
the cost-of-living adjustment for any calendar year is the
percentage (if any) by which the cost index under clause (iii)
for the preceding calendar year exceeds such index for the second
preceding calendar year.
__``(iii) Cost index._The Secretary, in consultation with the
Secretary of Health and Human Services, shall before January 1,
1997, establish a cost index to measure increases in costs of
nursing home and similar facilities. The Secretary may from time
to time revise such index to the extent necessary to accurately
measure increases or decreases in such costs.
__``(iv) Special rule for calendar year 1997._Notwithstanding
clause (ii), for purposes of clause (i), the cost-of-living
adjustment for calendar year 1997 is the sum of 1 \1/2\ percent
plus the percentage by which the CPI for calendar year 1996 (as
defined in section 1(f)(4)) exceeds the CPI for calendar year
1995 (as so defined).
__``(E) Period._For purposes of this paragraph, a period begins
on the date that an individual has a condition which would
qualify for certification under subsection (b)(1)(B) and ends on
the earlier of the date upon which_
__``(i) such individual has not been so certified within the
preceding 12-months, or
__``(ii) the individual's condition ceases to be such as to
qualify for certification under subsection (b)(1)(B).
__``(F) Aggregation rule._For purposes of this paragraph, all
policies issued with respect to the same insured shall be treated
as one policy.
__``(c) Treatment of Long-Term Care Insurance Policies._For
purposes of this title, any amount received or coverage provided
under a long-term care insurance policy that is not a qualified
long-term care insurance policy shall not be treated as an amount
received for personal injuries or sickness or provided under an
accident and health plan and shall not be treated as excludible
from gross income under any provision of this title.
__``(d) Treatment of Coverage Provided as Part of a Life
Insurance Contract._Except as otherwise provided in regulations
prescribed by the Secretary, in the case of any long-term care
insurance coverage (whether or not qualified) provided by rider
on a life insurance contract_
__``(1) In general._This section shall apply as if the portion of
the contract providing such coverage is a separate contract or
policy.
__``(2) Premiums and charges for long-term care coverage._Premium
payments for coverage under a long-term care insurance policy and
charges against the life insurance contract's cash surrender
value (within the meaning of section 7702(f)(2)(A)) for such
coverage shall be treated as premiums for purposes of subsection
(b)(2).
__``(3) Application of 7702._Section 7702(c)(2) (relating to the
guideline premium limitation) shall be applied by increasing the
guideline premium limitation with respect to a life insurance
contract, as of any date_
__``(A) by the sum of any charges (but not premium payments)
described in paragraph (2) made to that date under the contract,
less
__``(B) any such charges the imposition of which reduces the
premiums paid for the contract (within the meaning of section
7702(f)(1)).
__``(4) Application of section 213._No deduction shall be allowed
under section 213(a) for charges against the life insurance
contract's cash surrender value described in paragraph (2),
unless such charges are includible in income as a result of the
application of section 72(e)(10) and the coverage provided by the
rider is a qualified long-term care insurance policy under
subsection (b).
For purposes of this subsection, the term `portion' means only
the terms and benefits under a life insurance contract that are
in addition to the terms and benefits under the contract without
regard to the coverage under a long-term care insurance policy.
__``(e) Prohibition of Discrimination._
__``(1) In general._Notwithstanding subsection (a)(3), any plan
of an employer providing coverage under a qualified long-term
care insurance policy shall qualify as an accident and health
plan with respect to such coverage only if_
__``(A) the plan allows all employees, except as provided in
paragraph (2), to participate, and
__``(B) the benefits provided under the plan are identical for
all employees that choose to participate.
__``(2) Exclusion of certain employees._For purposes of paragraph
(1), there may be excluded from consideration_
__``(A) employees who have not completed 3 years of service;
__``(B) employees who have not attained age 25;
__``(C) part-time or seasonal employees; and
__``(D) employees who are nonresident aliens and who receive no
earned income (within the meaning of section 911(d)(2)) from the
employer which constitutes income from sources within the United
States (within the meaning of section 861(a)(3)).
__``(f) Regulations._The Secretary shall prescribe such
regulations as may be necessary to carry out the requirements of
this section, including regulations to prevent the avoidance of
this section by providing long-term care insurance coverage under
a life insurance contract and to provide for the proper
allocation of amounts between the long-term care and life
insurance portions of a contract.''.
__(b) Clerical Amendment._The table of sections for chapter 79 is
amended by inserting after the item relating to section 7702A the
following new item:


``Sec. 7702B. Treatment of long-term care insurance.''.
(c) Effective Date._
__(1) In general._The amendments made by this section shall apply
to policies issued after December 31, 1995. Solely for purposes
of the preceding sentence, a policy issued prior to January 1,
1996, that satisfies the requirements of a qualified long-term
care insurance policy as set forth in section 7702B(b) shall, on
and after January 1, 1996, be treated as being issued after
December 31, 1995.
__(2) Transition rule._If, after the date of enactment of this
Act and before January 1, 1996, a policy providing for long-term
care insurance coverage is exchanged solely for a qualified
long-term care insurance policy (as defined in section 7702B(b)),
no gain or loss shall be recognized on the exchange. If, in
addition to a qualified long-term care insurance policy, money or
other property is received in the exchange, then any gain shall
be recognized to the extent of the sum of the money and the fair
market value of the other property received. For purposes of this
paragraph, the cancellation of a policy providing for long-term
care insurance coverage and reinvestment of the cancellation
proceeds in a qualified long-term care insurance policy within 60
days thereafter shall be treated as an exchange.
__(3) Issuance of certain riders permitted._For purposes of
determining whether section 7702 or 7702A of the Internal Revenue
Code of 1986 applies to any contract, the issuance, whether
before, on, or after December 31, 1995, of a rider on a life
insurance contract providing long-term care insurance coverage
shall not be treated as a modification or material change of such
contract.
SEC. 7703. TAX TREATMENT OF ACCELERATED DEATH BENEFITS UNDER LIFE
INSURANCE CONTRACTS.
__(a) General Rule._Section 101 (relating to certain death
benefits) is amended by adding at the end thereof the following
new subsection:
__``(g) Treatment of Certain Accelerated Death Benefits._
__``(1) In general._For purposes of this section, any amount
distributed to an individual under a life insurance contract on
the life of an insured who is a terminally ill individual (as
defined in paragraph (3)) shall be treated as an amount paid by
reason of the death of such insured.
__``(2) Necessary conditions._
__``(A) Paragraph (1) shall not apply to any distribution unless_
__``(i) the distribution is not less than the present value
(determined under subparagraph (B)) of the reduction in the death
benefit otherwise payable in the event of the death of the
insured, and
__``(ii) the percentage derived from dividing the cash surrender
value of the contract, if any, immediately after the distribution
by the cash surrender value of the contract immediately before
the distribution is equal to or greater than the percentage
derived by dividing the death benefit immediately after the
distribution by the death benefit immediately before the
distribution.
__``(B) The present value of the reduction in the death benefit
occurring on the distribution must be determined by_
__``(i) using as the discount rate a rate not to exceed the
highest rate set forth in subparagraph (C), and
__``(ii) assuming that the death benefit (or the portion thereof)
would have been paid at the end of a period that is no more than
the insured's life expectancy from the date of the distribution
or 12 months, whichever is shorter.
__``(C) Rates._The rates set forth in this subparagraph are the
following:
__``(i) the 90-day Treasury bill yield,
__``(ii) the rate described as Moody's Corporate Bond Yield
Average-Monthly Average Corporates as published by Moody's
Investors Service, Inc., or any successor thereto for the
calendar month ending 2 months before the date on which the rate
is determined,
__``(iii) the rate used to compute the cash surrender values
under the contract during the applicable period plus 1 percent
per annum, and
__``(iv) the maximum permissible interest rate applicable to
policy loans under the contract.
__``(3) Terminally ill individual._For purposes of this
subsection, the term `terminally ill individual' means an
individual who the insurer has determined, after receipt of an
acceptable certification by a licensed physician, has an illness
or physical condition which can reasonably be expected to result
in death within 12 months of the date of certification.
__``(4) Application of section 72(e)(10)._For purposes of section
72(e)(10) (relating to the treatment of modified endowment
contracts), section 72(e)(4)(A)(i) shall not apply to
distributions described in paragraph (1).
__(b) Effective Date._The amendment made by subsection (a) shall
apply to taxable years beginning after December 31, 1993.
SEC. 7704. TAX TREATMENT OF COMPANIES ISSUING QUALIFIED
ACCELERATED DEATH BENEFIT RIDERS.
__(a) Qualified Accelerated Death Benefit Riders Treated as Life
Insurance._Section 818 (relating to other definitions and special
rules) is amended by adding at the end thereof the following new
subsection:
__``(g) Qualified Accelerated Death Benefit Riders Treated as
Life Insurance._For purposes of this part_
__``(1) In general._Any reference to a life insurance contract
shall be treated as including a reference to a qualified
accelerated death benefit rider on such contract.
__``(2) Qualified accelerated death benefit riders._For purposes
of this subsection, the term `qualified accelerated death benefit
rider' means any rider on a life insurance contract which
provides for a distribution to an individual upon the insured
becoming a terminally ill individual (as defined in section
101(g)(3)).
__(b) Definitions of Life Insurance and Modified Endowment
Contracts._Paragraph (5)(A) of section 7702(f) is amended by
striking ``or'' at the end of clause (iv), by redesignating
clause (v) as clause (vi), and by inserting after clause (iv) the
following new clause:
__``(v) any qualified accelerated death benefit rider (as defined
in section 818(g)), or''.
__(c) Effective Date._
__(1) In general._The amendments made by this section shall apply
to contracts issued after December 31, 1993.
__(2) Transitional rule._For purposes of determining whether
section 7702 or 7702A of the Internal Revenue Code of 1986
applies to any contract, the issuance, whether before, on, or
after December 31, 1993, of a rider on a life insurance contract
permitting the acceleration of death benefits (as described in
section 101(g) of such Code) shall not be treated as a
modification or material change of such contract.
  Title VII, Subtitle H
Subtitle H_Tax Incentives for Health Services Providers
SEC. 7801. NONREFUNDABLE CREDIT FOR CERTAIN PRIMARY HEALTH
SERVICES PROVIDERS.
__(a) In General._Subpart A of part IV of subchapter A of chapter
1 (relating to nonrefundable personal credits) is amended by
inserting after section 22 the following new section:
``SEC. 23. PRIMARY HEALTH SERVICES PROVIDERS.
__``(a) Allowance of Credit._There shall be allowed as a credit
against the tax imposed by this chapter for the taxable year an
amount equal to the product of_
__``(1) the number of months during such taxable year_
__``(A) during which the taxpayer is a qualified primary health
services provider, and
__``(B) which are within the taxpayer's mandatory service period,
and
__``(2) $1,000 ($500 in the case of a qualified practitioner who
is not a physician).
__``(b) Qualified Primary Health Services Provider._For purposes
of this section, the term `qualified primary health services
provider' means, with respect to any month, any qualified
practitioner who_
__``(1) has in effect a certification by the Bureau as a provider
of primary health services and such certification is, when
issued, for a health professional shortage area in which the
qualified practitioner is commencing the providing of primary
health services,
__``(2) is providing primary health services full time in the
health professional shortage area identified in such
certification, and
__``(3) has not received a scholarship under the National Health
Service Corps Scholarship Program or any loan repayments under
the _National Health Service Corps Loan Repayment Program.
For purposes of paragraph (2), a provider shall be treated as
providing services in a health professional shortage area when
such area ceases to be such an area if it was such an area when
the provider commenced providing services in the area.
__``(c) Mandatory Service Period._For purposes of this section,
the term `mandatory service period' means the period of 60
consecutive calendar months beginning with the first month the
taxpayer is a qualified primary health services provider. A
taxpayer shall not have more than 1 mandatory service period.
__``(d) Definitions and Special Rules._For purposes of this
section_
__``(1) Bureau._The term `Bureau' means the Bureau of Primary
Health Care, Health Resources and Services Administration of the
United States Public Health Service.
__``(2) Qualified practitioner._The term `qualified practitioner'
means a physician, a physician assistant, a nurse practitioner,
or a certified nurse-midwife.
__``(3) Physician._The term `physician' has the meaning given to
such term by section 1861(r) of the Social Security Act.
__``(4) Physician assistant; nurse practitioner._The terms
`physician assistant' and `nurse practitioner' have the meanings
given to such terms by section 1861(aa)(5) of the Social Security
Act.
__``(5) Certified nurse-midwife._The term `certified
nurse-midwife' has the meaning given to such term by section
1861(gg)(2) of the Social Security Act.
__``(6) Primary health services._The term `primary health
services' has the meaning given such term by section 330(b)(1) of
the Public Health Service Act.
__``(7) Health professional shortage area._The term `health
professional shortage area' has the meaning given such term by
section 332(a)(1)(A) of the Public Health Service Act.
__``(e) Recapture of Credit._
__``(1) In general._If there is a recapture event during any
taxable year, then_
__``(A) no credit shall be allowed under subsection (a) for such
taxable year and any succeeding taxable year, and
__``(B) the tax of the taxpayer under this chapter for such
taxable year shall be increased by an amount equal to the product
of_
__``(i) the applicable percentage, and
__``(ii) the aggregate unrecaptured credits allowed to such
taxpayer under this section for all prior taxable years.
__``(2) Applicable recapture percentage._
__``(A) In general._For purposes of this subsection, the
applicable recapture percentage shall be determined from the
following table:

__``If the recapture The applicable recap-
___event occurs during:
ture percentage is:
__Months 1     24
__Months 25    36
    Months 37  48
__Months 49    60
__Months 61 and thereafter


__``(B) Timing._For purposes of subparagraph (A), month 1 shall
begin on the first day of the mandatory service period.
__``(3) Recapture event defined._
__``(A) In general._For purposes of this subsection, the term
`recapture event' means the failure of the taxpayer to be a
qualified primary health services provider for any month during
the taxpayer's mandatory service period.
__``(B) Cessation of designation._The cessation of the
designation of any area as a health professional shortage area
after the beginning of the mandatory service period for any
taxpayer shall not constitute a recapture event.
__``(C) Secretarial waiver._The Secretary, in consultation with
the Secretary of Health and Human Services, may waive any
recapture event caused by extraordinary circumstances.
__``(4) No credits against tax; minimum tax._Any increase in tax
under this subsection shall not be treated as a tax imposed by
this chapter for purposes of determining the amount of any credit
under subpart A, B, or D of this part or for purposes of section
55.''
__(b) Clerical Amendment._The table of sections for subpart A of
part IV of subchapter A of chapter 1 is amended by inserting
after the item relating to section 22 the following new item:
``Sec. 23. Primary health services providers.''
(c) Effective Date._The amendments made by this section shall
apply to taxable years beginning after December 31, 1994.

SEC. 7802. EXPENSING OF MEDICAL EQUIPMENT.
__(a) In General._Paragraph (1) of section 179(b) (relating to
dollar limitation on expensing of certain depreciable business
assets) is amended to read as follows:
__``(1) Dollar limitation._
__``(A) General rule._The aggregate cost which may be taken into
account under subsection (a) for any taxable year shall not
exceed $17,500.
__``(B) Health care property._The aggregate cost which may be
taken into account under subsection (a) shall be increased by the
lesser of_
__``(i) the cost of section 179 property which is health care
property placed in service during the taxable year, or
__``(ii) $10,000.''

__(b)  Definition._Section 179(d) (relating to definitions) is
amended by adding at the end the following new paragraph:
__``(11) Health care property._For purposes of this section, the
term `health care property' means section 179 property_
__``(A) which is medical equipment used in the screening,
monitoring, observation, diagnosis, or treatment of patients in a
laboratory, medical, or hospital environment,
__``(B) which is owned (directly or indirectly) and used by a
physician (as defined in section 1861(r) of the Social Security
Act) in the active conduct of such physician's full-time trade or
business of providing primary health services (as defined in
section 330(b)(1) of the Public Health Service Act) in a health
professional shortage area (as defined in section 332(a)(1)(A) of
the Public Health Service Act), and
__``(C) substantially all the use of which is in such area.''
__(c) Effective Date._The amendments made by this section shall
apply to property placed in service after December 31, 1994.
  Title VII, Subtitle I
Subtitle I_Miscellaneous Provisions
SEC. 7901. CREDIT FOR COST OF PERSONAL ASSISTANCE SERVICES
REQUIRED BY EMPLOYED INDIVIDUALS.
__(a) In General._Subpart A of part IV of subchapter A of chapter
1 (relating to nonrefundable personal credits) is amended by
inserting after section 23 the following new section:
``SEC. 24. COST OF PERSONAL ASSISTANCE SERVICES REQUIRED BY
EMPLOYED INDIVIDUALS.
__``(a) Allowance of Credit._
__``(1) In general._In the case of an eligible individual, there
shall be allowed as a credit against the tax imposed by this
chapter for the taxable year an amount equal to the applicable
percentage of the personal assistance expenses paid or incurred
by the taxpayer during such taxable year.
__``(2) Applicable percentage._For purposes of paragraph (1), the
term `applicable percentage' means 50 percent reduced (but not
below zero) by 10 percentage points for each $5,000 by which the
modified adjusted gross income (as defined in section 59B(d)(2))
of the taxpayer for the taxable year exceeds $45,000. In the case
of a married individual filing a separate return, the preceding
sentence shall be applied by substituting `$2,500' for `$5,000'
and `$22,500' for `$45,000'.
__``(b) Limitation._The amount of personal assistance expenses
incurred for the benefit of an individual which may be taken into
account under subsection (a) for the taxable year shall not
exceed the lesser of_
__``(1) $15,000, or
__``(2) such individual's earned income (as defined in section
32(c)(2)) for the taxable year.
In the case of a joint return, the amount under the preceding
sentence shall be determined separately for each spouse.
__``(c) Eligible Individual._For purposes of this section, the
term `eligible individual' means any individual (other than a
nonresident alien) who, by reason of any medically determinable
physical impairment which can be expected to result in death or
which has lasted or can be expected to last for a continuous
period of not less than 12 months, is unable to engage in any
substantial gainful activity without personal assistance services
appropriate to carry out activities of daily living. An
individual shall not be treated as an eligible individual unless
such individual furnishes such proof thereof (in such form and
manner, and at such times) as the Secretary may require.
__``(d) Other Definitions._For purposes of this section_
__``(1) Personal assistance expenses._The term `personal
assistance expenses' means expenses for_
__``(A) personal assistance services appropriate to carry out
activities of daily living in or outside the home,
__``(B) homemaker/chore services incidental to the provision of
such personal assistance services,
__``(C) in the case of an individual with a cognitive impairment,
assistance with life skills,
__``(D) communication services,
__``(E) work-related support services,
__``(F) coordination of services described in this paragraph,
__``(G) assistive technology and devises, including assessment of
the need for particular technology and devices and training of
family members, and
__``(H) modifications to the principal place of abode of the
individual to the extent the expenses for such modifications
would (but for subsection (e)(2)) be expenses for medical care
(as defined by section 213) of such individual.
__``(2) Activities of daily living._The term `activities of daily
living' means the activities referred to in section 213(g)(3).
__``(e) Special Rules._
__``(1) Payments to related persons._No credit shall be allowed
under this section for any amount paid by the taxpayer to any
person who is related (within the meaning of section 267 or
707(b)) to the taxpayer.
__``(2) Coordination with medical expense deduction._Any amount
taken into account in determining the credit under this section
shall not be taken into account in determining the amount of the
deduction under section 213.
__``(3) Basis reduction._For purposes of this subtitle, if a
credit is allowed under this section for any expense with respect
to any property, the increase in the basis of such property which
would (but for this paragraph) result from such expense shall be
reduced by the amount of the credit so allowed.
__``(f) Cost-of-Living Adjustment._In the case of any taxable
year beginning after 1996, the $45,000 and $22,500 amounts in
subsection (a)(2) and the $15,000 amount in subsection (b) shall
be increased by an amount equal to_
__``(1) such dollar amount, multiplied by
__``(2) the cost-of-living adjustment determined under section
1(f)(3) for the calendar year in which the taxable year begins by
substituting `calendar year 1995' for `calendar year 1992' in
subparagraph (B) thereof.
If any increase determined under the preceding sentence is not a
multiple of $1,000, such increase shall be rounded to the nearest
multiple of $1,000.''
__(b) Technical Amendment._Subsection (a) of section 1016 is
amended by striking ``and'' at the end of paragraph (24), by
striking the period at the end of paragraph (25) and inserting
``, and'', and by adding at the end thereof the following new
paragraph:
__``(26) in the case of any property with respect to which a
credit has been allowed under section 23, to the extent provided
in section 23(e)(3).''
__(c) Clerical Amendment._The table of sections for subpart A of
part IV of subchapter A of chapter 1 is amended by inserting
after the item relating to section 22 the following new item:


``Sec. 23. Cost of personal assistance services required by
employed individuals.''
(d) Effective Date._The amendments made by this section shall
apply to taxable years beginning after December 31, 1995.
SEC. 7902. DENIAL OF TAX-EXEMPT STATUS FOR BORROWINGS OF HEALTH
CARE-RELATED ENTITIES.
__(a) In General._Paragraph (6) of section 141(b) (relating to
private business use) is amended by adding at the end thereof the
following new subparagraph:
__``(C) Certain health care-related entities._Use by_
__``(i) any regional alliance described in section 1301 of the
Heath Security Act,
__``(ii) any corporate alliance described in section 1311 of such
Act, and
__``(iii) any guaranty fund described in section 1204 of such
Act,
shall be treated as private business use by an organization that
is not a 501(c)(3) organization.''
__(b) Effective Date._The amendment made by subsection (a) shall
apply to obligations issued after the date of the enactment of
this Act.
SEC. 7903. DISCLOSURE OF RETURN INFORMATION FOR ADMINISTRATION OF
CERTAIN PROGRAMS UNDER THE HEALTH SECURITY ACT.
__(a) In General._Subparagraph (D) of section 6103(l)(7)
(relating to disclosure of return information to Federal, State,
and local agencies administering certain programs) is amended by
striking ``and'' at the end of clause (viii), by striking the
period at the end of clause (ix) and inserting ``; and'', and by
inserting after clause (ix) the following new clause:
__``(x) assistance provided under the Health Security Act.''
__(b) Information Not Available to Local Agencies._Subparagraph
(D) of section 6103(l)(7) is amended by adding at the end thereof
the following new sentence: ``Subparagraphs (A) and (B) shall be
applied without regard to any reference to any local agency with
respect to the program referred to in clause (x).''