RRA 1998 Conference Report p7

RRA 1998 Conference Report Page 7

Articles by Alvin Brown
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IRS Restructuring and Reform Act of 1998

Conference Report page7

TECHNICAL CORRECTIONS TO OTHER TAX LEGISLATION

A. Treatment of Adoption Tax Credit Carryovers (sec. 6017 of the bill, sec. 1807(a) of the Small Business Job Protection Act of 1996, and sec. 23 of the Code)

Present Law

Under present law taxpayers are allowed a maximum nonrefundable credit against income tax liability of $5,000 per child for qualified adoption expenses paid or incurred by the taxpayer. In the case of a special needs adoption, the maximum credit amount is $6,000 ($5,000 in the case of a foreign special needs adoption). To the extent the otherwise allowable credit exceeds the tax liability limitation of section 26 (reduced by other personal credits) the excess is carried forward as an adoption credit into the next taxable year, up to a maximum of five taxable years.

The credit is phased out ratably for taxpayers with modified adjusted gross income (AGI) above $75,000, and is fully phased out at $115,000 of modified AGI. For these purposes modified AGI is computed by increasing the taxpayer's AGI by the amount otherwise excluded from gross income under Code sections 911, 931, or 933 (relating to the exclusion of income of U.S. citizens or residents living abroad; residents of Guam , American Samoa , and the Northern Mariana Islands, and residents of Puerto Rico , respectively).

Explanation of Provision

The bill clarifies that the AGI phaseout only applies in the year that the credit is generated and is not reapplied to further reduce any carryforward amounts.

Effective Date

The provision is effective as if included in the Small Business Job Protection Act of 1996.

B. Disclosure Requirements for Apostolic Organizations (sec. 6018 of the bill, sec. 1313 of the Taxpayer Bill of Rights 2, and sec. 6104 of the Code)

Present Law

Section 501(d) provides tax-exempt status to certain religious or apostolic associations or corporations, if such associations or corporations have a common treasury or community treasury, even if such associations or corporations engage in business for the common benefit of the members, but only if the members thereof include (at the time of filing their returns) in their gross income their entire pro rata shares, whether distributed or not, of the taxable income of the association or corporation for such year.⁷⁹ Any amount so included in the gross income of a member is treated as a dividend received. The effect of section 501(d) is to exempt the religious and apostolic associations or corporations which conduct communal activities (such as farming) from the Federal corporate-level income tax and the undistributed-profits tax, provided that members claim their shares of the corporation's income on their own individual returns.

Section 6033 generally requires tax-exempt organizations to file annual information returns, and such information returns are available for public inspection under sections 6104(b) and 6104(e), except that public disclosure is not required of the identity of contributors to an organization. Section 501(d) entities must include with their annual information return (Form 1065) a Schedule K-1 that identifies the members of the association or corporation and their ratable portions of net income and expenses.

Explanation of Provision

The provision amends sections 6104(b) and 6104(e) to provide that public disclosure is not required of a Schedule K-1 filed by a religious or apostolic organization described in section 501(d).

Effective Date

The provision is effective on the date of enactment.

C. Allow Deduction for Unused Employer Social Security Credit (sec. 6019 of the bill, sec. 13443 of the Omnibus Budget Reconciliation Act of 1993, and sec. 196 of the Code)

Present Law

The general business credit ("GBC") consists of various individual tax credits (including the employer social security credit of Code section 45B) allowed with respect to certain qualified expenditures and activities. In general, the various individual tax credits contain provisions that prohibit "double benefits," either by denying deductions in the case of expenditure-related credits or by requiring income inclusions in the case of activity-related credits. Unused credits may be carried back one year and carried forward 20 years. Section 196 allows a deduction to the extent that certain portions of the GBC expire unused after the end of the carry forward period. Section 196 does not allow a deduction to the extent that the portion of the GBC that expires unused after the end of the carry forward period relates to the employer social security credit.

Explanation of Provision

The provision allows a deduction to the extent that the portion of the GBC relating to the employer social security credit expires unused after the end of the carry forward period.

Effective Date

The provision is effective as if included in the Omnibus Budget Reconciliation Act of 1993.

D. Earned Income Credit Qualification Rules (sec. 6020 of the bill, sec. 11111(a) of the Omnibus Budget Reconciliation Act of 1990, as amended by sec. 742 of the Uruguay Round Agreements Act and sec. 451(a) of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, and sec. 32 of the Code)

Present Law

In general

In order to claim the earned income credit ("EIC"), an individual must be an eligible individual. To be an eligible individual, an individual must include a taxpayer identification number ("TIN") for the taxpayer and the taxpayer's spouse and must either have a qualifying child or meet other requirements. In order to claim the EIC without a qualifying child, an individual must not be a dependent and must be over age 24 and under age 65.

Qualifying child

A qualifying child must meet a relationship test, an age test, an identification test, and a residence test. Under the relationship and age tests, an individual is eligible for the EIC with respect to another person only if that other person: (1) is a son, daughter, or adopted child (or a descendent of a son, daughter, or adopted child); a stepson or stepdaughter; or a foster child of the taxpayer (a foster child is defined as a person whom the individual cares for as the individual's child; it is not necessary to have a placement through a foster care agency); and (2) is under the age of 19 at the close of the taxable year (or is under the age of 24 at the end of the taxable year and was a full-time student during the taxable year), or is permanently and totally disabled. Also, if the qualifying child is married at the close of the year, the individual may claim the EIC for that child only if the individual may also claim that child as a dependent.

To satisfy the identification test, an individual must include on their tax return the name, age, and "TIN" of each qualifying child.

The residence test requires that a qualifying child must have the same principal place of abode as the taxpayer for more than one-half of the taxable year (for the entire taxable year in the case of a foster child), and that this principal place of abode must be located in the United States . For purposes of determining whether a qualifying child meets the residence test, the principal place of abode shall be treated as in the United States for any period during which a member of the Armed Forces is stationed outside the United States while serving on extended active duty.

Explanation of Provision

The bill clarifies that the identification requirement is a requirement for claiming the EIC, rather than an element of the definitions of "eligible individual" and "qualifying child."

Effective Date

The provision is effective as if included in the originally enacted related legislation.

III. BUDGET EFFECTS OF THE BILL

A. Committee Estimates

In compliance with paragraph 11(a) of Rule XXVI of the Standing Rules of the Senate, the following table is presented concerning the estimated budget effects of the bill as reported.

[Insert revenue table]

B. Budget Authority and Tax Expenditures

Budget authority

In compliance with section 308(a)(1) of the Budget Act, the Committee states that three provisions (expansion of authority to award costs and certain fees at prevailing rate, civil damages with respect to unauthorized collection actions, elimination of interest rate differential on overlapping periods of interest on income tax overpayments and underpayments, and increase refund interest rate to individuals) involve outlay effects (budget authority) totalling $989 million for fiscal years 1998-2007.

Tax expenditures

In compliance with section 308(a)(2) of the Budget Act, the Committee states that the bill does not involve changes in tax expenditures.

C. Consultation with Congressional Budget Office

The statement from the Congressional Budget Office has not been received at the time of filing of this report.

IV. VOTES OF THE COMMITTEE

In compliance with paragraph 7(b) of Rule XXVI of the Standing Rules of the Senate, the following statements are made concerning the roll call votes in the Committee's consideration of H.R. 2676 on March 31, 1998.

Motion to report the bill

The bill (H.R. 2676) was ordered favorably reported, as amended by the Chairman's amendment in the nature of a substitute, by a roll call vote of 12 yeas and 0 nays (20-0, including proxy votes). The vote, with a quorum present, was as follows:

Yeas. --Senators Roth, Chafee (proxy), Grassley, Hatch (proxy), D'Amato (proxy), Murkowski (proxy), Nickles, Gramm (proxy), Lott (proxy), Jeffords (proxy), Mack, Moynihan, Baucus, Rockefeller, Breaux, Conrad (proxy), Graham, Moseley-Braun, Bryan, and Kerrey.

Nays. --None.

Votes on other amendments

(1) An amendment by Senator Grassley to add a representative of the organization that represents a substantial number of IRS employees to the IRS Oversight board was approved by a roll call vote of 12 yeas and 8 nays. The vote was as follows:

Yeas. --Senators Grassley, D'Amato, Jeffords, Moynihan, Baucus, Rockefeller (proxy), Breaux, Conrad, Graham, Moseley-Braun, Bryan, and Kerrey.

Nays. --Senators Roth, Chafee, Hatch (proxy), Murkowski, Nickles, Gramm, Lott, and Mack.

(2) An amendment by Senator Moynihan to include the Secretary of the Treasury on the IRS Oversight Board was approved by a roll call vote of 12 yeas and 8 nays. The vote was as follows:

Yeas. --Senators Chafee, D'Amato, Jeffords, Moynihan, Baucus, Rockefeller (proxy), Breaux, Conrad, Graham, Moseley-Braun, Bryan, and Kerrey.

Nays. --Senators Roth, Grassley, Hatch (proxy), Murkowski, Nickles, Gramm, Lott, and Mack.

(3) An amendment by Senator D'Amato to guarantee coverage of inpatient hospital care for breast cancer was defeated by a roll call vote of 8 yeas and 10 nays. (The Chairman ruled this amendment non-germane.) The vote was as follows:

Yeas. --Senators Grassley, D'Amato, Murkowski, Moynihan, Breaux, Moseley-Braun, Bryan, and Kerrey.

Nays. --Senators Roth, Chafee, Nickles, Gramm, Lott, Jeffords, Mack, Baucus, Conrad, and Graham.

(4) An amendment by Senator Kerrey to substitute the language of the House-passed bill for the Chairman's Mark was defeated by a roll call vote of 8 yeas and 12 nays. The vote was as follows:

Yeas. --Senators Moynihan, Baucus, Rockefeller (proxy), Breaux, Conrad, Moseley-Braun, Bryan, and Kerrey.

Nays. --Senators Roth, Chafee (proxy), Grassley, Hatch, D'Amato (proxy), Murkowski, Nickles, Gramm, Lott (proxy), Jeffords (proxy), Mack, and Graham.

(5) An amendment by Senator Grassley to authorize State tax agencies to participate in the Federal program of refund offsets was approved by a roll call vote of 14 yeas and 6 nays. The vote was as follows:

Yeas. --Senators Chafee (proxy), Grassley, Hatch, D'Amato (proxy), Jeffords (proxy), Moynihan, Baucus, Rockefeller (proxy), Breaux, Conrad, Graham, Moseley-Braun, Bryan , and Kerrey.

Nays. --Senators Roth, Murkowski, Nickles, Gramm, Lott (proxy), and Mack.

(6) An amendment by Senator Conrad to strike the burden of proof provision of the Chairman's Mark was defeated by a roll call vote of 5 yeas and 15 nays. The vote was as follows:

Yeas. --Senators Moynihan, Baucus, Rockefeller (proxy), Conrad, and Graham.

Nays. --Senators Roth, Chafee (proxy), Grassley, Hatch, D'Amato (proxy), Murkowski (proxy), Nickles, Gramm, Lott (proxy), Jeffords (proxy), Mack, Breaux, Moseley-Braun, Bryan, and Kerrey.

(7) An amendment by Senators Graham and Moynihan to implement a tobacco tax increase of 5 cents per pack of cigarettes and accelerate a 15-cents-per-pack increase, and also to reduce the period for collecting taxes from 10 to 6 years, increase the refund claim period from 3 to 6 years, and to extend such periods to all taxes was defeated on a roll call vote of 8 yeas and 12 nays. The vote was as follows:

Yeas. --Senators Moynihan, Baucus, Rockefeller, Conrad (proxy), Graham, Moseley-Braun, Bryan, and Kerrey.

Nays. --Senators Roth, Chafee (proxy), Grassley, Hatch (proxy), D'Amato (proxy), Murkowski (proxy), Nickles, Gramm (proxy), Lott (proxy), Jeffords (proxy), Mack, and Breaux.

(8) An amendment by Senator Rockefeller to modify the privilege of practitioner-client confidentiality provision in the Chairman's Mark was defeated by a roll call vote of 3 yeas and 17 nays. The vote was as follows:

Yeas. --Senators Moynihan, Baucus, and Rockefeller.

Nays. --Senators Roth, Chafee (proxy), Grassley, Hatch (proxy), D'Amato (proxy), Murkowski (proxy), Nickles, Gramm (proxy), Lott (proxy), Jeffords (proxy), Mack, Breaux, Conrad (proxy), Graham, Moseley-Braun, Bryan, and Kerrey.

V. REGULATORY IMPACT AND OTHER MATTERS

A. Regulatory Impact

Pursuant to paragraph 11(b) of Rule XXVI of the Standing Rules of the Senate, the Committee makes the following statement concerning the regulatory impact that might be incurred in carrying out the provisions of the bill as reported.

Impact on individuals and businesses

The bill as reported makes numerous changes designed to improve the management of the IRS, encourage electronic filing, protect taxpayer rights, improve Congressional oversight of the IRS, and provide necessary technical corrections to recent tax legislation.

Title I of the bill provides for restructuring of the IRS to improve management accountability and to improve taxpayer service.

Title II encourages electronic filing of tax and information returns, and requires a Treasury study of the feasibility of a return-free system for individuals.

Title III provides for additional protection of taxpayer rights, including relief for innocent spouses, and revises certain interest and penalty provisions. Title III also requires studies of the administration of penalties and interest and confidentiality of tax return information.

Title IV requires annual IRS reports to the Congressional tax committees on the sources of complexity in the Federal tax laws, and for the Joint Committee on Taxation to provide a "Tax Complexity Analysis" on tax legislation that has widespread applicability to individuals or small businesses.

Title V provides revenue offsets to the cost of the other provisions of the bill: (1) revises the deduction for vacation and severance pay (overruling Schmidt Baking); (2) modifies the foreign tax credit carryover rules; (3) clarifies and expands the mathematical error procedures; (4) freezes the grandfathered status of stapled REITs; (5) makes certain trade receivables ineligible for mark-to-market treatment; and (6) adds vaccines against rotavirus gastroenteritis to the list of taxable vaccines.

Title VI makes necessary technical corrections to the Taxpayer Relief Act of 1997 and certain other recent tax legislation.

Impact on personal privacy and paperwork

The provision s of the bill should not have any adverse impact on personal privacy. The bill modifies Code section 6103 to allow the tax committees to obtain information from IRS employees regarding IRS employee and taxpayer abuse.

B. Unfunded Mandates Statement

This information is provided in accordance with section 423 of the Unfunded Mandates Reform Act of 1995 (P.L. 104-4).

The Committee has reviewed the provisions of the bill as reported. In accordance with the requirements of Public Law 104-4, the Committee has determined that the following provisions of the bill contain Federal private sector mandates.

Repeal of Schmidt Baking with respect to the employer deduction for vacation and severance pay (bill sec. 5001);

Modification of the foreign tax credit carryover rules (bill sec. 5002);

Freezing of grandfathered status of stapled REITs (bill sec. 5004);

Certain trade receivables made ineligible for mark-to-market treatment (bill sec. 5005); and

Adding vaccines against rotavirus gastroenteritis to the list of taxable vaccines (bill sec. 5006).

As indicated in the revenue table (III.A., above), these provisions are estimated to increase tax revenues by $6,449 million in fiscal years 1998-2002 and $9,330 million in fiscal years 1998-2007, which are no greater than the aggregate estimated amounts that the private sector will be required to pay in order to comply with the Federal private sector mandates under the bill.

These provisions will not impose a Federal intergovernmental mandate on State, local, or tribal governments.