Revenue Reconciliation Act
page4
 
4.
Timeshare associations (sec. 764 of the bill and
sec. 528 of the Code)
Present
Law
Taxation of homeowners associations making the
section 528 election. --Under present law (sec.
528), condominium management associations and
residential real estate management associations may
elect to be taxable at a 30 percent rate on their
"homeowners association income" if they
meet certain income, expenditure, and organizational
requirements.
"Homeowners association income" is the
excess of the association's gross income, excluding
"exempt function income," over allowable
deductions directly connected with non-exempt
function gross income. "Exempt function
income" includes membership dues, fees, and
assessments for a common activity undertaken by
association members or owners of residential units
in the condominium or subdivision. Homeowners
association income includes passive income (e.g.,
interest and dividends) earned on reserves and fees
for use of association property (e.g.,
swimming pools, meeting rooms, etc.).
For an association to qualify for this treatment,
(1) at least 60 percent of the association's gross
income must consist of membership dues, fees, or
assessments on owners, (2) at least 90 percent of
its expenditures must be for the acquisition,
management, maintenance, or care of
"association property," and (3) no part of
its net earnings can inure to the benefit of any
private shareholder. "Association
property" means: (1) property held by the
association; (2) property commonly held by
association members; (3) property within the
association privately held by association members;
and (4) property held by a governmental unit for the
benefit of association members. In addition to these
statutory requirements, Treasury regulations require
that the units of the association be used for
residential purposes. Use is not a residential use
if the unit is occupied by a person or series of
persons less than 30 days for more than half of the
association's taxable year. Treas. Reg. sec.
1.528-4(d).
Taxation
of homeowners associations not making the section
528 election. --Homeowners associations that do not
(or cannot) make the section 528 election are taxed
either as a tax-exempt social welfare organization
under section 501(c)(4) or as a regular C
corporation. In order for an organization to qualify
as a tax-exempt social welfare organization, the
organization must meet the following three
requirements: (1) the association must serve a
"community" which bears a reasonable,
recognizable relationship to an area ordinarily
identified as a governmental subdivision or unit;
(2) the association may not conduct activities
directed to exterior maintenance of any private
residence, and (3) common areas of association
facilities must be for the use and enjoyment of the
general public. (Rev. Rul. 74-99, 1974-1 C.B. 131).
Non-exempt homeowners associations are taxed as C
corporations, except that (1) the association may
exclude excess assessments that it refunds to its
members or applies to the subsequent year's
assessments (Rev. Rul. 70-604, 1970-2 C.B. 9); (2)
gross income does not include special assessments
held in a special bank account (Rev. Rul. 75-370,
75-2 C.B. 25), and (3) assessments for capital
improvements are treated as non-taxable
contributions to capital (Rev. Rul. 75-370, 1975-2
C.B. 25).
Taxation of timeshare associations. --Under
present law, timeshare associations are taxed as
regular C corporations because (1) they cannot meet
the requirement of the Treasury regulations for the
section 528 election that the units be used for
residential purposes (i.e., the 30-day rule) and
they have relatively large amount of services
performed for its owners (e.g., maid and janitorial
services) and (2) they cannot meet any of
requirements of Rev. Rul. 74-99 for tax-exempt
status under section 501(c)(4).
Reasons
for Change
The committee understands that the
IRS
recently has challenged the exclusions from gross
income of timeshare associations of refunds of
excess assessments, special assessments held in a
segregated account, and capital assessments as
contributions to capital. See P.L.R. 9539001 (June
8, 1995). The committee believes that the activities
of timeshare associations are sufficiently similar
to those of homeowners associations that they should
be similarly taxed. Accordingly, the committee bill
would extend the rules for the taxation of
homeowners associations to timeshare associations,
except that the rate of tax on timeshare
associations is 32 percent, instead of the
30-percent rate that applies to homeowner's
associations.
Explanation
of Provision
The bill amends section 528 to permit timeshare
associations to qualify for taxation under that
section. Timeshare associations would have to meet
the requirements of section 528 (e.g., the 60
percent gross income, 90 percent expenditure, and
the non-profit organizational and operational
requirements). Timeshare associations electing to be
taxed under section 528 are subject to a tax on
their "timeshare association income" at a
rate of 32 percent.
60-Percent
Test
A qualified timeshare association must receive at
least 60 percent of its income from membership dues,
fees and assessments from owners of either (a)
timeshare rights to use of, or (b) timeshare
ownership in, property the timeshare association.
90-Percent
Test
At least 90 percent of the expenditures of the
timeshare association must be for the acquisition,
management, maintenance, or care of
"association property," and activities
provided by the association to, or on behalf of,
members of the timeshare association.
"Activities provided to or on behalf of members
of the [timeshare] association" includes events
located on association property (e.g.,
member's meetings at the association's meeting room,
parties at the association's swimming pool, golf
lessons on association's golf range, transportation
to and from association property, etc.).
Organizational
and Operational Tests
No part of the net earnings of the timeshare
association can inure to the benefit (other than by
acquiring, constructing, or providing management,
maintenance, and care of property of the timeshare
association or rebate of excess membership dues,
fees, or assessments) of any private shareholder or
individual. A member of a qualified timeshare
association must hold a timeshare right to use (or
timeshare ownership in) real property of the
association. Property of a timeshare association
includes property in which a timeshare association
or members of the association have rights arising
out of recorded easements, covenants, and other
recorded instruments to use property related to the
timeshare project. A qualified timeshare association
cannot be a condominium management association.
Lastly, the timeshare association must elect to be
taxed under section 528.
Effective
Date
The provision is effective for taxable years
beginning after
December 31, 1996
.
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)
Present
Law
Ordinary and necessary business expenses, as well as
expenses incurred for the production of income, are
generally deductible, subject to a number of
restrictions and limitations. Generally, the amount
allowable as a deduction for food and beverage is
limited to 50 percent of the otherwise deductible
amount. Exceptions to this 50 percent rule are
provided for food and beverages provided to crew
members of certain vessels and offshore oil or gas
platforms or drilling rigs.
Reasons
for Change
Individuals subject to the hours of service
limitations of the Department of Transportation, as
well as workers at remote seafood processing
facilities in
Alaska
, are frequently forced to eat meals away from home
in circumstances where their choice is limited,
prices comparatively high and the opportunity for
lavish meals remote. The Committee believes that it
is appropriate to allow a higher percentage of the
cost of food and beverages consumed while away from
home by these individuals to be deducted than is
allowed under the general rule.
Explanation
of Provision
The bill increases to 80 percent the deductible
percentage of the cost of food and beverages
consumed 1) 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 and 2) by workers at remote
seafood processing facilities located in the United
States north of 53 degrees north latitude. A seafood
processing facility is remote when there are
insufficient eating facilities in the vicinity of
the employer's premises.63
Individuals subject to the hours of service
limitations of the Department of Transportation
include:
(1) certain air transportation employees such as
pilots, crew, dispatchers, mechanics, and control
tower operators pursuant to Federal Aviation
Administration regulations,
(2) interstate truck operators and interstate bus
drivers pursuant to Department of Transportation
regulations,
(3) certain railroad employees such as engineers,
conductors, train crews, dispatchers and control
operations personnel pursuant to Federal Railroad
Administration regulations, and
(4) certain merchant mariners pursuant to Coast
Guard regulations.
The increase in the deductible percentage is phased
in according to the following schedule:
Taxable years Deductible
beginning in percentage
1998, 1999 55 percent
2000, 2001 60 percent
2002, 2003 65 percent
2004, 2005 70 percent
2006, 2007 75 percent
2008 and thereafter 80 percent
Effective
Date
The provision is effective for taxable years
beginning after 1997.
6.
Provide above-the-line deduction for certain
business expenses (sec. 766 of the bill and sec. 62
of the Code)
Present
Law
Under present law, individuals may generally deduct
ordinary and necessary business expenses in
determining adjusted gross income ("
AGI
"). This deduction does not apply in the case
of an individual performing services as an employee.
Employee business expenses are generally deductible
only as a miscellaneous itemized deduction, i.e.,
only to the extent all the taxpayer's miscellaneous
itemized deductions exceed 2 percent of the
taxpayer's
AGI
. Employee business expenses are not allowed as a
deduction for alternative minimum tax purposes.
Reasons
for Change
The Committee is aware that certain State and local
government officials are compensated (in whole or in
part) on a fee basis to provide certain services to
the government. These officials hire employees and
incur expenses in connection with their official
duties. These expenses may be subject, under present
law, to the 2-percent floor on itemized deductions.
The Committee believes these expenses should be
deductible.
Explanation
of Provision
Under the bill, employee business expenses relating
to service as an official of a State or local
government (or political subdivision thereof) are
deductible in computing
AGI
("above the line"), provided the official
is compensated in whole or in part on a fee basis.
Consequently, such expenses are also deductible for
minimum tax purposes.
Effective
Date
The provision applies to expenses paid or incurred
in taxable years beginning after
December 31, 1997
.
7.
Increase in standard mileage rate for purposes of
computing charitable deduction (sec. 767 of the bill
and sec. 170(i) of the Code)
Present
Law
In general, individuals who itemize their deductions
may deduct charitable contributions. For purposes of
computing the charitable deduction for the use of a
passenger automobile, the standard mileage rate is
12 cents per mile (sec. 170(i)).
Reasons
for Change
The Committee believes that this rate should be
increased and indexed for inflation.
Explanation
of Provision
The bill increases this mileage rate to 15 cents per
mile. This rate is indexed for inflation, rounded
down to the nearest whole cent.
Effective
Date
The increase to 15 cents is effective for taxable
years beginning after
December 31, 1997
. The indexation is effective for inflation
occurring after 1997. Accordingly, the first
adjustment for indexing will occur in 1999 to
reflect inflation in 1998.
8.
Expensing of environmental remediation costs ("brownfields")
(sec. 768 of the bill and sec. 162 of the Code)
Present
Law
Code section 162 allows a deduction for ordinary and
necessary expenses paid or incurred in carrying on
any trade or business. Treasury Regulations provide
that the cost of incidental repairs which neither
materially add to the value of property nor
appreciably prolong its life, but keep it in an
ordinarily efficient operating condition, may be
deducted currently as a business expense. Section
263(a)(1) limits the scope of section 162 by
prohibiting a current deduction for certain capital
expenditures. Treasury Regulations define
"capital expenditures" as amounts paid or
incurred to materially add to the value, or
substantially prolong the useful life, of property
owned by the taxpayer, or to adapt property to a new
or different use. Amounts paid for repairs and
maintenance do not constitute capital expenditures.
The determination of whether an expense is
deductible or capitalizable is based on the facts
and circumstances of each case.
Treasury regulations provide that capital
expenditures include the costs of acquiring or
substantially improving buildings, machinery,
equipment, furniture, fixtures and similar property
having a useful life substantially beyond the
current year. In INDOPCO, Inc. v. Commissioner,
112 S. Ct. 1039 (1992), the Supreme Court required
the capitalization of legal fees incurred by a
taxpayer in connection with a friendly takeover by
one of its customers on the grounds that the merger
would produce significant economic benefits to the
taxpayer extending beyond the current year;
capitalization of the costs thus would match the
expenditures with the income produced. Similarly,
the amount paid for the construction of a filtration
plant, with a life extending beyond the year of
completion, and as a permanent addition to the
taxpayer's mill property, was a capital expenditure
rather than an ordinary and necessary current
business expense. Woolrich Woolen Mills v.
United States
, 289 F.2d 444 (3d Cir. 1961) .
Although Treasury regulations provide that
expenditures that materially increase the value of
property must be capitalized, they do not set forth
a method of determining how and when value has been
increased. In Plainfield-Union Water Co. v.
Commissioner, 39 T.C. 333 (1962), nonacq.,
1964-2 C.B. 8, the U.S. Tax Court held that
increased value was determined by comparing the
value of an asset after the expenditure with its
value before the condition necessitating the
expenditure. The Tax Court stated that "an
expenditure which returns property to the state it
was in before the situation prompting the
expenditure arose, and which does not make the
relevant property more valuable, more useful, or
longer-lived, is usually deemed a deductible
repair."
In several Technical Advice Memoranda (
TAM
), the Internal Revenue Service (
IRS
) declined to apply the Plainfield Union
valuation analysis, indicating that the analysis
represents just one of several alternative methods
of determining increases in the value of an asset.
In
TAM
9240004 (June 29, 1992), the
IRS
required certain asbestos removal costs to be
capitalized rather than expensed. In that instance,
the taxpayer owned equipment that was manufactured
with insulation containing asbestos; the taxpayer
replaced the asbestos insulation with less thermally
efficient, non-asbestos insulation. The
IRS
concluded that the expenditures resulted in a
material increase in the value of the equipment
because the asbestos removal eliminated human health
risks, reduced the risk of liability to employees
resulting from the contamination, and made the
property more marketable. Similarly, in
TAM
9411002 (November 19, 1993), the
IRS
required the capitalization of expenditures to
remove and replace asbestos in connection with the
conversion of a boiler room to garage and office
space. However, the
IRS
permitted deduction of costs of encapsulating
exposed asbestos in an adjacent warehouse.
In 1994, the
IRS
issued Rev. Rul. 94-38, 1994-1 C.B. 35, holding that
soil remediation expenditures and ongoing water
treatment expenditures incurred to clean up land and
water that a taxpayer contaminated with hazardous
waste are deductible. In this ruling, the
IRS
explicitly accepted the Plainfield Union
valuation analysis.64
However, the
IRS
also held that costs allocable to constructing a
groundwater treatment facility are capital
expenditures.
In 1995, the
IRS
issued
TAM
9541005 (October 13, 1995) requiring a taxpayer to
capitalize certain environmental study costs, as
well as associated consulting and legal fees. The
taxpayer acquired the land and conducted activities
causing hazardous waste contamination. After the
contamination, but before it was discovered, the
company donated the land to the county to be
developed into a recreational park. After the county
discovered the contamination, it reconveyed the land
to the company for $1. The company incurred the
costs in developing a remediation strategy. The
IRS
held that the costs were not deductible under
section 162 because the company acquired the land in
a contaminated state when it purchased the land from
the county. In January, 1996, the
IRS
revoked and superseded
TAM
9541005 (
PLR
9627002). Noting that the company's contamination of
the land and liability for remediation were
unchanged during the break in ownership by the
county, the
IRS
concluded that the break in ownership should not, in
and of itself, operate to disallow a deduction under
section 162.
Reasons
for Change
To encourage the cleanup of contaminated sites, as
well as to eliminate uncertainty regarding the
appropriate treatment of environmental remediation
expenditures for Federal tax law purposes, the
Committee believes that it is appropriate to provide
clear and consistent rules regarding the Federal tax
treatment of certain environmental remediation
expenses.
Explanation
of Provision
The bill provides that taxpayers could elect to
treat certain environmental remediation expenditures
that would otherwise be chargeable to capital
account as deductible in the year paid or incurred.
The deduction applies for both regular and
alternative minimum tax purposes. The expenditure
must be incurred in connection with the abatement or
control of hazardous substances at a qualified
contaminated site. In general, any expenditure for
the acquisition of depreciable property used in
connection with the abatement or control of
hazardous substances at a qualified contaminated
site does not constitute a qualified environmental
remediation expenditure. However, depreciation
deductions allowable for such property which would
otherwise be allocated to the site under the
principles set forth in Comm'r v. Idaho Power Co.
65
and section 263A are treated as qualified
environmental remediation expenditures.
A "qualified contaminated site" generally
is any property that (1) is held for use in a trade
or business, for the production of income, or as
inventory; (2) is certified by the appropriate State
environmental agency to be located within a targeted
area; and (3) contains (or potentially contains) a
hazardous substance (so-called "brownfields").
Targeted areas would mean (1) empowerment zones and
enterprise communities (as designated under present
law and the D.C. Enterprise Zone designated under
the bill); and (2) sites announced before February,
1997, as being subject to one of the 76
Environmental Protection Agency (EPA) Brownfields
Pilots.
Both urban and rural sites qualify. However, sites
that are identified on the national priorities list
under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (CERCLA)
cannot be targeted areas. Appropriate State
environmental agencies are designated by the EPA; if
no State agency is designated, the EPA is
responsible for providing the certification.
Hazardous substances generally are defined by
reference to sections 101(14) and 102 of CERCLA,
subject to additional limitations applicable to
asbestos and similar substances within buildings,
certain naturally occurring substances such as
radon, and certain other substances released into
drinking water supplies due to deterioration through
ordinary use.
The bill further provides that, in the case of
property to which a qualified environmental
remediation expenditure otherwise would have be
capitalized, any deduction allowed under the bill
would be treated as a depreciation deduction and the
property would be treated as subject to section
1245. Thus, deductions for qualified environmental
remediation expenditures would be subject to
recapture as ordinary income upon sale or other
disposition of the property.
Effective
Date
The provision applies to eligible expenditures
incurred after the date of enactment.
9.
Combined employment tax reporting demonstration
project (sec. 769 of the bill)
Present
Law
Traditionally, Federal tax forms are filed with the
Federal government and State tax forms are filed
with individual states. This necessitates
duplication of items common to both returns. Some
States have recently been working with the
IRS
to implement combined State and Federal reporting of
certain types of items on one form as a way of
reducing the burdens on taxpayers. The State of
Montana
and the
IRS
have cooperatively developed a system to combine
State and Federal employment tax reporting on one
form. The one form would contain exclusively Federal
data, exclusively State data, and information common
to both: the taxpayer's name, address,
TIN
, and signature.
The Internal Revenue Code prohibits disclosure of
tax returns and return information, except to the
extent specifically authorized by the Internal
Revenue Code (sec. 6103). Unauthorized disclosure is
a felony punishable by a fine not exceeding $5,000
or imprisonment of not more than five years, or both
(sec. 7213). An action for civil damages also may be
brought for unauthorized disclosure (sec. 7431). No
tax information may be furnished by the Internal
Revenue Service ("
IRS
") to another agency unless the other agency
establishes procedures satisfactory to the
IRS
for safeguarding the tax information it receives
(sec. 6103(p)).
Implementation of the combined Montana-Federal
employment tax reporting project has been hindered
because the
IRS
interprets section 6103 to apply that provision's
restrictions on disclosure to information common to
both the State and Federal portions of the combined
form, although these restrictions would not apply to
the State with respect to the State's use of
State-requested information if that information were
supplied separately to both the State and the
IRS
.
Reasons
for Change
The Committee believes it is appropriate to permit a
demonstration project to assess the feasibility and
desirability of expanding combined reporting in the
future.
Explanation
of Provisions
The bill permits implementation of a demonstration
project to assess the feasibility and desirability
of expanding combined reporting in the future. There
are several limitations on the demonstration
project. First, it is limited to the State of
Montana
and the
IRS
. Second, it is limited to employment tax reporting.
Third, it is limited to disclosure of the name,
address,
TIN
, and signature of the taxpayer, which is
information common to both the
Montana
and Federal portions of the combined form. Fourth,
it is limited to a period of five years.
Effective
Date
The provision is effective on the date of enactment,
and will expire on the date five years after the
date of enactment.
10.
Qualified small-issue bonds (sec. 770 of the bill
and sec. 144(a) of the Code)
Present
Law
Interest on certain small issues of private activity
bonds issued by State or local governments
("qualified small-issue bonds") is
excluded from gross income if certain conditions are
met. First, at least 95 percent of the bond proceeds
must be used to finance manufacturing facilities or
certain agricultural land or equipment. Second, the
bond issue must have an aggregate face amount of $1
million or less, or alternatively, the aggregate
face amount of the issue, together with the
aggregate amount of certain related capital
expenditures during the six-year period beginning
three years before the date of the issue and ending
three years after that date, must not exceed $10
million. (The maximum face amount of bonds would not
be increased over present-law amounts.)
Issuance of qualified small-issue bonds, like most
other private activity bonds, is subject to annual
State volume limitations and to other rules.
Reasons
for Change
The Committee believes that $10 million total
capital expenditure limit has come to deny the
benefits of tax-exempt bonds to certain projects
that deserve them. At the same time, the Committee
maintains its position that the maximum size of the
tax-exempt bond issue for all eligible small-issue
bond projects should be retained.
Explanation
of Provision
The bill increases the maximum capital expenditure
limit under present law from $10 million to $20
million. The maximum amount of bonds is not be
increased over present-law amounts.
Effective
Date
The provision is effective for bonds issued after
December 31, 1997
.
11.
Extend production credit for electricity produced
from wind and "closed loop" biomass (sec.
771 of the bill and sec. 45 of the Code)
Present
Law
An income tax credit is allowed for the production
of electricity from either qualified wind energy or
qualified "closed-loop" biomass facilities
(sec. 45). The credit is equal to 1.5 cents (plus
adjustments for inflation since 1992) per kilowatt
hour of electricity produced from these qualified
sources during the 10-year period after the facility
is placed in service.
The credit applies to electricity produced by a
qualified wind energy facility placed in service
after
December 31, 1993
, and before
July 1, 1999
, and to electricity produced by a qualified
closed-loop biomass facility placed in service after
December 31, 1992
, and before
July 1, 1999
. Closed-loop biomass is the use of plant matter,
where the plants are grown for the sole purpose of
being used to generate electricity. It does not
apply to the use of waste materials (including, but
not limited to, scrap wood, manure, and municipal or
agricultural waste). It also does not apply to
taxpayers who use standing timber to produce
electricity. In order to claim the credit, a
taxpayer must own the facility and sell the
electricity produced by the facility to an unrelated
party.
The credit for electricity produced from wind or
closed-loop biomass is a component of the general
business credit (sec. 38(b)(1)). This credit, when
combined with all other components of the general
business credit, generally may not exceed for any
taxable year the excess of the taxpayer's net income
tax over the greater of (1) 25 percent of net
regular tax liability above $25,000 or (2) the
tentative minimum tax. An unused general business
credit generally may be carried back 3 taxable years
and carried forward 15 taxable years.
Reasons
for Change
The Committee believes that the production of
electricity from renewable sources should be
encouraged, and that by extending the
placed-in-service date, more entrepreneurs will have
the opportunity to develop these renewable energy
sources.
Explanation
of Provision
The bill extends the income tax credit for
electricity produced from wind and closed-loop
biomass for two years. Thus, the credit is available
for qualifying electricity produced from facilities
placed in service before
July 1, 2001
. As under present law, the credit is allowable for
a period of ten years after the facility is placed
in service.
Effective
Date
The provision is effective as of the date of
enactment.
12.
Suspension of net income property limitation for
production from marginal wells (sec. 772 of the bill
and sec. 613(a) of the Code)
Present
Law
The Code permits taxpayers to recover their
investments in oil and gas wells through depletion
deductions (sec. 613A). In the case of certain
properties, the deductions may be determined using
the percentage depletion method. Among the
limitations that apply in calculating percentage
depletion deductions is a restriction that the
amount deducted may not exceed 100 percent of the
net income from that property in any year (sec.
613(a)).
Specific percentage depletion rules apply to oil and
gas production from "marginal" properties.
Marginal production is defined as domestic crude oil
and natural gas production from stripper well
property or from property substantially all of the
production from which during the calendar year is
heavy oil. Stripper well property is property from
which the average daily production is 15 barrel
equivalents or less, determined by dividing the
average daily production of domestic crude oil and
domestic natural gas from producing wells on the
property for the calendar year by the number of
wells.
Reasons
for Change
The Committee believes that a suspension of the net
income property limitation for marginal oil and gas
production is appropriate if the price of oil falls
to unexpectedly low levels, to prevent such wells
from being plugged and potentially losing their
production in the long run.
Explanation
of Provision
The 100-percent-of-net-income property limitation
does not apply for any taxable year beginning in a
calendar year in which the annual average wellhead
price per barrel for crude oil (within the meaning
of section 29(d)(2)(C)) is below $14 per barrel.
Effective
Date
The provision is effective for taxable years
beginning after
December 31, 1997
.
13.
Purchasing of receivables by tax-exempt hospital
cooperative service organizations (sec. 773 of the
bill and sec. 501(e) of the Code)
Present
Law
Section 501(e) provides that an organization
organized on a cooperative basis by tax-exempt
hospitals will itself be tax-exempt if the
organization is operated solely to perform, on a
centralized basis, one or more of certain enumerated
services for its members. These services are: data
processing, purchasing (including the purchase of
insurance on a group basis), warehousing, billing
and collection , food, clinical, industrial
engineering, laboratory, printing, communications,
record center, and personnel services. An
organization does not qualify under section 501(e)
if it performs services other than the enumerated
services. (Treas. reg. sec. 1.501(e)(-1(c)).
Reasons
for Change
The Committee believes that it is important to
clarify that permissible billing and collection
services that can be carried out by hospital
cooperative services organizations under section
501(e) include the purchase of patron accounts
receivable on a recourse basis.
Explanation
of Provision
The bill clarifies that, for purposes of section
501(e), billing and collection services include the
purchase of patron accounts receivable on a recourse
basis. Thus, hospital cooperative service
organizations are permitted to advance cash on the
basis of member accounts receivable, provided that
each member hospital retains the risk of non-payment
with respect to its accounts receivable.
Effective
Date
The provision is effective for taxable years
beginning after
December 31, 1996
. No inference is intended with respect to taxable
years prior to the effective date.
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)
Present
Law
Generally, interest on bonds which are Federally
guaranteed do not qualify for tax-exemption for
Federal income tax purposes. Certain exceptions are
provided including otherwise qualifying bonds
guaranteed by the Federal Housing Administration,
the Veterans' Administration, the Federal National
Mortgage Association, the Federal Home Loan Mortgage
Corporation, and the Government National Mortgage
Association.
Reasons
for Change
The Committee believes that because of a unique set
of circumstances it is appropriate for the Federal
Home Loan Bank Board (FHLBB) to be given this
treatment. This should facilitate the FHLBB in
meeting its obligations under the Community
Redevelopment Act in a manner not unlike that
currently available to the Federal National Mortgage
Association and the Federal Home Loan Mortgage
Corporation.
Explanation
of Provision
Bonds guaranteed by the Federal Home Loan Bank Board
are not treated as Federally guaranteed for purposes
of the Federal guarantee prohibition generally
applicable to tax-exempt bonds.
Effective
Date
The provision is effective for bonds issued after
the date of enactment.
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)
Present
Law
A taxpayer is allowed, subject to limitations, to
deduct the ordinary and necessary e
| 
