FOR IMMEDIATE RELEASE, Contact: (202) 225-3625
June 16, 1997
No. FC 9-A
Congressman Bill Archer (R-TX), Chairman of the Committee on Ways and Means, today announced that on Friday, June 13, 1997, the Committee ordered favorably reported, as amended, budget reconciliation revenue recommendations, by a recorded vote of 22 to 16.
The Committee's budget reconciliation revenue recommendations would provide: income and estate and gift tax relief to America's families, educational tax benefits, savings and investment incentives, estate and gift tax relief to closely-held businesses, extension of certain expiring tax provisions, District of Columbia tax incentives, welfare-to-work tax credit, various miscellaneous tax provisions, revenue-offset provisions (including a 10-year extension of financing of the Airport and Airway Trust Fund and corporate and other tax reforms), numerous tax simplification provisions (most of which have been previously approved by the Committee and the Congress in the Balanced Budget Act of 1995 in the 104th Congress, but not enacted), needed technical corrections to recently-passed tax legislation, and an increase in the public debt limit as projected under the Balanced Budget Agreement and the Fiscal Year 1998 Budget Resolution.
DESCRIPTION OF RECOMMENDATIONS AS APPROVED:
Title I--Child and Dependent Care Tax Credits; Health Care for Children
Child tax credit for children under the age of 17--The proposal would allow taxpayers a maximum nonrefundable tax credit of $500 ($400 for taxable year 1998) for each qualifying child under the age of 17. For taxpayers with modified adjusted gross income (AGI) in excess of $75,000 for single filers ($110,000 for married filers), the sum of the otherwise allowable child credit and the otherwise allowable dependent care credit would be phased out. Beginning after 2001, the otherwise allowable child credit would be reduced by one-half of the amount of the taxpayer's dependent care credit. Generally, the child tax credit would be effective for taxable years beginning after December 31, 1997.
Dependent care credit--The present-law credit would be indexed for inflation. The credit would also be phased out in conjunction with the child tax credit for high-income taxpayers. The provision would be effective for taxable years beginning after December 31, 1997.
Expand definition of high-risk individuals with respect to tax-exempt State-sponsored organizations providing health coverage--The proposal would expand the definition of high-risk individuals to include a child of an individual who meets the present-law definition of a high-risk individual, subject to certain requirements. The provision would be effective for taxable years beginning after December 31, 1997.
Title II--Education Tax Incentives
HOPE credit for higher education tuition expenses--Individual taxpayers would be allowed to claim a nonrefundable HOPE credit against Federal income taxes up to $1,500 per student for 50 percent of qualified tuition and related expenses (i.e., tuition, fees, and books but not room and board) paid for the first 2 years of post-secondary education for the taxpayer, the taxpayer's spouse, or a dependent. The credit would be phased out for taxpayers with modified AGI between $40,000 and $50,000 ($80,000 and $100,000 for joint returns). Eligible students would have to be enrolled on at least a half-time basis at a college, university, or certain vocational schools, but need not maintain any specific grade point average. The credit would not be available with respect to a student if a taxpayer elects to claim the proposed deduction for qualified higher education expenses (described below) with respect to that student for the taxable year. The provision would be effective for expenses paid after December 31, 1997, for education furnished in academic periods beginning after such date.
Deduction for qualified higher education expenses and tax treatment of qualified tuition programs and education investment accounts--Individual taxpayers would be allowed a deduction of up to $10,000 per student per year for qualified higher education expenses (i.e., tuition, fees, books, supplies, and room and board) paid by the taxpayer during the taxable year for education furnished to the taxpayer, the taxpayer's spouse, or a dependent. The deduction would be allowed only to the extent that the taxpayer is required to include in gross income for the taxable year earnings distributed from a qualified tuition program (which is a tax-exempt prepaid tuition program maintained by a State or one or more private colleges) or an education investment account (which is a tax-exempt trust established exclusively for the purpose of paying qualified higher education expenses of the account holder). The deduction would be allowed regardless of whether or not the taxpayer otherwise itemizes deductions or claims the standard deduction. The deduction would not be available, however, with respect to a student if the proposed HOPE credit (described above) is claimed with respect to that student for the taxable year. Aggregate deductions allowed for a student for all taxable years would be limited to $40,000. The deduction would not be available for graduate-level courses. Contributions to education investment accounts and qualified tuition programs not operated by a State may not exceed $5,000 per beneficiary per year (with an aggregate contribution limit of $50,000 per beneficiary for all years). The deduction would be available for qualified higher education expenses paid after December 31, 1997, for education furnished in academic periods beginning after such date.
Phase out qualified tuition reduction exclusion--The proposal would phase out the special rule in section 117(d) that excludes a qualified tuition reduction provided to an employee of an educational organization from gross income. The excludable percentage would be 80 percent in 1998 and would be reduced by 20 percent each year thereafter; no exclusion would be permitted after 2001.
Penalty free Individual Retirement Account (IRA) withdrawals for education expenses--The proposal would provide that individuals may make penalty-free withdrawals from their IRAs to pay undergraduate and graduate higher education expenses for themselves, their spouses, their children and grandchildren, or the children or grandchildren of their spouses.
Tax credit for certain tutoring expenses--The proposal would provide a nonrefundable tax credit equal to the lesser of $150 or 50 percent of the costs of supplementary educational assistance provided to elementary or secondary school students. The credit would be phased out for taxpayers with AGI in excess of certain limits The credit would be available for taxable years beginning after December 31, 1997.
Exclusion for employer-provided educational assistance--The proposal would extend the exclusion for employer-provided educational assistance to courses beginning before January 1, 1998.
Modification of $150 million limit on qualified 501(c)(3) non-hospital bonds--The $150 million limit would be increased annually in $10 million increments until it reaches $200 million.
Enhanced deduction for corporate contributions of computer technology and equipment--The proposal would provide that corporate contributions of computer technology and equipment to be used for educational purposes in any of grades K-12 would qualify for the augmented contribution deduction currently available under Code sections 170(e)(3) and 170(e)(4). The provision would be effective for contributions made in taxable years beginning after 1997.
Treatment of cancellation of certain student loans--The proposal would expand present-law section 108(f) so that an individual's gross income would not include forgiveness of loans made by tax-exempt charitable organizations provided the loan recipient's work satisfies a community benefit requirement. Section 108(f) also would be expanded to cover forgiveness of certain Federal direct student loans for which an income-contingent repayment option has been selected.
Title III--Savings and Investment Tax Incentives
American Dream IRAs--The proposal would replace present-law nondeductible IRAs with new American Dream IRAs (AD IRAs) to which all individuals may make nondeductible contributions of up to $2,000 annually. Contributions to an AD IRA would be in addition to any contributions that can be made to a deductible IRA under the present-law rules. No income limitations would apply to AD IRAs. Withdrawals from an AD IRA would not be includable in income if the withdrawal is made after the 5-taxable year period beginning with the first taxable year in which the individual made a contribution to an AD IRA, and is (a) made on or after the date on which the individual attains age 59-1/2, (b) made to a beneficiary (or to the individual's estate) on or after the death of the individual, (c) attributable to the individual's being disabled, or (d) for first-time homebuyer expenses. Special rules apply to roll-overs of current IRAs to AD IRAs.
Capital gains provisions--The proposal would reduce the maximum rate of capital gains of individuals from 28 percent to 20 percent (10 percent for gains otherwise taxed at the 15-percent rate), effective May 7, 1997. This maximum rate would apply both for the regular tax and the alternative minimum tax (AMT). A 26-percent maximum rate would be provided for gain attributable to real estate depreciation. The maximum rate for gain attributable to collectibles would remain at 28 percent. For certain assets acquired after December 31, 2000, and held 3 years or more, the cost basis may be indexed for inflation. The proposal would generally provide that $250,000 ($500,000 in the case of a married couple) of gain from the sale of a principal residence would be exempt from tax, for sales after May 6, 1997. The proposal would reduce the corporate capital gains tax on assets held more than 8 years to 30 percent (32 percent in 1998 and 31 percent in 1999). The proposal would modify the "110 percent of last year's liability" safe harbor of the individual estimated tax to a "109 percent of last year's liability" safe harbor for 1997 estimated tax payments.
Title IV--Alternative Minimum Tax Provisions
Modifications to the AMT--The proposal would increase by $1,000 (in 1999, 2001, 2003, 2005, and 2007) and index (after 2007) the AMT exemption amounts applicable to individuals, repeal the depreciation adjustment for property placed in service after 1998, and repeal the corporate AMT for small business for taxable years beginning after 1997.
Minimum tax installment sales of farmers--The proposal would repeal the minimum tax on installment sales of farmers, effective for dispositions after 1987.
Title V--Estate and Gift Tax Provisions
Increase in estate and gift tax unified credit--The proposal would increase the present-law unified credit as follows: the effective exemption would be $650,000 for decedents dying and gifts made in 1998; $750,000 in 1999; $765,000 in 2000; $775,000 in 2001 through 2004; $800,000 in 2005; $825,000 in 2006; and $1 million in 2007. After 2007, the effective exemption would be indexed annually for inflation.
Indexing of certain other estate and gift tax provisions--The proposal would provide that, after 1998, the $10,000 annual exclusion for gifts, the $750,000 ceiling on special use valuation, the $1,000,000 generation-skipping transfer tax exemption, and the $1,000,000 ceiling on the value of a closely-held business eligible for the special low interest rate (as modified below), would be indexed annually for inflation.
Installment payments of estate tax attributable to closely held businesses--The proposal would extend the period for which Federal estate tax installments can be made under section 6166 to a maximum period of 24 years. In addition, the proposal would provide that no interest would be imposed on the amount of deferred estate tax attributable to the first $1 million in taxable value of the closely held business (i.e., the first $1 million in value in excess of the effective exemption provided by the unified credit). For businesses with a taxable value in excess of $1 million, the proposal would also eliminate the deductibility of interest paid on estate taxes deferred under section 6166, and would reduce the interest rate accordingly.
Estate tax recapture from cash leases of specially-valued property--The proposal would provide that the cash lease of specially-valued real property by a lineal descendant of the decedent to a member of the lineal descendant's family, who continues to operate the farm or closely held business, would not cause the qualified use of such property to cease for purposes of imposing the additional estate tax under section 2032A(c).
Clarify eligibility for extension of time for payment of estate tax--The proposal would give taxpayers access to the courts to resolve disputes over an estate's eligibility for the section 6166 election by authorizing the U.S. Tax Court to provide declaratory judgments regarding initial or continuing eligibility for deferral under section 6166.
Gifts may not be revalued for estate tax purposes after expiration of statute of limitations--The proposal would provide that a gift for which the limitations period has passed cannot be revalued for purposes of determining the applicable estate tax bracket and available unified credit.
Repeal of throwback rules applicable to domestic trusts--The proposal would exempt from the throwback rules amounts distributed by a domestic trust after December 31, 1995. The provision would also provide that precontribution gain on property sold by a domestic trust no longer would be subject to section 644.
Unified credit of decedent increased by unified credit of spouse used on split gift included in decedent's gross estate--With respect to any split-gift property that is subsequently includable in both spouses' estates, the proposal would increase the unified credit allowable to the decedent's estate by the amount of the unified credit previously allowed to the decedent's spouse with respect to the split gift.
Reformation of defective bequests to spouse of decedent--The proposal would allow the marital deduction with respect to a defective power of appointment or qualified terminable interest property (QTIP) trust if a reformation (meeting certain criteria) is made to correct the defect.
Generation-skipping tax provisions--The proposal would provide that if a trust with an inclusion ratio of greater than zero is severed into two separate trusts, the proposal would allow the trustee to elect to treat one of the separate trusts as having an inclusion ratio of zero and the other separate trust as having an inclusion ratio of one. In addition, the proposal would extend the predeceased parent exception to transfers to collateral heirs, provided that the decedent has no living lineal descendants at the time of the transfer. The predeceased parent exception (as modified) also would be extended to taxable terminations and taxable distributions.
Title VI--Extension of Certain Expiring Tax Provisions
Research tax credit--The research tax credit would be extended for the period June 1, 1997, through December 31, 1998 (with a special rule providing a similar, 19-month extension for taxpayers which elect the alternative incremental research credit regime).
Contributions of stock to private foundations--The proposal would extend the special rule contained in section 170(e)(5) that allows a deduction equal to fair market value for contributions of qualified appreciated stock made to private foundations during the period June 1, 1997, through December 31, 1998.
Work opportunity tax credit--The proposal would extend the work opportunity tax credit for 1 year and makes other modifications. The provisions generally would be effective for wages paid or incurred to qualified individuals who begin work for the employer after September 30, 1997, and before October 1, 1998.
Orphan drug tax credit--The proposal would permanently extend the orphan drug tax credit, effective for qualified clinical testing expenses paid or incurred after May 31, 1997.
Title VII--District of Columbia Tax Incentives
District of Columbia Enterprise Zone--The proposal would designate certain economically depressed census tracts within the District of Columbia as the "D.C. Enterprise Zone," within which business and individual residents would be eligible for special tax incentives. All of the tax incentives would take effect only if, prior to January 1, 1998, a Federal law is enacted creating a District of Columbia economic development corporation. In general, tax incentives that are available under present law for certain businesses located in empowerment zones would be available in the D.C. Enterprise Zone. These are: (1) a 20-percent wage credit for the first $15,000 of wages paid to D.C. Enterprise Zone residents who work in the D.C. Enterprise Zone, (2) an additional $20,000 of expensing under Code section 179 for qualified Zone property, and (3) special tax-exempt financing for certain Zone facilities. In addition, the proposal would provide $75 million in tax credits to be allocated by the newly created economic development corporation to taxpayers that make equity investments in, or loans to, businesses engaged in an active trade or business anywhere in the District of Columbia. The proposal would also provide a 0 percent capital gains rate for capital gains from the sale of certain qualified D.C. Enterprise Zone business assets held for more than 5 years. Finally, the proposal would provide that residents of the D.C. Enterprise Zone are entitled to a 10-percent tax rate on all taxable income that currently is subject to a 15-percent Federal income tax rate.
Title VIII--Welfare-to-Work Tax Credit
The proposal would provide employers a credit on the first $20,000 of eligible wages paid to qualified long-term family assistance recipients. Qualified long-term family assistance recipients include members of a family receiving family assistance for specified periods of time and members of family no longer on family assistance because of either Federal or State time limits. The maximum credit would be $8,500 per employee. The provision would be effective for wages paid or incurred to qualified individuals who begin work for an employer on or after January 1, 1998, and before May 1, 1999.
Title IX--Miscellaneous Provisions
Repeal excise tax on diesel fuel used in recreational boats--The proposal would repeal the tax on diesel fuel used in recreational boats.
Modify excise tax on ozone-depleting chemicals--The proposal would repeal the present-law exemption for imported recycled halon-1211.
Modify rate structure of vaccine excise tax--The proposal would modify the excise tax on vaccines to provide a uniform rate of tax of $0.84 per dose for all vaccines. In addition, the proposal would add the HIB (hemophilus influenza type B) vaccine, the Hepatitis B vaccine, and the varicella (chickenpox) vaccine to the list of taxable vaccines.
Treat certain "chain retailers" as wholesale distributors under the gasoline tax refund rules--Chain retailers, defined as owner-operators having 10 or more retail outlets, would be permitted to claim gasoline tax refunds for fuel sold to States and local governments and certain others under the provisions that currently apply to wholesale distributors.
Application of luxury excise tax to clean fuel vehicles--The proposal would increase the threshold at which the luxury excise tax on automobiles applies in the case of clean-burning fuel vehicles and electric cars.
Provisions relating to pensions and other benefits--The proposal would: (1) provide that certain irrigation or ditch companies or districts may maintain cash or deferred arrangements (section 401(k) plans), (2) provide that the current moratorium on the application of certain discrimination rules to State and local government plans is permanent, (3) provide that certain disability payments made on behalf of full-time employees of a police or fire department are excludable from income, (4) provide that contributions made by government employees to purchase certain permissive service credit under a governmental pension plan are not to be taken into account in determining annual additions, (5) provide a deduction from the taxable estate for the value of certain stock transferred to an employee stock ownership plan (ESOP), (6) increase the maximum benefit that can be distributed from a qualified pension plan without the participant's consent from $3,500 to $5,000 (indexed), (7) clarify certain rules relating to ESOPs of S corporations, and (8) provide that the value of certain air transportation on employer-provided noncommercial flights is excludable from income.
Disaster relief provisions--The proposal would provide the Secretary of the Treasury with the authority to extend additional taxpayer deadlines for up to 90 days for certain taxpayers affected by Presidentially declared disasters. The proposal would also contain a provision relating to the use of certain appraisals to establish the amount of a disaster loss. In addition, the proposal would extend the deferral provisions of present law applicable to livestock sold on account of drought to livestock sold on account of floods and other weather-related conditions. Finally, the proposal would modify the mortgage revenue bond rules to extend them to Presidentially declared disaster areas. Specifically, the proposal would waive the first-time homebuyer requirement, the income limits, and the purchase price limits during the 1-year period following the date of the disaster declaration. The provision would be effective for loans financed with bonds issued after December 31, 1996, and before January 1, 2000.
Provisions relating to employment taxes--The proposal would: provide a safe harbor under which, if certain requirements are satisfied, a worker is classified as an independent contractor for Federal tax purposes, (2) remove the statutory rule treating bakery drivers as employees, so that the generally applicable rules for determining worker status apply to bakery drivers, (3) provide that certain instructions of a service recipient provided pursuant to Federal or State law are not taken into account in determining whether a retail securities broker is an employee or independent contractor, and (4) provide that certain termination payments received by former insurance salesmen are not subject to self-employment taxes.
Provisions relating to small businesses--The proposal would provide for an 18-month delay in the imposition of penalties for specified failures to make payments electronically through Electronic Filing Payment Transfer System. In addition, the proposal would provide that a home office qualifies as the "principal place of business" (such that certain expenses with respect to such office may be deductible as a trade or business expense) if the office is used by the taxpayer to conduct administrative or management activities of a trade or business, and there is no other fixed location of the trade or business where the taxpayer conducts substantial administrative or management activities of the trade or business. As under present law, deductions would be allowed for a home office meeting this two-part test only if the office is exclusively used on a regular basis as a place of business by the taxpayer and, in the case of an employee, only if such exclusive use is for the convenience of the employer. The provision would apply to taxable years beginning after December 31, 1997.
Other Provisions
Inventory shrinkage--The proposal would provide that a method of keeping inventories would not be considered unsound, or would fail to clearly reflect income, solely because it would include an adjustment for the shrinkage estimated to occur through year-end, based on inventories taken other than at year-end.
Treatment of workmen's compensation liability under rules for certain personal injury liability assignments--The provision would extend the exclusion for qualified assignments under section 130 to amounts assigned for assuming a liability to pay compensation under any workmen's compensation act, effective for workmen's compensation claims filed after the date of enactment.
Treatment of State workmen's compensation funds--The provision would clarify the tax-exempt status of any organization that is created by State law, and organized and operated exclusively to provide workmen's compensation insurance and related coverage that is incidental to workmen's compensation insurance, and that meets certain additional requirements. The provision would be effective for taxable years beginning after December 31, 1997. No inference is intended as to the status of such organizations under present law.
Treatment of certain publicly traded partnerships--In the case of an existing publicly traded partnership that elects under the provision to be subject to a tax on gross income from the active conduct of a trade or business, the rule of present law treating a publicly traded partnership as a corporation would not apply. The provision would be effective for taxable years beginning after December 31, 1997.
Exclusion from unrelated business income tax (UBIT) for certain corporate sponsorship payments--The proposal would provide that "qualified sponsorship payments" received by tax-exempt organizations would be exempt from taxation under the UBIT. "Qualified sponsorship payments" are defined as any payment made by a person engaged in a trade or business with respect to which that person receives from the tax-exempt organization no substantial return benefit other than the use or acknowledgment of the name or logo (or product lines) of the person's trade or business in connection with the organization's activities. The provision would apply to qualified sponsorship payments solicited or received after December 31, 1997.
Timeshare associations--The proposal would generally extend the rules for taxation of homeowners associations to timeshare associations. However, the rate of tax applicable to timeshare associations would be 32 percent, rather than 30 percent. The provision would be effective for taxable years beginning after December 31, 1996.
Modification of advance refunding rules for certain tax-exempt bonds issued by the Virgin Islands--One additional advance refunding would be allowed for governmental bonds issued by the Virgin Islands that were advance refunded before June 9, 1997, if the Virgin Islands debt provisions are changed to modify their lien requirement.
Farm co-ops--The proposal would provide that gain may be deferred on the sale of refiners and processors to a farm cooperative.
Information reporting on sales of principal residences--Reports to the Internal Revenue Service (IRS) would not be required for most sales of primary residences with a sales price of $500,000 or less ($250,000 or less if the seller is not married), provided the person settling the sale obtains representations that any gain on the sale is eligible to be excluded.
Increased deduction for certain business meals--The deductible percentage of the cost of food and beverages consumed while away from home by an individual during, or incident to, a period of duty subject to the hours of service limitations of the Department of Transportation would be increased from 50 percent to 80 percent in stages, over an 11-year period beginning in 1998.
Treatment of construction allowances provided to lessees with respect to short-term leases--The proposal would provide an exclusion from income for a retail tenant that receives construction allowances from a landlord to the extent the tenant uses the allowances to construct or improve nonresidential real property that reverts to the landlord at the end of a short-term lease.
Mutual savings banks--The provision would provide that the consolidation of two or more life insurance departments of mutual savings banks into a single life insurance company by requirement of State law would be treated as a recapitalization. Any payments required to be made to policyholders in connection with the consolidation would be treated as policyholder dividends deductible by the company under section 808, provided that certain requirements were met. The provision would take effect on December 31, 1991.
Allow refunds to be offset for State tax obligations--Subject to certain limitations, an overpayment of Federal tax would be able to be offset by the amount of any past-due, legally enforceable State tax obligation of a resident of the State seeking the offset.
Clean fuel vehicles--The proposal would increase the limitation on depreciation permitted to be claimed by the taxpayer on automobiles in the case of clean-burning fuel vehicles and electric cars.
Tax benefits for law enforcement officers killed in the line of duty--The proposal would provide that certain death benefits received with respect to a police officer killed in the line of duty would be excludable from income.
Two-year suspension of oil and gas net income limit for production from marginal wells--The proposal would suspend the 65-percent-of-net-income limitation on percentage depletion deductions for domestic oil and gas production from marginal properties for taxable years beginning in 1998 and 1999.
Extension of duty-free treatment under Generalized System of Preferences (GSP); Tariff treatment of certain equipment and repair of vehicles
GSP--The proposal would reauthorize Title V of the Trade Act of 1974, as amended, for 2 years through May 31, 1999. Refunds would be authorized, upon request of the importer, for any duty paid between May 31, 1997, and the date of enactment.
Temporary suspension of vessel repair duty (shipbuilding)--The proposal would suspend, for a 1-year period beginning on date of enactment, the current 50-percent duty, established under section 466 of the Tariff Act of 1930, on repairs to U.S. flag vessels made in countries that are signatories to the Organization for Economic and Community Development Shipbuilding Agreement.
United States-Caribbean Basin Trade Partnership Program
The proposal would amend section 213(b) of the Caribbean Basin Economic Recovery Act to provide tariff and quota treatment on imports from Caribbean Basin Initiative beneficiary countries of currently excluded articles (such as textiles, apparel, tuna, petroleum and petroleum products, and footwear) that is similar to tariff and quota treatment accorded to like articles imported from Mexico under the North American Free Trade Agreement, during a temporary period of 1 year.
Title X--Revenue-Increase Provisions
Financial Products
Require recognition of gain on certain appreciated positions in financial property--The proposal would require a taxpayer with an appreciated position in stock, a partnership interest or certain trust interests, or debt instruments to recognize gain as if the taxpayer would have sold the position if the taxpayer enters into one of several transactions. The transactions covered would be a "short sale against the box," a forward or futures contract to deliver the same property, an offsetting notional principal contract, and, as provided in Treasury regulations, other transactions with substantially the same effect. An exception would be provided for certain transactions that are closed prior to the end of the taxable year in which they are entered into, or within 30 days thereafter. The proposal would also extend the present law "mark-to-market" regime for securities dealers to securities traders and commodities traders and dealers on an elective basis.
Limitation on exception for investment companies under section 351--The proposal would expand the definition of an investment company for purposes of the present-law rule that property contributed to a partnership or corporation meeting this definition does not qualify for non-recognition treatment. Under the proposal, an investment company would generally include any corporation or partnership if more than 80 percent of its assets (by value) consist of money, financial instruments, foreign currency, and certain interests in precious metals and entities that hold passive-type assets.
Disallowance of interest on indebtedness allocable to tax-exempt obligations--The proposal would extend to all corporations (other than insurance companies) the rule that applies to financial institutions that disallows interest deductions of a taxpayer (that are not otherwise disallowed as allocable under present law to tax-exempt obligations) in the same proportion as the average basis of its tax-exempt obligations (other than nonsalable tax-exempt debt acquired by a corporation in the ordinary course of business in payment for goods or services sold to a State or local government) bears to the average basis of all of the taxpayer's assets. The proposal would not extend the small-issuer exception to taxpayers which are not financial institutions, but would provide a de minimis exception if the average adjusted basis of tax-exempt obligation is less than the lesser of $1 million or 2 percent of the basis of all of the corporation's assets.
Gains and losses from certain terminations with respect to property--The proposal would extend the rule which treats gain or loss from the cancellation, lapse, expiration, or other termination of a right or obligation which is (or on acquisition would be) a capital asset in the hands of the taxpayer to all types of property. The proposal would also repeal the provision that exempts debt obligations issued by natural persons from the rule which treats gain realized on retirement of the debt as exchanges.
Determination of original issue discount where pooled debt obligations subject to acceleration--The proposal would require credit card issuers and other holders of pools of debt instruments to accrue interest income on such pools using reasonable prepayment assumptions.
Deny interest deduction on certain debt instruments--The proposal would deny interest deductions on corporate instruments where a substantial amount of interest or principal is mandatorily payable in stock of the issuer or a related party, or is so payable at the option of the issuer or a related party. The provision would also apply to instruments that are part of an arrangement designed to result in such payment. The provision would be effective for instruments issued after June 8, 1997, unless issued pursuant to a binding written agreement in effect on that date or described in an IRS ruling request, a public announcement, or Securities Exchange Commission (SEC) filing on or before such date.
Corporate Organizations and Reorganizations
Require gain recognition for certain extraordinary dividends--Under the proposal, except as provided in regulations, a corporate shareholder would recognize gain immediately with respect to any redemption treated as a dividend (in whole or in part) where the nontaxed portion of the dividend (under the dividends received deduction) would exceed the basis of the shares surrendered, if the redemption is treated as a dividend due to options being counted as stock ownership. In addition, the proposal would require immediate gain recognition whenever the basis of stock with respect to which any extraordinary dividend was received is reduced below zero. The proposal would be effective for distributions after May 3, 1995, unless made pursuant to the terms of a written binding contract in effect on May 3, 1995, or a tender offer outstanding on that date. In applying the new gain rules to any distribution that is not a partial liquidation, a non pro rata redemption, or a redemption that is treated as a dividend by reason of options, September 13, 1995, would be substituted for May 3, 1995.
Require gain recognition on certain distributions of controlled corporation stock--If, pursuant to an plan or arrangement is existence on the date of distribution, either the controlled or distributing corporation in a section 355 distribution is acquired, gain would be recognized by the other corporation as of the date of the distribution. An acquisition occurs if a person or persons acquire 50 percent or more of the vote or value of the stock of the controlled or distributing corporation pursuant to a plan. Except as provided in regulations, in the case of distributions within an affiliated group of corporations filing a consolidated return, section 355 would not apply to any distribution from one member of the group to another. The proposal would also modify certain rules for determining control immediately after a distribution in the case of certain divisive transactions, reducing the present-law test from 80 percent of vote and of all other classes of stock to a 50 percent of vote and value test. This part of the provision would generally be effective for distributions after the date of enactment. The rest of the provision would generally be effective for distributions after April 16, 1997. No part of the proposal would apply to a distribution that is pursuant to a written binding contract, IRS ruling request, an SEC filing, or a public announcement on or before April 16, 1997, in which the unrelated acquirer is identified.
Reform tax treatment of certain corporate stock transfers--Purchases of stock between related corporations that are treated as dividends under section 304 would be treated as if the transferor had acquired the stock in exchange for stock of the acquirer and that stock deemed issued had then been redeemed. Basis reduction rules would apply. The proposal would also limit the earnings and profits of an acquiring foreign corporation that would be taken into account in applying section 304. The provision would be effective for distributions or acquisitions after June 8, 1997, except that it would not apply to any such distribution made pursuant to a written agreement that was binding on that date, or that was described in an IRS ruling request, SEC filing, or public announcement on or before that date.
Modify holding period for dividends-received deduction--A corporation would not be eligible for the dividends received deduction unless it would satisfy a holding period requirement with respect to each dividend. The provision would be effective for dividends paid or accrued after the 30th day after the date of enactment.
Registration of confidential tax shelters and substantial understatement penalty--The proposal would require the registration with Treasury of certain confidential tax shelters and modifies the substantial understatement penalty.
Treat certain preferred stock as "boot"--Certain preferred stock would be treated as taxable consideration if received in an otherwise tax-free reorganization or contribution to a corporation. This is preferred stock that would not participate in corporate growth and that would include certain rights to put or redeem the stock within 20 years. Also, stock the dividend rate on which varies with reference to interest rates or certain other indices is within the provision. The provision would apply to transactions after June 8, 1997, unless pursuant to a binding written contract in effect on that date or described in an IRS ruling request, SEC filing, or public announcement on or before that date.
Administrative Provisions
The proposal would provide for information reporting of certain payments made to attorneys, a decrease in the threshold for reporting payments to corporations performing services for Federal agencies, would permanently extend the rules relating to disclosure of return information for administration of certain veterans programs, and would provide for modifications of the lien and levy rules (including the extension of the continuous levy rules to additional types of payments).
Consistency rule for beneficiaries of trusts and estates--The proposal would require a beneficiary of an estate or trust to file its return in a manner that is consistent with the information received from the estate or trust, unless the beneficiary identifies the inconsistency.
Excise Tax Provisions
Extension and modification of aviation excise taxes--The proposal would extend the Airport and Airway Trust Fund excise taxes in passenger and freight transportation for 10 years, through September 30, 2007. The proposal would also modify the structure of the commercial air passenger tax from 10 percent of the amount paid to a tax equal to the aggregate of 7.5 percent plus $2 per flight segment (phasing up until the pre flight segment reaches $3 in 2002). The international departure tax would be increased to $15.50 per passenger, and the tax would be extended to internationally arriving passengers. The 7.5-percent tax would be extended to amounts paid by credit card companies and other companies under marketing arrangements whereby they offer frequent flyer or other reduced airfare provisions to customers and others. The 4.3-cents-per-gallon deficit reduction tax imposed on aviation fuel would be transferred to the Airport and Airway Trust Fund, and modifications would be made in certain tax deposits. The modifications would generally apply to transportation beginning after September 30, 1997.
Extend diesel fuel excise tax rules to kerosene--The proposal would extend the current diesel fuel excise tax rules to kerosene, subject to limited modifications allowing non-tax-paid sales to registered aviation dealers and certain industrial feedstock users.
Modify tax benefits for ethanol and renewable source methanol--The proposal would provide for the phase out of the current tax benefits for ethanol and renewable source methanol through the currently scheduled expiration dates. The phase out would be accomplished through a restriction on production from new facilities, production caps (enforced by an excess production penalty equal to the tax benefits), a reduction in the general 54-cents-per-gallon tax benefit level, and reversal of Treasury regulation providing that ethyl tertiary butyl ether (ETBE) and similar ethers qualify for the tax benefits.
Reinstate Leaking Underground Storage Tank Trust Fund excise tax--The proposal would extend the pre-1996 excise tax of 0.1-cent-per-gallon on gasoline, diesel fuel, special motor fuels, aviation fuels, and inland waterway fuels for 5 years from the date of enactment. Revenues from the reinstated tax would go to the Leaking Underground Storage Tank Trust Fund as under prior law.
Application of communications tax to long-distance prepaid telephone cards--The proposal would clarify that payments from persons to communications companies for prepaid telephone cards which are subsequently distributed or resold to the ultimate user of the prepaid telephone card would constitute payments for communication services that are subject to the 3-percent communications excise tax.
Tax-Exempt Organizations
Extend UBIT rules to second-tier subsidiaries and amend control test--The proposal would modify the test for determining control for purposes of the UBIT rules contained section 512(b)(13). Generally, "control" means ownership by vote or value of more than 50 percent of the ownership interests. In addition, the proposal would apply the constructive ownership rules of section 318 for purposes of section 512(b)(13). The provision would generally apply to taxable years beginning after the date of enactment.
Limit increase in basis of property on sale by tax-exempt entity to related person--The proposal would require a carryover basis in property transferred by a tax-exempt entity to a related party in a sale or exchange, except to the extent of any gain recognized to the seller as unrelated business taxable income. The provision would be effective for sales or exchanges after June 8, 1997, unless pursuant to a binding written contract in effect on that date.
Reporting and proxy tax requirements for political and lobbying expenditures--The proposal would provide that an exemption from the general disclosure requirements and proxy tax of section 6033(e) would be available to a tax-exempt organization if more than 90 percent of the amount of aggregate annual dues (or similar payments) received by the organization are paid by (1) individuals or families whose annual dues (or similar amounts) are less than $100, or (2) tax-exempt entities. The provision would be effective for taxable years beginning after December 31, 1997.
Repeal grandfather rule with respect to pension business of certain insurers--The provision would repeal the grandfather rules applicable to that portion of the business of the Teachers Insurance Annuity Association-College Retirement Equities Fund which is attributable to pension business and to that portion of the business of Mutual of America which is attributable to pension business. The provision would be effective for taxable years beginning after December 31, 1997.
Other Provisions
Phase out suspense accounts for certain large farm corporations--The proposal would repeal the ability of family farm corporations with average gross receipts over $25 million to defer income from the required switch from the cash method to an accrual method of accounting by establishing suspense accounts, and would require previously-created suspense accounts generally to be restored to income over a period of 20 years.
Modify net operating loss carryback and carryforward rules--The proposal would reduce the carryback period for net operating losses from 3 to 2 years and extend the carryforward period from 15 to 20 years.
Expand the limitations on deductibility of interest and premiums with respect to life insurance, endowment, and annuity contracts--The present-law premium deduction limitation would be modified to provide that no deduction is permitted for premiums paid on any life insurance, annuity, or endowment contract covering the life of any individual, when the taxpayer is directly or indirectly a beneficiary under the contract. Also, no deduction would be allowed for any amount paid or accrued on debt incurred or continued to purchase or carry a life insurance, endowment, or annuity contract covering the life of any individual. In addition, in the case of a taxpayer other than a natural person, no deduction would be allowed for the portion of the taxpayer's interest expense that is allocable to unborrowed policy cash surrender values with respect to any life insurance policy or annuity or endowment contract issued after June 8, 1997. The provisions would apply generally with respect to contracts issued after June 8, 1997.
Allocation of basis of properties distributed to a partner by a partnership--The provision would modify the basis allocation rules for distributee partners, generally requiring allocation of basis increases in accordance with the fair market value of the distributed properties rather than in accordance with their basis to the partnership, effective for partnership distributions after the date of enactment.
Treatment of inventory items of a partnership--The provision would eliminate the requirement that inventory be substantially appreciated in order to give rise to ordinary income under the rules relating to sales and exchanges of partnership interests and certain partnership distributions. The provision would be effective for sales, exchanges, and distributions after the date of enactment.
Treatment of appreciated property contributed to a partnership--The provision would extend the 5-year limit on taxation of partners' pre-contribution gain to 10 years, effective for property contributed to a partnership after June 8, 1997.
Earned income credit (EIC) compliance provisions-- In addition to the establishment of IRS continuous levy and the modifications of levy exemptions (described elsewhere) which also apply to the EIC, the proposal would provide three compliance measures to address the EIC compliance problem. First, taxpayers who fraudulently claim the EIC would be made EIC ineligible for 10 years thereafter. Taxpayers who erroneously claim the EIC due to reckless or intentional disregard of rules or regulations would be ineligible to claim the EIC for 2 years thereafter. Second, taxpayers who are denied the EIC as a result of deficiency procedures would be ineligible in subsequent years to claim the EIC unless they provide evidence of eligibility as required by the Secretary of the Treasury. Finally, return preparers would be subject to a $100 penalty for each return claiming an EIC with respect to which certain due diligence requirements are not satisfied. These provisions would be effective for taxable years beginning after December 31, 1996.
Restrict eligibility for income forecast method--The proposal would limit the availability of the income forecast method of depreciation to movies, sound recordings, videotapes, books, patents, copyrights, and other similar items. The proposal would also provide a 3-year recovery period for consumer durable goods leased by rent-to-own businesses.
Require taxpayers to include the rental value of residence in income without regard to period of rental--Gross income for income tax purposes would generally include all income including rents. However, gross income would not include rental income where a dwelling unit is used by the taxpayer as a residence and is actually rented for less than 15 days during the taxable year. Also, no deductions relating to such rental would be allowed. The proposal would repeal the 15-day rules.
Modify the exception to the related party rule of section 1033 for individuals to only provide an exception for de minimis amounts--The proposal would provide that in order for the nonrecognition rules of section 1033 (relating to involuntary conversions) to apply, an individual would have to acquire replacement property from a unrelated party, subject to a $100,000 de minimis rule.
Repeal of exception for certain sales by manufacturers to dealer--The proposal would repeal the exception that permits the use of the installment method of accounting for certain sales by manufacturers to dealers.
Title XI--Foreign Tax Provisions
General Provisions
Eligibility of licenses of computer software for foreign sales corporation benefits--The proposal would provide that computer software licensed for reproduction abroad is not excluded from the definition of export property for purposes of the foreign sales corporation provisions. Accordingly, computer software that is exported with a right to reproduce would be eligible for the benefits of the foreign sales corporation provisions.
Increase dollar limitation on section 911 exclusion--Under the proposal, the $70,000 limitation on the exclusion for foreign earned income would be increased to $80,000, in increments of $2,000 each year beginning in 1998, and would be indexed for inflation beginning in 2008.
Simplify foreign tax credit limitation for individuals--The proposal would exempt individuals with no more than $300 ($600 in the case of married persons filing jointly) of creditable foreign taxes, and no foreign source income other than passive income, from the foreign tax credit limitation rules.
Simplify translation of foreign taxes--The proposal would generally provide for accrual-basis taxpayers to translate foreign taxes at the average exchange rate for the taxable year to which such taxes relate. The proposal would also generally provide that, in cases where the foreign taxes actually are paid more than 2 years after such accrual, such taxes are to be taken into account for the year to which they relate, but are to be translated at the exchange rate for the time of payment.
Election to use simplified foreign tax credit limitation for AMT purposes--The proposal would permit taxpayers to elect to use as their AMT foreign tax credit limitation fraction the ratio of foreign source regular taxable income to entire alternative minimum taxable income, rather than the ratio of foreign source alternative minimum taxable income to entire alternative minimum taxable income.
Simplify treatment of personal transactions in foreign currency--The proposal would apply nonrecognition treatment to any exchange gain that results from an individual's acquisition of foreign currency and disposition of it in a personal transaction, provided that such gain does not exceed $200.
Simplify foreign tax credit limitation for dividends from 10/50 companies--Under the proposal, a single foreign tax credit limitation would generally apply to dividends received by the taxpayer from all so-called 10/50 companies (other than any 10/50 company that qualifies as a passive foreign investment company).
General Provisions Affecting Treatment of Controlled Foreign Corporations
The proposal would make several modifications to the treatment of controlled foreign corporations and lower-tier controlled foreign corporations. In addition, the proposal would extend the application of the indirect foreign tax credit to taxes paid or accrued by fourth- through sixth-tier controlled foreign corporations.
Modification of Passive Foreign Investment Company Provisions to Eliminate Overlap with Subpart F and to Allow Mark-to-Market Election
Under the proposal, a shareholder that is subject to the subpart F rules with respect to stock of a passive foreign investment company that is also a controlled foreign corporation would not be subject also to the passive foreign investment company provisions with respect to the same stock. The proposal would also allow a shareholder of a passive foreign investment company to make a mark-to-market election with respect to the stock of the passive foreign investment company, provided that such stock is marketable.
Simplify Formation and Operation of International Joint Ventures
The proposal would repeal the excise tax that applies to transfers of appreciated property by U.S. persons to certain foreign entities. The proposal would require enhanced information reporting by U.S. persons with respect to their interests in foreign partnerships.
Modification of Reporting Threshold for Stock Ownership of a Foreign Corporation
The proposal would increase the stock ownership threshold that results in an information reporting obligation with respect to a foreign corporation from 5 percent to 10 percent.
Other Foreign Simplification Provisions
Transition rule for certain trusts--The proposal would grant regulatory authority to allow nongrantor trusts that had been treated as U.S. trusts prior to the enactment of the Small Business Job Protection Act of 1996 to elect to continue to be treated as U.S. trusts.
Repeal of stock and securities safe harbor requirement that principal office be outside the United States--The proposal would modify the present-law safe harbor that treats foreign persons that trade stock or securities for their own accounts as not engaged in a U.S. trade or business. For purposes of the safe harbor, the proposal would eliminate the present-law requirement that the principal office not be within the United States.
Other Foreign Provisions
Inclusion of income from notional principal contracts and stock lending transactions under subpart F--The proposal would add to the definition of foreign personal holding company income for subpart F purposes net income from all types of notional principal contracts and payments in lieu of dividends derived from equity securities lending transactions. The proposal would provide an expanded dealer exception from the definition of foreign personal holding company income.
Restrict like-kind exchange rules for certain property--The proposal would provide that for the nonrecognition rules of section 1031 (relating to like-kind exchanges) to apply, the property surrendered in the exchange and the party received in the exchange would have to be both predominantly used either in (or outside) the United States.
Holding period requirement for certain foreign taxes--The proposal would deny a shareholder the foreign tax credits normally available with respect to a dividend on stock of a foreign corporation or regulated investment company if the shareholder has not held the stock for 16 days, in the case of common stock, or 46 days in the case of preferred stock. An exception would be provided for dividends on certain stock held by a foreign securities dealer.
Penalties for failure to file disclosure of exemption for income from the international operation of ships or aircraft by foreign persons--The proposal would impose penalties on foreign persons that do not satisfy the filing requirements for claiming exemption from U.S. tax for income from the international operation of ships or aircraft.
Limitation on treaty benefits for payments to hybrid entities--The proposal would limit the availability of a reduced rate of withholding tax under an income tax treaty in the case of income derived through a hybrid entity, in order to prevent tax avoidance.
Clarification of determination of foreign taxes deemed paid--The proposal would clarify that, for purposes of the indirect foreign tax credit, a foreign corporation's foreign tax pool would not include any taxes that are attributable to dividends distributed by the foreign corporation in prior taxable years.
Clarification of foreign tax credit limitation for financial services income--The proposal would clarify that the exclusion from passive income for income that is treated as high-taxed income would not apply for purposes of the separate foreign tax credit limitation applicable to financial services income.
Interest on underpayment reduced by foreign tax credit carryback--The proposal would provide that, if an underpayment for a taxable year is reduced or eliminated by a foreign tax credit carryback from a subsequent taxable year, such carryback would not affect the computation of interest on the underpayment for the period ending with the filing date for such subsequent taxable year in which the foreign taxes were paid or accrued.
Determination of period of limitations relating to foreign tax credits--The proposal would provide that, in the case of a claim relating to an overpayment attributable to foreign tax credits, the limitations period would be determined by reference to the year in which the foreign taxes were paid or accrued.
Title XII--Simplification Provisions Relating to Individuals and Businesses
Individual Simplification Provisions
Modifications to standard deduction of dependents; AMT treatment of certain minor children--The proposal would increase the standard deduction for a taxpayer with respect to whom a dependency exemption is allowed on another taxpayer's return to the lesser of the standard deduction for individual taxpayers, or the greater of: $500 (indexed for inflation as under present law), or the individual's earned income plus $250. The proposal would increase the AMT exemption amount for a child under age 14 to the lesser of $33,750, or the sum of the child's earned income plus $5,000.
Increase estimated tax de minimis threshold--The proposal would increase the individual estimated tax de minimis threshold from $500 to $1,000.
Optional methods for computing Self-Employment Compensation Act tax combined--The proposal would simplify the reporting of self-employment income by combining the optional methods for reporting farm and non-farm self-employment income. The provision would also ensure that persons reporting self-employment income by the optional method have enough self-employment income to provide four quarters of coverage under the Social Security Act.
Treatment of certain reimbursed expenses of rural mail carriers--The proposal would simplify the treatment of certain reimbursed expenses of rural mail carriers.
Travel expenses of Federal criminal investigators--The proposal would provide for special rules relating to the travel expenses of certain Federal criminal investigators.
Payment of taxes by commercially acceptable means--The proposal would generally provide for the payment of taxes by any commercially acceptable means.
Provisions Relating to Businesses Generally
Simplification to the look-back method applicable to long-term contracts--The proposal would simplify the look-back method applicable to long-term contracts by providing that the method need not be applied to de minimis changes to estimated income and by streamlining the calculation of applicable interest rates used in the look-back calculation.
Minimum tax treatment of certain property and casualty insurance companies--The proposal would provide that a property and casualty insurance company that elects for regular tax purposes to be taxed only on taxable investment income would determine its adjusted current earnings under the AMT without regard to any amount not taken into account in determining its gross investment income.
Partnership Simplification Provisions
The proposal would make simplifying changes to reporting and audit rules in the case of electing large partnerships, which are generally those that elect to come within the provisions and that have 100 or more partners for the partnership's preceding taxable year. The proposal would also provide that electing large partnerships must report to partners by March 15 following the close of the partnership's taxable year. The proposal would also provide for reporting on magnetic media to the IRS for all partnerships, and would modify the filing threshold for an IRA with an interest in an electing large partnership. In addition, the proposal would provide modifications and clarifications to the present-law rules governing partnership proceedings that were enacted in 1982 as part of the Tax Equity and Fiscal Responsibility Act.
Modifications of Rules for Real Estate Investment Trusts (REIT)
Clarification of limitation on maximum number of shareholders--The proposal would replace the rule that disqualifies a REIT for any year in which the REIT failed to comply with Treasury regulations to ascertain its ownership, with an intermediate penalty of $25,000 ($50,000 for intentional violations) for failing to do so. In addition, a REIT that complied with the Treasury regulations for ascertaining its ownership, and which did not know, or have reason to know, that it was so closely held as to be classified as a personal holding company, would be treated as meeting the requirement that it not be a personal holding company.
De minimis rule for tenant service income--The proposal would permit a REIT to render a de minimis amount (1 percent of rents) of impermissible services to tenants, or in connection with the management of property, and still treat amounts received with respect to that property as rent.
Attribution rules applicable to tenant ownership--The proposal would modify the application of section 318(a)(3)(A) (attribution to partnerships) for purposes of defining rent in section 856(d)(2), so that attribution occurs only when a partner owns a 25 percent or greater interest in the partnership.
Credit for tax paid by REIT on retained capital gains--The proposal would permit a REIT to elect to retain and pay income tax on net long-term capital gains it received during the tax year, just as a Regulated Investment Company (RIC) is permitted under present law.
Repeal of 30-percent gross income requirement--The proposal would repeal the rule that requires less than 30 percent of a REIT's gross income be derived from gain from the sale or other disposition of stock or securities held for less than 1 year, certain real property held less than four years, and property that is sold or disposed of in a prohibited transaction.
Modification of earnings and profits for determining whether REIT has earnings and profits from non-REIT year--The proposal would change the ordering rule for purposes of the requirement that newly-electing REITs distribute earnings and profits that were accumulated in non-REIT years such that distributions of accumulated earnings and profits generally would be treated as made from the entity's earliest accumulated earnings and profits, rather than the most recently accumulated earnings and profits.
Treatment of foreclosure property--The proposal would lengthen the original grace period for foreclosure property until the last day of the third full taxable year following the election. Under the proposal, the grace period could be extended for an additional 3 years by filing a request to the IRS and a REIT could revoke an election to treat property as foreclosure property for any taxable year.
Payments under hedging instruments--The proposal would treat income from all hedges (such as an interest rate swap, cap agreement, option, futures contract, forward rate agreement, or any similar financial instrument) that reduce the interest rate risk of REIT liabilities, not just from interest rate swaps and caps, as qualifying income under the 95-percent test.
Excess noncash income--The proposal would expand the class of excess noncash items that are not subject to the distribution requirement to include income from the cancellation of indebtedness, and extend the treatment of original issue discount and coupon interest as excess noncash items to REITs that use an accrual method of taxation.
Prohibited transaction safe harbor--The proposal would exclude from the prohibited sales rules property that was involuntarily converted.
Shared appreciation mortgages--The proposal would provide that interest received on a shared appreciation mortgage would not be subject to the tax on prohibited transactions where the property subject to the mortgage is sold within 4 years of the REIT's acquisition of the mortgage pursuant to a bankruptcy plan of the mortgagor unless the REIT acquired the mortgage knew or had reason to know that the property subject to the mortgage would be sold in a bankruptcy proceeding.
Wholly-owned REIT subsidiaries--The proposal would permit any corporation wholly-owned by a REIT to be treated as a qualified subsidiary, regardless of whether the corporation had always been owned by the REIT.
Repeal of the 30-Percent (or "Short-Short") Test for RICs
The proposal would repeal the requirement of a RIC that it derive less than 30 percent of its gross income from the sale or other disposition of stock or securities held for less than 3 months (the "30-percent test" or "short-short rule").
Taxpayer Protections
The proposal would provide a reasonable cause exception for certain additional penalties where one does not now exist, clarify the period for filing claims for refunds, repeal the authority to disclose otherwise confidential information regarding whether a prospective juror has been audited, clarify the statute of limitations, clarify the rules regarding the awarding of administrative costs, and provide a criminal penalty and civil damages for unauthorized inspection of tax returns and return information ("browsing").
Title XIII--Estate, Gift, and Trust Tax Simplification
The proposal would contain a number of simplification provisions relating to Federal estate, gift, and trust taxes that would be intended to simplify administration of the Internal Revenue Code.
Title XIV--Excise Tax and Other Simplification Provisions
Excise tax simplification--The proposal would simplify taxpayer compliance with numerous excise tax provisions: accessories installed after purchasing heavy trucks and certain automobiles, the treatment of tires under the heavy vehicle retail tax, and expanded exemptions from IRS registration requirements in certain cases. Additionally, the proposal would include a number of provisions related to the taxes on distilled spirits, wine, and beer designed to conform the administration of those taxes across beverage types, and to current industry and Bureau of Alcohol, Tobacco, and Firearms preferred practices.
Tax-exempt bond provisions--The proposal would: (1) repeal the $100,000 limitation on unspent proceeds under the 1-year exception from rebate, (2) exempt earnings on bond proceeds invested in a bona fide debt service fund from the arbitrage rebate requirement and the penalty requirement (under the construction bond exception from rebate) if the spending requirements are otherwise satisfied, (3) repeal the 150 percent of debt service yield restriction, and (4) repeal certain student loan bond provisions as deadwood.
Tax Court procedures--The proposal would provide rules relating to overpayment determinations, to the redetermination of interest pursuant to a motion, and to the application of net worth limitations for awards of litigation costs. The proposal would also generally provide for Tax Court jurisdiction for the determination of employment status.
Other provisions--The proposal would provide that the due date of a private foundation's first-quarter estimated tax payment would be the same date for filing the foundation's annual return for the preceding year. The proposal would clarify the authority to withhold Puerto Rico (and other Commonwealth) income taxes from the salaries of Federal employees. The proposal would also provide that notices of less than $100,000 are disregarded for purposes of triggering the increased interest rate on certain large corporate underpayments.
Title XV--Technical Corrections
The proposal would include a number of technical corrections to previously enacted legislation, including the Small Business Job Protection Act of 1996, Health Insurance Portability and Accountability Act of 1996, Taxpayer Bill of Rights 2, and other recent tax acts.
Title XVI--Increase in Public Debt Limit
The proposal would provide for a permanent increase in the public debt limit to $5.95 trillion.