Subtitle B--Treatment of Individuals Who Lose United States Citizenship

(a) IN GENERAL- Subsection (a) of section 877 is amended to read as follows:

`(a) TREATMENT OF EXPATRIATES-

`(1) IN GENERAL- Every nonresident alien individual who, within the 10-year period immediately preceding the close of the taxable year, lost United States citizenship, unless such loss did not have for one of its principal purposes the avoidance of taxes under this subtitle or subtitle B, shall be taxable for such taxable year in the manner provided in subsection (b) if the tax imposed pursuant to such subsection exceeds the tax which, without regard to this section, is imposed pursuant to section 871.

`(2) CERTAIN INDIVIDUALS TREATED AS HAVING TAX AVOIDANCE PURPOSE- For purposes of paragraph (1), an individual shall be treated as having a principal purpose to avoid such taxes if--

`(A) the average annual net income tax (as defined in section 38(c)(1)) of such individual for the period of 5 taxable years ending before the date of the loss of United States citizenship is greater than $100,000, or

`(B) the net worth of the individual as of such date is $500,000 or more.

In the case of the loss of United States citizenship in any calendar year after 1996, such $100,000 and $500,000 amounts shall be increased by an amount equal to such dollar amount multiplied by the cost-of-living adjustment determined under section 1(f)(3) for such calendar year by substituting `1994' for `1992' in subparagraph (B) thereof. Any increase under the preceding sentence shall be rounded to the nearest multiple of $1,000.'.

(b) EXCEPTIONS-

(1) IN GENERAL- Section 877 is amended by striking subsection (d), by redesignating subsection (c) as subsection (d), and by inserting after subsection (b) the following new subsection:

`(c) TAX AVOIDANCE NOT PRESUMED IN CERTAIN CASES-

`(1) IN GENERAL- Subsection (a)(2) shall not apply to an individual if--

`(A) such individual is described in a subparagraph of paragraph (2) of this subsection, and

`(B) within the 1-year period beginning on the date of the loss of United States citizenship, such individual submits a ruling request for the Secretary's determination as to whether such loss has for one of its principal purposes the avoidance of taxes under this subtitle or subtitle B.

`(2) INDIVIDUALS DESCRIBED-

`(A) DUAL CITIZENSHIP, ETC- An individual is described in this subparagraph if--

`(i) the individual became at birth a citizen of the United States and a citizen of another country and continues to be a citizen of such other country, or

`(ii) the individual becomes (not later than the close of a reasonable period after loss of United States citizenship) a citizen of the country in which--

`(I) such individual was born,

`(II) if such individual is married, such indi-vidual's spouse was born, or

`(III) either of such individual's parents were born.

`(B) LONG-TERM FOREIGN RESIDENTS- An individual is described in this subparagraph if, for each year in the 10-year period ending on the date of loss of United States citizenship, the individual was present in the United States for 30 days or less. The rule of section 7701(b)(3)(D)(ii) shall apply for purposes of this subparagraph.

SEC. 513. REPORT ON TAX COMPLIANCE BY UNITED STATES CITIZENS AND RESIDENTS LIVING ABROAD.

Not later than 90 days after the date of the enactment of this Act, the Secretary of the Treasury shall prepare and submit to the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate a report--

(1) describing the compliance with subtitle A of the Internal Revenue Code of 1986 by citizens and lawful permanent residents of the United States (within the meaning of section 7701(b)(6) of such Code) residing outside the United States, and

(2) recommending measures to improve such compliance (including improved coordination between executive branch agencies).

Subtitle C--Repeal of Financial Institution Transition Rule to Interest Allocation Rules

(a) IN GENERAL- Paragraph (5) of section 1215(c) of the Tax Reform Act of 1986 (Public Law 99-514, 100 Stat. 2548) is hereby repealed.

(b) EFFECTIVE DATE-

(1) IN GENERAL- The amendment made by this section shall apply to taxable years beginning after December 31, 1995.

(2) SPECIAL RULE- In the case of the first taxable year beginning after December 31, 1995, the pre-effective date portion of the interest expense of the corporation referred to in such paragraph (5) of such section 1215(c) for such taxable year shall be allocated and apportioned without regard to such amendment. For purposes of the preceding sentence, the pre-effective date portion is the amount which bears the same ratio to the interest expense for such taxable year as the number of days during such taxable year before the date of the enactment of this Act bears to 366.

Speaker of the House of Representatives.

Vice President of the United States and

President of the Senate.