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Revenue Reconciliation Act
page1

Senate Finance Committee Report on the Revenue Reconciliation
Act of 1997
June 25, 1997
105th Congress
[SRepNo 105-33, PubLNo 105-34] 105th Congress
SENATE Report 1st Session 105-33
REVENUE
RECONCILIATION ACT OF 1997
(AS
REPORTED BY THE COMMITTEE ON FINANCE)
S. 949
COMMITTEE
ON
FINANCE
UNITED STATES SENATE
[Including cost estimate of the Congressional Budget
Office]
June 20, 1997. --Ordered to be printed
I. LEGISLATIVE BACKGROUND
II. EXPLANATION OF THE
BILL
TITLE I. CHILD TAX CREDIT
AND
OTHER FAMILY TAX RELIEF
A. Child Tax Credit For Children Under Age 17(sec.
101 of the bill and new sec. 24 of the Code)
B. Increase Exemption Amounts Applicable to
Individual Alternative Minimum Tax (sec. 102 of the
bill and sec. 55 of the Code)
TITLE II. EDUCATION TAX INCENTIVES
A. Tax Benefits Relating to Education Expenses
1. HOPE credit for higher education tuition expenses
(sec. 201 of the bill and new sec. 25A of the Code)
2. Exclusion from gross income for amounts
distributed from qualified tuition programs and
education IRAs to cover qualified higher education
expenses (secs. 211, 212, and 213 of the bill and
sec. 529 and new sec. 530 of the Code)
3. Deduction for student loan interest (sec. 202 of
the bill and new sec. 221 of the Code)
4. Penalty-free withdrawals from IRAs for higher
education expenses (sec. 203 of the bill and sec.
72(t) of the Code)
B. Other Education-Related Tax Provisions
1. Extension of exclusion for employer-provided
educational assistance (sec. 221 of the bill and
sec. 127 of the Code)
2. Modification of $150 million limit on qualified
501(c)(3) bonds other than hospital bonds (sec. 222
of the bill and sec. 145(b) of the Code)
3. Expansion of arbitrage rebate exception for
certain bonds (sec. 223 of the bill and sec. 148 of
the Code)
4. Certain teacher education expenses not subject to
2 percent limit on miscellaneous itemized deductions
(sec. 224 of the bill and sec. 67(b) of the Code)
TITLE
III
. SAVINGS
AND
INVESTMENT INCENTIVES
A. Individual Retirement Arrangements (secs. 301-304
of the bill and secs. 72 and 408 of the Code and new
sec. 408A of the Code)
B. Capital Gains Provisions
1. Maximum rate of tax on net capital gain of
individuals (sec. 311 of the bill and sec. 1(h) of
the Code)
2. Small business stock (secs. 312 and 313 of the
bill and secs. 1045 and 1202 of the Code)
3. Exclusion of gain on sale of principal residence
(sec. 314 of the bill and secs. 121 and 1034 of the
Code)
TITLE IV. ESTATE,
GIFT
,
AND
GENERATION-SKIPPING TAX PROVISIONS
A. Increase in Estate and Gift Tax Unified
Credit(sec. 401(a) of the bill and sec. 2010 of the
Code)
B. Indexing of Certain Other Estate and Gift Tax
Provisions (sec. 401(b)-(e) of the bill and secs.
2032A, 2503, 2631, and 6601(j) of the Code)
C. Estate Tax Exclusion for Qualified Family-Owned
Businesses(sec. 402 of the bill and new sec. 2033A
of the Code)
D. Reduction in Estate Tax for Certain Land Subject
to Permanent Conservation Easement (sec. 403 of the
bill and sec. 2031 of the Code)
E. Installment Payments of Estate Tax Attributable
to Closely HeldBusinesses (secs. 404 and 405 of the
bill and secs. 6601(j) and 6166 of the Code)
F. Estate Tax Recapture from Cash Leases of
Specially-ValuedProperty (sec. 406 of the bill and
sec. 2032A of the Code)
G. Modification of Generation-Skipping Transfer Tax
for Transfers to Individuals with Deceased Parents
(sec. 407 of the bill and sec. 2651 of the Code)
TITLE V. EXTENSION OF CERTAIN EXPIRING TAX
PROVISIONS
A. Research Tax Credit (sec. 501 of the bill and
sec. 41 of the Code)
B. Contributions of Stock to Private Foundations
(sec. 502 of the bill and sec. 170(e)(5) of the
Code)
C. Work Opportunity Tax Credit (sec. 503 of the bill
and sec. 51 of the Code)
D. Orphan Drug Tax Credit (sec. 504 of the bill and
sec. 45C of the Code)
TITLE VI. DISTRICT OF COLUMBIA TAX INCENTIVES (secs.
601 and 602 of the bill and new secs. 1400-1400B of
the Code)
TITLE
VII
. MISCELLANEOUS PROVISIONS
A. Excise Tax Provisions
1. Repeal excise tax on diesel fuel used in
recreational motorboats (sec. 701 of the bill and
secs. 4041 and 6427 of the Code)
2. Create Intercity Passenger Rail Fund (sec. 702 of
the bill and new sec. 9901 of the Code)
3. Provide a lower rate of alcohol excise tax on
certain hard ciders (sec. 703 and sec. 5041 of the
Code)
4. Transfer of General Fund highway fuels tax to the
Highway Trust Fund (sec. 704 of the bill and sec.
9503 of the Code)
5. Tax certain alternative fuels based on energy
equivalency to gasoline (sec. 705 of the bill and
sec. 4041 of the Code)
6. Study feasibility of moving collection point for
distilled spirits excise tax (sec. 706 of the bill)
7. Extend and modify tax benefits for ethanol
(sec.707 of the bill and secs. 40, 4041, 4081, 4091,
and 6427 of the Code)
8. Codify Treasury Department regulations regulating
wine labels (sec. 708 of the bill and sec. 5388 of
the Code)
B. Provisions Relating to Pensions
1. Treatment of multiemployer plans under section
415 (sec. 711 of the bill and sec. 415(b) of the
Code)
2. Modification of partial termination rules (sec.
712 of the bill and sec. 552 of the Deficit
Reduction Act of 1984)
3. Increase in full funding limit (sec. 713 of the
bill and sec. 412 of the Code)
4. Spousal consent required for distributions from
section 401(k) plans (sec. 714 of the bill and secs.
411 and 417 of the Code)
5. Contributions on behalf of a minister to a church
plan (sec. 715 of the bill and sec. 414(e) of the
Code)
6. Exclusion of ministers from discrimination
testing of certain non-church retirement plans (sec.
715 of the bill and sec. 414(e) of the Code)
7. Repeal application of UBIT to ESOPs of S
corporations (sec. 716 of the bill andsec. 512 of
the Code)
C. Provisions Relating to Disasters
1. Treatment of livestock sold on account of
weather-related conditions (sec. 721 of the bill and
secs. 451 and 1033 of the Code)
2. Rules relating to denial of earned income credit
on basis of disqualified income (sec. 722 of the
bill and sec. 32(i) of the Code)
D. Provisions Relating to Small Business
1. Delay imposition of penalties for failure to make
payments electronically through EFTPS until after
June 30, 1998 (sec. 731 of the bill and sec. 6302 of
the Code)
2. Repeal installment method adjustment for farmers
(sec. 732 of the bill and sec. 56 of the Code)
E. Foreign Tax Provisions
1. Eligibility of licenses of computer software for
foreign sales corporation benefits(sec. 741 of the
bill and sec. 927 of the Code)
2. Regulations to limit treaty benefits for payments
to hybrid entities (sec. 742 of the bill and sec.
894 of the Code)
3. Treatment of certain securities positions under
the subpart F investment in
U.S.
property rules (sec. 743 of the bill and sec. 956 of
the Code)
4. Exception from foreign personal holding company
income under subpart F for active financing income
(sec. 744 of the bill and sec. 954 of the Code)
5. Treat service income of nonresident alien
individuals earned on foreign ships as foreign
source income and disregard the U.S. presence of
such individuals (sec. 745 of the bill and secs.
861, 863, 872, 3401, and 7701 of the Code)
6. Modification of passive foreign investment
company provisions to eliminate overlap with subpart
F and to allow mark-to-market election (secs.
751-753 of the bill and secs. 1291-1297 of the Code)
F. Other Provisions
1. Tax-exempt status for certain State workmen's
compensation act companies (sec. 761 of the bill and
sec. 501(c)(27) of the Code)
2. Election to continue exception from treatment of
publicly traded partnerships as corporations (sec.
762 of the bill and sec. 7704 of the Code)
3. Exclusion from UBIT for certain corporate
sponsorship payments (sec. 763 of the bill and sec.
513 of the Code)
4. Timeshare associations (sec. 764 of the bill and
sec. 528 of the Code)
5. Deduction for business meals for individuals
operating under Department of Transportation hours
of service limitations and certain seafood
processors (sec. 765 of the bill and sec. 274(n) of
the Code)
6. Provide above-the-line deduction for certain
business expenses (sec. 766 of the bill and sec. 62
of the Code)
7. Increase in standard mileage rate for purposes of
computing charitable deduction (sec. 767 of the bill
and sec. 170(i) of the Code)
8. Expensing of environmental remediation costs
("brownfields") (sec. 768 of the bill and
sec. 162 of the Code)
9. Combined employment tax reporting demonstration
project (sec. 769 of the bill)
10. Qualified small-issue bonds (sec. 770 of the
bill and sec. 144(a) of the Code)
11. Extend production credit for electricity
produced from wind and "closed loop"
biomass (sec. 771 of the bill and sec. 45 of the
Code)
12. Suspension of net income property limitation for
production from marginal wells (sec. 772 of the bill
and sec. 613(a) of the Code)
13. Purchasing of receivables by tax-exempt hospital
cooperative service organizations (sec. 773 of the
bill and sec. 501(e) of the Code)
14. Treatment of bonds issued by the Federal Home
Loan Bank Board under the Federal guarantee rules
(sec. 774 of the bill and sec. 149 of the Code)
15. Increased period of deduction of traveling
expenses while working away from home on qualified
construction projects (sec. 775 of the bill and sec.
162 of the Code)
16. Charitable contribution deduction for certain
expenses incurred in support of Native Alaskan
subsistence whaling (sec. 776 of the bill and sec.
170 of the Code)
17. Modification of empowerment zone and enterprise
community criteria in the event of future
designations of additional zones and communities
(sec. 777 of the bill and sec. 1392 of the Code)
18. Deductibility of meals provided for the
convenience of the employer (sec. 778 of the bill
and sec. 132 of the Code)
19. Clarification of standard to be used in
determining tax status of retail securities
brokers(sec. 779 of the bill)
TITLE VIII. REVENUE-INCREASE PROVISIONS
A. Financial Products
1. Require recognition of gain on certain
appreciated positions in personal property (sec.
801(a) of the bill and new sec. 1259 of the Code)
2. Election of mark to market for securities traders
and for traders and dealers in commodities (sec.
801(b) of the bill and new sec. 475(d) of the Code)
3. Limitation on exception for investment companies
under section 351 (sec. 802 of the bill and sec.
351(e) of the Code)
4. Gains and losses from certain terminations with
respect to property (sec. 803 of the bill and sec.
1234A of the Code)
B. Corporate Organizations and Reorganizations
1. Require gain recognition for certain
extraordinary dividends (sec. 811 of the bill and
sec. 1059 of the Code)
2. Require gain recognition on certain distributions
of controlled corporation stock (sec. 812 of the
bill and secs. 355, 351(c), and 368(a)(2)(H) of the
Code)
3. Reform tax treatment of certain corporate stock
transfers (sec. 813 of the bill and secs. 304 and
1059 of the Code)
4. Modify holding period for dividends-received
deduction (sec. 814 of the bill and sec. 246(c) of
the Code
C. Other Corporate Provisions
1. Registration of confidential corporate tax
shelters and substantial understatement penalty
(sec. 821 of the bill and secs. 6111 and 6662 of the
Code)
2. Treat certain preferred stock as "boot"
(sec. 822 of the bill and secs. 351, 354, 355, 356
and 1036 of the Code)
D. Administrative Provisions
1. Information reporting on persons receiving
contract payments from certain Federal agencies
(sec. 831 of the bill and sec. 6041A of the Code)
2. Disclosure of tax return information for
administration of certain veterans programs (sec.
832 of the bill and sec. 6103 of the Code)
3. Consistency rule for beneficiaries of trusts and
estates (sec. 833 of the bill and sec. 6034A of the
Code)
4. Establish
IRS
continuous levy and improve debt collection (secs.
834, 835, and 836 of the bill and secs. 6331 and
6334 of the Code) 174 E. Excise Tax Provisions
1. Extension and modification of Airport and Airway
Trust Fund excise taxes (sec. 841 of the bill and
secs. 4081, 4091, and 4261 of the Code)
2. Reinstate Leaking Underground Storage Tank Trust
Fund excise tax (sec. 842 of the bill and secs.
4041(d), 4081(a)(2), and 4081(d)(2) of the Code)
3. Application of communications tax to longdistance
prepaid telephone cards (sec. 843 of the bill and
sec. 4251 of the Code)
4. Uniform rate of excise tax on vaccines (sec. 844
of the bill and secs. 4131 and 4132 of the Code)
5. Modify treatment of tires under the heavy highway
vehicle retail excise tax (sec. 845 of the bill and
sec. 4071 of the Code)
6. Increase tobacco excise taxes (sec. 846 of the
bill and sec. 5701 of the Code)
F. Provisions Relating to Tax-Exempt Entities
1. Extend UBIT rules to second-tier subsidiaries and
amend control test (sec. 851 of the bill and sec.
512(b)(13) of the Code)
2. Limitation on increase in basis of property
resulting from sale by tax-exempt entity to related
person (sec. 852 of the bill and sec. 1061 of the
Code)
3. Repeal grandfather rule with respect to pension
business of insurer (sec. 853 of the bill and sec.
1012(c) of the Tax Reform Act of 1986)
G. Foreign Provisions
1. Inclusion of income from notional principal
contracts and stock lending transactions under
subpart F (sec. 861 of the bill and sec. 954 of the
Code)
2. Restrict like-kind exchange rules for certain
personal property (sec. 862 of the bill and sec.
1031 of the Code)
3. Holding period requirement for certain foreign
taxes (sec. 863 of the bill and new sec. 901(k) of
the Code)
4. Treatment of income from certain sales of
inventory as
U.S.
source (sec. 864 of the bill and sec. 865 of the
Code)
5. Interest on underpayment reduced by foreign tax
credit carryback (sec. 865 of the bill and secs.
6601 and 6611 of the Code)
6. Determination of period of limitations relating
to foreign tax credits (sec. 866 of the bill and
sec. 6511(d) of the Code)
7. Modify foreign tax credit carryover rules (sec.
867 of the bill and sec. 904 of the Code)
8. Repeal special exception to foreign tax credit
limitation for alternative minimumtax purposes (sec.
868 of the bill and sec. 59 of the Code)
H. Other Revenue-Increase Provisions
1. Phase out suspense accounts for certain large
farm corporations (sec. 871 of the bill and sec. 477
of the Code)
2. Modify net operating loss carryback and
carryforward rules (sec. 872 of the bill and sec.
172 of the Code)
3. Expand the limitations on deductibility of
premiums and interest with respect to life
insurance, endowment and annuity contracts (sec. 873
of the bill and sec. 264 of the Code)
4. Allocation of basis of properties distributed to
a partner by a partnership (sec. 874 of the bill and
sec. 732(c) of the Code)
5. Treatment of inventory items of a partnership
(sec. 875 of the bill and sec. 751 of the Code)
6. Eligibility for income forecast method (sec. 876
of the bill and secs. 167 and 168 of the Code)
7. Modify the exception to the related party rule of
section 1033 for individuals to only provide an
exception for de minimis amounts (sec. 877 of the
bill and sec. 1033 of the Code)
8. Repeal of exception for certain sales by
manufacturers to dealer (sec. 878 of the bill and
sec. 811(c)(9) of the Tax Reform Act of 1986 (P.L.
99-514))
9. Cash out of certain accrued benefits (sec. 879 of
the bill and secs. 411 and 417 of the Code)
10. Election to receive taxable cash compensation in
lieu of nontaxable parking benefits (sec. 880 of the
bill and sec. 132 of the Code)
11. Extension of Federal unemployment surtax (sec.
881 of the bill and sec. 3301 of the Code)
12. Repeal of excess distribution and excess
retirement accumulation taxes (sec. 882 of the bill
and sec. 4980A of the Code)
13. Treatment of charitable remainder trusts with
greater than 50 percent annual payout (sec. 883 of
the bill and sec. 664 of the Code)
14. Tax on prohibited transactions (sec. 884 of the
bill and sec. 4975 of the Code)
15. Basis recovery rules (sec. 885 of the bill and
sec. 72 of the Code)
TITLE IX. FOREIGN RELATED SIMPLIFICATION PROVISIONS
1. General provisions affecting treatment of
controlled foreign corporations (secs. 911-913 of
the bill and secs. 902, 904, 951, 952, 959, 960,
961, 964, and 1248 of the Code)
2. Simplify formation and operation of international
joint ventures (secs. 921, 931-935, and 941 of the
bill and secs. 367, 721, 1491-1494, 6031, 6038,
6038B, 6046A, and 6501 of the Code)
3. Modification of reporting threshold for stock
ownership of a foreign corporation (sec. 936 of the
bill and sec. 6046 of the Code)
4. Simplify translation of foreign taxes (sec. 902
of the bill and secs. 905(c) and 986 of the Code)
5. Election to use simplified foreign tax credit
limitation for alternative minimum tax purposes
(sec. 903 of the bill and sec. 59 of the Code)
6. Simplify stock and securities trading safe harbor
(sec. 952 of the bill and sec. 864(b)(2)(A) of the
Code)
7. Simplify foreign tax credit limitation for
individuals (sec. 901 of the bill and sec. 904 of
the Code)
8. Simplify treatment of personal transactions in
foreign currency (sec. 904 of the bill and sec. 988
of the Code)
9. Transition rule for certain trusts (sec. 951 of
the bill and sec. 7701(a)(30) of the Code)
10. Clarification of determination of foreign taxes
deemed paid (sec. 953(a) of the bill and sec. 902 of
the Code)
11. Clarification of foreign tax credit limitation
for financial services income (sec. 953(b) of the
bill and sec. 904 of the Code)
TITLE X. SIMPLIFICATION PROVISIONS RELATING TO
INDIVIDUALS
AND
BUSINESSES
A. Provisions Relating to Individuals
1. Modifications to standard deduction of
dependents;
AMT
treatment of certain minor children (sec. 1001 of
the bill and secs. 59(j) and 63(c)(5) of the Code)
2. Increase de minimis threshold for estimated tax
to $1,000 for individuals (sec. 1002 of the bill and
sec. 6654 of the Code)
3. Treatment of certain reimbursed expenses of rural
letter carriers' vehicles (sec. 1003 of the bill and
sec. 162 of the Code)
4. Travel expenses of Federal employees
participating in a Federal criminal investigation
(sec. 1004 of the bill and sec. 162 of the Code)
B. Provisions Relating to Businesses Generally
1. Modifications to look-back method for long-term
contracts (sec. 1011 of the bill and secs. 460 and
167(g) of the Code)
2. Minimum tax treatment of certain property and
casualty insurance companies (sec. 1012 of the bill
and sec. 56(g)(4)(B) of the Code)
3. Shrinkage for inventory accounting (sec. 1013 of
the bill and sec. 471 of the Code)
4. Treatment of construction allowances provided to
lessees (sec. 1014 of the bill and new sec. 110 of
the Code)
C. Partnership Simplification Provisions
1. General provisions
2. Other partnership audit rules
3. Closing of partnership taxable year with respect
to deceased partner (sec. 1046 of the bill and sec.
706(c)(2)(A) of the Code)
D. Modifications of Rules for Real Estate Investment
Trusts(secs. 1051-1063 of the bill and secs. 856 and
857 of the Code)
E. Repeal of the 30-percent
("Short-short") Test for Regulated
Investment Companies (sec. 1071 of the Bill and sec.
851(b)(3) of the Code)
F. Taxpayer Protections
1. Provide reasonable cause exception for additional
penalties (sec. 1081 of the bill and secs. 6652,
6683, 7519 of the Code)
2. Clarification of period for filing claims for
refunds (sec. 1082 of the bill and sec. 6512 of the
Code)
3. Repeal of authority to disclose whether a
prospective juror has been audited (sec. 1083 of the
bill and sec. 6103 of the Code)
4. Clarify statute of limitations for items from
pass-through entities (sec. 1084 of the bill and
sec. 6501 of the Code)
5. Prohibition on browsing (secs. 1084 and 1085 of
the bill and secs. 7213A and 7431 of the Code)
TITLE XI. ESTATE,
GIFT
,
AND
TRUST TAX SIMPLIFICATION
1. Eliminate gift tax filing requirements for gifts
to charities (sec. 1101 of the bill and sec. 6019 of
the Code)
2. Clarification of waiver of certain rights of
recovery (sec. 1102 of the bill and secs. 2207A and
2207B of the Code)
3. Transitional rule under section 2056A (sec. 1103
of the bill and sec. 2056A of the Code)
4. Treatment for estate tax purposes of short-term
obligations held by nonresident aliens (sec. 1104 of
the bill and sec. 2105 of the Code)
5. Distributions during first 65 days of taxable
year of estate (sec. 1105 of the bill and sec.
663(b) of the Code)
6. Separate share rules available to estates (sec.
1106 of the bill and sec. 663(c) of the Code)
7. Executor of estate and beneficiaries treated as
related persons for disallowance of losses (sec.
1107 of the bill and secs. 267(b) and 1239(b) of the
Code)
8. Simplified taxation of earnings of pre-need
funeral trusts (sec. 1108 of the bill and sec. 684
of the Code)
9. Adjustments for gifts within three years of
decedent's death (sec. 1109 of the bill and secs.
2035 and 2038 of the Code)
10. Clarify relationship between community property
rights and retirement benefits (sec. 1110 of the
bill and sec. 2056(b)(7)(C) of the Code)
11. Treatment under qualified domestic trust rules
of forms of ownership which are not trusts (sec.
1111 of the bill and sec. 2056A(c) of the Code)
12.
Opportunity
to correct certain failures under section 2032A
(sec. 1112 of the bill and sec. 2032A of the Code)
13. Authority to waive requirement of
U.S.
trustee for qualified domestic trusts (sec. 1113 of
the bill and sec. 2056A(a)(1)(A) of the Code)
TITLE XII. EXCISE TAX
AND
OTHER SIMPLIFICATION PROVISIONS
A. Increase De Minimis Limit for After-Market
Alterations Subject to Heavy Truckand Luxury
Automobile Excise Taxes (sec. 1201 of the bill and
secs. 4001 and 4051 of the Code)
B. Simplification of Excise Taxes on Distilled
Spirits, Wine, and Beer (secs. 1211-1222 of the bill
and secs. 5008, 5053, 5055, 5115, 5175, and 5207,
and new secs. 5222 and 5418 of the Code)
C. Other Excise Tax Provisions
1. Authority for Internal Revenue Service to grant
exemptions from excise tax registration requirements
(sec. 1231 of the bill and sec. 4222 of the Code)
2. Repeal of excise tax deadwood provisions (sec.
1232 of the bill and secs. 4051, 4495-4498, and
4681-4682 of the Code)
3. Modifications to excise tax on certain arrows
(sec. 1233 of the bill and sec. 4161 of the Code)
4. Modifications to heavy highway vehicle retail
excise tax (sec. 1234 of the bill and sec. 4051 of
the Code)
5. Treatment of skydiving flights as noncommercial
aviation (sec. 1235 of the bill and sec. 4081 and
4261 of the Code)
6. Eliminate double taxation of certain aviation
fuels sold to producers by "fixed base
operators" (sec. 1236 of the bill and sec. 4091
of the Code)
D. Tax-Exempt Bond Provisions
1. Repeal of $100,000 limitation on unspent proceeds
under 1-year exception from rebate (sec. 1241 of the
bill and sec. 148 of Code)
2. Exception from rebate for earnings on bona fide
debt service fund under construction bond rules
(sec. 1242 of the bill and sec. 148 of the Code)
3. Repeal of debt service-based limitation on
investment in certain nonpurpose investments (sec.
1243 of the bill and sec. 148 of the Code)
4. Repeal of expired provisions relating to student
loan bonds (sec. 1244 of the bill and sec. 148 of
the Code)
E. Tax Court Procedures
1. Overpayment determinations of Tax Court (sec.
1251 of the bill and sec. 6512 of the Code)
2. Redetermination of interest pursuant to motion
(sec. 1252 of the bill and sec. 7481 of the Code)
3. Application of net worth requirement for awards
of litigation costs (sec. 1253 of the bill and sec.
7430 of the Code)
4. Tax Court jurisdiction for determination of
employment status (sec. 1254 of the bill and new
sec. 7435 of the Code)
F. Other Provisions
1. Due date for first quarter estimated tax payments
by private foundations (sec. 1261 of the bill and
sec. 6655(g)(3) of the Code)
2. Withholding of Commonwealth income taxes from the
wages of Federal employees (sec. 1262 of the bill
and sec. 5517 of title 5, United States Code)
3. Certain notices disregarded under provision
increasing interest rate on large corporate
underpayments (sec. 1263 of the bill and sec. 6621
of the Code)
TITLE XIII. PENSION SIMPLIFICATION
1. Matching contributions of self-employed
individuals not treated as elective deferrals (sec.
1301 of the bill and sec. 402(g) of the Code)
2. Contributions to IRAs through payroll deductions
(sec. 1302 of the bill)
3. Plans not disqualified merely by accepting
rollover contributions (sec. 1303 of the bill and
sec. 401(a) of the Code)
4. Modification of prohibition on assignment or
alienation (sec. 1304 of the bill, sec. 401(a)(13)
of the Code)
5. Elimination of paperwork burdens on plans (sec.
1305 of the bill and sec. 101 of ERISA)
6. Modification of section 403(b) exclusion
allowance to conform to section 415 modifications
(sec. 1306 of the bill and sec. 403(b) of the Code)
7. New technologies in retirement plans (sec. 1307
of the bill)
8. Permanent moratorium on application of
nondiscrimination rules to governmental plans (sec.
1308 of the bill and secs. 401 and 403(b) of the
Code)
9. Clarification of certain rules relating to
employee stock ownership plans of S corporations
(sec. 1309 of the bill and sec. 409 of the Code)
10. Modification of 10-percent tax on nondeductible
contributions (sec. 1310 of the bill and sec. 4972
of the Code)
11. Modify funding requirements for certain plans
(sec. 1311 of the bill and sec. 412 of the Code)
TITLE XIV. TECHNICAL CORRECTION PROVISIONSI.
TECHNICAL CORRECTIONS TO THE SMALL BUSINESSJOB
PROTECTION ACT OF 1996
A. Small Business-Related Provisions
1. Returns relating to purchases of fish (sec.
1401(a)(1) of the bill and sec. 6050R(c)(1) of the
Code)
2. Charitable remainder trusts not eligible to be
electing small business trusts (sec. 1402(c)(1) of
the bill and sec. 1361(c)(1)(B) of the Code)
3. Clarify the effective date for post-termination
transition period provision (sec. 1401(c)(2) of the
bill)
4. Treatment of qualified subchapter S subsidiaries
(sec. 1401(c)(3) of the bill and sec. 1361(b)(3) of
the Code)
B. Pension Provisions
1. Salary reduction simplified employee pensions
("SARSEPS") (sec. 1401(d)(1)(B) of the
bill and sec. 408(k)(6) of the Code)
2. SIMPLE retirement plans (secs. 1401(d)(1)(A) and
(d)(1)(C)-(F) and 1401(d)(2) of the bill)
C. Foreign Provisions
1. Measurement of earnings of controlled foreign
corporations (sec. 1401(e) of the bill, subtitle E
of the Act, and section 956 of the Code)
2. Transfers to foreign trusts at fair market value
(sec. 1401(i)(2) of the bill, sec. 1903 of the Act,
and sec. 679 of the Code
3. Treatment of trust as
U.S.
person (sec. 1401(i)(3) of the bill, sec. 1907 of
the Act, and secs. 641 and 7701(a)(30) of the Code)
D. Other Provisions
1. Treatment of certain reserves of thrift
institutions (sec. 1401(f)(5) of the bill and secs.
593(e) and 1374 of the Code)
2. "FASIT" technical corrections (sec.
1401(f)(6) of the bill and sec. 860L of the Code)
3. Qualified State tuition plans (sec. 1401(h)(1) of
the bill and sec. 529 of the Code)
4. Adoption credit (sec. 1401(h)(2) of the bill,
sec. 1807 of the Small Business Act, and sec. 23 of
the Code)
5. Phaseout of adoption assistance exclusion (sec.
1401(h)(2) of the bill, sec. 1807 of the Small
Business Act, and sec. 137 of the Code)
II. HEALTH INSURANCE PORTABILITY
AND
ACCOUNTABILITY ACT OF 1996
1. Medical savings accounts (sec. 1402(a) of the
bill and sec. 220 of the Code)
2. Definition of chronically ill individual under a
qualified long-term care insurance contract (sec.
1402(b) of the bill and sec. 7702B(c)(2) of the
Code)
3. Deduction for long-term care insurance of
self-employed individuals (sec. 1402(c) of the bill
and sec. 162(l)(2) of the Code)
4. Applicability of reporting requirements of
long-term care contracts and accelerated death
benefits (sec. 1402(d) of the bill and sec. 6050Q of
the Code)
5. Consumer protection provisions for long-term care
insurance contracts (sec. 1402(e) of the bill and
sec. 7702B(g)(4)(b) of the Code)
6. Insurable interests under the COLI provision
(sec. 1402(f)(1) of the bill and sec. 264(a)(4) of
the Code)
7. Applicable period for purposes of applying the
interest rate for a variable rate contract under the
COLI rules (sec. 1402(f)(2) of the bill and sec.
264(d)(2)(B)(ii) of the Code)
8. Definition of 20-percent owner for purposes of
key person exception under COLI rule (sec.
1402(f)(3) of the bill and sec. 264(d)(4) of the
Code)
9. Effective date of interest rate cap on key
persons and pre-1986 contracts under the COLI rule
(sec. 1402(f)(4) of the bill and sec. 501(c) of HIPA)
10. Clarification of contract lapses under effective
date provisions of the COLI rule (sec. 1402(f)(5) of
the bill and sec. 501(d)(2) of HIPA)
11. Requirement of gain recognition on certain
exchanges (sec. 1402(g)(1) and (2) of the bill, sec.
511 of the Act, and sec. 877(d)(2) of the Code)
12. Suspension of 10-year period in case of
substantial diminution of risk of loss (sec.
1402(g)(3) of the bill, sec. 511 of the Act, and
sec. 877(d)(3) of the Code)
13. Treatment of property contributed to certain
foreign corporations (sec. 1402(g)(4) of the bill,
sec. 511 of the Act, and sec. 877(d)(4) of the Code)
14. Credit for foreign estate tax (sec. 1402(g)(6)
of the bill, sec. 511 of the Act, and sec. 2107(c)
of the Code)
III
. TECHNICAL CORRECTIONS TO THE TAXPAYER
BILL
OF RIGHTS 2
1. Reasonable cause abatement for first-tier
intermediate sanctions excise tax (sec. 1403(a) of
the bill and section 4962 of the Code)
2. Reporting by public charities with respect to
intermediate sanctions and certain other excise tax
penalties (sec. 1403(b) of the bill and sec. 6033 of
the Code)
IV. TECHNICAL CORRECTIONS TO OTHER ACTS
1. Correction of
GATT
interest and mortality rate provisions in the
Retirement Protection Act (sec. 1404(b)(3) of the
bill and sec. 1449(a) of the Small Business Act)
2. Related parties determined by reference to
section 267 (sec. 1404(d) of the bill and sec.
267(f) of the Code)
III
. BUDGET EFFECTS OF THE
BILL
IV. VOTES OF THE COMMITTEE
V. REGULATORY IMPACT
AND
OTHER MATTERS
105th Congress SENATE Report 1st Session 105-33
REVENUE
RECONCILIATION ACT OF 1997
June 20 (legislative day, June --, 1997. Ordered to
be printed
Mr. Roth, from the Committee on Finance, submitted
the
following
REPORT
[To accompany S. 949]
[Including cost estimate of the Congressional Budget
Office]
The Committee on Finance, to which was referred the
bill (S. 949) to provide for revenue reconciliation
pursuant to section 104(b) of the concurrent
resolution on the budget for fiscal year 1998,
having considered the same, reports favorably
thereon without amendment and recommends that the
bill do pass.
I.
LEGISLATIVE BACKGROUND
Overview
The Senate Committee on Finance (the
"Committee") marked up revenue
reconciliation provisions on June 19, 1997, and
approved the provisions by a roll call vote of 18
yeas and 2 noes. The Committee's revenue
reconciliation recommendations are in response to
the instructions in the Fiscal Year 1998 Budget
Resolution (H. Con. Res. 84) to provide net tax
reductions of not more than $85 billion for fiscal
years 1998-2002, and not more than $250 billion for
fiscal years 1998-2007. (For details on estimated
budget effects of the revenue reconciliation
provisions as approved by the Committee, see Part
III
, below.)
Committee
hearings
The Committee and subcommittees held public hearings
during the 105th Congress on various topics related
to the provisions included in the Committee's
revenue reconciliation recommendations.
Full
committee hearings
The Committee held hearings on the following topics:
Status of the Airport and Airway Trust Fund
(February 4, 1997)
Administration's Fiscal Year 1998 Budget Proposal
(February 12-13, 1997)
IRA Proposals (March 6, 1997)
Capital Gains and Losses (March 13, 1997)
Estate and Gift Taxes (April 10, 1997)
"Tax Freedom Day" (April 14, 1997)
Education Tax Proposals (April 16, 1997)
Revenue Proposals in the Administration's Fiscal
Year 1998 Budget (April 17, 1997)
Amtrak Financing (April 23, 1997)
Children's Access to Health Care (April 30, 1997).
Subcommittee
hearings
Subcommittee hearings were held on the following
topics:
Administration's Fiscal Year 1998 Health-Related
Budget Proposals (Subcommittee on Health,
February 12, 1997
)
Small Business Tax Proposals (Subcommittee on
Taxation and Oversight of the
IRS
,
June 5, 1997
).
II.
EXPLANATION OF THE
BILL
TITLE
I.
CHILD TAX CREDIT
AND
OTHER FAMILY TAX RELIEF
A.
Child Tax Credit For Children Under Age 17 (sec. 101
of the bill and new sec. 24 of the Code)
Present
Law
In
general
Present law does not provide tax credits based
solely on the taxpayer's number of dependent
children. Taxpayers with dependent children,
however, generally are able to claim a personal
exemption for each of these dependents. The total
amount of personal exemptions is subtracted (along
with certain other items) from adjusted gross income
("
AGI
") in arriving at taxable income. The amount of
each personal exemption is $2,650 for 1997, and is
adjusted annually for inflation. In 1997, the amount
of the personal exemption is phased out for
taxpayers with
AGI
in excess of $121,200 for single taxpayers, $151,500
for heads of household, and $181,800 for married
couples filing joint returns. These phaseout
thresholds are adjusted annually for inflation.
Reasons
for Change
The Committee believes that the individual income
tax structure does not reduce tax liability by
enough to reflect a family's reduced ability to pay
taxes as family size increases. In part, this is
because over the last 50 years the value of the
dependent personal exemption has declined in real
terms by over one-third. The Committee believes that
a tax credit for families with dependent children
will reduce the individual income tax burden of
those families, will better recognize the financial
responsibilities of raising dependent children, and
will promote family values. In addition, the
Committee believes that the credit is an appropriate
vehicle to encourage taxpayers to save for their
children's education.
Explanation
of Provision
The bill allows taxpayers a maximum nonrefundable
tax credit of $500 (pro rata amount of $250 in 1997
for children under the age of 13) for each
qualifying child under the age of 17. For taxable
years beginning after December 31, 2002, the credit
is allowed for each qualifying child under the age
of 18. A qualifying child is defined as an
individual for whom the taxpayer can claim a
dependency exemption and who is a son or daughter of
the taxpayer (or a descendent of either), a stepson
or stepdaughter of the taxpayer or an eligible
foster child of the taxpayer. The credit amount is
not indexed for inflation.
In the case of each child age 13 to 16 (13 to 17 for
taxable years beginning after December 31, 2002),
the credit is available only for amounts contributed
to savings for education with respect to that child.
Specifically, the credit is allowed only to the
extent of the net amount deposited into a qualified
tuition program or an education IRA (as described
below) on or before April 15 of the year following
the year with respect to which the credit is
claimed. Generally, if amounts are withdrawn, other
than for qualified educational expenses, on or
before April 15 of the second year following the
year with respect to which the credit is claimed,
the credit is subject to a 100-percent recapture.
Exceptions from the 100-percent recapture are
provided in certain circumstances including
withdrawals made due to death, disability, and
receipt of certain scholarships by the beneficiary.
For taxpayers with
AGI
in excess of certain thresholds, the otherwise
allowable child credit is phased out. Specifically,
the otherwise allowable child credit is reduced by
$25 for each $1,000 of modified
AGI
(or fraction thereof) in excess of the threshold
("the modified
AGI
phase-out"). 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). For married taxpayers filing joint
returns, the threshold is $110,000. For taxpayers
filing single or head of household returns, the
threshold is $75,000. For married taxpayers filing
separate returns, the threshold is $55,000. These
thresholds are not indexed for inflation.
The maximum amount of the child credit for each
taxable year can not exceed an amount equal to the
excess of: (1) the taxpayer's regular income tax
liability (net of applicable credits) over (2) the
sum of the taxpayer's tentative minimum tax
liability (determined without regard to the
alternative minimum foreign tax credit) and one-half
of the earned income credit allowed.
Effective
Date
The child tax credit is effective
July 1, 1997
, for taxable years beginning after
December 31, 1996
.
B.
Increase Exemption Amounts Applicable to Individual
Alternative Minimum Tax (sec. 102 of the bill and
sec. 55 of the Code)
Present
Law
Present law imposes a minimum tax on an individual
to the extent the taxpayer's minimum tax liability
exceeds his or her regular tax liability. This
alternative minimum tax is imposed upon individuals
at rates of (1) 26 percent on the first $175,000 of
alternative minimum taxable income in excess of a
phased-out exemption amount and (2) 28 percent on
the amount in excess of $175,000. The exemptions
amounts are $45,000 in the case of married
individuals filing a joint return and surviving
spouses; $33,750 in the case of other unmarried
individuals; and $22,500 in the case of married
individuals filing a separate return. These
exemption amounts are phased-out by an amount equal
to 25 percent of the amount that the individual's
alternative minimum taxable income exceeds a
threshold amount. These threshold amounts are
$150,000 in the case of married individuals filing a
joint return and surviving spouses; $112,500 in the
case of other unmarried individuals; and $75,000 in
the case of married individuals filing a separate
return, estates, and trusts. The exemption amounts,
the threshold phase-out amounts, and the $175,000
break-point amount are not indexed for inflation.
Reasons
for Change
The Committee is concerned about the projected trend
that significantly more individuals without tax
preferences or adjustments will become subject to
the alternative minimum tax in the near future. This
trend is projected, in part, because the exemption
amounts applicable to the individual alternative
minimum tax are not increased for inflation, while
the standard deduction, personal exemptions, rate
brackets and other features of the regular tax are
so increased.
Explanation
of Provision
For taxable years beginning after 2000 and before
2003, the exemption amounts of the individual
alternative minimum tax are increased as follows in
each year: (1) by $600 in the case of married
individuals filing a joint return and surviving
spouses; (2) by $450 in the case of other unmarried
individuals; and (3) by $300 in the case of married
individuals filing separate returns. For taxable
years beginning after 2003, the exemption amounts of
the individual alternative minimum tax are increased
as follows in each year: (1) by $950 in the case of
married individuals filing a joint return and
surviving spouses; (2) by $700 in the case of other
unmarried individuals; and (3) by $475 in the case
of married individuals filing separate returns.
Effective
Date
The provision is effective for taxable years
beginning after
December 31, 2000
.
TITLE
II. EDUCATION TAX INCENTIVES
A.
Tax Benefits Relating to Education Expenses
1.
HOPE credit for higher education tuition expenses
(sec. 201 of the bill and new sec. 25A of the Code)
Present
Law
Deductibility
of education expenses
Taxpayers generally may not deduct education and
training expenses. However, a deduction for
education expenses generally is allowed under
section 162 if the education or training (1)
maintains or improves a skill required in a trade or
business currently engaged in by the taxpayer, or
(2) meets the express requirements of the taxpayer's
employer, or requirements of applicable law or
regulations, imposed as a condition of continued
employment (Treas. Reg. sec. 1.162-5). However,
education expenses are not deductible if they relate
to certain minimum educational requirements or to
education or training that enables a taxpayer to
begin working in a new trade or business. In the
case of an employee, education expenses (if not
reimbursed by the employer) may be claimed as an
itemized deduction only if such expenses meet the
above-described criteria for deductibility under
section 162 and only to the extent that the
expenses, along with other miscellaneous deductions,
exceed 2 percent of the taxpayer's adjusted gross
income (
AGI
).
Exclusion
for employer-provided educational assistance
A special rule allows an employee to exclude from
gross income for income tax purposes and from wages
for employment tax purposes up to $5,250 annually
paid by his or her employer for educational
assistance (sec. 127). In order for the exclusion to
apply certain requirements must be satisfied,
including a requirement that not more than 5 percent
of the amounts paid or incurred by the employer
during the year for educational assistance under a
qualified educational assistance program can be
provided for the class of individuals consisting of
more than 5-percent owners of the employer and the
spouses or dependents of such more than 5-percent
owners. This special rule for employer-provided
educational assistance expires with respect to
courses beginning after
June 30, 1997
(and does not apply to graduate level courses
beginning after
June 30, 1996
).
For purposes of the special exclusion, educational
assistance means the payment by an employer of
expenses incurred by or on behalf of the employee
for education of the employee including, but not
limited to, tuition, fees, and similar payments,
books, supplies, and equipment. Educational
assistance also includes the provision by the
employer of courses of instruction for the employee
(including books, supplies, and equipment).
Educational assistance does not include tools or
supplies which may be retained by the employee after
completion of a course or meals, lodging, or
transportation. The exclusion does not apply to any
education involving sports, games, or hobbies.
In the absence of the special exclusion,
employer-provided educational assistance is
excludable from gross income and wages as a working
condition fringe benefit (sec. 132(d)) only to the
extent the education expenses would be deductible
under section 162.
Exclusion
for interest earned on savings bonds
Another special rule (sec. 135) provides that
interest earned on a qualified U.S. Series EE
savings bond issued after 1989 is excludable from
gross income if the proceeds of the bond upon
redemption do not exceed qualified higher education
expenses paid by the taxpayer during the taxable
year.1
"Qualified higher education expenses"
include tuition and fees (but not room and board
expenses) required for the enrollment or attendance
of the taxpayer, the taxpayer's spouse, or a
dependent of the taxpayer at certain colleges,
universities, or vocational schools. The exclusion
provided by section 135 is phased out for certain
higher-income taxpayers, determined by the
taxpayer's modified
AGI
during the year the bond is redeemed. For 1996, the
exclusion was phased out for taxpayers with modified
AGI
between $49,450 and $64,450 ($74,200 and $104,200
for joint returns). To prevent taxpayers from
effectively avoiding the income phaseout limitation
through issuance of bonds directly in the child's
name, section 135(c)(1)(B) provides that the
interest exclusion is available only with respect to
U.S. Series EE savings bonds issued to taxpayers who
are at least 24 years old.
Qualified
scholarships
Section 117 excludes from gross income amounts
received as a qualified scholarship by an individual
who is a candidate for a degree and used for tuition
and fees required for the enrollment or attendance
(or for fees, books, supplies, and equipment
required for courses of instruction) at a primary,
secondary, or post-secondary educational
institution. The tax-free treatment provided by
section 117 does not extend to scholarship amounts
covering regular living expenses, such as room and
board. There is, however, no dollar limitation for
the section 117 exclusion, provided that the
scholarship funds are used to pay for tuition and
required fees. In addition to the exclusion for
qualified scholarships, section 117 provides an
exclusion from gross income for qualified tuition
reductions for education below the graduate level
provided to employees of certain educational
organizations. Section 117(c) specifically provides
that the exclusion for qualified scholarships does
not apply to any amount received by a student that
represents payment for teaching, research, or other
services by the student required as a condition for
receiving the scholarship.
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